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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-110138

         PROSPECTUS

LOGO

Seabulk International, Inc.

Offer to Exchange up to
$150,000,000 of 91/2% Senior Notes due 2013
For
$150,000,000 of 91/2% Senior Notes due 2013
that have been registered under the Securities Act of 1933

Terms of the Exchange Offer


Terms of the New 91/2% Senior Notes Offered in the Exchange Offer

Maturity

Interest


Redemption

Change of Control

Ranking

Guarantees


        Please read "Risk Factors" beginning on page 6 for a discussion of factors you should consider before participating in the exchange offer.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

        Each broker-dealer that receives new notes for its own account pursuant to this offering must acknowledge that it will deliver a prospectus in connection with any resale of such new notes received in the exchange. The letter of transmittal included in this prospectus states that by so 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. 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 new notes received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of up to 180 days after the consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution."

The date of this prospectus is November 13, 2003.


        This prospectus is part of a registration statement we filed with the Securities and Exchange Commission. In making your investment decision, you should rely only on the information contained in this prospectus and in the accompanying letter of transmittal. We have not authorized anyone to provide you with any other information. If you receive any unauthorized information, you must not rely on it. We are not making an offer to sell these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus, or the documents incorporated by reference into this prospectus, is accurate as of any date other than the date on the front cover of this prospectus or the date of such document, as the case may be.


TABLE OF CONTENTS

FORWARD-LOOKING INFORMATION   ii
WHERE YOU CAN FIND MORE INFORMATION   ii
PROSPECTUS SUMMARY   1
RISK FACTORS   6
SELECTED CONSOLIDATED FINANCIAL DATA   18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   20
BUSINESS   37
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   43
EXCHANGE OFFER   44
USE OF PROCEEDS   52
DESCRIPTION OF NEW NOTES   53
U.S. FEDERAL INCOME TAX CONSIDERATIONS   93
PLAN OF DISTRIBUTION   94
LEGAL MATTERS   95
EXPERTS   95
GLOSSARY   96
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   F-1
LETTER OF TRANSMITTAL   A-1

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FORWARD-LOOKING INFORMATION

        This prospectus contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are statements regarding our expected financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital and other expenditures, competitive position, growth opportunities for existing or new services, management plans and objectives, markets for securities and other matters. Some of the forward-looking statements can be identified by the use of words such as "believes," "belief," "expects," "plans," "anticipates," "intends," "projects," "estimates," "may," "might," "would," "could" or other similar words. All statements in this prospectus other than statements of historical fact or historical financial results are forward-looking statements.

        Like other businesses, we are subject to risks and other uncertainties that could cause our actual results to differ materially from any projections or that could cause other forward-looking statements to prove incorrect. Our forward-looking statements reflect our views and assumptions on the date of this prospectus regarding future events and operating performance. We believe that they are reasonable, but they involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements. Accordingly, you should not put undue reliance on any forward-looking statements. Factors that could cause our forward-looking statements to be incorrect and actual events or our actual results to differ from those that are anticipated are described in "Risk Factors" appearing elsewhere in this prospectus.

        All forward-looking statements in this prospectus are qualified by these cautionary statements and are only made as of the date of this prospectus. We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


WHERE YOU CAN FIND MORE INFORMATION

        We file annual, quarterly, and special reports, proxy statements, and other information with the SEC under the Exchange Act. You may read and copy any of the reports, statements, or other information that we have filed 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 filings with the SEC are also available to the public from commercial document retrieval services and at the SEC's web site at "http:/ /www.sec.gov."

        This prospectus incorporates business and financial information about us that is not included in or delivered with this prospectus. We incorporate by reference into this prospectus the documents listed below which we have previously filed with the SEC:

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        You may request a copy of any of these filings, at no cost, by writing or calling us at the following address or phone number:

        To obtain timely delivery, you should request this information no later than December 9, 2003, which is five business days before the expiration of the offer.

        The information incorporated by reference is an important part of this prospectus. The written information contained in this prospectus may update, modify or supersede information contained in our documents previously filed with the SEC that are incorporated by reference in this prospectus.

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PROSPECTUS SUMMARY

        The following summary contains information about us and the offering of the new notes. It does not contain all of the information that you should consider in making your investment decision. For a more complete understanding of us and this offering, you should read and consider carefully all of the information in this prospectus, particularly the information set forth under "Risk Factors" and the financial information appearing elsewhere in this prospectus. In addition, certain statements include forward-looking information which involves risks and uncertainties. Please read "Forward-Looking Statements." Except as otherwise indicated herein, or as the context may otherwise require, the words "we," "our" and "us" refer to Seabulk International, Inc. and its consolidated subsidiaries, and the words "restricted group" refer to Seabulk International, Inc. and its consolidated subsidiaries, excluding the Non-recourse Subsidiaries, as we have defined that term in this prospectus. References to the "notes" in this prospectus include both the outstanding notes and the new notes.

Our Company

        We are a leading provider of marine support and transportation services to the oil, natural gas and chemical industries. We have extensive operations in three lines of business: offshore energy support, marine transportation and marine towing. We operate over 150 vessels in diverse geographic markets, including the U.S. Gulf of Mexico, West Africa, Southeast Asia, and the Middle East. We believe our diverse business lines, the global markets in which we operate and the mobility of our offshore fleet reduce the impact of cyclical fluctuations in any particular line of business or geographic region.

        We are a publicly traded company with our common stock listed on the NASDAQ Stock Market under the symbol "SBLK."

        Our corporate offices are located at 2200 Eller Drive, Post Office Box 13038, Ft. Lauderdale, Florida 33316, Attention: Corporate Secretary (telephone: (954) 523-2200).

The Exchange Offer

        On August 5, 2003, we completed a private offering of the outstanding notes. As part of the private offering that closed on August 5, 2003, we entered into a registration rights agreement with the initial purchasers of the outstanding notes in which we agreed, among other things, to deliver this prospectus to you and to use our reasonable best efforts to complete the exchange offer within 210 days after the date we issued the outstanding notes. The following is a summary of the exchange offer.

Exchange Offer   We are offering to exchange new notes for outstanding notes.

Expiration Date

 

The exchange offer will expire at 5:00 p.m. New York City time, on December 16, 2003, unless we decide to extend it.

Condition to Exchange Offer

 

The registration rights agreement does not require us to accept outstanding notes for exchange if the exchange offer or the making of any exchange by a holder of the outstanding notes would violate any applicable law or interpretation of the staff of the SEC. A minimum aggregate principal amount of outstanding notes being tendered is not a condition to the exchange offer.
         

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Procedures for Tendering Outstanding Notes

 

To participate in the exchange offer, you must follow the procedures established by The Depository Trust Company, which we call "DTC," for tendering notes held in book-entry form. These procedures, which we call "ATOP," require that the exchange agent receive, prior to the expiration date of the exchange offer, a computer generated message known as an "agent's message" that is transmitted through DTC's automated tender offer program and that DTC confirm that:

 

 


 

DTC has received your instructions to exchange your notes, and

 

 


 

you agree to be bound by the terms of the letter of transmittal.

 

 

For more details, please read "Exchange Offer—Terms of the Exchange Offer" and "—Procedures for Tendering."

Guaranteed Delivery Procedures

 

None.

Withdrawal of Tenders

 

You may withdraw your tender of outstanding notes at any time prior to the expiration date. To withdraw, you must submit a notice of withdrawal to the exchange agent using ATOP procedures before 5:00 p.m. New York City time on the expiration date of the exchange offer. Please read "Exchange Offer—Withdrawal of Tenders."

Acceptance of Outstanding Notes and Delivery of New Notes

 

If you fulfill all conditions required for proper acceptance of outstanding notes, we will accept any and all outstanding notes that you properly tender in the exchange offer on or before 5:00 p.m. New York City time on the expiration date. We will return any outstanding notes that we do not accept for exchange to you without expense as promptly as practicable after the expiration date. We will deliver the new notes as promptly as practicable after the expiration date and acceptance of the outstanding notes for exchange. Please read "Exchange Offer—Terms of the Exchange Offer."

Fees and Expenses

 

We will bear all expenses related to the exchange offer. Please read "Exchange Offer—Fees and Expenses."

Use of Proceeds

 

The issuance of the new notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under our registration rights agreement.
         

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Consequences of Failure to Exchange Outstanding Notes

 

If you do not exchange your outstanding notes in this exchange offer, you will no longer be able to require us to register the outstanding notes under the Securities Act except in the limited circumstances provided under our registration rights agreement. In addition, you will not be able to resell, offer to resell or otherwise transfer the outstanding notes unless we have registered the outstanding notes under the Securities Act, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act.

U.S. Federal Income Tax Considerations

 

The exchange of new notes for outstanding notes in the exchange offer should not be a taxable event to you for U.S. federal income tax purposes. Please read "Federal Income Tax Consequences."

Exchange Agent

 

We have appointed Wachovia Bank, National Association as exchange agent for the exchange offer. You should direct questions and requests for assistance and requests for additional copies of this prospectus (including the letter of transmittal) to the exchange agent addressed as follows: Wachovia Bank, National Association, Corporate Actions-NC1153, 1525 West W.T. Harris Blvd., 3C3, Charlotte, North Carolina 28288-1153 (use 28262 as zip code for overnight deliveries), Attention: Tiffany Williams. Eligible institutions may make requests by facsimile at (704) 590-7628.

Terms of the New Notes

        The new notes will be identical to the outstanding notes except that the new notes are registered under the Securities Act and will not have restrictions on transfer, registration rights or provisions for additional interest and will contain different administrative terms. The new notes will evidence the same debt as the outstanding notes, and the same indenture will govern the new notes and the outstanding notes.

        The following summary contains basic information about the new notes and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the new notes, please read "Description of New Notes."

Issuer   Seabulk International, Inc.

Securities Offered

 

$150,000,000 in aggregate principal amount of 91/2% Senior Notes Due 2013.

Maturity Date

 

August 15, 2013.

Interest on New Notes

 

91/2% annually.

Interest Payment Dates

 

Interest will be payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2004.
         

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Subsidiary Guarantees

 

The new notes will be jointly and severally guaranteed on a senior unsecured basis by certain of our U.S. subsidiaries.

Ranking

 

The new notes are our senior unsecured obligations. Accordingly, the new notes and the related subsidiary guarantees will rank:

 

 


 

effectively junior in right of payment to all our and the guarantors' existing and future secured indebtedness;

 

 


 

equal in right of payment with any of our and the guarantors' existing and future senior unsecured indebtedness; and

 

 


 

senior in right of payment to any of our and the guarantors' future subordinated indebtedness.

 

 

In addition, the new notes will be effectively subordinated to the existing and future liabilities, including trade payables, of our non-guarantor subsidiaries.

Optional Redemption

 

At any time prior to August 15, 2008, we may redeem any of the notes at a make-whole redemption price equal to the principal amount plus the Applicable Premium, as defined in "Description of New Notes—Optional Redemption," plus accrued and unpaid interest to the date of redemption.

 

 

We may redeem any of the notes at any time on or after August 15, 2008, in whole or in part, in cash, at the redemption prices described in this prospectus, plus accrued and unpaid interest to the date of redemption.

 

 

In addition, at any time prior to August 15, 2006, we may redeem up to 35% of the aggregate principal amount of the notes issued under the indenture with the net proceeds of certain equity offerings at a redemption price equal to 109.50% of the principal amount of the notes plus accrued and unpaid interest to the date of redemption. We may make that redemption only if, after the redemption, at least 65% of the aggregate principal amount of notes issued under the indenture remains outstanding.

Change of Control

 

If we experience a Change of Control (as defined under "Description of New Notes—Repurchase at the Option of Holders"), we will be required to make an offer to repurchase the notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase.

Certain Covenants

 

The terms of the notes will limit our ability and the ability of our restricted subsidiaries to, among other things:

 

 


 

incur additional indebtedness or issue preferred stock;

 

 


 

pay dividends or make other distributions to our stockholders;
         

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purchase or redeem capital stock or subordinated indebtedness;

 

 


 

make investments;

 

 


 

create liens securing indebtedness;

 

 


 

incur restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;

 

 


 

sell assets;

 

 


 

consolidate or merge with or into other companies or transfer all or substantially all of our assets; and

 

 


 

engage in transactions with affiliates.

 

 

These limitations will be subject to a number of important qualifications and exceptions. See "Description of New Notes—Certain Covenants."

Transfer Restrictions; Absence of a Public Market for the Notes

 

The new notes generally will be freely transferable, but will also be new securities for which there will not initially be a market. There can be no assurance as to the development or liquidity of any market for the new notes.

Risk Factors

        Please read "Risk Factors" beginning on page 6 for a discussion of certain factors you should consider before participating in the exchange offer.

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RISK FACTORS

        In addition to the other information set forth elsewhere in this prospectus, the following factors relating to us, the exchange offer and the new notes should be considered carefully in deciding whether to participate in the exchange offer.

Risks Relating to Our Business

        The level of offshore oil and natural gas exploration, development and production activity has historically been volatile and is likely to continue to be so in the future. The level of activity is subject to large fluctuations in response to relatively minor changes in a variety of factors that are beyond our control, including:

        We expect levels of oil and natural gas exploration, development and production activity to continue to be volatile and affect the demand for and rates of our offshore energy support services and marine transportation services.

        A prolonged material downturn in oil and natural gas prices is likely to cause a substantial decline in expenditures for exploration, development and production activity. Lower levels of expenditure and activity would result in a decline in the demand and lower rates for our offshore energy support services and marine transportation services. Moreover, almost 25% of our offshore energy support services are currently conducted in the Gulf of Mexico and are therefore dependent on levels of activity in that region, which may differ from levels of activity in other regions of the world.

        Increases in oil and natural gas prices and higher levels of expenditure by oil and natural gas companies for exploration, development and production may not result in increased demand for our offshore energy support services and marine transportation services. For example, our offshore energy support segment is affected by the supply of and demand for offshore energy support vessels. During periods when supply exceeds demand, there is significant downward pressure on the rates we can obtain for our vessels. Because vessel operating costs cannot be significantly reduced, any reduction in rates adversely affects our results of operations. Currently, demand for our offshore energy support vessels in the Gulf of Mexico market is weak and offshore drilling activity has decreased in the Gulf of Mexico over the last two years. A significant increase in the capacity of the offshore energy support industry through new construction could not only potentially lower day rates, which would adversely

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affect our revenues and profitability, but could also worsen the impact of any downturn in oil and natural gas prices on our results of operations and financial condition. Similarly, should our competitors in the domestic petroleum and chemical product marine transportation industry construct a significant number of new tankers or large capacity integrated or articulated tug and barges, demand for our marine transportation tanker assets could be negatively impacted. Over the last year there have been no newly built tankers and four tug and barge tank vessels have been announced or delivered in the domestic industry.

        Oil and natural gas companies and drilling contractors have undergone substantial consolidation in the last few years and additional consolidation is likely. Consolidation results in fewer companies to charter or contract for our vessels. Also, merger activity among both major and independent oil and natural gas companies affects exploration, development and production activity as the consolidated companies integrate operations to increase efficiency and reduce costs. Less promising exploration and development projects of a combined company may be dropped or delayed. Such activity may result in an exploration and development budget for a combined company that is lower than the total budget of both companies before consolidation, adversely affecting demand for our offshore energy support vessels and reducing our revenues.

        Contracts for our vessels are generally awarded on a competitive basis, and competition in the offshore energy support segment is intense. The most important factors determining whether a contract will be awarded include:


        Many of our major competitors are much larger companies with substantially greater financial resources and substantially larger operating staffs than we have. They may be better able to compete in making vessels available more quickly and efficiently or in constructing new vessels, meeting customers scheduling needs and withstanding the effect of downturns in the market. As a result, we could lose customers and market share to these competitors.

        From time to time we consider possible acquisitions of vessels, vessel fleets and businesses that complement our existing operations. Consummation of such acquisitions is typically subject to the negotiation of definitive agreements. We can give no assurance that we will be able to identify desirable acquisition candidates or that we will be successful in entering into definitive agreements on terms we regard as favorable or satisfactory. Moreover, even if we do enter into a definitive acquisition

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agreement, the related acquisition may not thereafter be completed. We may be unable to integrate any particular acquisition into our operations successfully or realize the anticipated benefits of the acquisition. The process of integrating acquired operations into our own may result in unforeseen operating difficulties, may absorb significant management attention and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our existing operations. Future acquisitions could result in the incurrence of additional indebtedness and liabilities which could have a material adverse effect on our financial condition and results of operations.

        We operate vessels worldwide. Operations outside the United States involve additional risks, including the possibility of:

        Our ability to compete in the international offshore energy support market may be adversely affected by foreign government regulations that favor or require the awarding of contracts to local persons, or that require foreign persons to employ citizens of, or purchase supplies from, a particular jurisdiction. Further, our foreign subsidiaries may face governmentally imposed restrictions on their ability to transfer funds to their parent company.

        A reduction in domestic consumption of refined petroleum products, crude oil or chemical products may adversely affect revenue from our marine transportation segment and towing segment and therefore our financial condition and results of operation. Greater reliance on importation to the United States of foreign petroleum and chemical products may adversely affect revenue from our marine transportation business and therefore our financial condition and results of operations. Weather conditions also affect demand for our marine transportation services and towing services. For example, a mild winter may reduce demand for heating oil in our areas of operation. Moreover, alternative methods of delivery of refined petroleum or chemical products or crude oil may develop as a result of:

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        Long-haul transportation of refined petroleum products, crude oil and natural gas is generally less costly by pipeline than by tanker. Existing pipeline systems are either insufficient to meet demand in, or do not reach all of, the markets served by our marine transportation vessels. While we believe that high capital costs, tariff regulation and environmental considerations discourage building in the near future of new pipelines or pipeline systems capable of carrying significant amounts of refined petroleum products, crude oil or natural gas, new pipeline segments may be built or existing pipelines converted to carry such products. Such activity could have an adverse effect on our ability to compete in particular markets.

        The average age of our U.S. offshore energy support vessels, based on the later of the date of construction or rebuilding, is approximately 17 years, and approximately 50% of these vessels are more than 20 years old. We believe that after a vessel has been in service for approximately 30 years, repair, vessel certification and maintenance costs may not be economically justifiable. We may not be able to maintain our fleet by extending the economic life of existing vessels through major refurbishment or by acquiring new or used vessels. Some of our competitors have newer fleets and may be able to compete more effectively against us.

        Increasingly stringent federal, state, local and international laws and regulations governing worker safety and health and the manning, construction and operation of vessels significantly affect our operations. Many aspects of the marine industry are subject to extensive governmental regulation by the U.S. Coast Guard, Occupational Safety and Health Administration, the National Transportation Safety Board and the U.S. Customs Service and to regulation by port states and class society organizations such as the American Bureau of Shipping, as well as to international regulations from international treaties such as the Safety of Life at Sea Convention (SOLASC) administered by port states and class societies. The U.S. Coast Guard, Occupational Safety and Health Administration, and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards. The U.S. Customs Service is authorized to inspect vessels at will.

        Our business and operations are also subject to federal, state, local and international laws and regulations that control the discharge of oil and hazardous materials into the environment or otherwise relate to environmental protection and occupational safety and health. Compliance with such laws and regulations may require installation of costly equipment or operational changes, and the phase-out of certain product tankers. Failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Some environmental laws impose strict and, under certain circumstances, joint and several liability for remediation of spills and releases of oil and hazardous materials and damages to natural resources, which could subject us to liability without regard to whether we were negligent or at fault. These laws and regulations may expose us to liability for the conduct of or conditions caused by others, including charterers. Moreover, these laws and regulations could change in ways that substantially increase our costs. We cannot be certain that existing laws, regulations or standards, as currently interpreted or reinterpreted in the future, or future laws and regulations will not have a material adverse effect on our business, results of operations and financial condition. For more information, see "Business—Environmental and Other Regulations."

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        We are subject to the Merchant Marine Act of 1920, commonly referred to as the Jones Act. The Jones Act requires that vessels used to carry cargo between U.S. ports be constructed, owned and operated by U.S. citizens. To ensure that we are determined to be a U.S. citizen as defined under these laws, our articles of incorporation and by-laws contain certain restrictions on the ownership of our capital stock by persons who are not U.S. citizens and establish certain mechanisms to maintain compliance with these laws. If we are determined at any time not to be in compliance with these citizenship requirements, our vessels would become ineligible to engage in the U.S. coastwise trade, and our business and operating results would be adversely affected. We are subject to the rules and regulations of the U.S. Coast Guard mandated by the Maritime Security Act of 2002. These rules require individual vessel security plans and crew identification systems. Failure of our U.S. flag vessels to comply with these requirements could result in the suspension of their operating rights by the U.S. Coast Guard.

        A substantial portion of our operations is conducted in the U.S. coastwise trade. Under the Jones Act, this trade is restricted to vessels built in the United States, owned and manned by U.S. citizens and registered under U.S. law. There have been attempts to repeal or undermine the Jones Act, and these attempts are expected to continue in the future. Repeal or waiver of, or exemptions from, the Jones Act could result in additional competition from vessels built in lower-cost foreign shipyards and owned and manned by foreign nationals accepting lower wages and benefits than U.S. citizens, which could have a material adverse effect on our business, results of operation and our financial condition.

        The Oil Pollution Act of 1990, commonly referred to as OPA 90, establishes a phase-out schedule, depending upon vessel size and age, for single-hull vessels carrying crude oil and petroleum products in U.S. waters. The phase-out dates for our single-hull tankers are as follows: Seabulk Magnachem—2007, HMI Defender—2008, Seabulk Trader—2011, Seabulk Challenge—2011 and Seabulk America—2015. As a result of this requirement, these vessels will be prohibited from transporting crude oil and petroleum products in U.S. waters after their phase-out dates. They would also be prohibited from transporting crude oil and petroleum products in most foreign and international markets under a more accelerated IMO international phase-out schedule, were we to attempt to enter those markets.

        Our business is affected by a number of risks, including:

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        In addition, the operation of any vessel is subject to the inherent possibility of a catastrophic marine disaster, including oil, fuel or chemical spills and other environmental mishaps, as well as other liabilities arising from owning and operating vessels. Any such event may result in the loss of revenues and increased costs and other liabilities.

        OPA 90 imposes significant liability upon vessel owners, operators and certain charterers for certain oil pollution accidents in the United States. This has made liability insurance more expensive and has also prompted insurers to consider reducing available liability coverage. We may be unable to maintain or renew insurance coverage at levels and against risks we believe are customary in the industry at commercially reasonable rates, and existing or future coverage may not be adequate to cover claims as they arise. Because we maintain mutual insurance, we are subject to funding requirements and coverage shortfalls in the event claims exceed available funds and reinsurance, and to premium increases based on prior loss experience. Any shortfalls could have a material adverse impact on our financial condition.

        Our results of operations depend in part upon our business know-how. We believe that protection of our know-how depends in large part on our ability to attract and retain highly skilled and qualified personnel. Any inability we experience in the future to hire, train and retain a sufficient number of qualified employees could impair our ability to manage and maintain our business and to protect our know-how.

        We require skilled employees who can perform physically demanding work on board our vessels. As a result of the volatility of the oil and natural gas industry and the demanding nature of the work, potential employees may choose to pursue employment in fields that offer a more desirable work environment at wage rates that are competitive with ours. With a reduced pool of workers, it is possible that we will have to raise wage rates to attract workers from other fields and to retain our current employees. If we are not able to increase our service rates to our customers to compensate for wage-rate increases, our operating results may be adversely affected.

        Some of our employees are covered by provisions of the Jones Act, the Death on the High Seas Act and general maritime law. These laws typically operate to make liability limits established by state workers' compensation laws inapplicable to these employees and to permit these employees and their representatives to pursue actions against employers for job-related injuries in federal courts. Because we are not generally protected by the limits imposed by state workers' compensation statutes, we may have greater exposure for any claims made by these employees.

        We depend to a large extent on the business know-how, efforts and continued employment of our executive officers, directors and key management personnel. The loss of services of certain key members of our management could disrupt our operations and have a negative impact on our operating results.

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        Our borrowing agreements:


        These provisions could limit our future ability to continue to pursue actions or strategies that we believe would be beneficial to our company, our stockholders or the holders of the notes or may result in default of our borrowing agreements.

        Following our recapitalization in September 2002, a group of investors owns approximately 75% of our outstanding stock and can appoint a majority of our board of directors pursuant to a stockholders' agreement. Circumstances may occur in which the interests of these stockholders could be in conflict with the interests of the holders of the notes. For example, these stockholders may have an interest in pursuing acquisitions, divestitures, business combinations, capital projects or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to holders of the notes.

        Our primary P&I marine insurance club, Steamship Mutual, is a mutual association and relies on member premiums, investment reserves and income, and reinsurance to manage liability risks on behalf of its members. Recently investment losses, underwriting losses, and high costs of reinsurance have caused Steamship Mutual, and other international marine insurance clubs, to substantially raise the cost of premiums, resulting not only in higher premium costs but also much higher levels of deductibles and self-insurance retentions. Continued deterioration in this insurance market could lead to even higher levels of premiums, deductibles and self-insurance.

Risks Related to the Notes

        We will only issue new notes in exchange for outstanding notes that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely tender of the outstanding notes and you should carefully follow the instructions on how to tender your outstanding notes. Neither we nor the exchange agent is required to tell you of any defects or irregularities with respect to your tender of outstanding notes.

        If you do not exchange your outstanding notes for new notes pursuant to the exchange offer, the outstanding notes you hold will continue to be subject to the existing transfer restrictions. In general, you may not offer or sell the outstanding notes except under an exemption from, or in a transaction

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not subject to, the Securities Act and applicable state securities laws. We do not plan to register outstanding notes under the Securities Act unless our registration rights agreement with the initial purchasers of the outstanding notes requires us to do so. Further, if you continue to hold any outstanding notes after the exchange offer is consummated, you may have trouble selling them because there will be fewer such notes outstanding.

        We will continue to have substantial debt and substantial debt service requirements following the completion of the exchange offer.

        Our level of indebtedness may have important consequences for you, including:

        If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to refinance all or a portion of our existing debt, including the notes, or to obtain additional financing. We cannot assure you that any such refinancing would be possible or that any additional financing could be obtained. Our inability to obtain such refinancing or financing may have a material adverse effect on us.

        We derive a substantial portion of our revenue and cash flow from our subsidiaries. Not all of our subsidiaries will guarantee the notes. Creditors of such subsidiaries (including trade creditors) generally will be entitled to payment from the assets of those subsidiaries before those assets can be distributed to us. As a result, the notes will be effectively subordinated to the prior payment of all of the debts (including trade payables) of our non-guarantor subsidiaries.

        We cannot assure you that any of our subsidiaries who have any of their debt accelerated will be able to repay any such indebtedness. We also cannot assure you that our assets and our subsidiaries' assets will be sufficient to fully repay the notes and our other indebtedness.

13



        Although the agreements governing our credit facilities and the indenture governing the notes contain restrictions on the incurrence of additional indebtedness by us and our restricted subsidiaries, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. In addition to amounts that may be borrowed under our credit facilities, the indenture governing the notes also allows us and our restricted subsidiaries to borrow significant amounts of money from other sources and places no restrictions on borrowings by our unrestricted subsidiaries. Also, these restrictions do not prevent us from incurring obligations that do not constitute "indebtedness" as defined in the relevant agreement. If new debt is added to the current debt levels, the related risks that we now face could intensify.

        The indenture governing the notes contains numerous operating covenants, and our credit facility contains numerous operating covenants and requires us and our subsidiaries to meet certain financial ratios and tests. Our failure to comply with the obligations contained in the indenture, the credit facility or other instruments governing our indebtedness could result in an event of default under the applicable instrument, which could result in the related debt and the debt issued under other instruments becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which funds may not be available to us on favorable terms, on a timely basis or at all. Alternatively, such a default could require us to sell our assets and otherwise curtail operations in order to pay our creditors.

        Our ability to make scheduled payments of principal or interest with respect to our indebtedness, including the notes, will depend on our ability to generate cash and on our future financial results. Our ability to generate cash depends on the demand for our services, which is subject to levels of activity in offshore oil and gas exploration, development and production, general economic conditions, and financial, competitive, regulatory and other factors affecting our operations, many of which are beyond our control. We cannot assure you that our operations will generate sufficient cash flow or that future borrowings will be available to us under our credit facilities or otherwise in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs.

        Some, but not all of our subsidiaries guarantee the notes. You will not have any claim as a creditor against our subsidiaries that are not guarantors of the notes. Accordingly, all obligations of our non-guarantor subsidiaries will have to be satisfied before any of the assets of such subsidiaries would be available for distribution, upon a liquidation or otherwise, of us or a guarantor of the notes. As of June 30, 2003, our non-guarantor subsidiaries had approximately $39.4 million of total liabilities (including trade payables but excluding intercompany liabilities and guarantees and $214.9 million of net liabilities of our Non-recourse Subsidiaries). Revenue related to our non-guarantor subsidiaries constituted 57.2% of our operating revenue during 2002.

14


        The notes and the related subsidiary guarantees are not secured by any of our assets. As of June 30, 2003, on an as adjusted basis after giving effect to the offering and our use of proceeds therefrom, we and our subsidiary guarantors would have had $101.9 million of secured debt outstanding. In addition, the indenture governing the notes will permit the incurrence of additional debt, some of which may be secured debt. Holders of our secured debt will have claims that are effectively senior to your claims as holders of the notes to the extent of the value of the assets securing the secured debt. The notes are effectively subordinated to all secured debt to the extent of the value of the assets securing such debt.

        If we become insolvent or are liquidated, or if payment under any secured debt is accelerated, the lender thereunder would be entitled to exercise the remedies available to a secured lender. Accordingly, the lender will have priority over any claim for payment under the notes or the guarantees to the extent of the assets that constitute its collateral. If this were to occur, it is possible that there would be no assets remaining from which claims of the holders of the notes could be satisfied. Further, if any assets did remain after payment of these lenders, the remaining assets might be insufficient to satisfy the claims of the holders of the notes and holders of other unsecured debt that is deemed the same class as the notes, and potentially all other general creditors who would participate ratably with holders of the notes.

        Our credit facility and the indenture relating to the notes limit, among other things, our ability and the ability of our restricted subsidiaries to:

        If we fail to comply with these covenants, we would be in default under our credit facility and the indenture, and the principal and accrued interest on the notes and our other outstanding indebtedness may become due and payable. See "Description of New Notes—Certain Covenants." In addition, our credit facility contains, and our future indebtedness agreements may contain, additional affirmative and negative covenants, which are generally more restrictive than those contained in the indenture.

        As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be considered beneficial to us. Our credit facility also requires, and our future credit facilities may require, us to maintain specified financial ratios and satisfy certain financial condition tests. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those tests. The breach of any of these covenants could result in a default under our credit facility. Upon the occurrence of an event of default under our current or future credit facilities, the lenders could elect to

15



declare all amounts outstanding under such credit facilities, including accrued interest or other obligations, to be immediately due and payable. If amounts outstanding under such credit facilities were to be accelerated, there can be no assurance that our assets would be sufficient to repay in full that indebtedness and our other indebtedness, including the notes.

        Under the U.S. federal bankruptcy laws and comparable provisions of state fraudulent conveyance laws, a court could void obligations under the subsidiary guarantees, subordinate those obligations to other obligations of our subsidiary guarantors or require you to repay any payments made pursuant to the subsidiary guarantees, if:

        The measure of insolvency for these purposes will depend upon the law of the jurisdiction being applied. Generally, however, a company will be considered insolvent if:

Moreover, regardless of solvency, a court might void the guarantees, or subordinate the guarantees, if it determined that the transaction was made with intent to hinder, delay or defraud creditors.

        Each subsidiary guarantee contains a provision intended to limit the guarantor's liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer. This provision, however, may not be effective to protect the subsidiary guarantees from attack under fraudulent transfer law.

        The indenture requires that certain subsidiaries must guarantee the notes in the future. These considerations will also apply to these guarantees.

        Upon the occurrence of a change of control (as defined in the indenture), we will be required to offer to purchase all outstanding notes at 101% of their principal amount plus accrued and unpaid interest to the date of repurchase. Upon such a change of control, we may not have sufficient funds available to repurchase all of the notes tendered pursuant to this requirement. In addition, we are prohibited by our credit facility from repurchasing any of the notes unless the lenders thereunder consent. Our failure to repurchase the notes would be a default under the indenture, which would, in

16


turn, be a default under our credit facility and, potentially, other debt. If any debt were to be accelerated, we may be unable to repay these amounts and make the required repurchase of the notes. See "Description of New Notes—Repurchase at the Option of Holders."

        The notes will constitute a new class of securities for which there is no established trading market. We do not intend to list the notes on a stock exchange or seek their admission for trading in the National Association of Securities Dealers Automated Quotation System. Although an initial purchaser has advised us that it intends to make a market in the notes, it is not obligated to do so, and it may cease to do so at any time without notice. Accordingly, we cannot assure you that an active trading market for the notes will develop or, if a trading market develops, that it will continue. The lack of an active trading market for the notes would have a material adverse effect on the market price and liquidity of the notes. If a market for the notes develops, they may trade at a discount from par.

        You may not be able to sell your notes at a particular time or at a price favorable to you. Future trading prices of the notes will depend on many factors, including:

        Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in prices. The market for the notes, if any, may be subject to similar disruptions. A disruption may have a negative effect on you as a holder of the notes, regardless of our prospects or performance.

17




SELECTED CONSOLIDATED FINANCIAL DATA

        The selected consolidated financial data as of and for the periods ended on or prior to December 31, 2002 are derived from our consolidated financial statements which have been audited by our independent auditors. The selected financial data as of and for the six months ended June 30, 2002 and 2003, are derived from our unaudited consolidated financial statements. The results for the six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the full year.

        Upon emergence from our Chapter 11 proceeding on December 15, 1999, we adopted fresh start reporting under American Institute of Certified Public Accountant Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code. The principal differences between these periods relate to reporting changes relating to our capital structure, changes in our indebtedness, and the revaluation of our long-term assets to reflect reorganization value at the effective date of the reorganization. Thus, our consolidated balance sheets and statements of operations and cash flows after the effective date of our plan of reorganization reflect a new reporting entity and are not comparable to periods prior to the effective date.

        The selected consolidated financial data presented below should be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our most recent Annual Report on

18



Form 10-K and our most recent Quarterly Report on Form 10-Q, each of which is incorporated by reference in this prospectus.

 
  Predecessor Company
   
   
   
   
   
   
 
 
   
  Period from
January 1
to
December 15,
1999

   
   
   
   
  Six Months Ended
June 30,

 
 
   
  Period from
December 16 to
December 31,
1999

  Year Ended December 31,
 
 
  Year Ended
December 31,
1998

 
 
  2000
  2001
  2002
  2002
  2003
 
 
  (in thousands)

  (in thousands)

 
Statement of Operations Data:                                                  
Revenue   $ 404,793   $ 328,751   $ 13,479   $ 320,483   $ 346,730   $ 323,997   $ 164,838   $ 157,153  
Operating expenses     213,601     212,753     8,047     205,226     199,327     182,558     92,481     83,953  
Overhead expenses     43,179     47,814     1,643     39,630     37,002     38,657     18,658     18,758  
Depreciation, amortization and drydocking     64,244     79,410     2,069     50,271     59,913     66,376     33,191     32,417  
Write-down of assets held for sale                     1,400              
   
 
 
 
 
 
 
 
 
Income (loss) from operations     83,769     (11,226 )   1,720     25,356     49,088     36,406     20,508     22,025  
Interest expense     49,723     71,215     2,756     62,714     55,907     44,715     25,078     16,301  
Interest income     (8,485 )   (841 )   (68 )   (704 )   (240 )   (475 )   (137 )   (209 )
Minority interest in (gains) losses of subsidiaries     (5,848 )   (2,596 )   (408 )   1,639     35     219     (117 )   (227 )
Gain (loss) on disposal of assets         (25,658 )       3,863     (134 )   1,364     1,354     1,183  
Other income (expense)     156     (437,148 )   (189 )   7,072     (73 )   (154 )   (49 )   (65 )
   
 
 
 
 
 
 
 
 
Income (loss) before income taxes                                                  
and extraordinary item     36,839     (547,002 )   (1,565 )   (24,080 )   (6,751 )   (6,405 )   (3,245 )   6,824  
Provision for (benefit from) income taxes     13,489     (32,004 )       4,872     5,210     4,642     3,408     2,578  
   
 
 
 
 
 
 
 
 
Income (loss) before extraordinary item     23,350     (514,998 )   (1,565 )   (28,952 )   (11,961 )   (11,047 )   (6,653 )   4,246  
Extraordinary gain (loss) on extinguishment of debt(1)     (1,602 )   266,643                 (27,823 )        
   
 
 
 
 
 
 
 
 
Net income (loss)   $ 21,748   $ (248,355 ) $ (1,565 ) $ (28,952 ) $ (11,961 ) $ (38,870 ) $ (6,653 ) $ 4,246  
   
 
 
 
 
 
 
 
 
Net income (loss) per common share:                                                  
  Basic   $ 1.42   $ (16.02 ) $ (0.16 ) $ (2.89 ) $ (1.16 ) $ (2.72 ) $ (0.63 ) $ 0.18  
   
 
 
 
 
 
 
 
 
  Diluted   $ 1.35   $ (16.02 ) $ (0.16 ) $ (2.89 ) $ (1.16 ) $ (2.72 ) $ (0.63 ) $ 0.18  
   
 
 
 
 
 
 
 
 
Other Financial Data:                                                  
Ratio of earnings to fixed charges(2)     1.7x     (6.5) x   0.4x     0.6x     0.9x     0.9x     0.9x     1.4x  

Balance Sheet Data (at period end):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Total assets     1,355,267           830,740     775,476     744,765     703,095           708,843  
Long-term debt(3)     860,476           597,519     577,525     554,716     466,926           467,177  
Stockholders' equity     248,035           165,326     136,514     124,687     176,800           181,280  
Book value per share     16.09           16.53     13.49     11.87     7.65           7.77  
Cash dividends per share                                      

(1)
Reflects gain (loss) on the extinguishment of debt, net of applicable income taxes. Pursuant to Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 14, and Technical Corrections," the Company will be required to reclassify to continuing operations amounts previously reported as extinguishments of debt in applicable reporting periods subsequent to January 1, 2003.

(2)
For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before provision for income taxes and extraordinary items plus interest expense; and fixed charges consist of interest expense, amortization of debt issuance costs and a portion of operating lease rent expense deemed to be representative of interest.


For the periods in which the ratio of earnings to fixed charges indicates less than one-to-one coverage, the dollar amount of the deficiency was as follows:

Period

  Deficiency
(in thousands)

Year Ended December 31, 1998   $
Period from January 1 to December 15, 1999     547,002
Period from December 16 to December 31, 1999     1,565
Year Ended December 31, 2000     24,080
Year Ended December 31, 2001     6,751
Year Ended December 31, 2002     6,405
Six Months Ended June 30, 2002     3,245
Six Months Ended June 30, 2003    
(3)
Includes current maturities and capital lease obligations.

19



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This discussion and analysis of our financial condition and historical results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

        On December 15, 1999 (the Effective Date), we emerged from our Chapter 11 proceeding and adopted fresh start accounting. Thus our consolidated statements of operations and cash flows after the Effective Date reflect a new reporting company and are not comparable to periods prior to the Effective Date.

        For purposes of comparative analysis, the twelve months ended December 31, 1999 include the results of the Predecessor Company for the period from January 1, 1999 to December 15, 1999 and the Successor Company for the period from December 16, 1999 to December 31, 1999. The principal differences between these periods relate to reporting changes regarding our capital structure, changes in indebtedness, and the revaluation of our long-term assets to reflect the reorganization value at the Effective Date. These changes primarily affect depreciation and amortization expense and interest expense in our results of operations.

Critical Accounting Policies and Estimates

        The 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 financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, useful lives of vessels and equipment, deferred tax assets, and certain accrued liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

20


Revenue Overview

        We derive our revenue from three main lines of business—offshore energy support, marine transportation, and marine towing. Seabulk Offshore, our domestic and international offshore energy support business, accounted for approximately 49% and 53% of our revenue for the six months ended June 30, 2003 and 2002, respectively, and approximately 53% and 55% of our revenue in the years 2002 and 2001, respectively. Marine transportation, under the name Seabulk Tankers, consists of our Jones Act tanker business, in which we own nine vessels and lease one vessel under a bareboat charter, and accounted for approximately 39% and 37% of our revenue for the six months ended June 30, 2003 and 2002, respectively. Our inland tug and barge assets, previously a part of our marine transportation business, were sold in March 2002 and our shipyard assets were sold in July 2002. Our marine transportation business accounted for approximately 37% and 35% of our revenue in the years 2002 and 2001, respectively. Seabulk Towing, our domestic harbor and offshore towing business, accounted for approximately 12% and 10% of our revenue for the six months ended June 30, 2003 and 2002, respectively, and 10% for each of the years 2002 and 2001.

        Revenue from our offshore energy support operations is primarily a function of the size of our fleet, vessel day rates or charter rates, and fleet utilization. Rates and utilization are primarily a function of offshore exploration, development, and production activities, which are in turn heavily dependent upon the price of crude oil and natural gas. Further, in certain areas where we conduct offshore energy support operations (particularly the U.S. Gulf of Mexico), contracts for the utilization of offshore energy support vessels commonly include termination provisions with three- to five-day

21


notice requirements and no termination penalty. As a result, companies engaged in offshore energy support operations (including us) are particularly sensitive to changes in market demand.

        The following table represents revenue for the Seabulk Offshore by major operating area for the periods indicated (in thousands):

 
  Year Ended December 31,
  Six Months Ended June 30,
 
  2000
  2001
  2002
  2002
  2003
Domestic(1)   $ 54,491   $ 83,686   $ 47,490   $ 25,457   $ 19,164
West Africa     48,268     69,305     84,576     42,871     39,729
Middle East     34,242     22,450     23,683     11,839     10,833
Southeast Asia     14,394     15,737     15,730     7,205     7,342
   
 
 
 
 
  Total   $ 151,395   $ 191,178   $ 171,479   $ 87,372   $ 77,068
   
 
 
 
 

(1)
Domestic consists of vessels primarily operating in the United States, the Gulf of Mexico and Mexico.

        The following tables set forth, by primary area of operation, average day rates achieved by the offshore energy fleet owned or operated by us and average utilization for the periods indicated. Average day rates are calculated by dividing total revenue by the number of days worked. Utilization percentages are based upon the number of working days over a 365/366-day year and the number of vessels in the fleet on the last day of the period.

 
  AHTS/Supply
  AHT/Tugs
  Crew/Utility
  Other
  Total
 
  2000
  2001
  2002
  1st Half 2003
  2000
  2001
  2002
  1st Half 2003
  2000
  2001
  2002
  1st Half 2003
  2000
  2001
  2002
  1st Half 2003
  2000
  2001
  2002
  1st Half 2003
Domestic(1)                                                                                                                        
Vessels     26     26     21     21                     32     32     28     25     2     1     2     2     60     59     51     48
Bareboat-out                                     2                 1     1             3     1        
Laid-Up     2                                                 2     1     1     1     4     1     1     1
Effective Utilization     76%     76%     63%     61%                     83%     84%     65%     65%                     80%     80%     63%     63%
Fleet Utilization     67%     76%     63%     61%                     81%     84%     65%     65%                     72%     79%     62%     62%
Day Rate   $ 4,689   $ 7,261   $ 5,826   $ 5,081                   $ 2,111   $ 2,904   $ 2,473   $ 2,394                   $ 3,158   $ 4,791   $ 3,897   $ 3,584

West Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Vessels     26     27     30     32     4     4     4     4     6     6     6     1     1     1     1         37     38     41     37
Laid-Up     1                 2                 1                 1                 5            
Effective Utilization     85%     82%     82%     82%     63%     55%     85%     74%     65%     77%     79%                         81%     78%     82%     81%
Fleet Utilization     80%     82%     82%     82%     45%     55%     85%     74%     54%     77%     79%                         70%     78%     82%     81%
Day Rate   $ 5,679   $ 7,228   $ 7,635   $ 7,211   $ 4,938   $ 6,556   $ 6,332   $ 6,165   $ 2,773   $ 2,937   $ 2,874                       $ 5,286   $ 6,558   $ 6,910   $ 6,976

Middle East

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Vessels     12     6     6     6     16     8     7     6     19     8     7     7     8     5     5     6     55     27     25     25
Laid-Up     6                 5     1             8     1                 1     1     1     19     3     1     1
Effective Utilization     90%     84%     85%     90%     63%     48%     64%     52%     74%     78%     87%     91%     62%     69%     66%     41%     71%     69%     77%     70%
Fleet Utilization     48%     84%     85%     90%     48%     44%     64%     52%     42%     76%     87%     91%     62%     53%     50%     51%     48%     64%     74%     73%
Day Rate   $ 2,535   $ 2,983   $ 3,431   $ 3,339   $ 3,258   $ 4,384   $ 4,523   $ 4,879   $ 1,425   $ 1,585   $ 1,657   $ 1,680   $ 6,251   $ 4,565   $ 4,346   $ 4,735   $ 3,026   $ 2,971   $ 3,197   $ 3,165

Southeast Asia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Vessels     10     7     8     8     2                 5     6             2     2     2     1     19     15     10     9
Laid-Up     2                 1                                                 3            
Effective Utilization     75%     79%     64%     75%                     66%     62%             70%     64%     67%         70%     71%     64%     76%
Fleet Utilization     62%     79%     64%     75%                     66%     62%             61%     64%     67%         59%     71%     64%     76%
Day Rate   $ 4,461   $ 5,147   $ 5,987   $ 5,570                   $ 1,523   $ 1,583           $ 5,481   $ 7,626   $ 8,457       $ 3,723   $ 4,115   $ 6,505   $ 6,081

(1)
Domestic consists of vessels primarily operating in the United States, the Gulf of Mexico and Mexico.

22


        Domestic revenue for the six months ended June 30, 2003 was adversely affected by the continued slowdown in natural gas and crude oil drilling activity in the U.S. Gulf of Mexico. Despite relatively high natural gas prices and dwindling inventories, exploration and production companies in the U.S. Gulf of Mexico were unwilling to invest in new projects until there was clear evidence of the sustainability of commodity prices and an increase in energy demand. Although there is still uncertainty in the market, the rise in both crude oil and natural gas prices that began in the fourth quarter of 2002, the temporary shutoff of Iraqi and Venezuelan imports, dwindling inventories of both crude oil and natural gas as the winter of 2002/2003 turned out to be much colder than expected, and other factors, should eventually aid a recovery in the Gulf of Mexico offshore vessel market. In the meantime, we are exploring charter opportunities in Mexico, which remains an active market. On the other hand, some exploration and drilling companies have reduced expectations for energy prospects in the mature Gulf of Mexico market.

        International offshore revenues for the six months ended June 30, 2003 decreased slightly from the same period in the prior year. In West Africa, the demand for vessels, and hence utilization, remained strong as this is an oil-driven deepwater market with longer time horizons and increasing exploration and production budgets primarily from oil company majors. We redeployed one vessel and added one newbuild vessel to our West African operations during the eight months ended August 31, 2003. The unrest in Nigeria did not have a significant impact on our operations.

        International vessel demand is primarily driven by crude oil exploration and production. During the second quarter of 2003, crude oil prices and demand remained firm. We expect international exploration and production spending to continue to increase in West Africa, which should strengthen vessel demand in that area. Revenue decreased from the prior year for our Middle East operations as both vessel count and utilization decreased. In Southeast Asia, revenue increased over the year-earlier period due to an increase in utilization.

        Day rates currently available to our anchor handling tug supply vessels and supply boats average approximately $5,000 for Domestic, $7,300 for West Africa, $3,300 for the Middle East and $5,200 for Southeast Asia. We had two offshore vessels in "held-for-sale" status as of August 31, 2003.

        Revenue from our marine transportation services is derived from the operations of ten tankers carrying crude oil, petroleum products and chemical products in the U.S. Jones Act trade, including our five double-hull tankers owned and operated by our Non-recourse Subsidiaries.

        Petroleum Tankers.    Demand for our crude oil and petroleum product transportation services is dependent both on production and refining levels in the United States as well as on domestic consumer and commercial consumption of petroleum products and chemicals. We owned eight petroleum product tankers at June 30, 2003. Five of these are double-hull, state-of-the-art vessels, of which two have chemical-carrying capability. Since January 2002, a major oil company charterer has had exclusive possession and control of one of the petroleum product tankers and is responsible for all operating and drydocking expenses of the vessel. That bareboat charter is expected to be converted to a transportation contract during the fourth quarter of 2003 in which the operation of the vessel is returned to us, but the obligation to pay the financing and operating elements of the charter remains with the former bareboat charterer. In the third quarter of 2002, a vessel previously trading under a voyage charter entered into a three-year time charter with a major oil company, and two of our existing time charters were extended through July 10, 2010. Under a time charter, fuel and port charges are borne by the charterer and are therefore not reflected in the charter rates. Consequently, both the revenue and cost side of time charter vessels are reduced by the amount of the fuel and port charges. Our Jones Act fleet is benefiting from a tightening domestic tanker market, which should continue to be strong as OPA 90 forces out older, single-hull vessels. On the other hand, increased importation of

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foreign petroleum has acted to restrain charter rates fixed during the third quarter period. None of our single-hull vessels is scheduled for retirement under OPA 90 before 2007.

        Chemical Tankers.    Demand for our industrial chemical transportation services generally coincides with overall domestic economic activity. We operated two chemical tankers and one of the five double-hull vessels in the chemical trade as of June 30, 2003. The two chemical tankers are double-bottom ships. The higher day rate environment for petroleum product tankers is carrying over into the chemical tanker market as charterers look for quality tonnage to replace older single-hull vessels.

        Our tanker fleet operates on either long-term time charters, bareboat charters, or pursuant to contracts of affreightment. As of August 31, 2003, we have six tankers operating under long-term time charters, three on contracts of affreightment and one under a bareboat charter.

        The following table sets forth the number of vessels and revenue for our petroleum and chemical product carriers for the periods indicated:

 
  Year Ended December 31,
  Six Months Ended June 30,
 
  2000
  2001
  2002
  2002
  2003
Number of single-hull tankers owned at end of period     5 (1)   5     5     5     5
Revenue (in thousands)   $ 67,335 (2) $ 52,772   $ 56,202   $ 27,169   $ 31,204
Number of double-hull tankers owned at end of period(3)     5     5     5     5     5
Revenue (in thousands)   $ 59,335   $ 59,922   $ 61,284   $ 30,711   $ 30,723

(1)
During 2000, we scrapped one tanker that was at the end of its OPA 90-mandated useful life and terminated a charter-in contract for another tanker.

(2)
Includes revenue from chartered in vessels of $9.7 million in 2000.

(3)
Owned by our Non-recourse Subsidiaries.

        Inland Tugs and Barges.    On March 22, 2002, as part of our ongoing program to focus on our core businesses, we sold the fixed assets, consisting primarily of our inland tugs and barges, of our subsidiary, Sun State Marine Services for $3.9 million in cash. Revenue from all of Sun State's operations totaled $3.2 million for the three months ended March 31, 2002 and $3.9 million, $9.4 million and $9.3 million for the years ended December 31, 2002, 2001 and 2000, respectively. The increase in Sun State revenue was due to the completion of various large ship repair projects in the first quarter of 2002.

        On May 20, 2002, we sold the marine terminal facility assets at Port Arthur, Texas for $3.0 million. Fifty percent of the proceeds ($1.5 million) were received at closing in cash and the remainder will be deferred and received over the next three years in the form of either cash or shipyard repair credits from the buyer. The assets consisted of land, an office building, docks and parking and warehouse storage facilities with a carrying value of $1.3 million. As a result, we recognized a gain of $1.7 million. The proceeds from the sale of these assets were used to repay a portion of our term loans that existed prior to the refinancing in September 2002.

        Revenue derived from our tug operations is primarily a function of the number of tugs available to provide services, the rates charged for their services, the volume of vessel traffic requiring docking and other ship-assist services and competition. Vessel traffic, in turn, is largely a function of the general trade activity in the region served by the port.

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        The following table summarizes certain operating information for our tugs for the periods indicated:

 
  Year Ended December 31,
  Six Months Ended June 30,
 
 
  2000
  2001
  2002
  2002
  2003
 
Number of tugs owned at end of period     33     31     31     31     28 (1)
Towing Revenue (in thousands)   $ 33,106   $ 33,493   $ 31,147   $ 16,043   $ 18,301  

(1)
The fleet was reduced from 31 to 28 by the sale of one tug, the scrapping of another and the return of a third tug to its owner at the conclusion of a bareboat charter.

        Towing revenue increased 14.1% in the first half of 2003 compared to the same period in the prior year due to increased vessel traffic in certain of the ports we serve and other factors including higher rates.

        We have been the sole provider of docking services in Port Canaveral, the smallest of our harbor towing markets. As a result of a recent proceeding before the Federal Maritime Commission, we are expected to have a competitor in Port Canaveral. Port Canaveral Towing intends to continue its operations in Port Canaveral.

Overview of Operating Expenses and Capital Expenditures

        Our operating expenses are primarily a function of fleet size and utilization. The most significant expense categories are crew payroll and benefits, maintenance and repairs, fuel, insurance and charter hire. During periods of decreased demand for vessels, we temporarily cease using certain vessels, i.e., lay up vessels, to reduce expenses for marine operating supplies, crew payroll and maintenance. At August 31, 2003, two of our 118 offshore energy support vessels were laid-up. We also had two vessels that were held for sale.

        The crews of company-manned chemical and product tankers are paid on a time-for-time basis under which they receive paid leave in proportion to time served aboard a vessel. The crews of offshore energy support vessels and certain tugs and towboats are paid only for days worked.

        In addition to variable expenses associated with vessel operations, we incur fixed charges, which are capitalized and amortized for our vessels and other assets. We provide for depreciation on a straight-line basis over the estimated useful lives of the related assets. OPA 90 mandates the useful life of our product and chemical carriers, except for the five double-hull carriers.

        We overhaul main engines and key auxiliary equipment in accordance with a continuous planned maintenance program. Under applicable regulations, our chemical and product carriers and offshore service vessels and our four largest tugs are required to be drydocked twice in each five-year period for inspection and routine maintenance and repairs. These vessels are also required to undergo special surveys every five years involving comprehensive inspection and corrective measures to insure their structural integrity and the proper functioning of their cargo and ballast tank and piping systems, critical machinery and equipment, and coatings. Our harbor tugs generally are not required to be drydocked on a specific schedule. During the first half of 2003, we drydrocked 22 vessels at an aggregate cost, exclusive of lost revenue, of $7.1 million. During the years ended December 31, 2002, 2001 and 2000, we drydocked 54, 66 and 62 vessels, respectively, at an aggregate cost (exclusive of lost revenue) of $23.4 million, $29.4 million and $14.4 million, respectively. The increase in drydock expenditures is due mainly to tanker drydockings, which generally cost more than offshore vessels. We account for our drydocking costs under the deferral method, under which capitalized drydocking costs are expensed over the period preceding the next scheduled drydocking. See Note 2 to our consolidated financial statements.

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        We had capital expenditures, including drydocking costs, in the years ended December 31, 2002, 2001 and 2000 of $27.2 million, $38.7 million and $26.4 million, respectively, and $29.6 million for the first half of 2003, of which $21 million was for the purchase of the Seabulk Africa plus related improvements in January 2003, the Seabulk Ipanema in April 2003, as well as the down payment on the first Brazilian newbuild.

        The cost of fuel has a significant impact on our operating results. Its cost was relatively high in 2002.

        Insurance costs consist primarily of substantial deductibles, substantial self-retention layers, and premiums paid for:

        Insurance costs, particularly costs of marine insurance, are directly related to overall insurance market conditions and industry and individual loss records, which vary from year to year.

        The increase in P&I costs due to higher deductibles and higher self insured retention levels will likely cause an increase in P&I insurance expense in 2003 of between $1.5 million and $2.5 million. Premiums by both marine and non-marine insurers have been adversely impacted by the erosion of claims reserves (including our underwriters), claims underwriting losses and increased reinsurance costs, as well as our own loss experience. No assurance can be given that affordable and viable direct and reinsurance markets will be available to us in the future. We maintain high levels of self-insurance for P&I and hull and machinery risks through the use of substantial deductibles and self insured retentions which may increase in the future. We carry coverage related to loss of earnings on revenues subject to fourteen day deductibles, for our tanker operations, but not for our offshore and tug operations. Insurance costs represented approximately 6.2% of operating costs in 2002.

Results of Operations

        The following table sets forth certain selected financial data and percentages of revenue for the periods indicated:

 
  Year Ended December 31,
  Six Months Ended June 30,
 
 
  2000

  2001

  2002

  2002

  2003

 
 
  (Dollars in millions)

 
Revenues   $ 320.5   100 % $ 346.7   100 % $ 324.0   100 % $ 164.8   100 % $ 157.2   100 %
Operating expenses     205.2   64     199.3   57     182.6   56     92.5   56     84.0   53  
Overhead expenses     39.6   12     37.0   11     38.6   12     18.7   11     18.8   12  
Depreciation, amortization, drydocking and other     50.3   16     61.3   18     66.4   21     33.2   20     32.4   21  
Income (loss) from operations   $ 25.4   8 % $ 49.1   14 % $ 36.4   11 %   20.5   12 %   22.0   14 %
Interest expense, net   $ 62.0   19 % $ 55.7   16 % $ 44.2   14 %   24.9   15 %   16.1   10 %
Other income (expense), net   $ 12.6   4 % $ (0.2 ) 0 % $ 1.4   0 %   1.2   0.7 %   0.9   0.1 %
Net income (loss)   $ (29.0 ) (9 )% $ (12.0 ) (3 )% $ (38.9 ) (12 )%   (6.7 ) (4 )%   4.2   3 %

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        Revenue.    Revenue decreased 4.7% to $157.2 million for the six months ended June 30, 2003 from $164.8 million for the six months ended June 30, 2002.

        Offshore energy support revenue decreased 11.8% to $77.1 million for the six months ended June 30, 2003 from $87.4 million for the same period in 2002, primarily due to reduced revenue from the U.S. Gulf of Mexico. Revenue from the U.S. Gulf of Mexico decreased during the six months ended June 30, 2003 compared to the same period in 2002 primarily due to reduced exploration and production activity as oil companies were unwilling to invest in new projects until there was clear evidence of the sustainability of commodity prices and an increase in energy demand.

        Marine transportation revenue remains substantially the same at $61.9 million for the six months ended June 30, 2003 as compared to $61.6 million for the six months ended June 30, 2002.

        Towing revenue increased 14.1% to $18.3 million for the six months ended June 30, 2003 from $16.0 million for the six months ended June 30, 2002. The increase in revenue is due to increased vessel traffic in certain of the Company's ports, redeployment through the chartering out of certain vessels and other factors, including higher rates.

        Operating Expenses.    Operating expenses decreased 9.2% to $84.0 million for the six months ended June 30, 2003 from $92.5 million for the same period in 2002. The decrease is due to a variety of factors, including the elimination of operating expenses for our Sun State Marine Services subsidiary, which was discontinued in March 2002, a reduction in crewing payroll in the struggling U.S. Gulf of Mexico market, a decrease in repairs and maintenance for our tanker segment due to major repairs done in the first half of 2002, and a decrease in fuel and consumables in the West Africa operating region. As a percentage of revenue, operating expenses decreased to 53.4% for the six months ended June 30, 2003 from 56.1% for the 2002 period.

        Overhead Expenses.    Overhead expenses remain substantially the same at $18.8 million for the six months ended June 30, 2003 as compared to $18.7 million for the six months ended June 30, 2002.

        Depreciation, Amortization and Drydocking.    Depreciation, amortization and drydocking decreased 2.3% to $32.4 million for the six months ended June 30, 2003 from $33.2 million for the six months ended June 30, 2002 primarily due to a reduction in drydockings in the offshore energy segment as the Company has been selling its older and smaller vessels.

        Net Interest Expense.    Net interest expense decreased 35.5% to $16.1 million for the six months ended June 30, 2003 from $24.9 million for the same period in 2002. The decrease is primarily due to a lower debt balance and lower interest rates as a result of the recapitalization in September 2002.

        Other Income, Net.    Other income, net decreased to $0.9 million for the six months ended June 30, 2003 compared to $1.2 million for the same period in 2002, primarily due to a smaller gain on asset sales in 2003 compared to the same period in 2002.

        Revenue.    Revenue decreased 6.6% to $324.0 million for 2002 from $346.7 million for 2001 due to decreased revenue from our offshore energy support segment.

        Offshore energy support revenue decreased 10.3% to $171.5 million for 2002 from $191.2 million for the same period in 2001, primarily due to reduced revenue from the U.S. Gulf of Mexico. This was offset in part by higher revenue from the West Africa operating region. Revenue from the U.S. Gulf of Mexico decreased during 2002 compared to the same period in 2001 primarily due to reduced exploration and production activity in response to average natural gas prices, high inventories and reduced demand for energy. The increase in West Africa revenue was driven by higher day rates and

27



an expanded vessel count as offshore exploration and production activity remained strong. We took advantage of the expanding West Africa market by (1) mobilizing three of our Gulf of Mexico supply boats and one Southeast Asia utility boat for redeployment to West Africa and (2) reactivating one anchor-handling tug from "held-for-sale" status to active status in West Africa during the first half of 2002.

        Marine transportation revenue remained substantially the same at $121.4 million for 2002 as compared to $122.1 million for 2001. Tanker revenue increased by 4.3% as a result of improved rates for our three chemical carriers operating under contracts of affreightments, as well as better rates on long-term time charters. This was offset by a decrease in revenue for Sun State as a result of discontinuing operations in March 2002.

        Towing revenue decreased by 7.0% to $31.1 million for 2002 from $33.5 million for 2001. The decrease in revenue was due to reduced vessel traffic in certain of our ports, reflecting the slowdown in international trade, as well as reduced demand for towing services in the offshore market.

        Operating Expenses.    Operating expenses decreased 8.4% to $182.6 million from $199.3 million for 2001 primarily due to the change from voyage charters to time charters for two tankers, the bareboat charter of a third tanker, and the sale of Sun State's marine transportation assets in the first quarter. Since two tankers were changed from voyage charters to time charters in 2002, fuel and port charges significantly decreased as these expenses are the responsibility of the charterer under time charters. Under a bareboat contract, the charterer is responsible for crewing and operating the vessel. Operating expenses for 2001 were also adversely affected by a $4.1 million charge reflecting current and anticipated investment losses sustained by our protection and indemnity marine insurance club.

        Overhead Expenses. Overhead expenses increased 4.5% to $38.7 million in 2002 as compared to $37.0 million for the same period in 2001. The increase was primarily due to an increase in insurance expenses as a result of purchasing a $1.2 million D&O policy for the departing Board members due to the recapitalization in September 2002. Other overhead also increased due to higher bad debt reserve in our West African operations. As a percentage of revenue, overhead expenses increased to 11.9% for 2002 compared to 10.8% for the same period in 2001.

        Depreciation, Amortization, Drydocking and Other Expenses.    Depreciation, amortization, drydocking and other expenses increased 8.3% to $66.4 million for 2002 from $61.3 million for 2001, primarily due to higher planned drydocking expenditures for offshore energy support vessels and tankers during the second half of 2001 and in 2002. As a result, drydock amortization expense is also higher as drydock costs are amortized on a straight-line basis over the period to the next drydocking (generally 30 months).

        Net Interest Expense.    Net interest expense decreased 20.5% to $44.2 million for 2002 from $55.7 million for the same period in 2001. The decrease was primarily due to the combination of lower interest rates on variable rate debt and lower outstanding debt balances under our term loans and revolving credit facility. Interest expense also decreased as a result of the recapitalization in September 2002 (see Note 3 to our consolidated financial statements). The interest rate on our credit facility was substantially less than the rate on our prior senior notes, which were redeemed on October 15, 2002. In November 2002, the interest rate under our credit facility was increased by 100 basis points (1%) in accordance with the terms of the commitment letter with the lending banks to syndicate our credit facility by November 13, 2002.

        Other Income, Net.    Other income, net increased to $1.4 million in 2002 compared to other expense of ($0.2) million in 2001. This increase in other income was primarily due to a gain on asset sales in 2002 of $1.4 million.

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        Revenue.    Revenue increased 8.2% to $346.7 million for 2001 from $320.5 million for 2000 primarily due to increased revenue from our offshore energy support segment offset in part by decreased revenue from our marine transportation segment.

        Offshore energy support revenue increased 26.3% to $191.2 million for 2001 from $151.4 million for 2000 primarily due to the significant increases in day rates for both supply and crew boats in the Gulf of Mexico and West Africa operating regions offset in part by decreased revenue from the Middle East region. Additionally, we purchased two crewboats in December 2000 and May 2001 and placed those vessels into service in the Gulf of Mexico. During the first eight months of 2001, day rates and utilization for all vessels working in the Gulf of Mexico rose due to increased exploration and production activities. During the last four months of 2001, day rates and utilization for our Gulf of Mexico-based vessels decreased as drilling activity fell sharply on the heels of lower natural gas prices and reduced energy demand. Nevertheless, the strong first half of fiscal 2001 resulted in a significant increase in full-year revenue for the Gulf of Mexico operating region. In the West Africa operating region, average day rates rose across all vessel classes and utilization remained strong throughout 2001 as the market continued to expand in what is primarily an oil-driven, deepwater business. We mobilized two of our Gulf of Mexico-based supply boats for redeployment to West Africa during the first quarter of 2002. The decline in Middle East revenue in 2001 is attributable to fewer vessels (average of 72 vessels in 2000 compared to 30 vessels in 2001) as we sold a significant number of underperforming vessels that were working in the Middle East region in 2000 and 1999. The reduction in the number of vessels working in the Middle East is a direct result of the lack of profitability stemming from production cutbacks by the Organization of Petroleum Exporting Countries. During 2001, a total of 25 offshore energy support vessels were sold, most of which were based in the Middle East.

        Marine transportation services revenue decreased $13.9 million, or 10.2%, to $122.1 million for 2001 from $136.0 million for 2000. This decrease was primarily due to the mandated retirement of one of our Jones Act tankers in the third quarter of 2000 and the termination of our chartering-in of one tanker in the first quarter of 2000 through October 2000. Total 2000 revenue relating to the two additional tankers amounted to $14.5 million. The decrease from the two tankers was offset in part by increased transportation activity with tankers working under various voyage contracts.

        Towing revenue increased 1.2% to $33.5 million in 2001 from $33.1 in 2000 primarily due to increased port activity during the fourth quarter of 2001.

        Operating Expenses.    Operating expenses decreased 2.9% to $199.3 million from $205.2 million for 2000 primarily due to the lease termination and retirement of two tankers and the change of three tankers from spot trading to time charters in our marine transportation services operations. This decrease was offset in part by higher crew salaries and benefits and consumables and supplies expenses in offshore energy support operations. Total 2000 operating expenses (primarily charter hire, fuel and port charges) relating to the two tankers noted above amounted to $13.6 million. Since three tankers were changed from spot trading to time charters in 2001, fuel and port charges significantly decreased as these expenses are the responsibility of the charterer under time charters. Operating expenses for 2001 were also adversely affected by a $4.1 million charge reflecting current and anticipated investment losses sustained by our protection and indemnity marine insurance club. The increase in offshore crew salaries and benefits was primarily due to additional maritime staff resulting from (1) purchase of two crewboats in December 2000 and May 2001, (2) termination of a bareboat-out contract for two crewboats and (3) increased utilization of vessels in the Gulf of Mexico and West Africa. Under a bareboat contract, the charterer is responsible for crewing and operating the vessel. Additionally, expenses for consumables and supplies increased in the West Africa operating region due to increased operating activity.

29



        Overhead Expenses.    Overhead expenses decreased 6.6% to $37.0 million in 2001 from $39.6 million for 2000 primarily due to a decrease in professional fees and other overhead expenses offset in part by increases in salaries and benefits. Higher headcount and related salary expense for corporate activity resulted in savings on third-party consulting fees and services. The decrease in other overhead expenses is primarily due to lower charges for rent and other miscellaneous items as a result of the elimination of non-essential services and consolidation of administrative functions.

        Depreciation, Amortization, Drydocking and Other Expenses.    Depreciation, amortization, drydocking and other expenses increased 22.0% to $61.3 million in 2001 from $50.3 million in 2000 primarily due to higher planned drydocking expenditures for offshore energy support vessels and tankers and the write-down of the book value of vessels and equipment and deferred drydocking costs of Sun State Marine Services, Inc. Drydocking amortization expense increased 117.1% to $14.7 million in 2001 from $6.8 million in 2000. In response to increased activity in the offshore energy support segment in 2001, we increased the level of drydocking expenditures. Additionally, we had to drydock five tankers in 2001. Tanker drydocking expenditures are generally higher than expenditures for offshore vessels and tugs.

        During the fourth quarter of fiscal 2001, management decided to sell the fixed assets (mostly tug barges) of Sun State Marine Services, Inc. The sale of the tug and barge assets was consummated in March 2002. The shipyard assets were sold in July 2002. Upon reclassifying Sun State's assets to assets held for sale, management considered recent appraisals, offers and bids and its estimate of future cash flows related to the fixed assets. As a result, we recorded a write-down of $1.4 million.

        Income from Operations.    Income from operations increased 93.6% to $49.1 million in 2001 compared to $25.4 million in 2000 as a result of higher day rates in our offshore energy support business and lower operating and overhead expenses.

        Net Interest Expense.    Net interest expense decreased 10.2% to $55.7 million in 2001 from $62.0 million in 2000 primarily due to lower interest rates on variable rate debt and lower outstanding balances under our term loans and revolving credit facility. The Eurodollar Rate for the term loans and revolving line of credit decreased from 6.7% at December 31, 2000 to 1.9% at December 31, 2001. The decline in the Eurodollar Rate resulted from the series of interest rate cuts by the Federal Reserve and the general slowdown of the global economy during 2001. This decrease was offset in part by interest expense on additional borrowings in 2001 for the remaining 24.25% interest in the five double-hull tankers and the purchase of two crewboats (financed through borrowings under our revolving line of credit).

        Other Income (expense).    Other expense totaled $(0.2) million in 2001 compared to other income of $12.6 million in 2000. The decrease in other income was primarily due to a net loss of $(0.1) million on vessel sales in 2001 compared to a net gain of $3.9 million on vessel sales and a $7.0 million favorable settlement of a disputed liability in 2000.

        Net Loss.    Our net loss decreased 58.7% to $12.0 million in 2001 from $29.0 million for 2000 as a result of higher revenue and lower operating and interest expenses. The provision for income taxes increased from $4.8 million in 2000 to $5.2 million in 2001 primarily due to higher foreign revenue. As of December 31, 2001 and 2000, management believes that it was more likely than not that the deferred tax assets would not be realized. Therefore, a full valuation allowance was recorded reducing the net deferred tax assets to zero.

Seasonality

        We have experienced some slight seasonality in our operations. The first half of the year is generally not as strong on a seasonal basis as the second half due to lower activity in the offshore energy support segment and petroleum product transportation during the months of February, March and April.

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Liquidity and Capital Resources

        Net cash provided by operating activities totaled $33.5 million for the six months ended June 30, 2003 compared to $34.8 million for the same period in 2002. Net income improved by $10.9 million for the six months ended June 30, 2003 over the same period in 2002 as a result of the factors discussed above under "—Results of Operations—Six months ended June 30, 2003 compared with the six months ended June 30, 2002." This was partially offset by a decrease of $7.6 million between the six months ended June 30, 2002 and the same period in 2003 in trade accounts and other receivables. The collections from our protection and indemnity insurance club for settlement of outstanding insurance claims were higher in the first half of 2002 versus the 2003 period. Net cash provided by operating activities totaled $61.1 million for the year ended December 31, 2002 compared to $66.8 million for the same period in 2001. The decrease in cash provided by operating activities was the result of an increase in net loss before extraordinary item of $1.4 million from 2001 to 2002, as well as a reduction in accounts payable in 2002.

        Net cash used in investing activities was $21.8 million for the six months ended June 30, 2003 compared to $3.4 million for the same period in 2002. The increase in cash used in investing activities was due to the cash purchase of the Seabulk Africa in January 2003 and Seabulk Ipanema in April 2003, and the initial down payment on the first Brazilian newbuild in April 2003. Net cash used in investing activities was $14.5 million for the year ended December 31, 2002 compared to $31.8 million for the same period in 2001. The reduction of cash used in investing activities was due primarily to a larger amount of proceeds from asset sales. In particular, in March 2002, we closed on the sale of the towboat/barge assets of Sun State for $3.9 million in cash. In addition, there were higher planned drydock expenditures in 2001 as compared to 2002.

        Net cash provided by financing activities for the six months ended June 30, 2003 was $0.2 million compared to net cash used in financing activities of $28.3 million for the same period in 2002. The decrease in cash used in financing activities is attributable to larger payments in 2002 on the previous term loans and from the proceeds of the sale leaseback of the Seabulk Africa in April 2003. Net cash used in financing activities for the year ended December 31, 2002 was $21.0 million compared to $37.6 million for the same period in 2001. The decrease in cash used in financing activities was attributable to excess cash generated from the recapitalization and refinancing completed in September 2002.

        Our current and future capital needs relate primarily to debt service and maintenance and improvement of our fleet. Our expected 2003 capital requirements for debt service, vessel maintenance and fleet improvement total approximately $116 million. During the first six months of 2003, we incurred $29.6 million in capital expenditures for fleet improvements and drydocking costs of which approximately $21 million was for the purchase of the Seabulk Africa and the Seabulk Ipanema, as well as the down payment on the first Brazilian newbuild. For the remainder of 2003, maintenance capital expenditures are expected to aggregate approximately $22.7 million, and payments for the two Brazilian newbuilds and acquisition of a line handling vessel are expected to aggregate approximately $7.6 million. We received net proceeds of approximately $13.3 million from the sale-leaseback of the Seabulk Africa in April 2003. Total 2003 expenditures of approximately $60 million will substantially cover all of our drydocking requirements for 57 vessels during 2003.

        Excluding the five double-hull product and chemical tankers, our principal debt obligations for 2002 were $114.9 million (including debt retired as part of recapitalization) and cash interest obligations were $25.0 million. Excluding the five double-hull product and chemical tankers, our

31



principal debt obligations for 2003 are estimated to be approximately $19.2 million and cash interest obligations will be approximately $17.4 million.

        During 2002, we paid $4.4 million in principal and $15.1 million in interest on the five double-hull tankers. For 2003, an estimated $4.7 million of principal and $14.8 million in interest payments are due on the Title XI ship financing bonds associated with the five double-hull tankers.

        We are required to make deposits to a Title XI reserve fund based on a percentage of net income attributable to the operations of the five double-hull tankers, as defined by the Title XI bond reserve fund and financial agreement. Cash held in a Title XI reserve fund is invested by the trustee of the fund, and any income earned thereon is either paid to us or retained in the reserve fund. Withdrawals from the Title XI reserve fund may be made for limited purposes, subject to prior approval from MARAD. In the second quarter of 2003, the first deposits to the reserve fund were made, in the amount of $3.8 million. Additionally, according to the Title XI bond reserve fund and financial agreement, we are restricted from formally distributing excess cash from the operations of the five double-hull tankers until certain working capital ratios have been reached and maintained. Accordingly, at December 31, 2002, we had approximately $19.5 million in cash and cash equivalents that were restricted for use for the operations of the five double-hull tankers and could not be used to fund our general working capital requirements, of which $4.3 million was declared as a dividend in March 2003 by the Non-recourse Subsidiaries and was subsequently paid to Seabulk International, Inc. in May 2003.

        The following table summarizes our contractual obligations at December 31, 2002, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.

 
  Payments Due by Period
(in millions)

Contractual Obligations

  Total
  Less than
1 year

  1 - 3 years
  4 - 5 years
  Over 5 years
Long-term debt   $ 435.2   $ 24.3   $ 55.4   $ 154.9   $ 200.6
Capital lease obligations     43.1     5.1     9.8     7.9     20.3
Operating leases     18.6     3.7     7.0     4.5     3.4
   
 
 
 
 
Total contractual cash obligations   $ 496.9   $ 33.1   $ 72.2   $ 167.3   $ 224.3
   
 
 
 
 

        Long-term debt consisted of the following at June 30, 2003:

Facility

  2003
Payments

  Outstanding Balance
as of
June 30, 2003

  Maturity
  Interest Rate as of
August 1, 2003

 
  (Dollars in millions)

Bank Tranche A revolver   $ 5.0   $ 93.7   2007   5.61%
Bank Tranche B term loan   $ 0.0   $ 80.0   2007   6.11%
Title XI Financing Bonds   $ 3.7   $ 230.8   2005 to 2024   5.86% to 10.10%
Other notes payable   $ 3.3   $ 25.2   2003 to 2011   5.81% to 8.50%

        Credit Facility.    As of June 30, 2003, our credit facility consisted of $80.0 million in a term loan and a $100.0 million revolving credit facility. The proceeds from the credit facility were used to repay outstanding borrowings under our prior bank debt, to redeem our previously outstanding senior notes and to pay administrative and other fees and expenses. In addition to the term loan and the revolver balance, there were $1.3 million in outstanding letters of credit as of June 30, 2003. As a result, there

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was no unused portion of the revolver at June 30, 2003. Our credit facility was amended in connection with the closing of the offering for our outstanding notes.

        The amended credit facility consists of an $80 million revolving credit facility and has a five-year maturity. The amended credit facility is subject to semi-annual reductions commencing six months after closing. It is secured by first liens on certain of our vessels (excluding vessels financed with Title XI financing and some of our other vessels) and stock of certain of our subsidiaries and is guaranteed by certain of our subsidiaries. The amended credit facility is subject to various financial covenants, including minimum ratios of adjusted EBITDA to adjusted interest expense, a minimum ratio of adjusted funded debt to adjusted EBITDA and a minimum net worth covenant. The rate is either a LIBOR or base rate plus a margin based upon certain of our financial ratios.

        At June 30, 2003, we had working capital of approximately $39.9 million. Day rates and utilization for offshore vessels working in the Gulf of Mexico continued to be weak, a trend that began in September 2001. The slowdown in the domestic offshore market was offset in part by continued strength in our international offshore operations, where day rates remained strong during the year and contributed to increased revenue in West Africa and the Middle East, and in part by the improved performance of the marine transportation segment. The increased revenue in the offshore business in West Africa and the Middle East was driven by exploration and production spending as major oil companies continued to proceed with oil exploration and development programs outside the United States. Since the September 11, 2001 attacks, the subsequent war on terrorism and the war in Iraq, the U.S. economy continues to be subject to pressure. The timing of a recovery in the domestic offshore segment is still not certain. However, the increases in oil and natural gas prices during the fourth quarter of 2002 and the first half of 2003 reinforce the potential for an upturn in domestic exploration and development activity in the latter part of 2003. On the other hand, some exploration and drilling companies have reduced expectations for energy prospects in the mature Gulf of Mexico market. We do expect our earnings in 2003 from the offshore segment to improve somewhat compared to 2002. We also expect to benefit in 2003 from higher earnings in our marine transportation business as a result of a full year of higher time charter rates for certain tankers.

        We have taken new initiatives to improve profitability and liquidity in 2002 and 2003. The benefits of the stock issuance in September 2002 have been realized through interest savings of $10 to $12 million and an improved financial condition that should enable us to improve our ability to support future growth opportunities. During 2002 and the first six months of 2003, due to the expanding market in West Africa, we mobilized three of our Gulf of Mexico supply boats and one Southeast Asia utility boat for redeployment to West Africa. We also reactivated one anchor-handling tug from "held-for-sale" status and placed the boat into service in West Africa. At the end of December 2001, low-rate voyage charters for three of our tankers expired and were replaced by two time charters and a ten-year bareboat charter at substantially higher rates. In March 2002, we closed on the sale of the marine transportation assets of Sun State, our inland tug and barge subsidiary, for $3.9 million in cash; in May 2002, we closed on the sale of our Port Arthur facility for $3 million consisting of $1.5 million in cash and $1.5 million in future ship repair credits or cash; and in July 2002, we closed on the sale of the shipyard assets of Sun State for $450,000. The proceeds from the sale of Sun State's assets were used for working capital purposes as permitted by our loan covenants. The proceeds from the sale of our Port Arthur facility were used to pay down a term loan under a prior credit facility. In January 2003, we took delivery of the Seabulk Africa, a newbuild, state-of-the-art, 236-foot, 5500 horsepower UT-755L platform supply vessel. The vessel has joined our West African fleet. The Seabulk Africa was acquired for cash of approximately $16 million and was financed in April 2003 by means of

33


a sale leaseback arrangement with TransAmerica Capital for a lease term of 10 years, after which we will have an option to acquire the vessel.

        We also took delivery of two newbuild vessels as bareboat charterer in February and March 2003. The Seabulk Badamyar is a 3800-horsepower anchor handling tug/supply vessel and Seabulk Nilar is a 3800-horsepower platform supply vessel. We are bareboat chartering the vessels from the shipbuilder, the Labroy Group in Indonesia, for deployment under time charters with a major international oil company in the Southeast Asia market. The term of each bareboat charter is three years with an option to purchase at the end of the term.

        In March 2003, we formed a joint venture company in Nigeria, named Modant Seabulk Nigeria Limited, with CTC International, Inc., a company owned by Nigerian interests. We have a minority interest in the joint venture. In April 2003 we sold five of our crewboats operating in Nigeria to a related joint venture with CTC International for $2.0 million. Modant Seabulk Nigeria Limited operates the crewboats in Nigeria and we provide certain management and accounting services for the joint venture.

        In June 2003, we purchased a Brazilian-flag line handling vessel for operations in Brazil for $2.5 million. During the second quarter, we also executed, and made a down payment under, a vessel construction agreement, through our Brazilian subsidiary, with a Brazilian shipyard for the construction of a modern platform supply vessel for a purchase price of $16.7 million for offshore energy support operations in Brazil. In August 2003, we exercised an option to purchase a second identical vessel for $16.5 million. In anticipation of such operations, we have established a Brazilian subsidiary maritime company called Seabulk Offshore do Brazil S.A.

        In September 2003, we took delivery of a 10,850-horsepower anchor handling tug supply vessel, the Seabulk South Atlantic, as bareboat charterer under a five-year bareboat charter with a purchase option, for deployment in West Africa.

        In September 2003, we entered into a joint venture agreement and formed a joint venture company called Angobulk SARL with Angola Drilling Company. The venture was established to expand our offshore business in Angola. We intend to bareboat charter offshore vessels to the joint venture and provide certain ship management services.

        In October 2003, we bareboat chartered Seabulk Asia, a new 5500 horsepower UT-755L platform supply vessel similar to the Seabulk Africa. The charter term is five years with a purchase option. Seabulk Asia has joined our West African fleet.

        While we believe that these initiatives are sound and attainable, the possibility exists that unforeseen events or business or regulatory conditions, including deterioration in our markets, could prevent us from meeting targeted operating results. If unforeseen events or business or regulatory conditions prevent us from meeting targeted operating results, we will continue to pursue alternative plans including additional asset sales, additional reductions in operating expenses and deferral of capital expenditures, which should enable us to satisfy essential capital requirements. While we believe we could successfully complete alternative plans, if necessary, there can be no assurance that such alternatives would be available or that we would be successful in their implementation.

Effects of Inflation

        The rate of inflation has not had a material impact on our operations. Moreover, if inflation remains at its recent levels, we would not expect it to have a material impact on our operations in the foreseeable future.

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Prospective Accounting Changes

        In June 2001, the Accounting Executive Committee (the "Committee") of the American Institute of Certified Public Accountants issued an exposure draft of a proposed Statement of Position (SOP) entitled Accounting for Certain Costs and Activities Related to Property, Plant and Equipment. Under the proposed SOP, we would expense major maintenance costs as incurred and prohibit the use of the deferral of the entire cost of a planned major maintenance activity. Currently, the costs incurred to drydock our vessels are deferred and amortized on a straight-line basis over the period to the next drydocking, generally 30 to 36 months. At its September 9, 2003 meeting, AcSEC voted to approve the SOP. The SOP is expected to be presented for FASB clearance late in the fourth quarter of 2003 and would be applicable for fiscal years beginning after December 15, 2004. Management has determined that this SOP will have a material effect on the consolidated financial statements. In the year of adoption, we would write off the net book value of the deferred drydocking costs and record the write-off as a change in accounting principle ($23.2 million as of June 30, 2003). Additionally, all drydock expenditures incurred after the adoption of the SOP would be expensed as incurred.

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 14, and Technical Corrections, which eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect, and eliminates an inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Subsequent to the January 1, 2003 adoption date of the standard, we will be required to reclassify to continuing operations amounts previously reported as extinguishments of debt.

        In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses the financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 is effective for fiscal years beginning after December 31, 2002. The adoption of the standard is not expected to have a significant impact on us.

        In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 expands on the accounting guidance of Statements No. 5, 57, and 107 and incorporates without change the provisions of FASB Interpretation No. 34, which is being superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, it must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 is not expected to have a significant impact on us.

        On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure provisions of SFAS 123 to require expanded disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements.

        In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" (FIN 46). FIN 46 requires certain variable interest entities

35



to be consolidated by the primary beneficiary of the variable interest entity. The primary beneficiary is defined as the party which, as a result of holding its variable interest, absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company has not yet determined the impact that the adoption of FIN 46 will have on its financial position, results of operations or cash flows.

Quantitative and Qualitative
Disclosures About Market Risk

        We are exposed to market risk from changes in interest rates, which may adversely affect our results of operations and financial condition. Our policy is not to use financial instruments for trading or other speculative purposes and we are not a party to any leveraged financial instruments. Except as set forth below, we manage market risk by restricting the use of derivative financial instruments to infrequent purchases of forward contracts for the purchase of fuel oil for our carrier fleet. These contracts were terminated as of December 31, 2001. A discussion of our credit risk and the fair value of financial instruments is included in Notes 2 and 13 of our consolidated financial statements for the year ended December 31, 2002.

        On October 20, 2003, we entered into a ten year interest rate swap agreement with Fortis Bank and other members of our bank group. Through the swap agreement covering a notional amount of $150 million, we effectively converted the interest rate on our outstanding 9.5% notes due August 2013 to a floating rate based on LIBOR. The current effective floating interest rate is 6.05%. The swap agreement is expected to be secured by a second lien on the assets that secure our credit facility.

        The Jones Act restricts the U.S. coastwise trade to vessels owned, operated and crewed substantially by U.S. citizens. The Jones Act continues to be in effect and supported by Congress and the Bush Administration. However, it is possible that our advantage as a U.S. citizen operator of Jones Act vessels could be somewhat eroded over time as there continue to be periodic efforts and attempts by foreign interests to circumvent certain aspects of the Jones Act.

        We have exposure to short-term interest rates. Short-term variable rate debt is comprised primarily of the $80 million revolver under our amended and restated credit agreement and the $150 million senior notes (pursuant to the September 2003 swap agreement). Interest on the senior notes and revolver as of August 31, 2003 was 9.5% and 5.11%, respectively. A hypothetical 2.0% increase in the interest rates on the short-term variable rate debt would cause our interest expense to increase on average approximately $3.6 million per year over the term of the revolver and notes, with a corresponding decrease in income before taxes.

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BUSINESS

Overview

        We are a leader in each of our three main businesses—offshore energy support, marine transportation and marine towing. Our offshore energy support fleet, numbering 118 vessels, is one of the world's largest and provides services to operators of offshore oil and gas exploration, development and production facilities in the Gulf of Mexico, the Arabian Gulf, offshore West Africa, South America and Southeast Asia. Our marine transportation fleet, numbering ten tankers, carries petroleum products, crude oil and specialty chemicals in the U.S. domestic trade and includes five double-hull petroleum product and chemical carriers delivered in 1998 and 1999. Our towing fleet numbers 28 vessels and is one of the largest and most modern in the United States. We are the sole provider of commercial tug services at Port Canaveral, Florida; and a leading provider of those services in Port Everglades, Florida; Tampa, Florida; Mobile, Alabama; Lake Charles, Louisiana; and Port Arthur, Texas. We also provide offshore towing services primarily in the Gulf of Mexico.

Fleet Overview

        The following table lists the types of vessels we owned, operated, or chartered as of August 31, 2003:

 
  Vessels
in Fleet

Offshore Energy Support    
  Domestic Offshore Energy Support:    
    Anchor Handling Tug Supply/Supply Boats   21
    Crew/Utility Boats   24
    Geophysical Boats   2
   
      Total Domestic Offshore Energy Support   47
  International Offshore Energy Support:    
    Anchor Handling Tug Supply/Supply Boats   46
    Anchor Handling Tugs/Tugs   10
    Crew/Utility Boats   8
    Other   7
   
      Total International Offshore Energy Support   71
   
      Total Offshore Energy Support   118
Marine Transportation    
    Petroleum/Chemical Product Carriers   10
Marine Towing   28
   
        Total vessels   156
   

        The total vessels referred to above include 136 vessels that we own and operate; three vessels that we own but are operated by others; and 17 vessels owned by others but operated by us, under various chartering and operating arrangements.

        Since August 2003, we have taken delivery of the newbuilds Seabulk South Atlantic, an AHTS vessel, and Seabulk Asia, a platform supply vessel, and have deployed both in West Africa. We also purchased a small tender, which will provide support to one of the vessels operating offshore West Africa.

        In June 2003, we purchased a Brazilian-flag line handling vessel for operations in Brazil.

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        For financial information about our business segments and geographic areas of operation, see Note 12 to our consolidated financial statements.

Lines of Business

        The offshore energy support business accounted for approximately 53% of our total revenue in 2002 and approximately 49% of our total revenue in the first half of 2003. Offshore energy support vessels are used primarily to transport materials, supplies, equipment and personnel to drilling rigs and to support the construction, positioning and ongoing operation of oil and gas production platforms. These vessels are hired, or "chartered," by oil companies and others engaged in offshore exploration and production activities.

        The market for these services is fundamentally driven by the offshore exploration, development and production activities of oil and gas companies worldwide. The level of these activities depends primarily on the capital expenditures of oil and gas producers, which has traditionally been a function of current and anticipated oil and gas prices. Oil and gas prices are influenced by a variety of factors, including worldwide demand, production levels, inventory levels, governmental policies regarding exploration and development of reserves and political and economic factors in producing countries.

        Offshore energy support services are provided primarily by the following types of vessels:

        About 28% of our 2002 offshore revenue and approximately 25% of our offshore revenue for the first half of 2003 was derived from domestic operations under U.S.-flag vessel registration in the Gulf of Mexico, directed from offices in Lafayette, Louisiana. The balance was derived from international operations, including offshore West Africa, the Arabian Gulf and adjacent areas, and Southeast Asia. We also operate offshore energy support vessels in other regions, including Brazil. Operations in the

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Arabian Gulf, Southeast Asia and adjacent areas are directed from facilities in Dubai, United Arab Emirates; operations in offshore West Africa and certain other international areas are directed from facilities in Nyon, Switzerland; and operations in Mexico are directed from our Lafayette, Louisiana facilities. We also have sales offices and/or maintenance and other facilities in many of the countries where our vessels operate.

        The following table shows the deployment of our offshore energy support fleet at August 31, 2003.

Location

  Vessels
Domestic Offshore Energy Support    
  U.S. Gulf of Mexico   41
  Other   6
   
    47

International Offshore Energy Support

 

 
  West Africa   35
  Middle East   24
  Southeast Asia   10
  Other   2
   
    Total International Offshore Energy Support   71
   
      Total   118
   

        The average age of our U.S. offshore energy support vessels, based on the later of the date of construction or rebuilding, is approximately 17 years. Approximately 29% of our U.S. offshore fleet is 10 or less years old and approximately 50% is 20 or more years old. After a vessel has been in service for approximately 30 years, the costs of repair, vessel certification and maintenance may not be economically justifiable.

        We provide marine transportation services, principally for petroleum products and specialty chemicals, in the U.S. domestic or "coastwise" trade, a market largely insulated from direct international competition under the Jones Act. Marine transportation consists of our ten tankers, five of which are double-hulled. This business accounted for approximately 37% of our total revenue in 2002 and for approximately 39% of our total revenue for the first half of 2003.

        Petroleum Product Transportation.    In the domestic energy transportation trade, oceangoing and inland-waterway vessels transport fuel and other petroleum products, primarily from refineries and storage facilities along the coast of the U.S. Gulf of Mexico to utilities, waterfront industrial facilities and distribution facilities along the U.S. Gulf of Mexico, the Atlantic and Pacific coasts and inland rivers, as well as transportation of petroleum crude and product between Alaska, the West Coast and Hawaii. The number of U.S.-flag oceangoing vessels eligible to participate in the U.S. domestic trade and capable of transporting fuel or petroleum products has steadily decreased since 1980, as vessels have reached the end of their useful lives and the cost of constructing vessels in the United States (a requirement for U.S. domestic trade participation) has substantially increased. The decline in the number of available vessels has tightened the supply/demand balance and put upward pressure on freight rates, thereby benefiting us and our fleet of relatively young tankers.

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        At August 31, 2003 we operated the following petroleum product carriers:

Name of Vessel

  Capacity (in barrels)
  Tonnage in dwt
  OPA 90
retirement date

Seabulk Trader   360,000   49,900   2011
Seabulk Challenge   360,000   49,900   2011
S/R Bristol Bay (formerly known as Ambrose Channel)   341,000   45,000   none
Seabulk Arctic   340,000   46,000   none
Seabulk Mariner   340,000   46,000   none
Seabulk Pride   340,000   46,000   none
Defender   260,000   36,600   2008

        Since January 2002, the S/R Bristol Bay has been operated by a major oil company on a bareboat charter. It is expected to be converted into a transportation agreement during the fourth quarter of 2003.

        The S/R Bristol Bay, Seabulk Arctic, Seabulk Mariner and Seabulk Pride are four of our five double-hull carriers. These vessels are the newest and most technologically advanced product carriers in the Jones Act market. The fifth double-hull, Brenton Reef, is listed below under chemical tankers.

        We acquired the Defender in March 1998. Under OPA 90, this vessel cannot be used to transport petroleum and petroleum products in U.S. commerce after 2008. We acquired the Seabulk Challenge and Seabulk Trader in August 1996. Their OPA 90 retirement date is 2011. The four double-hulls have no retirement date under OPA 90.

        At August 31, 2003, six of our petroleum product carriers were operating under time charters and one under a bareboat charter.

        Chemical Transportation.    In the U.S. domestic chemical transportation trade, vessels carry chemicals, primarily from chemical manufacturing plants and storage tank facilities along the coast of the U.S. Gulf of Mexico to industrial users in and around Atlantic and Pacific coast ports. The chemicals transported consist primarily of caustic soda, alcohol, chlorinated solvents, paraxylene, alkylates, toluene, ethylene glycol, methyl tertiary butyl ether (MTBE) and lubricating oils. Some of the chemicals transported must be carried in vessels with specially coated or stainless steel cargo tanks; many of them are very sensitive to contamination and require special cargo-handling equipment.

        At August 31, 2003, we operated three vessels in the chemical trade:

Name of Vessel

  Capacity
(in barrels)

  Tonnage in dwt
  OPA 90
retirement date

Brenton Reef   341,000   45,000   none
Seabulk Magnachem   297,000   39,300   2007
Seabulk America   297,000   46,300   2015

        Delivered in 1999, the Brenton Reef is a double-hull carrier in which we have a 100% equity interest. We operate the Seabulk Magnachem under a bareboat charter expiring in February 2007, with a purchase option. We own a 67% equity interest in the Seabulk America; the remaining 33% interest is owned by Stolt Tankers (U.S.A.), Inc.

        The Seabulk Magnachem and Seabulk America have full double bottoms (as distinct from double-hulls). Double bottoms provide increased protection over single-hull vessels in the event of a grounding. Delivered in 1977, the Seabulk Magnachem is a CATUG (or catamaran tug) integrated tug and barge, or ITB, which has a higher level of dependability, propulsion efficiency and performance than an ordinary tug and barge. The Seabulk America's stainless steel tanks were constructed without

40



internal structure, which greatly reduces cargo residue from transportation and results in less cargo degradation. Stainless steel tanks, unlike epoxy-coated tanks, also do not require periodic sandblasting and recoating, which we deem to be a competitive advantage.

        All three chemical carriers have from 13 to 24 cargo segregations which are configured, strengthened and coated to handle various sized parcels of a wide variety of industrial chemical and petroleum products, giving them the ability to handle a broader range of chemicals than chemical-capable product carriers. Many of the chemicals we transport are hazardous substances. Current voyages are generally conducted from the Houston and Corpus Christi (Texas) and Lake Charles (Louisiana) areas to such ports as New York, Philadelphia, Baltimore, Wilmington (North Carolina) Charleston (South Carolina) Los Angeles, San Francisco and Kalama (Washington). Our chemical carriers are also suitable for transporting other cargoes, including grain.

        Pursuant to OPA 90, the Seabulk America and Seabulk Magnachem cannot be used to transport petroleum and petroleum products in U.S. commerce after 2015 and 2007, respectively. The Brenton Reef has no retirement date under OPA 90.

        We believe that the total capacity of these carriers represents a substantial portion of the capacity of the domestic specialty chemical carrier fleet. The two chemical carriers, Seabulk America and Seabulk Magnachem, can also be used as petroleum tankers. They are among the last independently owned carriers scheduled to be retired under OPA 90.

        For vessels not operating under time charters, we book cargoes either on a spot (movement-by-movement) or contract of affreightment basis. Approximately 75.0% of contracts for cargo are committed on a 12- to 30-month basis, with minimum and maximum cargo tonnage specified over the period at fixed or escalating rates per ton.

        Towing is the smallest of our three businesses, representing about 10% of our total revenue in 2002 and approximately 12% of our total revenue for the first half of 2003. Our harbor tugs serve seven ports in Florida, Alabama, Texas and Louisiana, where they assist petroleum product carriers, barges, container ships and other cargo vessels in docking and undocking and in proceeding within the port areas and harbors. We also operate four tugs with offshore towing capabilities that conduct a variety of offshore towing services in the Gulf of Mexico, Guayanilla, Puerto Rico and the Atlantic Ocean. Our tug fleet consists of 18 conventional tugs and 10 tractor tugs, including four Ship Docking Module™ tractor tugs, known as SDMs™. SDMs™ are innovative ship docking vessels, designed and patented by us, that are more maneuverable, efficient and flexible and require fewer crew members than conventional harbor tugs.

        In August 2002, we bareboat-chartered the tug Hollywood for a term of one year with four options to renew for a period of one year each to Signet for operations in the port of Brownsville, Texas. The name was subsequently changed to Signet Enterprise. In December 2002, we bareboat-chartered the tug Condor to Moran Towing for operations in New York harbor for a term of one year. The Signet Enterprise formerly operated in Tampa and the Condor formerly operated in Mobile.

        Harbor Tug Operations.    In most U.S. ports, competition is unregulated. However, a few ports grant non-exclusive franchises to harbor tug operators. These include Port Manatee (near Tampa), Florida, where we are currently the sole franchisee, and Port Everglades, Florida, where we are currently the leading provider of tug services and one of two franchise holders. Rates are unregulated in all ports that we serve, including the franchised ports. Generally, harbor tugs can be moved from port to port.

        Port Everglades.    Port Everglades is the second largest petroleum non-refining storage and distribution center in the United States, providing substantially all of the petroleum products for South

41



Florida. Between 1958, when our tug operations commenced, and December 2001, we operated the franchise as the sole provider of docking services in the port. In August 2001, a second franchise was issued by the port to a competitor, who commenced operations in the port in December 2001. Seabulk Towing's franchise was amended in January 2002 to require Seabulk Towing to maintain a minimum of three tractor tugs in the port, rather than five tugs as previously required. The franchise is not exclusive and expires in 2007. While we are regarded as a high-standards operator, there is no assurance the franchise will be renewed. As of August 31, 2003, we operated five tugs in Port Everglades.

        Tampa.    We expanded our harbor towing services to Tampa through the October 1997 acquisition of an established operator in the port. Because the port is comprised of three "sub-ports" (including Port Manatee) and a distant sea buoy, a greater number of tugs is required to be a competitive operator in Tampa than in other ports of similar size. On August 31, 2003, we operated five tugs, including two tractor tugs and one SDM™ in the port (including Port Manatee).

        Port Canaveral.    In Port Canaveral, we had been the sole franchise holder to provide harbor-docking services until May 2003 when the Canaveral Port Authority terminated its franchise system. We provide docking and undocking services for commercial cargo vessels serving central Florida and Navy vessels and, on a very limited basis, for cruise ships. We are currently the sole provider of tug services at the Port. We operate four tugs in Port Canaveral.

        Mobile.    At this port, we provide docking and undocking services primarily to commercial cargo vessels, including vessels transporting coal and other bulk exports. We currently operate three tugs at this port. There is a competing provider.

        Port Arthur and Lake Charles.    At these ports we operate seven tugs. Currently, four of these tugs serve Port Arthur, Texas; two serve Lake Charles, Louisiana, and one serves both harbors. Each of these ports has a competing provider of harbor tug services.

        Offshore Towing Operations.    We currently have two tugs working in the offshore towing market that conduct a variety of offshore towing services in the Gulf of Mexico and the Atlantic Ocean. Demand for towing services depends on vessel traffic and oilfield activity, which is in turn generally dependent on local, national and international economic conditions, including the volume of world trade.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        We are controlled by Nautilus GP, LLC, a general partnership comprised of unaffiliated U.S. citizen individuals and Credit Suisse First Boston Private Equity, Inc., and limited partnerships affiliated with Carlyle/Riverstone. Nautilus Acquisition, L.P. and the Carlyle/Riverstone limited partnerships own approximately 50% and 25%, respectively, of our common equity. Nautilus Acquisition, L.P. is controlled by Nautilus GP. The Carlyle/Riverstone limited partnerships, three of which are more than 75% owned by U.S. citizens, are controlled by C/R Marine GP Corp., owned by six individuals, all of whom are U.S. citizens. Nautilus Acquisition, L.P., acting though Nautilus GP, and the three U.S. owned Carlyle Riverstone partnerships, acting though Marine GP, have the power to elect six of our ten directors and thus, control the appointment of our management and other significant decisions. In addition, Nautilus GP and the Carlyle/Riverstone partnerships control mergers, sales of substantially all of our assets, and other extraordinary transactions. CSFB Private Equity is a wholly-owned subsidiary of Credit Suisse First Boston (USA), Inc., an affiliate of one of the initial purchasers, Credit Suisse First Boston LLC.

        Credit Suisse First Boston LLC (CSFB) acted as our financial advisor, an initial purchaser of the notes and joint-lead manager and sole lead book-running manager of the private offering of our outstanding notes that closed on August 5, 2003. CSFB received customary fees for these services. CSFB has advised us that, subject to applicable laws and regulations, CSFB currently intends to make a market in the new notes following the exchange offer. However, CSFB is under no obligation to do so, and any such market-making may be interrupted or discontinued at any time without notice.

        CSFB or its affiliates may in the future engage in investment banking and other services with us, for which CSFB or its affiliates will receive customary compensation. Affiliates of CSFB Private Equity may provide certain management services to us and, in return, receive compensation for these services.

        Seabulk International, Inc. provides management and technical services for the five double-hull tankers owned by our Non-recourse Subsidiaries. Fees are payable to us for such services by these subsidiaries under a Commercial Services Agreement and a Technical Services Agreement, approved by MARAD as part of the Title XI debt guaranteed by MARAD.

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EXCHANGE OFFER

Purpose and Effect of the Exchange Offer

        In connection with the issuance of the outstanding notes, we entered into a registration rights agreement. Under the registration rights agreement, we agreed to:


        We have fulfilled the agreements described in the first two of the preceding bullet points and are now offering eligible holders of the outstanding notes the opportunity to exchange their outstanding notes for new notes registered under the Securities Act. Holders are eligible if they are not prohibited by any law or policy of the SEC from participating in this exchange offer. The new notes will be substantially identical to the outstanding notes except that the new notes will not contain terms with respect to transfer restrictions, registration rights or additional interest.

        Under limited circumstances, we agreed to use our reasonable best efforts to cause the SEC to declare effective under the Securities Act a shelf registration statement for the resale of the outstanding notes. We also agreed to use our reasonable best efforts to keep the shelf registration statement effective for up to two years after its effective date. The circumstances include if:

        We will pay additional cash interest on the applicable outstanding notes, subject to certain exceptions:

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from and including the date on which any such registration default shall occur to but excluding the date on which all registration defaults have been cured.

        The rate of the additional interest will be 0.25% per annum for the first 90-day period immediately following the occurrence of a registration default, and such rate will increase by an additional 0.25% per annum with respect to each subsequent 90-day period until all registration defaults have been cured, up to a maximum additional interest rate of 1.0% per annum. We will pay such additional interest on regular interest payment dates. This additional interest will be in addition to any other interest payable from time to time with respect to the outstanding notes and the new notes.

        To exchange your outstanding notes for new notes in the exchange offer, you will be required to make the following representations:

        In addition, we may require you to provide information to be used in connection with the shelf registration statement to have your outstanding notes included in the shelf registration statement and benefit from the provisions regarding additional interest described in the preceding paragraphs. We may exclude you from such registration if you unreasonably fail to furnish the requested information to us within a reasonable time after receiving our request. A holder who sells outstanding notes under the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers. Such a holder will also be subject to the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement that are applicable to such a holder, including indemnification obligations.

        The description of the registration rights agreement contained in this section is a summary only. For more information, you should review the provisions of the registration rights agreement that we filed with the SEC as an exhibit to the registration statement of which this prospectus is a part.

Resale of New Notes

        Based on no action letters of the SEC staff issued to third parties, we believe that new notes may be offered for resale, resold and otherwise transferred by you without further compliance with the registration and prospectus delivery provisions of the Securities Act if:

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        The SEC, however, has not considered the exchange offer for the new notes in the context of a no action letter, and the SEC may not make a similar determination as in the no action letters issued to these third parties.

        If you tender your outstanding notes in the exchange offer with the intention of participating in any manner in a distribution of the new notes, you

        Unless an exemption from registration is otherwise available, any security holder intending to distribute new notes should be covered by an effective registration statement under the Securities Act. This registration statement should contain the selling security holder's information required by Item 507 of Regulation S-K under the Securities Act. This prospectus may be used for an offer to resell, resale or other retransfer of new notes only as specifically described in this prospectus. Only broker-dealers that acquired the outstanding notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives new notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge by way of the letter of transmittal that it will deliver a prospectus in connection with any resale of the new notes. Please read "Plan of Distribution" for more details regarding the transfer of new notes.

Terms of the Exchange Offer

        Subject to the terms and conditions described in this prospectus and in the letter of transmittal, we will accept for exchange any outstanding notes properly tendered and not withdrawn prior to 5:00 p.m. New York City time on the expiration date. We will issue new notes in principal amount equal to the principal amount of outstanding notes surrendered under the exchange offer. Outstanding notes may be tendered only for new notes and only in integral multiples of $1,000.

        The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered for exchange.

        As of the date of this prospectus, $150,000,000 in aggregate principal amount of the outstanding notes are outstanding. This prospectus is being sent to DTC, the sole registered holder of the outstanding notes, and to all persons that we can identify as beneficial owners of the outstanding notes. There will be no fixed record date for determining registered holders of outstanding notes entitled to participate in the exchange offer.

        We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC. Outstanding notes whose holders do not tender for exchange in the exchange offer will remain outstanding and continue to accrue interest. These outstanding notes will be entitled to the rights and benefits such holders have under the indenture relating to the notes and the registration rights agreement.

        We will be deemed to have accepted for exchange properly tendered outstanding notes when we have given oral or written notice of the acceptance to the exchange agent and complied with the applicable provisions of the registration rights agreement. The exchange agent will act as agent for the tendering holders for the purposes of receiving the new notes from us.

        If you tender outstanding notes in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes. We will pay all charges and expenses, other than certain applicable taxes

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described below, in connection with the exchange offer. It is important that you read "—Fees and Expenses" for more details regarding fees and expenses incurred in the exchange offer.

        We will return any outstanding notes that we do not accept for exchange for any reason without expense to their tendering holder as promptly as practicable after the expiration or termination of the exchange offer.

Expiration Date

        The exchange offer will expire at 5:00 p.m., New York City time on December 16, 2003, unless, in our sole discretion, we extend it.

Extensions, Delays in Acceptance, Termination or Amendment

        We expressly reserve the right, at any time or various times, to extend the period of time during which the exchange offer is open. We may delay acceptance of any outstanding notes by giving oral or written notice of such extension to their holders. During any such extension, all outstanding notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange.

        In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of outstanding notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.

        If any of the conditions described below under "—Conditions to the Exchange Offer" have not been satisfied, we reserve the right, in our sole discretion, up to the expiration of the exchange offer:

by giving oral or written notice of such delay, extension or termination to the exchange agent. Subject to the terms of the registration rights agreement, we also reserve the right to amend the terms of the exchange offer in any manner.

        Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of outstanding notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose such amendment by means of a prospectus supplement. The supplement will be distributed to the registered holders of the outstanding notes. Depending upon the significance of the amendment and the manner of disclosure to the registered holders, we will extend the exchange offer if the exchange offer would otherwise expire during such period.

Conditions to the Exchange Offer

        We will not be required to accept for exchange, or exchange any new notes for, any outstanding notes if the exchange offer, or the making of any exchange by a holder of outstanding notes, would violate applicable law or any applicable interpretation of the staff of the SEC. Similarly, we may terminate the exchange offer as provided in this prospectus before accepting outstanding notes for exchange in the event of such a potential violation.

        In addition, we will not be obligated to accept for exchange the outstanding notes of any holder that has not made to us the representations described under "—Purpose and Effect of the Exchange Offer," "—Procedures for Tendering" and "Plan of Distribution" and such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to allow us to use an appropriate form to register the new notes under the Securities Act.

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        We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any outstanding notes not previously accepted for exchange, upon the occurrence of any of the conditions to the exchange offer specified above. We will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the outstanding notes as promptly as practicable.

        These conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time or at various times in our sole discretion up to the expiration of the exchange offer. If we fail at any time to exercise any of these rights, this failure will not mean that we have waived our rights. Each such right will be deemed an ongoing right that we may assert at any time or at various times.

        In addition, we will not accept for exchange any outstanding notes tendered, and will not issue new notes in exchange for any such outstanding notes, if at such time any stop order has been threatened or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture relating to the notes under the Trust Indenture Act of 1939.

Procedures for Tendering

        In order to participate in the exchange offer, you must properly tender your outstanding notes to the exchange agent as described below. It is your responsibility to properly tender your notes. We have the right to waive any defects. However, we are not required to waive defects and are not required to notify you of defects in your tender.

        If you have any questions or need help in exchanging your notes, please call the exchange agent whose address and phone number are set forth in "Prospectus Summary—The Exchange Offer—Exchange Agent."

        All of the outstanding notes were issued in book-entry form, and all of the outstanding notes are currently represented by global certificates held for the account of DTC. We have confirmed with DTC that the outstanding notes may be tendered using the Automated Tender Offer Program ("ATOP") instituted by DTC. The exchange agent will establish an account with DTC for purposes of the exchange offer promptly after the commencement of the exchange offer and DTC participants may electronically transmit their acceptance of the exchange offer by causing DTC to transfer their outstanding notes to the exchange agent using the ATOP procedures. In connection with the transfer, DTC will send an "agent's message" to the exchange agent. The agent's message will state that DTC has received instructions from the participant to tender outstanding notes and that the participant agrees to be bound by the terms of the letter of transmittal.

        By using the ATOP procedures to exchange outstanding notes, you will not be required to deliver a letter of transmittal to the exchange agent. However, you will be bound by its terms just as if you had signed it.

        There is no procedure for guaranteed late delivery of the notes.

        We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered outstanding notes and withdrawal of tendered outstanding notes. Our determination will be final and binding. We reserve the absolute right to reject any outstanding notes not properly tendered or any outstanding notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defect, irregularity or condition of tender as to particular outstanding notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of outstanding notes must be

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cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of outstanding notes, neither the exchange agent, us nor any other person will incur any liability for failure to give such notification. Tenders of outstanding notes will not be deemed made until such defects or irregularities have been cured or waived. Any outstanding notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the tendering holder as soon as practicable following the expiration date.

        In all cases, we will issue new notes for outstanding notes that we have accepted for exchange under the exchange offer only after the exchange agent receives, prior to 5:00 p.m., New York City time, on the expiration date:


        If we do not accept any tendered outstanding notes for exchange or if outstanding notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged outstanding notes will be returned without expense to their tendering holder. Such non-exchanged outstanding notes will be credited to an account maintained with DTC. These actions will occur as promptly as practicable after the expiration or termination of the exchange offer.

        By agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

Withdrawal of Tenders

        Except as otherwise provided in this prospectus, you may withdraw your tender at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective you must comply with the appropriate procedures of DTC's ATOP system. Any notice of withdrawal must specify the name and number of the account at DTC to be credited with withdrawn outstanding notes and otherwise comply with the procedures of DTC.

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        We will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal. Our determination shall be final and binding on all parties. We will deem any outstanding notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer.

        Any outstanding notes that have been tendered for exchange but are not exchanged for any reason will be credited to an account maintained with DTC for the outstanding notes. This return or crediting will take place as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn outstanding notes by following the procedures described under "—Procedures for Tendering" above at any time prior to 5:00 p.m., New York City time, on the expiration date.

Fees and Expenses

        We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by telegraph, telephone or in person by our officers and regular employees and those of our affiliates.

        We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.

        We will pay the cash expenses to be incurred in connection with the exchange offer. They include:

Transfer Taxes

        We will pay all transfer taxes, if any, applicable to the exchange of outstanding notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if a transfer tax is imposed for any reason other than the exchange of outstanding notes under the exchange offer.

Consequences of Failure to Exchange

        If you do not exchange your outstanding notes for new notes under the exchange offer, you will remain subject to the existing restrictions on transfer of the outstanding notes. In general, you may not offer or sell the outstanding notes unless they are registered under the Securities Act, or if the offer or sale is exempt from the registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the outstanding notes under the Securities Act.

Accounting Treatment

        We will record the new notes in our accounting records at the same carrying value as the outstanding notes. This carrying value is the aggregate principal amount of the outstanding notes less any bond discount, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer.

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Other

        Participation in the exchange offer is voluntary, and you should carefully consider whether to participate. You are urged to consult your financial and tax advisors in making your own decision on what action to take.

        We may in the future seek to acquire untendered outstanding notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any outstanding notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered outstanding notes.

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USE OF PROCEEDS

        The exchange offer is intended to satisfy our obligations under our registration rights agreement. We will not receive any cash proceeds from the issuance of the new notes in the exchange offer. In consideration for issuing the new notes as contemplated by this prospectus, we will receive outstanding notes in a like principal amount. The form and terms of the new notes are identical in all respects to the form and terms of the outstanding notes, except the new notes do not include certain transfer restrictions, registration rights or provisions for additional interest and contain different administrative terms. Outstanding notes surrendered in exchange for the new notes will be retired and cancelled and will not be reissued. Accordingly, the issuance of the new notes will not result in any change in our outstanding indebtedness.

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DESCRIPTION OF NEW NOTES

        The Company will issue the new notes, and the outstanding notes were issued, under the Indenture (the "Indenture") among itself, the Guarantors and Wachovia Bank, National Association, as trustee (the "Trustee"). References to the "notes" in this "Description of New Notes" include both the outstanding notes and the new notes. The terms of the notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The notes are subject to all such terms, and you are referred to the Indenture and the Trust Indenture Act for a statement thereof. The aggregate principal amount of notes issuable under the Indenture is unlimited, although the initial issuance of new notes will be limited to $150.0 million. We may issue an unlimited principal amount of Additional Notes having identical terms and conditions as the outstanding notes and the new notes, subject to compliance with the covenant described below under "—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock." Any Additional Notes will be part of the same issue as the notes and will vote on all matters with the holders of such notes.

        The following description is a summary of the material provisions of the Indenture but does not restate the Indenture in its entirety. We urge you to read the Indenture because it, and not this description, defines your rights as holders of the notes. A copy of the Indenture is filed as an exhibit to the registration statement of which this prospectus forms a part. As used in this "Description of New Notes," the "Company" means Seabulk International, Inc., but not any of its subsidiaries. The definitions of certain capitalized terms used in this "Description of New Notes" are set forth below under "—Optional Redemption" and "—Certain Definitions." Certain defined terms used but not defined below have the meanings assigned to them in the Indenture.

        If the exchange offer contemplated by this prospectus (the "Exchange Offer") is consummated, holders of outstanding notes who do not exchange those notes for new notes in the Exchange Offer will vote together with holders of new notes for all relevant purposes under the Indenture. In that regard, the Indenture requires that certain actions by the holders thereunder (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 holders of the requisite percentage in principal amount have given any notice, consent or waiver or taken any other action permitted under the Indenture, any outstanding notes that remain outstanding after the Exchange Offer will be aggregated with the new notes, and the holders of such outstanding notes and the new notes will vote together as a single series for all such purposes. Accordingly, all references herein to specified percentages in aggregate principal amount of the notes outstanding shall be deemed to mean, at any time after the Exchange Offer is consummated, such percentages in aggregate principal amount of the outstanding notes and the new notes then outstanding.

Brief Description of the Notes and the Subsidiary Guarantees

        The notes:

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        The new notes will be issued, and the outstanding notes were issued, in denominations of $1,000 and integral multiples of $1,000, and are represented by one or more registered notes in global form, but in certain circumstances may be represented by notes in definitive form. Any outstanding notes that remain outstanding after the completion of the Exchange Offer, together with any new notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture.

        The Subsidiary Guarantees:

        Not all of our Subsidiaries guarantee the notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor Subsidiaries, the non-guarantor Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. The Guarantors generated approximately 27.8% and 0.1% of our consolidated revenue and income from operations, respectively, for the twelve months ended June 30, 2003 and held approximately 42.0% of our consolidated assets as of June 30, 2003. As of June 30, 2003, on an as adjusted basis after giving effect to the original issuance of the outstanding notes and our use of proceeds therefrom, the notes and the Subsidiary Guarantees would have ranked effectively junior in right of payment to $254.3 million of Indebtedness and other liabilities, including trade payables, of our non-guarantor Subsidiaries.

        Each of the Company's Subsidiaries other than the Non-Recourse Subsidiaries are Restricted Subsidiaries. Under certain circumstances, the Company will be able to designate additional current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants set forth in the Indenture.

        Interest on the new notes will:


Payments on the New Notes; Paying Agent and Registrar

        We will pay principal of, and interest and premium, if any, on the new notes at the office or agency designated by the Company in the Borough of Manhattan, The City of New York, except that we may, at our option, pay interest on the notes by check mailed to holders of the notes at their

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registered address as it appears in the Registrar's books. We have initially designated the corporate trust office or agency of the Trustee in New York, New York to act as our Paying Agent and Registrar. We may, however, change the Paying Agent or Registrar without prior notice to the holders of the notes, and the Company or any of its Restricted Subsidiaries may act as Paying Agent or Registrar.

        We will pay principal of, and interest and premium, if any, on each note in global form registered in the name of or held by The Depository Trust Company ("DTC") or its nominee in immediately available funds to DTC or its nominee, as the case may be, as the registered holder of such global note.

Transfer and Exchange

        A holder may transfer or exchange notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents. No service charge will be imposed by the Company, the Trustee or the Registrar for any registration of transfer or exchange of notes, but the Company may require a holder to pay a sum sufficient to cover any transfer tax or other governmental taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any note selected for redemption. Also, the Company is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.

        The registered holder of a note will be treated as the owner of it for all purposes, and all references to "holders" in this "Description of New Notes" are to registered holders unless otherwise indicated.

Principal, Maturity and Interest

        On August 5, 2003, the Company issued the outstanding notes with a maximum aggregate principal amount of $150.0 million. The Company may issue Additional Notes from time to time after this offering. Any offering of Additional Notes is subject to the covenant described below under "—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock." The notes initially issued and any Additional Notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. The Company will issue new notes and Additional Notes in denominations of $1,000 and integral multiples of $1,000. The notes mature on August 15, 2013.

        Interest on the new notes will accrue at the rate of 91/2% per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on February 15, 2004 in the case of notes initially issued. The Company will make each interest payment to the holders of record on the immediately preceding February 1 and August 1.

        Interest on the notes will accrue from the date of original issuance of the outstanding notes or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Methods of Receiving Payments on the Notes

        If a holder of at least $1.0 million principal amount of notes has given wire transfer instructions to the Company, the Company will pay all principal, interest and premium on that holder's notes in accordance with those instructions. All other payments on notes will be made at the corporate trust office or agency of the Trustee within the City and State of New York unless the Company elects to make interest payments by check mailed at their address set forth in the register of holders.

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Subsidiary Guarantees

        The Company's payment obligations under the new notes will be jointly and severally guaranteed (the "Subsidiary Guarantees") by all of the Company's present domestic and certain future Restricted Subsidiaries (the "Guarantors").

        The obligations of each Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors—Risks Related to the Notes—A court could subordinate or void the obligations under our subsidiaries' guarantees."

        Each Guarantor that makes a payment under its Subsidiary Guarantee will be entitled upon payment in full of all guaranteed obligations under the Indenture to a contribution from each other Guarantor in an amount equal to such other Guarantor's pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.

        In the circumstances described under "—Certain Covenants—Additional Subsidiary Guarantees," the Indenture will require certain of the Company's Restricted Subsidiaries to execute supplements to the Indenture providing for Subsidiary Guarantees. The obligations of each Guarantor under its Subsidiary Guarantee will be a general unsecured obligation of such Guarantor, ranking equally in right of payment with all other senior indebtedness of such Guarantor and senior in right of payment to any subordinated indebtedness of such Guarantor.

        No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person (other than the Company or another Guarantor), whether or not affiliated with such Guarantor, unless:

        In the event of a sale or other disposition (including by way of merger or consolidation) of all or substantially all of the assets or all of the Capital Stock of any Guarantor, then such Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee; provided, however, that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "—Certain Covenants—Limitation on Asset Sales." Upon Legal Defeasance or Covenant Defeasance, each Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee. In addition, in the event the Board of Directors designates a Guarantor to be an Unrestricted Subsidiary, then such Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee, provided that such designation is conducted in accordance with the applicable provisions of the Indenture.

Optional Redemption

        On and after August 15, 2008 the notes will be subject to redemption at any time at the option of the Company, in whole or in part, at the redemption prices (expressed as percentages of principal

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amount) set forth below, plus accrued and unpaid interest to the applicable redemption date, if redeemed during the 12-month period beginning on August 15 of the years indicated below:

Year

  Percentage
 
2008   104.750 %
2009   103.167 %
2010   101.583 %
2011 and thereafter   100.000 %

        On or prior to August 15, 2006, the Company may on one or more occasions redeem up to 35% of the aggregate principal amount of notes (including any Additional Notes) issued at a redemption price of 109.50% of the principal amount of the notes, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more Qualified Equity Offerings, provided that:

        Prior to August 15, 2008, the Company may at its option redeem, in whole or in part, the notes at a redemption price equal to 100% of the principal amount of the notes plus the Applicable Premium as of, and accrued and unpaid interest to the redemption date.

        "Applicable Premium" means, with respect to a note at any redemption date, the greater of (a) 1.00% of the principal amount of such note and (b) the excess of (A) the present value at such redemption date of (1) the redemption price of such Note on August 15, 2008 (such redemption price being described in the first paragraph of this "—Optional Redemption" section exclusive of any accrued and unpaid interest) plus (2) all required remaining scheduled interest payments due on such note through August 15, 2008 (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate, over (B) the principal amount of such note on such redemption date.

        "Adjusted Treasury Rate" means, with respect to any redemption date, (a) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after August 15, 2008, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (b) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date, in each case calculated on the third Business Day immediately preceding the redemption date, plus 0.50%.

        "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the notes from the redemption date to August 15, 2008, that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a maturity most nearly equal to August 15, 2008.

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        "Comparable Treasury Price" means, with respect to any redemption date, if clause (b) of the Adjusted Treasury Rate is applicable, the average of three, or such lesser number as is obtained by the Trustee, Reference Treasury Dealer Quotations for such redemption date.

        "Quotation Agent" means the Reference Treasury Dealer selected by the Trustee after consultation with the Company.

        "Reference Treasury Dealer" means Credit Suisse First Boston LLC and its successors and assigns, and two other nationally recognized investment banking firms selected by the Company that are primary U.S. Government securities dealers.

        "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day immediately preceding such redemption date.

        If the optional redemption date is on or after an interest payment record date and on or before the related interest payment date, the accrued and unpaid interest will be paid to the Person in whose name the note is registered at the close of business, on such record date, and no other interest will be payable to holders whose notes will be subject to redemption by the Company.

Selection and Notice

        If less than all of the notes are to be redeemed at any time, selection of notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any note is to be redeemed in part only, the notice of redemption that relates to such note shall state the portion of the principal amount to be redeemed. Another note in principal amount equal to the unredeemed portion will be issued in the name of the holder upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption.

Mandatory Redemption

        Except as set forth below under "—Repurchase at the Option of Holders," or "—Certain Covenants—Limitation on Asset Sales," the Company is not required to make mandatory redemption or sinking fund payments with respect to the notes or to repurchase the notes at the option of the holders.

Repurchase at the Option of Holders

        Upon the occurrence of a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each holder's notes at an offer price in cash equal to 101% of the aggregate principal amount, plus accrued and unpaid interest to the date of repurchase (the "Change of Control Payment"). Within 30 days following a Change of Control, the Company will mail a notice to each holder of notes and the Trustee describing the transaction that constitutes the Change of Control and offering to repurchase notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice.

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The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations described in the Indenture by virtue of the conflict.

        On or before the Change of Control Payment Date, the Company will, to the extent lawful:

        The Paying Agent will promptly mail to each holder of notes so tendered the Change of Control Payment for such notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder another note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided, however, that each such other note will be in a principal amount of $1,000 or an integral multiple of $1,000. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

        If the Change of Control Payment Date is on or after an interest payment record date and on or before the related interest payment date, any accrued and unpaid interest will be paid to the Person in whose name a note is registered at the close of business on such record date, and no other interest will be payable to holders who tender pursuant to the Change of Control Offer.

        Except as described above with respect to a Change of Control, the Indenture will not contain provisions that permit the holders of the notes to require that the Company repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. In addition, the Company could enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that could affect the Company's capital structure or the value of the notes, but that would not constitute a Change of Control. The occurrence of a Change of Control may result in a default under the Credit Facilities or other Indebtedness of the Company and its Subsidiaries and give the lenders thereunder the right to require the Company to repay all outstanding obligations thereunder. The Company's ability to repurchase notes following a Change of Control may also be limited by the Company's then existing financial resources.

        The Company will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all notes validly tendered and not withdrawn under such Change of Control Offer.

        The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving the Company by increasing the capital required to effectuate such transactions. The definition of "Change of Control" includes a disposition of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries (determined on a consolidated basis). Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve

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a disposition of "all or substantially all" of the properties or assets of a Person. As a result, it may be unclear as to whether a Change of Control has occurred and whether a holder of notes may require the Company to make an offer to repurchase the notes as described above.

        A "Change of Control" means any of the following:

provided, however, that, with respect to clause (3) above, a transaction in which the Company becomes a Subsidiary of another Person (other than a Person that is an individual) shall not constitute a Change of Control if:

        "Continuing Directors" means, as of any date of determination, any member of the Board of Directors who (a) was a member of the Board of Directors on the Initial Issuance Date or (b) was nominated for election to the Board of Directors with the approval of, or whose election to the Board of Directors was ratified by, (i) at least a majority of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election or (ii) any of the Permitted Holders.

        "Permitted Holders" means Nautilus Acquisition, L.P., DLJ Merchant Banking III, Inc., Credit Suisse First Boston Private Equity, Inc., C/R Marine Domestic Partnership, L.P., C/R Marine Non-U.S. Partnership, L.P., C/R Marine Coinvestment, L.P., C/R Marine Coinvestment II, L.P., Riverstone Holdings L.L.C., The Carlyle Group, their respective Affiliates, and any Persons advised, sponsored, managed or owned directly or indirectly by any of the foregoing Persons or their Affiliates.

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Certain Covenants

        The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

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        The preceding provisions of this covenant will not prohibit any of the following:

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        In addition to the Unrestricted Subsidiaries as of the Initial Issuance Date, the Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary after the Initial Issuance Date if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the Fair Market Value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

        The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any non-cash Restricted Payment shall be evidenced by an Officers' Certificate delivered to the Trustee. Not later than five business days following the date of making any Restricted Payment (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (7) and (8) of the second preceding paragraph), the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "—Certain Covenants—Limitation on Restricted Payments" were computed.

        The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur" or an "incurrence") any Indebtedness, the Company will not, and will not permit any Guarantor to, issue any Disqualified Stock and the Company will not permit any of its Restricted Subsidiaries that are not Guarantors to issue any shares of Preferred Stock; provided, however, that so long as no Default or Event of Default has occurred and is continuing the Company and any Guarantor may incur Indebtedness and issue Disqualified Stock, if the Consolidated Interest Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness or Disqualified Stock had been issued or incurred at the beginning of such four-quarter period.

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        The foregoing provisions will not apply to:

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        The Company will not, and will not permit any Guarantor to, directly or indirectly, incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company or of such Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the notes or the Subsidiary Guarantee of such Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated pursuant to subordination provisions that are most favorable to the holders of any other Indebtedness of the Company or of such Guarantor, as the case may be.

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        For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness incurred pursuant to and in compliance with, this covenant:

        Accrual of interest, accrual of dividends, the accretion of accreted value, the payment of interest in the form of additional Indebtedness and the payment of dividends in the form of additional shares of Preferred Stock or Disqualified Stock will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. The amount of any Indebtedness outstanding as of any date shall be (a) the accreted value thereof in the case of any Indebtedness issued with original issue discount and (b) the principal amount or liquidation preference thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.

        In addition, the Company will not permit any of its Unrestricted Subsidiaries to incur any Indebtedness (other than Non-Recourse Debt) or issue any shares of Disqualified Stock. If at any time an Unrestricted Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under this covenant, the Company shall be in Default of this covenant).

        For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-dominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-dominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies.

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        The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any property or asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens, to secure (a) any Indebtedness of the Company unless prior to, or contemporaneously therewith, the notes are equally and ratably secured, or (b) any Indebtedness of any Guarantor, unless prior to, or contemporaneously therewith, the Subsidiary Guarantee of such Guarantor is equally and ratably secured; provided, however, that if such Indebtedness is expressly subordinated to the notes or a Subsidiary Guarantee, the Lien securing such Indebtedness will be subordinated and junior to the Lien securing the notes or such Subsidiary Guarantee, as the case may be, with the same relative priority as such Indebtedness has with respect to the notes or such Subsidiary Guarantee.

        The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

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        The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale (excluding for this purpose an Asset Sale connected with a Total Loss) unless:

        Within 365 days after the receipt of any Net Proceeds from an Asset Sale (including, without limitation, an Asset Sale connected with a Total Loss), the Company or any such Restricted Subsidiary may apply such Net Proceeds to:

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Pending the final application of any such Net Proceeds, the Company or any such Restricted Subsidiary may temporarily reduce outstanding revolving credit borrowings, including borrowings under the Credit Facilities, or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds."

        On the 366th day after the Asset Sale (or, at the Company's option, such earlier date), if the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company will be required to make an offer (an "Asset Sale Offer") to all holders of notes and to the extent required by the terms of other Pari Passu Indebtedness, to all holders of other Pari Passu Indebtedness outstanding with similar provisions requiring the Company to make an offer to purchase such Pari Passu Indebtedness with the proceeds from any Asset Sale ("Pari Passu Notes"), to purchase the maximum principal amount of notes and any such Pari Passu Notes to which the Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount of the notes and Pari Passu Notes plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture or the agreements governing the Pari Passu Notes, as applicable, in each case in integral multiples of $1,000. To the extent that the aggregate principal amount of notes tendered pursuant to an Asset Sale Offer is less than the amount that the Company is required to repurchase, the Company may use any remaining Excess Proceeds for any purpose not prohibited by the Indenture. If the aggregate principal amount of notes surrendered by holders thereof and Pari Passu Notes surrendered by holders or lenders, collectively, exceeds the amount that the Company is required to repurchase, the notes and Pari Passu Notes shall be purchased pro rata on the basis of the aggregate principal amount of tendered notes and Pari Passu Notes. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero.

        If the Asset Sale purchase date is on or after an interest payment record date and on or before the related interest payment date, any accrued and unpaid interest will be paid to the Person in whose name a note is registered at the close of business on such record date, and no other interest will be payable to holders who tender notes pursuant to the Asset Sale Offer.

        The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to the Indenture. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of any conflict.

        The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person, unless:

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        For purposes of this covenant, the sale, assignment, transfer, lease, conveyance, or other disposition of all or substantially all of the properties or assets of one or more Subsidiaries of the Company, which properties or assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties or assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties or assets of the Company.

        Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve "all or substantially all" of the properties or assets of a Person.

        The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any properties or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:

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provided, however, that the following shall be deemed not to be Affiliate Transactions:

        The Indenture provides that:

then such newly acquired or created Restricted U.S. Subsidiary, in the case of clause (1) above, or such Restricted Subsidiary described in clause (2) above, in the case of clause (2) above, shall execute a supplement to the Indenture providing for a Subsidiary Guarantee and deliver an Opinion of Counsel in accordance with the terms of the Indenture.

        The Indenture provides that within 60 days of the Initial Issuance Date, the Company will cause its Restricted Subsidiary, Seabulk Towing, Inc. ("Towing") to either (1) remove or waive any restrictions imposed on Towing under the terms of any Indebtedness of Towing that would prevent Towing from becoming a Subsidiary Guarantor under the Indenture or (2) redeem or otherwise retire such Indebtedness. As soon as practicable following the earlier of the actions described in (1) or (2) but in any event on or prior to 60 days of the Initial Issuance Date, Towing will execute a supplement to the Indenture providing for a Subsidiary Guarantee and deliver an Opinion of Counsel in accordance with

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the Indenture. Towing redeemed such Indebtedness as of September 23, 2003 and executed such supplement to the Indenture and delivered such Opinion of Counsel as of October 3, 2003.

        Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the SEC (unless the SEC will not accept such a filing) within the time periods specified in the Exchange Act and, within 15 days of filing, or attempting to file, the same with the SEC, furnish to the Trustee and the holders of the notes:

In addition, the Company and the Guarantors will furnish to the holders of the notes, prospective purchasers of the notes and securities analysts, upon their request, the information, if any, required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

        The quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes to the financial statements and in Management's Discussion and Analysis of Results of Operations and Financial Condition, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of any Unrestricted Subsidiaries.

Events of Default and Remedies

        Each of the following constitutes an Event of Default:

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        If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the notes then outstanding may declare all the notes to be due and payable immediately. Notwithstanding the preceding, in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Significant Subsidiary, all notes then outstanding will become due and payable without further action or notice. The holders of a majority in principal amount of the notes then outstanding by written notice to the Trustee may on behalf of all of the holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except with respect to nonpayment of principal, interest or premium that have become due solely because of the acceleration) have been cured or waived. Holders of the notes may not enforce the Indenture or the notes except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, interest or premium) if it determines that withholding notice is in their interest.

        In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes.

        The holders of a majority in principal amount of the notes then outstanding by notice to the Trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default

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and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of or interest or premium on the notes.

        The Company will be required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company will be required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

        No director, officer, employee, incorporator, member, partner or stockholder or other owner of Capital Stock of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. Such waiver may not be effective to waive liabilities under the federal securities laws, and it is the view of the SEC that such a waiver is against public policy.

Legal Defeasance and Covenant Defeasance

        The Company may, at its option and at any time, elect to have all of the obligations of itself and the Guarantors discharged with respect to the notes then outstanding ("Legal Defeasance") except for:

In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance"), and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain other events (not including non-payment, bankruptcy, insolvency and reorganization events) described under "—Events of Default and Remedies" will no longer constitute an Event of Default with respect to the notes. If the Company exercises either its Legal Defeasance or Covenant Defeasance option, each Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee and any security for the notes (other than the trust) will be released.

        In order to exercise either Legal Defeasance or Covenant Defeasance,

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in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

Amendment and Waiver

        Except as provided below, the Indenture or the notes may be amended with the consent of the holders of at least a majority in principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the Indenture or the notes may be waived with the consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, tender offer or exchange offer for, notes). Without

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the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder):

        Notwithstanding the preceding, without the consent of any holder of notes, the Company, the Guarantors and the Trustee may amend the Indenture or the notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated notes in addition to or in place of certificated notes, to provide for the assumption of the Company's obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of the Company's properties or assets, to make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the Indenture of any such holder, to secure the notes pursuant to the requirements of the "Liens" covenant, to add any additional Guarantor or to release any Guarantor from its Subsidiary Guarantee, in each case as provided in the Indenture, or to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act.

        Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any notes for or as an inducement to any consent, waiver or amendment of any terms or provisions of the Indenture or the notes, unless such consideration is offered to be paid or agreed to be paid to all holders of the notes which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement.

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        The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. A consent to any amendment or waiver under the Indenture by any holder of notes given in connection with a purchase, tender or exchange of such holder's notes will not be rendered invalid by such purchase, tender or exchange.

Concerning the Trustee

        Wachovia Bank, National Association serves as Trustee under the Indenture.

        The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Trust Indenture Act) after a Default has occurred and is continuing, it must eliminate such conflict within 90 days or apply to the SEC for permission to continue or resign.

        The holders of a majority in principal amount of the notes then outstanding 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. If an Event of Default occurs (which is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of notes, unless such holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

Governing Law

        The Indenture, the notes and the Subsidiary Guarantees are governed by, and construed in accordance with, the laws of the State of New York.

Book-Entry Delivery and Form

        The certificates representing the new notes will be issued in fully registered form without interest coupons. New notes will initially be represented by one or more permanent global notes in definitive, fully registered form without interest coupons (collectively, the "Global Notes") and will be deposited with the Trustee as custodian for, and registered in the name of a nominee of, DTC.

        Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Ownership of beneficial interests in a Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Indirect access to the DTC system is available to organizations such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants").

        So long as DTC, or its nominee, is the registered owner or holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by such Global Note for all purposes under the Indenture and the notes. No beneficial owner of an interest in a Global Note will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture and any other applicable procedures.

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        All payments on a Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither the Company, the Guarantors, the Trustee nor any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

        The Company expects that DTC or its nominee, upon receipt of any payment in respect of a Global Note, will credit participants' accounts on the applicable payment date with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of DTC. The Company also expects that payments by participants to owners of beneficial interests in a Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of the participants.

        Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds.

        The Company expects that DTC will take any action permitted to be taken by a holder of notes (including the presentation of notes for exchange as described below) only at the direction of one or more participants to whose account with DTC interests in a Global Note are credited and only in respect of such portion of the aggregate principal amount of notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the applicable Global Note for notes in certificated form ("Certificated Notes"), which it will distribute to its participants.

        The Company understands that DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates.

        Although DTC is expected to follow the foregoing procedures described in this section of the prospectus to facilitate transfers of interests in a Global Note among its participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company, the Guarantors, the Trustee nor any Paying Agent will have any responsibility for the performance by DTC or its participants or indirect participants of its obligations under the rules and procedures governing its operations.

        A Global Note is exchangeable for Certificated Notes if:

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        In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of DTC (in accordance with its customary procedures).

Certain Definitions

        Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used in this description for which no definition is provided.

        "Additional Notes" means 91/2% Senior Notes due 2013 of the Company issued under the Indenture after the Initial Issuance Date and having identical terms (except as to the initial interest payment date) to the outstanding notes or the new notes issued in exchange for the outstanding notes.

        "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

        "Asset Sale" means

whether, in the case of clause (1) or (2), in a single transaction or a series of related transactions, provided that such transaction or series of transactions involves properties or assets having a Fair Market Value in excess of $2.5 million. Notwithstanding the preceding, the following transactions will be deemed not to be Asset Sales:

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        The Fair Market Value of any non-cash proceeds of a disposition of properties or assets and of any properties or assets referred to in the foregoing clause (g) of this definition shall be set forth in an Officers' Certificate delivered to the Trustee.

        "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). As used in the preceding sentence, the "net rental payments" under any lease for any such period shall mean the sum of rental and other payments required to be paid with respect to such period by the lessee thereunder, excluding any amounts required to be paid by such lessee on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. In the case of any lease that is terminable by the lessee upon payment of penalty, such net rental payment shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated.

        "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof.

        "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP.

        "Capital Stock" means

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        "Cash Equivalents" means

        "Common Stock" means the Common Stock of the Company, par value $.01 per share.

        "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, to the extent deducted or excluded in calculating Consolidated Net Income for such period,

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in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the preceding sentence, amounts described in clauses (1)—(6) relating to a Restricted Subsidiary of a Person will be added to Consolidated Net Income to compute Consolidated Cash Flow of such Person only to the extent (and in the same proportion) that such amounts could, at the date of calculation, be dividend or distributed, directly or indirectly, to the Company or a Guarantor.

        "Consolidated Income Taxes" means, with respect to any Person for any period, taxes imposed upon such Person or other payments required to be made by such Person by any governmental authority which taxes or other payments are calculated by reference to the income or profits of such Person or such Person and its Restricted Subsidiaries (to the extent such income or profits were included in computing Consolidated Net Income for such period), regardless of whether such taxes or payments are required to be remitted to any governmental authority.

        "Consolidated Interest Coverage Ratio" means with respect to any Person for any four fiscal quarter period, the ratio of the Consolidated Cash Flow of such Person for such period to the Consolidated Interest Expense of such Person for such period; provided, however, that the Consolidated Interest Coverage Ratio shall be calculated giving pro forma effect to each of the following transactions as if each such transaction had occurred at the beginning of the applicable fourth quarter reference period:

provided further, however, that (A) the Consolidated Cash Flow attributable to operations or businesses disposed of prior to the Calculation Date, shall be excluded and (B) the Consolidated Interest Expense attributable to operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Interest Expense will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date.

        "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of:

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        "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, provided that

        "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), net of total liabilities, in each case, as shown on the balance sheet of the Company and its Restricted Subsidiaries for the most recently ended fiscal quarter for which financial statements are available, determined on a consolidated basis in accordance with GAAP.

        "Credit Facilities" means, with respect to any Person, one or more debt facilities or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or trade letters of credit, in each case as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.

        "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default.

        "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event:

in each case, on or prior to the date that is 91 days after the date on which the notes mature or are redeemed or retired in full; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof (or of any security into which it is convertible or for which it is exchangeable) have the right to require the issuer to repurchase such Capital Stock (or such security into which it is convertible or for which it is exchangeable) upon the occurrence of any of the events constituting an Asset Sale or a Change of Control shall not constitute Disqualified Stock if such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provides that the issuer thereof will not repurchase or redeem any such Capital Stock (or any such

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security into which it is convertible or for which it is exchangeable) pursuant to such provisions prior to compliance by the Company with the provisions of the Indenture described under "Repurchase at the Option of Holders" or "—Certain Covenants—Limitation on Asset Sales," as the case may be.

        "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

        "Existing Indebtedness" means Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Facilities) in existence on the Initial Issuance Date, until such amounts are repaid.

        "Fair Market Value" means, with respect to any Asset Sale or Restricted Payment, the price 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 Company (and evidenced by an Officers' Certificate delivered to the Trustee) if such value is less than $7.5 million; provided if the value of such Asset Sale or Restricted Payment is $7.5 million or greater, such determination shall be made in good faith by the Board of Directors of the Company and evidenced by a board resolution delivered to the Trustee in the form of an Officers' Certificate.

        "Foreign Subsidiary" means any Restricted Subsidiary that is not incorporated or otherwise organized in the United States or any state thereof or in the District of Columbia.

        "GAAP" means generally accepted accounting principles in the United States as in effect on the Initial Issuance Date.

        "Hedging Obligations" means, with respect to any Person, the obligations of such Person under:

in each case to the extent such obligations are incurred in the ordinary course of business of such Person.

        "Indebtedness" means, with respect to any Person on any date of determination (without duplication):

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        "Initial Issuance Date" means August 5, 2003.

        "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees by the referent Person of, and Liens on any assets of the referent Person securing, Indebtedness or other obligations of other Persons), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided, however, that the following shall not constitute Investments:

If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under "—Certain Covenants—Limitation on Restricted Payments."

        "Lien" means, with respect to any asset, mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent

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statutes) of any jurisdiction other than a precautionary financing statement respecting a lease not intended as a security agreement).

        "Moody's" means Moody's Investors Service, Inc. and its successors.

        "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however:

        "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of (without duplication):

        "Non-Recourse Debt" means Indebtedness:

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        "Non-Recourse Subsidiaries" means the following Subsidiaries of the Company and any of their Subsidiaries or any of their successors (other than resulting from a merger, consolidation or amalgamation with any Restricted Subsidiary): Kinsman Lines, Inc., Lightship Limited Partner Holdings, LLC, Lightship Tanker Holdings, LLC, Lightship Partners, L.P., Delaware Tanker Holding I Inc., Delaware Tanker Holding II Inc., Delaware Tanker Holding III Inc., Delaware Tanker Holding IV Inc., Delaware Tanker Holding V Inc., Lightship Tankers I LLC, Lightship Tankers II LLC, Lightship Tankers III LLC, Lightship Tankers IV LLC and Lightship Tankers V LLC.

        "Pari Passu Indebtedness" means, with respect to any Net Proceeds from Asset Sales, Indebtedness of the Company or a Guarantor that ranks equally in right of payment with the notes or such Guarantor's Subsidiary Guarantee, as the case may be, and the terms of which require the Company or such Guarantor to apply such Net Proceeds to offer to repurchase such Indebtedness.

        "Permitted Investments" means:

        "Permitted Liens" means:

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        "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend,

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refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that:

        "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision hereof or any other entity.

        "Preferred Stock," as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such Person.

        "Productive Assets" means assets (other than assets that would be classified as current assets in accordance with GAAP) of the kind used or usable by the Company or its Restricted Subsidiaries in the business of providing marine transportation, towing and support services to the oil, gas and/or chemicals industry (or any business that is reasonably complementary or related thereto as determined in good faith by the Board of Directors).

        "Qualified Equity Offering" means:

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in each case, other than public offerings with respect to the Company's Common Stock, or options, warrants or rights, registered on Form S-4 or S-8.

        "Qualified Proceeds" means any of the following or any combination of the following:

        "Ready for Sea Cost" means with respect to a Vessel or Vessels to be acquired or leased (pursuant to a Capital Lease Obligation) by the Company or any Restricted Subsidiary of the Company, the aggregate amount of all expenditures incurred to acquire or construct and bring such Vessel or Vessels to the condition and location necessary for its or their intended use, including any and all inspections, appraisals, repairs, modifications, additions, permits and licenses in connection with such acquisition or lease, which would be classified and accounted for as "property, plant and equipment" in accordance with GAAP.

        "Restricted Investment" means an Investment other than a Permitted Investment.

        "Restricted Subsidiary" of a Person means any Subsidiary of such Person that is not an Unrestricted Subsidiary.

        "Restricted U.S. Subsidiary" means any Restricted Subsidiary organized under the laws of the United States, any state thereof or the District of Columbia.

        "Sale/Leaseback Transaction" means an arrangement relating to property owned by the Company or a Restricted Subsidiary on the Initial Issuance Date or thereafter acquired by the Company or a Restricted Subsidiary whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person.

        "Significant Subsidiary" means any Restricted Subsidiary of the Company that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Initial Issuance Date.

        "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

        "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal is scheduled to be paid in the documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to such date.

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        "Subsidiary" means, with respect to any Person:

        "Unrestricted Subsidiary" means (a) each Non-Recourse Subsidiary (until redesignated as a Restricted Subsidiary) and (b) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution and any Subsidiary of an Unrestricted Subsidiary, but only to the extent that each of such Subsidiary and its Subsidiaries at the time of such designation:

        Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described above under "—Certain Covenants—Limitation on Restricted Payments." The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary, provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if:

        "U.S. Dollar Equivalent" means with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the

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"Exchange Rates" column under the heading "Currency Trading" on the date two Business Days prior to such determination. Except as described under "—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock," whenever it is necessary to determine whether the Company has complied with any covenant in the Indenture or a Default has occurred and an amount is expressed in a currency other than U.S. dollars, such amount will be treated as the U.S. Dollar Equivalent determined as of the date such amount is initially determined in such currency.

        "Vessel" means one or more shipping vessels whose primary purpose is the maritime transportation of cargo and/or passengers or which are otherwise engaged, used or useful in any business activities of the Company and its Restricted Subsidiaries and which are owned by and registered (or to be owned by and registered) in the name of the Company or any of its Restricted Subsidiaries or operated or to be operated by the Company or any of its Restricted Subsidiaries pursuant to a lease or other operating agreement constituting a Capital Lease Obligation, in each case together with all related spares, equipment and any additions or improvements.

        "Vessel Financing Subsidiary" means a Restricted Subsidiary whose primary purpose is to purchase Vessels and which has incurred Indebtedness to finance all or a portion of such assets, provided that neither the Company nor any Guarantor issues a guarantee of or is otherwise obligated with respect to any such Indebtedness of such Restricted Subsidiary.

        "Voting Stock" of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of such Person.

        "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing

        "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person, all of the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Restricted Subsidiary.

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U.S. FEDERAL INCOME TAX CONSIDERATIONS

        The following discussion is a summary of certain federal income tax considerations relevant to the exchange of outstanding notes for new notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury Regulations, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which may be subject to change at any time by legislative, judicial or administrative action. These changes may be applied retroactively in a manner that could adversely affect a holder of new notes. The description does not consider the effect of any applicable foreign, state, local or other tax laws or estate or gift tax considerations.

        We believe that the exchange of outstanding notes for new notes should not be an exchange or otherwise a taxable event to a holder for United States federal income tax purposes. Accordingly, a holder should have the same adjusted issue price, adjusted basis and holding period in the new notes as it had in the outstanding notes immediately before the exchange.

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PLAN OF DISTRIBUTION

        Based on interpretations by the staff of the SEC in no action letters issued to third parties, we believe that you may transfer new notes issued under the exchange offer in exchange for the outstanding notes if:

        You may not participate in the exchange offer if you are:

        Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. To date, the staff of the SEC has taken the position that broker-dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as this exchange offer, other than a resale of an unsold allotment from the original sale of the outstanding notes, with the prospectus contained in this registration statement. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for outstanding notes where such outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of up to 180 days after the consummation of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until such date, all dealers effecting transactions in new notes may be required to deliver a prospectus.

        If you are an "affiliate," as defined in Rule 405 of the Securities Act, of ours, you must comply with any applicable registration and prospectus delivery requirements of the Securities Act in connection with any resale of the notes.

        If you wish to exchange your outstanding notes for new notes in the exchange offer, you will be required to make representations to us as described in "Exchange Offer—Purpose and Effect of the Exchange Offer" and "—Procedures for Tendering—Your Representations to Us" in this prospectus. As indicated in the letter of transmittal, you will be deemed to have made these representations by tendering your outstanding notes in the exchange offer. In addition, if you are a broker-dealer who receives new notes for your own account in exchange for outstanding notes that were acquired by you as a result of market-making activities or other trading activities, you will be required to acknowledge, in the same manner, that you will deliver a prospectus in connection with any resale by you of such new notes.

        We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, and at prices related to such prevailing market prices or negotiated prices.

        Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes. Any broker-dealer that resells new 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 new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of new notes and any commission or concession 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 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.

        For a period of up to 180 days after the consummation of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer other than commissions or concessions of any broker-dealers and will indemnify the holders of the outstanding notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

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LEGAL MATTERS

        The validity of the new notes offered in this exchange offer will be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas.


EXPERTS

        The consolidated financial statements of Seabulk International, Inc. and subsidiaries, the financial statements of Seabulk Transmarine Partnership, Ltd., and the financial statements of Seabulk America Partnership, Ltd. at December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, appearing in this Prospectus and Registration Statement, and the consolidated financial statements of Seabulk International, Inc. and subsidiaries incorporated by reference in Seabulk International, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 2002, have been audited by Ernst &Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and incorporated herein by reference, and are included and incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

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GLOSSARY

        The following are abbreviations and definitions of certain terms commonly used in the shipping industry and this prospectus.

        Affreightment/voyage contract.    A contract to ship a specific volume of cargo between specific points.

        Anchor handling tug (AHT).    A vessel designed and used primarily to tow mobile offshore rigs from location to location and then run the multiple anchors of the rig to secure it to the ocean bottom. These vessels are also used in a construction support capacity, such as with a pipe laying barge. They are powerful vessels that typically range in horsepower from 6,000 BHP to 16,000 BHP or more.

        Bareboat charter.    Rental or lease of an empty ship, without crew, stores or provisions, which are costs borne by the charterer.

        Charter.    The hire of a vessel for a specified period of time or to carry a cargo for a fixed fee from a loading port to a discharging port. The contract for a charter is called a charterparty. A vessel is "chartered in" by a lessee or charterer and "chartered out" by a lessor.

        Coastwise trade.    Vessel trade between ports within the same governmental jurisdiction. In the United States, coastwise trade is governed by the Jones Act (as defined below).

        Crew boat.    A vessel designed and used to transfer rig personnel to and from the offshore rig location. These vessels are typically aluminum hulled, multi-screw, fast boats that can achieve on average 20-25 knots. Typically, they are capable of seating 60 to 70 passengers. They do, however, have useable deck space that allows them to carry containers, baskets, tanks, etc.

        Day rate.    Generally, total vessel revenues divided by the number of days worked by a vessel.

        Double-hull tanker.    A tanker vessel constructed with a void space on both sides and bottom, providing a separation between the cargo and environment. This feature helps to insure that in the event of a grounding, collision or other failure of the cargo containment system, the vessel's cargo will not escape into the environment. Many double-hull tankers are employed in the carriage of crude oil and petroleum products.

        Drydock.    Large basin where all the fresh/sea water is pumped out to allow a ship to dock in order to carry out cleaning and repairing of the parts of a vessel that are below the water line.

        Dwt.    Deadweight tonne. A unit of a vessel's capacity for cargo, fuel oil, stores and crew, measured in metric tonnes of 1,000 kilograms. A vessel's dwt or total deadweight is the total weight the vessel can carry when loaded to a particular load line.

        Hull.    Shell or body of a ship.

        IMO.    International Maritime Organization, a United Nations affiliated agency that issues international standards for shipping.

        Jones Act.    A common name for the U.S. Merchant Marine Act of 1920, as amended, which requires that vessels used to carry cargo between U.S. ports be constructed, owned and operated by U.S. citizens.

        Laid-up vessel.    Generally, a vessel that management has determined will be temporarily inactive to reduce expenses for marine operating supplies, crew payroll and maintenance during periods of decreased demand for vessels.

96



        MARAD.    The Maritime Administration of the U.S. Department of Transportation.

        OPA 90.    The U.S. Oil Pollution Act of 1990 and the related extensive regulatory and liability regime for the protection of the environment from oil spills. OPA 90 affects owners and operators in U.S. waters and requires that all ships carrying petroleum products in U.S. coastal waters be of double-hull design by 2015.

        P&I insurance.    Third party insurance obtained through a mutual association (P&I Club) formed by shipowners to provide insurance protection from personal injury, death, pollution or liability claims incurred by members by means of premiums paid by all members.

        Product tanker.    Vessels designed to carry a variety of liquid products varying from crude oil to clean and dirty petroleum products, acids and other chemicals. In order to handle some of the products carried, the tanks of the ships are coated and the ships may have equipment designed for the loading and unloading of cargoes with a high viscosity.

        Single-hull tanker.    A tanker vessel with a single thickness side and bottom hull that provides the only barrier between the cargo and environment. These vessels often transport crude oil and refined petroleum products, chemicals and lubricating oils.

        Supply vessel.    A service vessel used to supply rigs with fuel, water, drilling fluids, barite, and cement in addition to carrying deck cargo such as casing or drill pipe. These vessels are typically 180 feet in length, however, they may range anywhere from 145 to 265 feet in length.

        Tanker.    A ship designed for the carriage of liquid cargoes in bulk with cargo space consisting of many tanks. Tankers carry a variety of products including crude oil, refined products, liquid chemicals and liquid gas. Tankers load their cargo by gravity from the shore or by shore pumps and discharge using their own pumps.

        Time charter.    The hire of a vessel for a specified period of time. The charter out party provides the ship with crew, stores and provisions, ready in all aspects to load cargo and proceed on a voyage and pays for insurance, repairs and maintenance. The charter in party or charterer pays for bunkering and all voyage related expenses including canal tolls and port charges.

        Title XI debt.    Private sector financing under a program established pursuant to Title XI of the Merchant Marine Act, 1936, as amended, and administered by MARAD, providing for a full faith and credit guarantee by the U.S. government of debt obligations issued by U.S. or foreign shipowners for the purpose of financing or refinancing either U.S. flag vessels or eligible export vessels constructed, reconstructed or reconditioned in U.S. shipyards.

        Utility boat.    A smaller supply boat capable of transporting drilling fluids and other supplies necessary for drilling or workover operations offshore. More commonly, however, they are employed to service production operations and construction activities.

        Utilization percentage.    Generally, percentages based upon the number of working days over a 365/366-day year and the number of vessels in the fleet on the last day of the quarter.

97




INDEX TO FINANCIAL STATEMENTS

SEABULK INTERNATIONAL, INC.    
Audited Consolidated Financial Statements    
  Report of Independent Certified Public Accountants   F-2
  Consolidated Balance Sheets as of December 31, 2002 and 2001   F-3
  Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000   F-4
  Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000   F-5
  Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000, 2001 and 2002   F-7
  Notes to Consolidated Financial Statements   F-9
Unaudited Condensed Consolidated Financial Statements    
  Unaudited Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002   F-41
  Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002   F-42
  Unaudited Condensed Consolidated Statements of Cash Flows for six months ended June 30, 2003 and 2002   F-43
  Notes to Unaudited Condensed Consolidated Financial Statements   F-44

SEABULK AMERICA PARTNERSHIP, LTD.

 

 
Audited Financial Statements    
  Report of Independent Certified Public Accountants   F-60
  Balance Sheets as of December 31, 2002 and 2001   F-61
  Statements of Operations for the years ended December 31, 2002, 2001 and 2000   F-62
  Statements of Partners' Capital for the years ended December 31, 2000, 2001 and 2002   F-63
  Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000   F-64
  Notes to Financial Statements   F-65
Unaudited Financial Statements    
  Unaudited Balance Sheets as of June 30, 2003 and December 31, 2002   F-68
  Unaudited Statements of Operations for the three and six months ended June 30, 2003 and 2002   F-69
  Unaudited Statements of Cash Flows for six months ended June 30, 2003 and 2002   F-70
  Notes to Unaudited Financial Statements   F-71

SEABULK TRANSMARINE PARTNERSHIP, LTD.

 

 
Audited Financial Statements    
  Report of Independent Certified Public Accountants   F-74
  Balance Sheets as of December 31, 2002 and 2001   F-75
  Statements of Operations for the years ended December 31, 2002, 2001 and 2000   F-76
  Statements of Partners' Capital for the years ended December 31, 2000, 2001 and 2002   F-77
  Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000   F-78
  Notes to Financial Statements   F-79
Unaudited Financial Statements    
  Unaudited Balance Sheets as of June 30, 2003 and December 31, 2002   F-84
  Unaudited Statements of Operations for the three and six months ended June 30, 2003 and, 2002   F-85
  Unaudited Statements of Cash Flows for six months ended June 30, 2003 and 2002   F-86
  Notes to Unaudited Financial Statements   F-87

F-1



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Seabulk International, Inc. and Subsidiaries

        We have audited the accompanying consolidated balance sheets of Seabulk International, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Seabulk International, Inc. and Subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

Miami, Florida
February 25, 2003, except for the second and
third paragraphs of Note 17, as to which the
dates are March 7, 2003 and March 27, 2003,
respectively; and for Note 19, as to which the
date is August 5, 2003.

F-2



SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

 
  December 31,
 
 
  2002
  2001
 
Assets              
Current assets:              
  Cash and cash equivalents   $ 37,188   $ 11,631  
  Restricted cash     1,337     1,337  
  Trade accounts receivables net of allowance for doubtful accounts of $5,243 in 2002 and $5,919 in 2001, respectively     45,987     50,088  
  Other receivables     13,485     16,282  
  Marine operating supplies     8,139     10,049  
  Prepaid expenses and other     2,702     2,984  
   
 
 
Total current assets     108,838     92,371  

Vessels and equipment, net

 

 

545,169

 

 

589,371

 
Deferred costs, net     38,228     48,899  
Other     10,860     14,124  
   
 
 
    Total assets   $ 703,095   $ 744,765  
   
 
 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 
Current liabilities:              
  Accounts payable   $ 11,343   $ 18,171  
  Current maturities of long-term debt     24,315     38,367  
  Current obligations under capital leases     3,005     2,972  
  Accrued interest     1,733     1,455  
  Accrued liabilities and other     42,181     38,719  
   
 
 
    Total current liabilities     82,577     99,684  

Long-term debt

 

 

410,858

 

 

399,974

 
Obligations under capital leases     28,748     31,768  
Senior notes         81,635  
Other liabilities     3,489     6,175  
   
 
 
    Total liabilities     525,672     619,236  

Commitments and contingencies

 

 

 

 

 

 

 

Minority interest

 

 

623

 

 

842

 

Stockholders' equity:

 

 

 

 

 

 

 
  Preferred stock, no par value—authorized 5,000; issued and outstanding, none          
  Common stock—$.01 par value, authorized 40,000 shares; 23,124 and 10,506 shares issued and outstanding in 2002 and 2001, respectively     231     105  
  Additional paid-in capital     258,016     167,259  
  Accumulated other comprehensive loss         (1 )
  Unearned compensation     (99 )   (198 )
  Accumulated deficit     (81,348 )   (42,478 )
   
 
 
  Total stockholders' equity     176,800     124,687  
   
 
 
    Total liabilities and stockholders' equity   $ 703,095   $ 744,765  
   
 
 

See notes to consolidated financial statements

F-3



SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Revenue   $ 323,997   $ 346,730   $ 320,483  
Operating expenses:                    
  Crew payroll and benefits     88,473     96,431     90,370  
  Charter hire     7,607     6,326     12,802  
  Repairs and maintenance     30,345     25,810     24,522  
  Insurance     11,385     15,809     12,645  
  Fuel and consumables     28,365     34,955     40,605  
  Port charges and other     16,383     19,996     24,282  
   
 
 
 
    Total operating expenses     182,558     199,327     205,226  
Overhead expenses:                    
  Salaries and benefits     22,237     21,531     22,083  
  Office     5,123     5,993     6,113  
  Professional fees     3,392     3,429     4,629  
  Other     7,905     6,049     6,805  
   
 
 
 
    Total overhead expenses     38,657     37,002     39,630  
Depreciation, amortization and drydocking     66,376     59,913     50,271  
Write-down of assets held for sale         1,400      
   
 
 
 
Income from operations     36,406     49,088     25,356  
Other (expense) income:                    
  Interest expense     (44,715 )   (55,907 )   (62,714 )
  Interest income     475     240     704  
  Minority interest in losses (gains) of subsidiaries     219     35     1,639  
  Gain (loss) on disposal of assets     1,364     (134 )   3,863  
  Other     (154 )   (73 )   7,072  
   
 
 
 
    Total other expense, net     (42,811 )   (55,839 )   (49,436 )
   
 
 
 
Loss before income taxes and extraordinary item     (6,405 )   (6,751 )   (24,080 )
Provision for income taxes     4,642     5,210     4,872  
   
 
 
 
Loss before extraordinary item     (11,047 )   (11,961 )   (28,952 )
Extraordinary loss on early extinguishment of debt     (27,823 )        
   
 
 
 
    Net Loss   $ (38,870 ) $ (11,961 ) $ (28,952 )
   
 
 
 
Net loss per common share—basic and diluted:                    
Loss before extraordinary item   $ (0.77 ) $ (1.16 ) $ (2.89 )
Extraordinary loss on early extinguishment of debt     (1.95 )        
   
 
 
 
  Net loss per common share   $ (2.72 ) $ (1.16 ) $ (2.89 )
   
 
 
 
Weighted average common shares outstanding     14,277     10,277     10,034  
   
 
 
 

See notes to consolidated financial statements.

F-4



SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Operating activities:                    
  Net loss   $ (38,870 ) $ (11,961 ) $ (28,952 )
  Adjustments to reconcile net loss to net cash provided by operating activities:                    
    Accrued reorganization expenses             (4,494 )
    Depreciation and amortization of vessels and equipment     43,711     45,212     43,498  
    Amortization of drydocking costs     22,665     14,701     6,773  
    Provision for bad debts     (93 )   228     1,021  
    (Gain) loss on disposal of assets     (1,364 )   134     (3,863 )
    Loss on early extinguishment of debt     27,823          
    Amortization of discount on long-term debt and financing costs     4,249     5,324     5,672  
    Minority interest in (losses) gains of subsidiaries     (219 )   (35 )   (1,639 )
    Write-down of assets held for sale         1,400      
    Senior and notes payable issued for payment of interest and fees     626     1,752     1,493  
    Other non-cash items     650     459     (75 )
    Changes in operating assets and liabilities:                    
      Trade accounts and other receivables     8,790     3,210     (13,394 )
      Other current and long-term assets     (4,129 )   (5,485 )   20,349  
      Accounts payable and other liabilities     (2,786 )   11,901     (113 )
   
 
 
 
        Net cash provided by operating activities     61,053     66,840     26,276  

Investing activities:

 

 

 

 

 

 

 

 

 

 
  Expenditures for drydocking     (23,441 )   (29,449 )   (14,366 )
  Proceeds from disposals of assets     12,675     6,575     25,710  
  Purchases of vessels and equipment     (3,753 )   (9,282 )   (12,047 )
  Acquisition of minority interest         (524 )    
  Redemption of restricted investments         2,542     2,931  
  Purchase of restricted investments         (1,677 )    
   
 
 
 
    Net cash (used in) provided by investing activities     (14,519 )   (31,815 )   2,228  

F-5



SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Financing activities:                    
  Net payments of revolving credit facility     (9,000 )   (5,250 )   14,250  
  Proceeds of New Credit Facility     178,800          
  Payments of New Credit Facility     (125 )        
  Payments of long-term debt     (165,817 )   (19,504 )   (33,390 )
  Payments of Senior Notes     (101,499 )        
  Proceeds of Private Placement, net of issuance costs     90,901          
  Payments of Title XI bonds     (7,166 )   (8,312 )   (9,282 )
  Redemption of restricted cash         (1,006 )    
  Payments of other deferred financing costs             (596 )
  Payments of obligations under capital leases     (2,986 )   (3,558 )   (4,300 )
  Payment of deferred financing costs for New Credit Facility     (4,128 )        
  Proceeds from exercise of warrants     1     3     1  
  Proceeds from exercise of stock options     42          
   
 
 
 
    Net cash used in financing activities     (20,977 )   (37,627 )   (33,317 )
   
 
 
 
  Change in cash and cash equivalents     25,557     (2,602 )   (4,813 )
  Cash and cash equivalents at beginning of period     11,631     14,233     19,046  
   
 
 
 
  Cash and cash equivalents at end of period   $ 37,188   $ 11,631   $ 14,233  
   
 
 
 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

 

 

 
  Note payable issued for amendment fee to credit facility   $   $   $ 4,500  
   
 
 
 
  Vessels exchanged for drydock expenditures   $ 900   $   $  
   
 
 
 
  Capital lease obligations for the acquisition of vessels and equipment   $   $   $ 5,332  
   
 
 
 
  Senior and notes payable issued for payment of accrued interest and fees   $ 626   $ 1,752   $ 1,493  
   
 
 
 
  Notes payable issued for the acquisition of minority interest   $   $ 10,500   $  
   
 
 
 
Supplemental disclosures:                    
  Interest paid   $ 40,085   $ 47,279   $ 56,219  
   
 
 
 
  Income taxes paid   $ 4,537   $ 3,304   $ 4,478  
   
 
 
 

See notes to consolidated financial statements.

F-6



SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands)

 
  Class A
Common Stock

   
 
  Additional
Paid-In
Capital

 
  Shares
  Amount
Balance at December 31, 1999   10,000   $ 100   $ 166,791
Comprehensive loss:                
  Net loss          
  Translation adjustment          
    Total comprehensive loss                
Common stock issued to employees   28         172
Common stock issued upon exercise of warrants   89     1    
   
 
 
Balance at December 31, 2000   10,117     101     166,963
Comprehensive loss:                
  Net loss          
  Translation adjustment          
    Total comprehensive loss                
Common stock issued upon exercise of warrants   314     3    
Restricted common stock issued to officer   75     1     296
   
 
 
Balance at December 31, 2001   10,506   $ 105   $ 167,259
   
 
 
Comprehensive loss:                
  Net loss          
  Translation adjustment          
    Total comprehensive loss          
Common stock issued upon Private Placement, net of issuance costs of $9,160   12,500     125     90,715
Common stock issued upon exercise of warrants   112     1    
Common stock issued upon exercise of options   6         42
Amortization of unearned compensation          
   
 
 
Balance at December 31, 2002   23,124   $ 231   $ 258,016
   
 
 

F-7



SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands)

 
  Accumulated
Other
Comprehensive
Loss

  Unearned
Compensation

  Retained
Earnings
(Accumulated
Deficit)

  Total
 
Balance at December 31, 1999   $   $   $ (1,565 ) $ 165,326  
Comprehensive loss:                          
  Net loss             (28,952 )   (28,952 )
  Translation adjustment     (33 )           (33 )
                     
 
    Total comprehensive loss                 (28,985 )
Common stock issued to employees                 172  
Common stock issued upon exercise of warrants                 1  
   
 
 
 
 
Balance at December 31, 2000     (33 )       (30,517 )   136,514  
Comprehensive loss:                          
  Net loss             (11,961 )   (11,961 )
  Translation adjustment     32             32  
                     
 
    Total comprehensive loss                 (11,929 )
Common stock issued upon exercise of warrants                 3  
Restricted common stock issued to officer         (198 )       99  
   
 
 
 
 
Balance at December 31, 2001   $ (1 ) $ (198 ) $ (42,478 ) $ 124,687  
   
 
 
 
 
Comprehensive loss:                          
  Net loss             (38,870 )   (38,870 )
  Translation adjustment     1             1  
                     
 
    Total comprehensive loss                 (38,869 )
Common Stock issued upon Private Placement, net of issuance costs of $9,160                 90,840  
Common stock issued upon exercise of warrants                 1  
Common stock issued upon exercise of options                 42  
Amortization of unearned compensation         99         99  
   
 
 
 
 
Balance at December 31, 2002   $   $ (99 ) $ (81,348 ) $ 176,800  
   
 
 
 
 

See notes to consolidated financial statements.

F-8



SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Organization and Basis of Presentation

        Seabulk International, Inc. and subsidiaries (f/k/a Hvide Marine Incorporated) (collectively, the "Company") provides marine support and transportation services, serving primarily the energy and chemical industries. The Company operates offshore energy support vessels, principally in the U.S. Gulf of Mexico, the Arabian Gulf, offshore West Africa, and Southeast Asia. The Company's fleet of tankers transports petroleum products and specialty chemicals in the U.S. domestic trade. The Company also provides commercial tug services in several ports in the southeastern United States.

        The Company derives substantial revenue from international operations, primarily under U.S. dollar-denominated contracts with major international oil companies. Risks associated with operating in international markets include vessel seizure, foreign exchange restrictions, foreign taxation, political instability, nationalization, civil disturbances, and other risks that may limit or disrupt markets.

        The accompanying consolidated financial statements include the accounts of Seabulk International, Inc. and its subsidiaries, both majority and wholly-owned. All intercompany transactions and balances have been eliminated in the consolidated financial statements.

2.     Summary of Significant Accounting Policies

        Revenue.    Revenue is generally recorded when services are rendered, the Company has a signed charter agreement or other evidence of an arrangement, pricing is fixed or determinable and collection is reasonably assured. For the majority of the offshore energy and towing segments, revenues are recorded on a daily basis as services are rendered. For the marine transportation segment, revenue is earned under time charters or affreightment/voyage contracts. Revenue from time charters is earned and recognized on a daily basis. Certain time charters contain performance provisions, which provide for decreased fees based upon actual performance against established targets such as speed and fuel consumption. Recorded revenue is based on actual performance. Affreightment/voyage contracts are contracts for cargoes that are committed on a 12 to 30 month basis, with minimum and maximum cargo tonnages specified over the period at fixed or escalating rates per ton. Revenue and voyage expenses for these affreightment contracts are recognized based upon the percentage of voyage completion. The percentage of voyage completion is based on the number of voyage days worked at the balance sheet date divided by the total number of days expected on the voyage.

        Cash and Cash Equivalents.    The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of money market instruments and overnight investments. The credit risk associated with cash and cash equivalents is considered low due to the high credit quality of the financial institutions.

        Restricted Cash.    At December 31, 2002 and 2001, restricted cash consisted of fixed deposits required in our foreign locations that allow our banks to issue short-term tender bonds. The bonds are issued during the process of securing contracts and have expiration dates ranging from three months to one year. Upon expiration of the bonds, the funds are returned to the Company.

        Accounts Receivable.    Substantially all of the Company's accounts receivable are due from entities that operate in the oilfield industry. The Company performs ongoing credit evaluations of its trade customers and generally does not require collateral. Expected credit losses are provided for in the consolidated financial statements and have been within management's expectations. Two customers each accounted for 7.0% and one customer accounted for 11.0% of the Company's total revenue for the years ended December 31, 2002 and 2001, respectively. During the years ended December 31, 2002,

F-9



2001, and 2000, the Company wrote off accounts receivable of approximately $0.6 million, $0.7 million and $0.6 million, respectively.

        Insurance Claims Receivable.    Insurance claims receivable represents costs incurred in connection with insurable incidents for which the Company expects are probable of being reimbursed by the insurance carrier(s), subject to applicable deductibles. Deductible amounts related to covered incidents are generally expensed in the period of occurrence of the incident. Expenses incurred for insurable incidents in excess of deductibles are recorded as receivables pending the completion of all repair work and administrative claims process. The credit risk associated with insurance claims receivable is considered low due to the high credit quality and funded status of the insurance clubs in which the Company participates. Insurance claims receivable approximated $4.1 million and $12.0 million at December 31, 2002 and 2001, respectively, and is included in Other Receivables.

        Marine Operating Supplies.    Such amounts consist of fuel and supplies that are recorded at cost and charged to operating expenses as consumed.

        Impairment of Long-Lived Assets.    The Company accounts for the impairment of long-lived assets under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting For the Impairment or Disposal of Long-Lived Asset, which requires impairment losses to be recorded on long-lived assets used in operations when indications of impairment are present and the estimated undiscounted cash flows to be generated by those assets are less than the assets' carrying value. It also establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. If the carrying value of the assets will not be recoverable, as determined by the estimated undiscounted cash flows, the carrying value of the assets is reduced to fair value. Generally, fair value will be determined using valuation techniques such as expected discounted cash flows or appraisals, as appropriate.

        Assets Held for Sale.    It is Company policy to make available for sale vessels and equipment considered by management as excess and no longer necessary for the operations of the Company. In accordance with SFAS No. 144, these assets are valued at the lower of carrying value or fair value less costs to sell. Also, depreciation expense for these assets is terminated at the time of the reclassification. Total assets held for sale (primarily assets in the offshore energy segment) were approximately $2.2 million and $11.4 million at December 31, 2002 and 2001, respectively, and are included in other assets in the accompanying consolidated balance sheets.

        Vessels and Equipment.    Vessels and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. At the time property is disposed of, the assets and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is charged to other income. Major renewals and betterments that extend the life of the vessels and equipment are capitalized. Maintenance and repairs are expensed as incurred except for drydocking expenditures.

        Vessels under capital leases are amortized over the lesser of the lease term or their estimated useful lives and included in depreciation expense. Included in vessels and equipment at December 31, 2002 and 2001 are vessels under capital leases of approximately $36.0 million and $45.4 million, net of accumulated amortization of approximately $3.7 million and $3.3 million, respectively.

F-10



        Listed below are the estimated remaining useful lives of vessels and equipment at December 31, 2002:

 
  Remaining
Useful Lives

 
  (in years)

Supply boats   3-24
Crewboats   2-23
Anchor handling tug/supply vessels   1-13
Other   1-8
Tankers(1)   3-26
Tugboats   1-37
Furniture and equipment   1-8

(1)
Range in years is determined by the Oil Pollution Act of 1990 and other factors.

        Deferred Costs.    Deferred costs primarily represent drydocking and financing costs. Substantially all of the Company's vessels must be periodically drydocked and pass certain inspections to maintain their operating classification, as mandated by certain maritime regulations. Costs incurred to drydock the vessels are deferred and amortized over the period to the next drydocking, generally 30 to 36 months. Drydocking costs are comprised of painting the vessel hull and sides, recoating cargo and fuel tanks, and performing other engine and equipment maintenance activities to bring the vessels into compliance with classification standards. Deferred financing costs are amortized over the term of the related borrowings using the effective interest method. At December 31, 2002 and 2001, deferred costs included unamortized drydocking costs of approximately $27.2 million and $29.4 million, respectively, and net deferred financing costs of $11.0 million and $19.6 million, respectively.

        Accrued Liabilities.    Accrued liabilities included in current liabilities consist of the following at December 31, (in thousands):

 
  2002
  2001
Voyage operating expenses   $ 10,320   $ 9,892
Foreign taxes     14,966     10,626
Payroll and benefits     6,848     8,068
Deferred voyage revenue     933     1,451
Professional services     473     1,267
Litigation, claims and settlements     106     200
Insurance     4,703     3,667
Other     3,832     3,548
   
 
  Total   $ 42,181   $ 38,719
   
 

        Stock-Based Compensation.    As permitted by SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), the Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related interpretations in accounting for its employee stock-based transactions and has complied with the disclosure requirements of SFAS 123. Under APB 25, compensation expense is calculated at the time of option grant based upon the difference between the exercise prices of the option and the fair market value of the Company's common stock at the date of grant recognized over the vesting period.

F-11



        On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure provisions of SFAS 123 to require expanded disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements.

        Had compensation expense for the stock option grants been determined based on the fair value at the grant date for awards consistent with the methods of SFAS No. 123, the Company's net loss would have increased to the pro forma amounts presented below for 2002, 2001 and 2000:

 
  2002
  2001
  2002
 
Net loss per common share—assuming dilution:                    
As reported   $ (2.72 ) $ (1.16 ) $ (2.89 )
Pro forma   $ (2.80 ) $ (1.27 ) $ (3.16 )

        Income Taxes.    The Company files a consolidated tax return with substantially all corporate subsidiaries; the other subsidiaries file separate income tax returns. Each partnership files a separate tax return. Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

        Net Loss Per Share.    Net loss per common share is computed in accordance with SFAS No. 128, Earnings Per Share, which requires the reporting of both net loss per common share and diluted net loss per common share. The calculation of net loss per common share is based on the weighted average number of common shares outstanding and therefore excludes any dilutive effect of stock options and warrants while diluted net loss per common share includes the dilutive effect of stock options and warrants, unless the effects are antidilutive.

        Foreign Currency Translation.    In accordance with SFAS No. 52, Foreign Currency Translation, assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the rate of exchange at the balance sheet date, while revenue and expenses are translated at the weighted average rates prevailing during the respective years. Components of stockholders' equity are translated at historical rates. Translation adjustments are deferred in accumulated other comprehensive loss, which is a separate component of stockholders' equity. The Company's foreign subsidiaries use the U.S. dollar as their functional currency and substantially all external transactions are denominated in U.S. dollars. Gains and losses resulting from changes in exchange rates from year to year are insignificant for all years presented and are included in the accompanying consolidated statements of operations.

        Reorganization Items.    Upon emergence from Chapter 11 Bankruptcy Protection on December 15, 1999, the Company adopted Fresh Start Reporting pursuant to the provisions of SOP 90-7.

        Estimates.    The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods. Significant estimates have been made by management, including the allowance for doubtful accounts,

F-12



useful lives and valuation of vessels and equipment, realizability of deferred tax assets and certain accrued liabilities. Actual results will differ from those estimates.

        Comprehensive Loss.    SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and the display of comprehensive loss, which is defined as the change in equity arising from non-owner sources. Comprehensive loss consists of net loss and foreign currency translation adjustments. Comprehensive loss is reflected in the consolidated statement of changes in stockholders' equity.

        Recent Pronouncements.    In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 14, and Technical Corrections, which eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect, and eliminates an inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Subsequent to the January 1, 2003 adoption date of the standard, the Company will be required to reclassify to continuing operations amounts previously reported as extinguishments of debt.

        In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses the financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 is effective for fiscal years beginning after December 31, 2002. The adoption of the standard is not expected to have a significant impact on the Company.

        In June 2001, the Accounting Executive Committee of the American Institute of Certified Public Accountants issued an exposure draft of a proposed Statement of Position ("SOP") entitled Accounting for Certain Costs and Activities Related to Property, Plant and Equipment. Under the proposed SOP, the Company would expense major maintenance costs as incurred and prohibit the use of the deferral of the entire cost of a planned major maintenance activity. Currently, the costs incurred to drydock the Company's vessels are deferred and amortized on a straight-line basis over the period to the next drydocking, generally 30 to 36 months. The proposed SOP would be effective for fiscal years beginning after June 15, 2002. Management has determined that this SOP, if issued as proposed, would have a material effect on the consolidated financial statements. In the year of adoption, the Company would write-off the net book value of the deferred drydocking costs and record the write off as a change in accounting principle ($27.2 million as of December 31, 2002). Additionally, all drydock expenditures incurred after the adoption of the SOP would be expensed as incurred.

3.     Long-Term Debt

        Long-term debt consists of the following at December 31 (in thousands):

 
  2002
  2001
 
New Credit Facility   $ 178,675   $  
Revolving line of credit         9,000  
Term loan         154,996  
Title XI debt     234,450     241,616  
Notes payable     22,048     32,729  
   
 
 
      435,173     438,341  
Less:    current maturities     (24,315 )   (38,367 )
   
 
 
    $ 410,858   $ 399,974  
   
 
 

F-13


        On September 13, 2002, the Company completed an agreement with Fortis Capital Corp. and NIB Capital Bank N.V., as arrangers, for a $180 million senior secured credit facility (the "New Credit Facility"), which replaced the Company's existing facility. The New Credit Facility consists of an $80 million term loan and a $100 million revolving credit facility and has a five-year maturity. The New Credit Facility replaced the Company's prior bank debt and Senior Notes.

        The revolving portion of the New Credit Facility is subject to semi-annual reductions commencing six months after closing. The principal reductions on the revolving loan are as follows: $10 million each in 2003 and 2004, $20 million in 2005, $25 million in 2006, and $33.7 million in 2007. The term loan portion is subject to semi-annual reductions commencing 36 months after closing. The principal reductions on the term loan are as follows: $2.5 million in 2005, $14.5 million in 2006, and $63 million in 2007. Interest on the loans is payable monthly, with a variable interest rate. The rate is either a LIBOR or base rate plus a margin based upon certain financial ratios of the Company (5.42% and 5.92% for the revolving loan and term loan, respectively, at December 31, 2002). In November 2002, the interest rate under the New Credit Facility was increased by 100 basis points (1%) in accordance with the terms of the commitment letter with the lending banks to syndicate the New Credit Facility by November 13, 2002.

        The New Credit Facility is secured by first ship mortgages on substantially all of the Company's vessels (excluding vessels financed with U.S. Maritime Administration Title XI financing) and is guaranteed by most of the subsidiaries of the Company. The New Credit Facility is also secured by second ship mortgages on two of the Company's tankers and three of the Company's tugs.

        The New Credit Facility is subject to various financial covenants, including minimum adjusted tangible net worth requirements, minimum ratios of adjusted EBITDA to adjusted interest expense, and a maximum ratio of adjusted funded debt to adjusted EBITDA. The Company is required to maintain a minimum fair market value of collateralized assets of at least 175% of outstanding borrowings under the New Credit Facility, based upon appraisals which may be requested not more than once during any 12-month period.

        The Company's five double-hull product and chemical tankers are financed through Title XI Government Guaranteed Ship Financing Bonds. There are a total of seven bonds with interest rates ranging from 6.50% to 7.54% that require principal amortization through June 2024. The aggregate outstanding principal balance of the bonds was $215.7 million and $220.1 million at December 31, 2002 and 2001, respectively. Principal payments during 2002 and 2001 were $4.4 million and $4.1 million, respectively, and interest payments were $15.1 million and $15.4 million, respectively.

        Covenants under the Title XI Bond agreements contain financial tests which, if not met, among other things (1) restrict the withdrawal of capital; (2) restrict certain payments, including dividends, increases in employee compensation and payments of other indebtedness; (3) limit the incurrence of additional indebtedness; and (4) prohibit the Company from making certain investments or acquiring additional fixed assets. Vessels with a net book value of $235.1 million, and all contract rights thereof, have been secured as collateral in consideration of the U.S. Government guarantee of the Title XI Bonds.

        The Company is required to make deposits to a Title XI reserve fund based on a percentage of net income attributable to the operations of the five double-hull tankers, as defined by the Title XI Bond agreement. Cash held in a Title XI reserve fund is invested by the trustee of the fund, and any income earned thereon is either paid to the Company or retained in the reserve fund. Withdrawals from the Title XI reserve fund may be made for limited purposes, subject to prior approval from MARAD. In the second quarter of 2003, the first deposits to the reserve fund are expected to be

F-14



made. Additionally, according to the Title XI Financial Agreement, the Company is restricted from formally distributing excess cash from the operations of the five double-hull tankers until certain working capital ratios have been reached and maintained. Accordingly, at December 31, 2002, the Company has approximately $19.5 million in cash and cash equivalents that are restricted for use for the operations of the five double-hull tankers and cannot be used to fund the Company's general working capital requirements, but has approximately $4.3 million which is available for distribution and is expected to be available for general working capital purposes of the consolidating Company during the second quarter of 2003.

        As of December 31, 2002 and 2001, other Title XI debt of approximately $18.8 million and $21.5 million, respectively, was collateralized by first preferred mortgages on certain vessels and bears interest at rates ranging from 5.4% to 10.1%. The debt is due in semi-annual principal and interest payments through June 2021. Under the terms of the Other Title XI debt, the Company is required to maintain a minimum level of working capital, as defined, and comply with certain other financial covenants. During 2002 and 2001, $2.8 million and $4.2 million, respectively, in principal and $1.7 million and $2.0 million, respectively, in interest were repaid on this debt.

        The Company has two promissory notes aggregating approximately $19.6 million relating to the purchase of equity interests in the double-hull product and chemical carriers. The notes bear interest at 8.5%. Semi-annual interest and principal payments are due through December 2003 on one note and quarterly principal and interest payments are due through January 2006 on the other. The promissory notes are collateralized by securities of certain subsidiaries. The outstanding balance of the notes was $10.2 million and $14.8 million as of December 31, 2002 and 2001, respectively.

        The Company has various promissory notes relating to the acquisitions of various vessels. The promissory notes are collateralized by mortgages on certain vessels and bear interest at rates ranging from 8.1% to 8.5%. The debt is due in monthly installments of principal and interest through November 2011. The outstanding balance of the notes was $11.9 million and $13.1 million as of December 31, 2002 and 2001, respectively.

        At December 31, 2002, the Company had letters of credit outstanding in the amount of approximately $1.3 million, which expire on various dates through December 2025.

        The aggregate annual future payments due on the long-term debt as of December 31, 2002 are as follows (in thousands):

Years ending December 31:

   
2003   $ 24,315
2004     21,431
2005     33,967
2006     49,463
2007     105,425
Thereafter     200,572
   
    $ 435,173
   

F-15


4.     Capital Leases

        The Company operates certain vessels and other equipment under leases that are classified as capital leases. The following is a schedule of future minimum lease payments under capital leases, including obligations under sale-leaseback transactions, together with the present value of the net minimum lease payments as of December 31, 2002 (in thousands):

Years ending December 31:

   
 
2003     5,103  
2004     4,908  
2005     4,891  
2006     3,933  
2007     3,933  
Thereafter     20,292  
   
 
Total minimum lease payments     43,060  
Less: amount representing interest     (11,307 )
   
 
Present value of minimum lease payments (including current portion of $3,005)   $ 31,753  
   
 

5.     Commitments and Contingencies

Lease Commitments

        The Company leases its office facilities and certain vessels under operating lease agreements, which expire at various dates through 2013. Rent expense was approximately $4.5 million, $4.9 million and $4.4 million for the years ended December 31, 2002, 2001 and 2000, respectively. Aggregate annual future payments due under non-cancelable operating leases with remaining terms in excess of one year as of December 31, 2002 are as follows (in thousands):

Years ending December 31:

   
2003   $ 3,714
2004     3,577
2005     3,451
2006     2,918
2007     1,565
Thereafter     3,368
   
    $ 18,593
   

Bareboat Charter and Sublease

        During 2001, the Company entered into a ten-year non-cancelable bareboat charter agreement for a double-hull tanker with a third party (the "charterer"). Beginning in January 2002 (commencement of contract), the charterer has exclusive possession and control of the vessel. As a result, the charter party will incur and pay all operating costs during the charter period. The Company receives a fixed amount per day for the charter of the vessel. Also, the Company subleases certain office space in Houston, Texas and Tampa, Florida. The sublease in Houston is expected to terminate in January 2004 and the

F-16



Tampa sublease is expected to terminate in December 2006. There are no renewal or escalation clauses relating to the bareboat charter or subleases.

        Future minimum lease receipts under the bareboat charter and sublease as of December 31, 2002 (in thousands) are as follows:

Years ending December 31:

   
2003   $ 7,132
2004     7,041
2005     7,033
2006     7,033
2007     6,935
Thereafter     28,291
   
    $ 63,465
   

Contingencies

        Under U.S. law, "United States persons" are prohibited from business activities and contracts in certain countries, including Sudan and Iran. The Company has filed three reports with and submitted documents to the Office of Foreign Asset Control ("OFAC") of the U.S. Department of Treasury. One of the reports was also filed with the Bureau of Export Administration of the U.S. Department of Commerce. The reports and documents related to certain limited charters with third parties involving three of the Company's vessels which called in the Sudan for several months in 1999 and January 2000, and charters with third parties involving several of the Company's vessels which called in Iran in 1998. In March 2003, the Company received notification from OFAC that the case has been referred to its Civil Penalties Division. Should OFAC determine that these activities constituted violations of the laws or regulations, civil penalties, including fines, could be assessed against the Company and/or certain individuals who knowingly participated in such activities. The Company cannot predict the extent of such penalties; however, management does not believe the outcome of these matters will have a material impact on its financial position or results of operations.

        The Company was sued by Maritime Transportation Development Corporation in January 2002 in Florida state court in Broward County alleging broker commissions due since 1998 from charters on two of its vessels, the Seabulk Magnachem and Seabulk Challenger, under an alleged broker commission agreement. The claim allegedly continues to accrue. The amount alleged to be due is over $500,000, but is subject to offset claims and defenses by the Company. The Company is vigorously defending such charges and believes that it has good defenses, but the Company cannot predict the ultimate outcome.

        From time to time the Company is also party to personal injury and property damage claims litigation arising in the ordinary course of our business. Protection and Indemnity marine liability insurance covers large claims in excess of the deductibles and self insured retentions.

        At December 31, 2002, approximately 20% of the Company's employees were members of national maritime labor unions, or are subject to collective bargaining agreements. Management considers relations with employees to be satisfactory; however, the deterioration of these relations could have an adverse effect on the Company's operating results.

F-17



6.     Vessels and Equipment

        Vessels and equipment are summarized below (in thousands):

 
  Year ended December 31,
 
 
  2002
  2001
 
Vessels and improvements   $ 678,617   $ 681,599  
Furniture and equipment     9,842     11,729  
   
 
 
      688,459     693,328  
Less: accumulated depreciation and amortization     (143,290 )   (103,957 )
   
 
 
Vessels and equipment, net   $ 545,169   $ 589,371  
   
 
 

        The Company did not acquire any vessels in 2002. In 2001, the Company acquired one vessel for approximately $2.5 million in cash.

        The Company sold 17 offshore energy support vessels during 2002 for an aggregate total of $6.8 million and a gain of approximately $55,000. In 2001, the Company sold 25 vessels for proceeds of $6.6 million.

7.     Stock Option Plans

        In December 1999, the Company adopted the Hvide Marine Incorporated Stock Option Plan (the "1999 Plan"), a stock option plan which provided certain key employees of the Company the right to acquire shares of common stock. Pursuant to the plan, 500,000 shares of the Company's common stock were reserved for issuance to the participants in the form of nonqualified stock options. The options expire no later than 10 years from the date of the grant.

        On June 15, 2000, the Company adopted the Amended and Restated Equity Ownership Plan (the "Plan"). The Plan amends and restates in its entirety the 1999 Plan. Pursuant to the Plan, 800,000 shares of the Company's stock were reserved for issuance to participants in the form of nonqualified or incentive stock options, restricted stock grants and other stock related instruments, subject to adjustment to reflect stock dividends, recapitalizations, reorganizations and other changes in the capital structure. In December 2001, the Compensation Committee agreed to amend the Plan by authorizing and reserving for issuance an additional 500,000 shares to be eligible for grants under the Plan, bringing the total under the Plan to 1,300,000 shares. The Committee's action was approved by the shareholders at the Company's Annual Meeting of Shareholders held on May 14, 2002. The vesting period and certain other terms of stock options granted under the Plan are determined by the Compensation Committee. The Plan requires that the option price may not be less than 100% of the fair market value on the date of grant. The options expire no later than 10 years from the date of grant. There were no options granted under the Plan in 2002, and 283,000 options were granted in 2001. In addition, there were 75,000 shares of restricted stock granted in 2001 under the Plan.

        On June 15, 2000, the Company also adopted the Stock Option Plan for Directors (the "Directors Plan"). Pursuant to the Directors Plan, an aggregate of 175,000 shares of common stock are authorized and reserved for issuance, subject to adjustments to reflect stock dividends, recapitalizations, reorganizations, and other changes in the capital structure of the Company. Eligible directors as of the effective date of the Plan were granted options to purchase 10,000 shares of common stock on the first option date, and the Chairman of the Board received 20,000 options, for a total granted of 80,000. Eligible directors receive 4,000 and the Chairman receives 8,000 options to purchase shares of common

F-18


stock annually, effective as of each Annual Meeting of Shareholders of the Company commencing May 17, 2001. Under the Plan, the option price for each option granted is required to be 100% of the fair market value of common stock on the day after the date of grant. Options granted under the Director's Plan totaled 32,000 and 32,000 during 2002 and 2001, respectively.

        The following table of data is presented in connection with the stock option plans:

 
  Year Ended December 31,
 
  2002
  2001
  2000
 
  Number of
options

  Weighted
average
exercise
price

  Number of
options

  Weighted
average
exercise
Price

  Number of
options

  Weighted
average
exercise
price

Options outstanding at beginning of period   822,000   $ 6.91   604,000   $ 8.27   200,000   $ 12.47
Granted   32,000     6.19   315,000     5.61   495,000     7.16
Exercised   (6,667 )   6.31            
Cancelled   (72,831 )   7.48   (97,000 )   10.80   (91,000 )   11.33
   
       
       
     

Options outstanding at end of period

 

774,502

 

$

6.84

 

822,000

 

$

6.91

 

604,000

 

$

8.27
   
 
 
 
 
 
Options exercisable at end of period   562,856   $ 7.30   333,837   $ 8.38   207,000   $ 12.11
Options available for future grants at end of period   618,831       153,000       371,000    

        Summarized information about stock options outstanding as of December 31, 2002 is as follows:

Exercise Price Range

  Number of Options Outstanding
  Remaining
Life
(In Years)

  Weighted
Average
Exercise
Price

  Number of Options Exercisable
  Weighted
Average
Exercise
Price

Under $6.25   181,834   9.00   $ 4.34   50,844   $ 3.95
$6.25 to $6.31   366,334   7.49   $ 6.26   346,338   $ 6.25
$6.32 to $7.30   32,000   8.38   $ 7.30   32,000   $ 7.30
$7.31 to $7.75   94,334   8.24   $ 7.75   33,674   $ 7.75
Over $7.75   100,000   3.96   $ 12.47   100,000   $ 12.47

        The weighted average fair value of options granted under the Company's stock option plans during 2002, 2001 and 2000 was $4.91, $5.54 and $6.65, respectively. These values are based on the Black-Scholes option valuation model. Had compensation expense for the stock option grants been determined based on the fair value at the grant date for awards consistent with the methods of SFAS No. 123, the Company's net loss would have increased to the pro forma amounts presented below for 2002, 2001 and 2000 (in thousands, except per share amounts):

 
  2002
  2001
  2000
 
Net loss:                    
As reported   $ (38,870 ) $ (11,961 ) $ (28,952 )
Pro forma     (39,930 )   (13,067 )   (31,676 )
Net loss per common share—assuming dilution:                    
As reported   $ (2.72 ) $ (1.16 ) $ (2.89 )
Pro forma   $ (2.80 )   (1.27 )   (3.16 )

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        The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions applied to grants in 2002, 2001 and 2000.

 
  2002
  2001
  2000
 
Dividend yield   0.0 % 0.0 % 0.0 %
Expected volatility factor   0.72   3.21   1.21  
Approximate risk-free interest rate   4.25 % 5.0 % 5.0 %
Expected life (in years)   10   10   10  

        The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models, in management's opinion, do not necessarily provide a reliable single measure of the fair value of the Company's stock options.

8.     Employee Benefit and Stock Plans

        The Company sponsors a retirement plan and trust (the "Plan") established pursuant to Section 401(k) of the Internal Revenue Code, which covers substantially all administrative and non-union employees. Subject to certain dollar limitations, employees may contribute a percentage of their salaries to this Plan, and the Company will match a portion of the employees' contributions. Profit sharing contributions by the Company to the Plan are discretionary. Additionally, the Company contributed to various union-sponsored, collectively bargained pension plans for certain crew members in the marine transportation and towing segments. The plans are not administered by the Company, and contributions are determined in accordance with provisions of negotiated labor contracts. The expense resulting from Company contributions to the Plan and various union-sponsored plans amounted to approximately $3.5 million, $2.9 million and $2.0 million for the years ended December 31, 2002, 2001 and 2000, respectively.

9.     Income Taxes

        The United States and foreign components of income (loss) before income taxes and extraordinary item are as follows (in thousands):

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
United States   $ (7,755 ) $ (3,849 ) $ (1,502 )
Foreign     1,350     (2,902 )   (22,578 )
   
 
 
 
Total   $ (6,405 ) $ (6,751 ) $ (24,080 )
   
 
 
 

F-20


        The components of the provision for income tax expense (benefit) are as follows (in thousands):

 
  Year Ended December 31,
 
  2002
  2001
  2000
Current:                  
  Federal   $ (1,520 ) $   $
  Foreign     6,162     5,210     4,872
   
 
 
    Total current     4,642     5,210     4,872
   
 
 
Deferred            
   
 
 
  Total income tax expense   $ 4,642   $ 5,210   $ 4,872
   
 
 

        A reconciliation of income tax attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense is:

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Income tax expense computed at the federal statutory rate   (35 )% (35 )% (35 )%
State income taxes, net of Federal benefit   (1 ) (1 ) (1 )
Foreign taxes in excess of credits recognized   96   77   20  
Reduction of tax attributes        
Change in valuation allowance   11   35   35  
Permanent, non deductible items   1   1   1  
   
 
 
 
    72 % 77 % 20 %
   
 
 
 

F-21


        The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows (in thousands):

 
  Year Ended December 31,
 
 
  2002
  2001
 
Deferred income tax assets:              
Allowances for doubtful accounts   $ 1,606   $ 828  
Goodwill     14,785     17,882  
Accrued compensation     627     733  
Foreign tax credit carryforwards     17,809     16,548  
Accrued supplemental insurance premiums     1,534      
Net operating loss carryforwards     123,114     61,509  
Other     1,783     1,351  
   
 
 
  Total deferred income tax assets     161,258     98,851  
  Less: valuation allowance     (75,177 )   (65,263 )
   
 
 
  Net deferred income tax assets     86,081     33,588  
Deferred income tax liabilities:              
Property differences     75,192     28,885  
Deferred drydocking costs     9,489     3,768  
Other     1,400     935  
   
 
 
Total deferred income tax liabilities     86,081     33,588  
   
 
 
Net deferred income tax assets   $   $  
   
 
 

        SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management determined that a valuation allowance of approximately $75.2 million and $65.3 million was necessary at December 31, 2002, and 2001, respectively, to reduce the deferred tax assets to the amount that will more likely than not be realized. After application of the valuation allowance, the Company's net deferred tax assets and liabilities are zero at December 31, 2002 and 2001. The net change in the total valuation allowance was an increase of approximately $9.9 million and $7.9 million in 2002 and 2001, respectively.

        Subsequently, recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2002 will be allocated as follows (in thousands):

Income tax benefit that would be reported in the consolidated statement of operations   $ 31,925
Additional paid-in capital     43,252
   
Total   $ 75,177
   

        The Company has recognized a deferred tax asset of $1.5 million for a 2001 federal net operating loss carryback. On March 9, 2002, the Job Creation and Worker Assistance Act of 2002 was signed into law, which allows a 2001 federal net operating loss to be carried back five years instead of two years. This new law converted the 2001 federal net operating loss carryforward into a federal net operating loss that will be fully absorbed within the five-year carryback period.

F-22



        The stock issuance in September 2002 (see Note 10) resulted in an "ownership change" as broadly defined in Section 382 of the Internal Revenue Code. As the result of the ownership change, utilization of net operating loss carryforwards under federal income tax laws and certain other beneficial tax attributes will be subject to an annual limitation. The limitation of net operating losses that can be utilized annually will equal the product of applicable interest rate mandated under federal income tax laws and the value at the time of the ownership change.

        At December 31, 2002, the Company had a net operating loss carryforward of approximately $350.5 million, which is available to offset future federal taxable income through 2022. The Company also has foreign tax credit carryforwards, expiring in years 2003 through 2007, of approximately $17.7 million, which are available to reduce future federal income tax liabilities. The annual limitation under Section 382 would limit utilization of the Company's pre- September net operating losses to a maximum of approximately $4.2 million annually through their expiration date. A substantial portion of net operating loss carryforwards and tax credits may not be utilized due to this annual limitation.

        The Company has a tax basis in its assets in excess of its basis for financial reporting purposes that will generate tax deductions in future periods. As a result of a "change in ownership" in December 1999, under the Internal Revenue Code Section 382, the Company's ability to utilize depreciation, amortization and other tax attributes will be limited to approximately $9.5 million per year through 2004. This limitation is applied to all net built-in losses, which existed on the "change of ownership" date (December 15, 1999), including all items giving rise to a deferred tax asset.

10.   Stockholders' Equity

        In December 1999, all classes of the Predecessor Company's equity securities were canceled. Pursuant to a previous, pre-1999 Equity Ownership Plan, prior to December 1999, shares of the Predecessor Company's Class B common stock were converted to Class A common stock. Holders of Predecessor Company Class A common stock and holders of certain rights to obtain common stock under the Predecessor Company's compensation plans were issued 125,000 Class A warrants to purchase common stock of the Company on a pro rata basis. The warrants have a four-year term and an exercise price of $38.49 per share.

        Pursuant to the articles of incorporation of the Company, as amended in 2002, there are 40 million shares of common stock authorized for issuance.

        In December 1999, holders of the Predecessor Company's Preferred Securities received 200,000 shares of Company common stock and 125,000 Class A warrants. The warrants have a four-year term and an exercise price of $38.49 per share. There were no Class A warrant exercises during 2002 and 2001. The remaining weighted average contractual life is one year at December 31, 2002.

        In December 1999, as part of the Company's reorganization under Chapter 11 bankruptcy, the holders of the Predecessor Company's Senior Notes received 9.8 million shares of Company common stock. The holders of Senior Notes received 536,193 common stock purchase warrants ("the Noteholder Warrants"). The warrants have a seven and one-half year term and an exercise price of $0.01 per warrant.    Also in connection with the former Senior Notes, the Company issued an additional 187,668 Noteholder Warrants to an investment advisor. The warrants have a seven and one-half year term and an exercise price of $0.01 per warrant. During the years ended December 31, 2002 and 2001, 112,000 and 313,000 Noteholder Warrants were exercised, respectively. The amount of outstanding Noteholder Warrants amounted to approximately 210,000 at December 31, 2002. The weighted average contractual life is 4.5 years at December 31, 2002.

F-23



        All of the Company's outstanding warrants contain customary anti-dilution provisions for issuances of common stock, splits, combinations and certain other events, as defined. In addition, the outstanding warrants have certain registration rights, as defined.

        The Company is authorized to issue 5 million shares of preferred stock, no par value per share. The Company has no present plans to issue such shares.

        At December 31, 2002 approximately 619,000 shares of Common Stock were reserved for issuance under the Company's Amended and Restated Equity Ownership Plan and the Stock Option Plan for Directors.

        On September 13, 2002, the Company completed the private placement of 12.5 million shares of newly issued Seabulk common stock at a cash price of $8.00 per share (the "Private Placement") to a group of investors including an entity associated with DLJ Merchant Banking Partners III, L.P., an affiliate of CSFB Private Equity, and entities associated with Carlyle/Riverstone Global Energy and Power Fund I, L.P., an affiliate of The Carlyle Group of Washington, D.C. The stock issuance was previously approved by the Company's Shareholders at a Special Meeting held on September 5, 2002.

        The new investors also purchased, for $8.00 per share, 5.1 million of the Company's common stock and common stock purchase warrants beneficially owned by accounts managed by Loomis, Sayles & Co., L.P., an SEC-registered investment advisor. Taken together, the two transactions gave the new investors approximately 75% of the Company's outstanding common stock. Pursuant to the agreement with the investors, the Company's Board of Directors has been restructured to permit the new investors to hold a majority of seats on the Board and to give minority shareholders certain minority rights.

11.   Net Loss Per Share

        The following table sets forth the computation of basic and diluted net loss per share before extraordinary items (in thousands, except per share amounts):

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Numerator:                    
Numerator for basic and diluted loss per share—net loss before extraordinary item available to common shareholders   $ (38,870 ) $ (11,961 ) $ (28,952 )
   
 
 
 
Denominator:                    
Denominator for basic and diluted loss per share—weighted average shares     14,277     10,277     10,034  
   
 
 
 
Net loss per common share before extraordinary item   $ (2.72 ) $ (1.16 ) $ (2.89 )
   
 
 
 
Net loss per common share before extraordinary item—assuming Dilution   $ (2.72 ) $ (1.16 ) $ (2.89 )
   
 
 
 

        The weighted average diluted common shares outstanding for fiscal 2002, 2001 and 2000 excludes 774,502, 822,000 and 604,000 stock options, respectively. Additionally, 460,000, 572,000 and 885,000 warrants in 2002, 2001 and 2000, respectively, are excluded from the weighted average diluted common shares outstanding. These common stock equivalents are antidilutive because the Company incurred net losses for 2002, 2001 and 2000.

F-24



12.   Segment and Geographic Data

        The Company organizes its business principally into three segments. The accounting policies of the reportable segments are the same as those described in Note 2. The Company does not have significant intersegment transactions.

        These segments and their respective operations are as follows:

        The Company evaluates performance by operating segment. Also, within the offshore energy support segment, the Company performs additional performance evaluation of vessels marketed in U.S. and foreign locations. Resources are allocated based on segment profit or loss from operations, before interest and taxes.

        Revenue by segment and geographic area consists only of services provided to external customers, as reported in the Statements of Operations. Income from operations by geographic area represents net revenue less applicable costs and expenses related to that revenue. Unallocated expenses are primarily comprised of general and administrative expenses of a corporate nature. Identifiable assets represent those assets used in the operations of each segment or geographic area, and unallocated assets include corporate assets.

F-25



        The following schedule presents information about the Company's operations in these segments (in thousands):

 
  Year Ended December 31,
 
 
  2002
  2001
  2000
 
Revenue                    
  Offshore energy support   $ 171,479   $ 191,178   $ 151,395  
  Marine transportation services     121,371     122,059     135,982  
  Towing     31,147 *   33,493 *   33,106 *
   
 
 
 
    Total   $ 323,997   $ 346,730   $ 320,483  
   
 
 
 
Operating expenses                    
  Offshore energy support   $ 99,572   $ 98,549   $ 94,331  
  Marine transportation services     63,823 *   76,555 *   91,104 *
  Towing     18,909     20,130     19,791  
  General corporate     254     4,093      
   
 
 
 
  Total   $ 182,558   $ 199,327   $ 205,226  
   
 
 
 
Depreciation, amortization, drydocking and write-down of assets held for sale                    
  Offshore energy support   $ 43,305   $ 37,550   $ 31,478  
  Marine transportation services     18,159     19,311     14,417  
  Towing     3,222     2,910     2,919  
  General corporate     1,690     1,542     1,457  
   
 
 
 
    Total   $ 66,376   $ 61,313   $ 50,271  
   
 
 
 
Income (loss) from operations                    
  Offshore energy support   $ 10,156   $ 39,151   $ 10,389  
  Marine transportation services     34,686     20,952     23,893  
  Towing     4,519     6,169     5,096  
  General corporate     (12,955 )   (17,184 )   (14,022 )
   
 
 
 
    Total   $ 36,406   $ 49,088   $ 25,356  
   
 
 
 
Net income (loss)                    
  Offshore energy support   $ (16,912 ) $ 5,566   $ (30,920 )
  Marine transportation services     17,346     (278 )   7,200  
  Towing     (151 )   396     2,906  
  General corporate     (39,153 )**   (17,645 )   (8,138 )
   
 
 
 
    Total   $ (38,870 ) $ (11,961 ) $ (28,952 )
   
 
 
 

*
Net of elimination of intersegment towing revenue and intersegment marine transportation operating expenses of $0.3 million, $2.1 million and 2.6 million for the years ended December 31, 2002 and 2001 and 2000, respectively.

**
Includes loss on early extinguishment of debt of $27.8 million in the third quarter of 2002 (see Note 14).

F-26


 
  Consolidated Balance Sheet Information
as of December 31,

 
 
  2002
  2001
 
Identifiable assets              
  Offshore energy support   $ 286,609   $ 326,608  
  Marine transportation services     323,611     334,272  
  Towing     64,511     64,931  
  Unallocated     28,364     18,954  
   
 
 
    Total   $ 703,095   $ 744,765  
   
 
 
Vessels and equipment              
  Offshore energy support   $ 277,208   $ 281,933  
  Marine transportation services     341,069     341,087  
  Towing     61,241     61,317  
   
 
 
    Total     679,518     684,337  
  Construction in progress     99     837  
  General corporate     8,842     8,154  
   
 
 
  Gross vessels and equipment     688,459     693,328  
    Less accumulated depreciation     (143,290 )   (103,957 )
   
 
 
      Total   $ 545,169   $ 589,371  
   
 
 
Capital expenditures and drydocking              
  Offshore energy support   $ 19,532   $ 30,959  
  Marine transportation services     6,313     6,597  
  Towing     1,315     951  
  Unallocated     34     224  
   
 
 
    Total   $ 27,194   $ 38,731  
   
 
 

        The Company is engaged in providing marine support and transportation services in the United States and foreign locations. The Company's foreign operations are conducted on a worldwide basis, primarily in West Africa, the Arabian Gulf, Southeast Asia and Mexico, with assets that are highly mobile. These operations are subject to risks inherent in operating in such locations.

        The vessels generating revenue from offshore and marine transportation services move regularly and routinely from one country to another, sometimes in different continents depending on the charter party. Because of this asset mobility, revenue and long-lived assets attributable to the Company's foreign operations in any one country are not material, as defined in SFAS No. 131.

        There were no customers from which the Company derived more than 10% of its total revenue for the year ended December 31, 2002. One customer, CITGO Petroleum, accounted for 11.0% and 12.0% of the Company's total revenue for the years ended December 31, 2001 and 2000. The revenue received from CITGO was approximately $38.0 million and $38.6 million in 2001 and 2000, respectively, which related to the marine transportation services segment.

F-27



        The following table presents selected financial information pertaining to the Company's geographic operations for 2002, 2001 and 2000 (in thousands):

 
  Year Ended December 31,
 
  2002
  2001
  2000
Revenue                  
  Domestic   $ 200,008   $ 239,238   $ 223,579
  Foreign                  
    West Africa     84,576     69,305     48,268
    Middle East     23,683     22,450     34,242
    Southeast Asia     15,730     15,737     14,394
   
 
 
Consolidated revenue   $ 323,997   $ 346,730   $ 320,483
   
 
 
 
  Consolidated Balance Sheet Information
as of December 31,

 
 
  2002
  2001
 
Identifiable assets              
  Domestic   $ 510,483   $ 551,915  
  Foreign              
    West Africa     107,909     117,725  
    Middle East     44,912     40,955  
    Southeast Asia     11,427     15,216  
  Other     28,364     18,954  
   
 
 
    Total   $ 703,095   $ 744,765  
   
 
 
Vessels and equipment              
  Domestic   $ 542,003   $ 545,613  
  Foreign              
    West Africa     94,645     94,285  
    Middle East     31,542     27,887  
    Southeast Asia     11,427     16,771  
   
 
 
      679,617     684,556  
  General corporate     8,842     8,772  
   
 
 
      688,459     693,328  
  Less: accumulated depreciation     (143,290 )   (103,957 )
   
 
 
    Total   $ 545,169   $ 589,371  
   
 
 

13.   Fair Value of Financial Instruments

        The following methods and assumptions were used to estimate the fair value of financial instruments included in the following categories:

        Cash, Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Accrued Liabilities.    The carrying amounts reported in the balance sheet approximate fair value due to the short-term nature of such instruments.

F-28



        New Credit Facility and Title XI.    The New Credit Facility and Title XI obligations provide for interest and principal payments at various rates and dates as discussed in Note 3. The Company estimates the fair value of such obligations using a discounted cash flow analysis at estimated market rates. The following table presents the carrying value and fair value of the financial instruments at December 31, 2002 and 2001 (in millions):

 
  December 31,
 
  2002
  2001
Issue

  Carrying Value
  Fair Value
  Carrying Value
  Fair Value
New Credit Facility   $ 178.7   $ 178.7   $   $
Title XI   $ 234.5     257.5     241.6     246.5

        Notes Payable and Capital Lease Obligations.    The carrying amounts reported in the balance sheet approximate fair value determined using a discounted cash flow analysis at estimated market rates.

14.   Extraordinary Items

        In connection with the closing of the new equity investment and New Credit Facility in September 2002, the Company redeemed all of its 12.5% Secured Notes due 2007 and repaid its then existing bank debt.

        The carrying value of the Senior Notes and bank debt at the time of the redemption and repayment was $225.2 million, net of unamortized discount and unamortized financing costs. The price paid to retire the Senior Notes and bank debt was $253.0 million. As a result, $27.8 million was recorded as a loss on early extinguishment of debt, consisting of the write-off of the unamortized financing costs on the Senior Notes and bank debt of $9.7 million, unamortized original issue discount on the Senior Notes of $14.1 million and contractual redemption premiums on the Senior Notes of $4.0 million. The tax benefit, net of the recorded valuation allowance, was zero.

15.   Sale of Assets of Sun State and Port Arthur

        On March 22, 2002, the Company closed on the sale of the marine transportation assets and trade name of Sun State for $3.9 million in cash. The assets consisted of tugs, barges and fuel inventory with a carrying value of $4.3 million. The name of this company was subsequently changed to Seabulk Marine Services, Inc. The Company recognized a loss on the disposal of these assets of approximately $440,000.

        On May 20, 2002, the Company closed on the sale of the marine terminal facility assets at Port Arthur, Texas for $3.0 million. Fifty percent of the proceeds ($1.5 million) were received at closing in cash and the remainder will be deferred and received over the next three years in the form of either cash or shipyard repair credits from the buyer. The assets consisted of land, an office building, docks and parking and warehouse storage facilities with a carrying value of $1.3 million. As a result, the Company recognized a gain of $1.7 million.

        On July 9, 2002, the Company closed on the sale of the drydock and related shipyard equipment assets of Seabulk Marine Services, Inc. (formerly Sun State Marine Services, Inc.) for $450,000. The Company has no remaining operations at the Sun State location.

F-29



16.   Liquidity

        At December 31, 2002, the Company had working capital of approximately $26.3 million. Day rates and utilization for offshore vessels working in the Gulf of Mexico continued to be weak, a trend that began in September 2001. The slowdown in the domestic offshore market was offset in part by continued strength in the Company's international offshore operations, where day rates remained strong during the year and contributed to increased revenue in West Africa and the Middle East, and in part by the improved performance of the marine transportation segment. The increased revenue in the offshore business in West Africa and the Middle East was driven by exploration and production spending as major oil companies continued to proceed with oil exploration and development programs outside the United States. Since the September 11, 2001 attacks, the subsequent war on terrorism and then commencement of the war in Iraq, the U.S. economy continues to be subject to pressure. As we enter 2003, the timing of a recovery in the domestic offshore segment is still not certain. However, the increases in oil and natural gas prices during the fourth quarter of 2002 and the early part of 2003 reinforce the potential for an upturn in domestic exploration and development activity in the latter half of 2003. We do expect earnings in 2003 from the offshore segment to improve compared to 2002. The Company also expects to benefit in 2003 from higher earnings in its marine transportation business as a result of a full year of higher time charter rates for certain tankers.

        The Company's capital requirements arise primarily from its need to service debt, fund working capital and maintain and improve its vessels. The Company anticipates capital requirements for debt service, vessel maintenance and fleet improvements in 2003 to total approximately $98 million and expects that cash flow from operations will continue to be a significant source of funds for its working capital and capital requirements.

        The Company's credit agreement contains certain restrictive financial covenants that, among other things, requires minimum levels of EBITDA and tangible net worth. The Company is in compliance with such covenants at December 31, 2002 and expects to be in compliance through the balance of 2003 based on current financial projections. However, the Company's financial projections contain assumptions with respect to economic recovery beginning in the second quarter of 2003 in the underperforming U.S. Gulf offshore market. If the economic recovery does not occur, or occurs later or to a lesser extent than the current forecasts, the Company will need to reduce operating expenses to maintain compliance.

        Management continues implementation of certain initiatives in an effort to improve profitability and liquidity. These initiatives include (1) selective acquisitions and charters of additional vessels, (2) repositioning certain vessels to take advantage of higher day rates, (3) selling unprofitable vessels, and (4) eliminating non-essential operating and overhead expenses. Management believes that its expense reduction initiatives will be sufficient to meet its financial covenants if the forecasted U.S. Gulf is other than expected.

        Management recognizes that unforeseen events or business conditions, including unexpected deterioration in its markets, could prevent the Company from having sufficient liquidity to fund its operations or meeting targeted financial covenants.

F-30



        If unforeseen events or business conditions prevent the Company from having sufficient liquidity to fund its operations, the Company has alternative sources including additional asset sales, and deferral of capital expenditures, which should enable it to satisfy essential capital requirements. If the Company does not meet its financial covenants, the Company would be required to seek an amendment or waiver to avoid default. While the Company believes it could successfully implement alternative plans, if necessary, there can be no assurance that such alternatives would be available or that the Company would be successful in their implementation.

17.   Subsequent Events

        In January 2003, the Company took delivery of the Seabulk Africa, a newbuild, state-of-the-art, 236-foot, 5500 horsepower UT-755L platform supply vessel. The vessel is expected to join the Company's West African fleet. The Seabulk Africa was acquired for cash of approximately $16 million and will be financed in April 2003 by means of a sale leaseback arrangement with TransAmerica Capital for a lease term of 10 years, after which the Company will have an option to acquire the vessel.

        On March 7, 2003, the Company formed a joint venture company in Nigeria, named Modant Seabulk Nigeria Limited, with CTC International, Inc., a company owned by Nigerian interests. The Company will sell five of its crewboats operating in Nigeria to a related joint venture with CTC International in April 2003. Modant Seabulk Nigeria Limited will operate crewboats in Nigeria. Seabulk Offshore will provide certain management services for the joint venture.

        On March 27, 2003, the Canaveral Port Authority served a sixty day notice of termination of the exclusive franchise to Port Canaveral Towing. Port Canaveral Towing intends to continue its operations on a non-exclusive basis at Port Canaveral.

18.   Selected Quarterly Financial Information (unaudited)

        The following information is presented as supplementary financial information for 2002 and 2001 (in thousands, except per share information):

Year Ended December 31, 2002

  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

 
Revenue   $ 83,199   $ 81,639   $ 80,369   $ 78,790  
Income from operations     11,968     8,540     10,025     5,873  
Loss before extraordinary item     (2,286 )   (4,367 )   (2,757 )   (1,637 )
Net loss(a)     (2,286 )   (4,367 )   (30,580 )   (1,637 )
Net loss per common share—basic and Diluted(b):                          
  Loss before extraordinary item   $ (0.22 ) $ (0.41 ) $ (0.21 ) $ (0.07 )
  Net loss   $ (0.22 ) $ (0.41 ) $ (2.37 ) $ (0.07 )
Year Ended December 31, 2001

  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

 
Revenue   $ 81,420   $ 91,424   $ 89,720   $ 84,166  
Income from operations     8,409     18,903     18,565     3,211  
Net (loss) income     (7,233 )   2,750     2,907     (10,385 )
Net (loss) earnings per common share—basic(b)   $ (0.71 ) $ 0.27   $ 0.28   $ (0.99 )
Net (loss) earnings per common share—assuming dilution(b)   $ (0.71 ) $ 0.27   $ 0.28   $ (0.99 )

(a)
Includes loss on early extinguishment of debt of $27.8 million in the third quarter of 2002 (see Note 14).

F-31


(b)
The sum of the four quarters' (loss) earnings per share will not necessarily equal the annual earnings per share, as the computations for each quarter are independent of the annual computation.

19.   Supplemental Condensed Consolidating Financial Information

        On August 5, 2003, the Company completed the offering of $150 million of Senior Notes ("Notes") due 2013 through a private placement eligible for resale under Rule 144A and Regulation S. The net proceeds of the offering were used to repay a portion of the Company's indebtedness under its existing $180 million credit facility. Interest on the Notes will be payable semi-annually in arrears, commencing on February 15, 2004. The interest rate on the Notes sold to private investors is 9.50%. The Notes are senior unsecured obligations guaranteed by certain of the Company's U.S. subsidiaries. The Notes are subject to certain covenants, including, among other things, limiting the Company's and certain U.S. subsidiaries' ability to incur additional indebtedness or issue preferred stock, pay dividends to stockholders, and make investments or sell assets.

        In connection with the Notes offering, the Company amended and restated its existing $180 million credit facility. The amended credit facility consists of an $80 million revolving credit facility and has a five-year maturity. The amended credit facility is subject to semi-annual reductions commencing February 5, 2004. It is secured by first liens on certain of the Company's vessels (excluding vessels financed with Title XI financing and certain other vessels) and the stock of certain subsidiaries and will be guaranteed by certain subsidiaries. The amended credit facility is subject to various financial covenants, including minimum ratios of adjusted EBITDA to adjusted interest expense and a minimum ratio of adjusted funded debt to adjusted EBITDA.

        The restricted subsidiaries presented below represent the Company's subsidiaries that will be subject to the terms and conditions outlined in the indenture governing the senior notes. Only certain of the restricted subsidiaries, representing the domestic restricted subsidiaries, will guarantee the notes, jointly and severally, on a senior unsecured basis. The non-guarantor unrestricted subsidiaries presented below represent the subsidiaries that own the five double-hull tankers which are financed by the Title XI debt with recourse to these tankers and the subsidiaries that own them. These subsidiaries are designated as unrestricted subsidiaries under the indenture governing the senior notes and will not guarantee the notes.

        Supplemental financial information for the Company and its guarantor restricted subsidiaries, non-guarantor restricted subsidiaries and non-guarantor unrestricted subsidiaries for the senior notes is presented below.

F-32



Condensed Consolidating Balance Sheet

(in thousands)

 
  As of December 31, 2002
 
  Parent
  Wholly Owned
Guarantor
Restricted
Subsidiaries

  Non-
Wholly Owned
Guarantor
Restricted
Subsidiaries

  Non-
Guarantor
Restricted
Subsidiaries

  Non-
Guarantor
Unrestricted
Subsidiaries

  Eliminations
  Consolidated
Total

Assets                                          
Current assets:                                          
  Cash and temporary investments   $ 12,316   $ 413   $ 13   $ 4,802   $ 19,644   $   $ 37,188
  Trade accounts receivable     580     15,051     723     28,239     1,394         45,987
  Insurance claims receivable & other     797     3,415     2     8,890     381         13,485
  Restricted cash                 1,337             1,337
  Marine operating supplies     121     1,673