<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997.
REGISTRATION NO. 333-31609
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
UNIFAB INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
LOUISIANA 3441 72-1382998
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
</TABLE>
5007 PORT ROAD
NEW IBERIA, LOUISIANA 70562
(318) 367-8291
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
DAILEY J. BERARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNIFAB INTERNATIONAL, INC.
5007 PORT ROAD
NEW IBERIA, LOUISIANA 70562
(318) 367-8291
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
CARL C. HANEMANN THOMAS P. MASON
JONES, WALKER, WAECHTER, POITEVENT, ANDREWS & KURTH L.L.P.
CARRERE & DENEGRE, L.L.P. 4200 TEXAS COMMERCE TOWER
201 ST. CHARLES AVENUE 600 TRAVIS, SUITE 4200
NEW ORLEANS, LOUISIANA 70170 HOUSTON, TEXAS 77002
(504) 582-8000 (713) 220-4200
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1997
2,815,000 SHARES
UNIFAB INTERNATIONAL, INC.
[UNIFAB INTERNATIONAL LOGO] COMMON STOCK
Of the 2,815,000 shares of common stock, $0.01 par value per share (the
"Common Stock"), of UNIFAB International, Inc. (the "Company") offered hereby,
1,100,000 shares are being sold by the Company and 1,715,000 shares are being
sold by McDermott Incorporated ("McDermott" or the "Selling Shareholder"). See
"Principal and Selling Shareholders." Prior to this offering (the "Offering"),
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price per share will be between $14.00 and
$16.00. See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "UFAB."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total(3).................. $ $ $ $
==============================================================================================================
</TABLE>
(1) The Company and the Selling Shareholder have agreed separately to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Company has granted to the several Underwriters an option for 30 days to
purchase up to an additional 422,250 shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if any.
If such option is exercised in full, the Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Shareholder will be
$ , $ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about
, 1997.
---------------------
MORGAN KEEGAN & COMPANY, INC. STEPHENS INC.
The date of this Prospectus is September , 1997.
<PAGE> 3
No. 1: Deck fabricated by the Company pictured after loading onto a barge for
delivery to a platform offshore.
No. 2: Deck with complex piping fabricated by the Company and loaded onto skids
to be moved onto a barge for transportation to a platform offshore.
No. 3: Platform jacket and three decks fabricated by the Company. The decks each
feature complex piping and helipads.
No. 4: Aerial view of the Company's 150 acre yard and surrounding areas located
at the Port of Iberia, Louisiana.
No. 5: Deck fabricated by the Company pictured during transportation by a tug
and delivery barge to a platform offshore.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto included elsewhere in
this Prospectus. UNIFAB International, Inc. (the "Company") was recently formed
to serve, upon completion of the Offering, as the parent corporation of
Universal Fabricators Incorporated ("Universal Fabricators"), 51% of the
outstanding common stock of which is currently owned by Universal Partners, Inc.
("Universal Partners") and 49% of such stock is owned by McDermott Incorporated
("McDermott"). Immediately prior to the completion of the Offering, Universal
Partners will exchange its shares of common stock of Universal Fabricators for
shares of the Company's Common Stock (the "Partners Share Exchange"), which will
be distributed to the shareholders of Universal Partners upon the dissolution of
Universal Partners which is expected to occur promptly after the completion of
the Offering. McDermott will also exchange its shares of common stock of
Universal Fabricators for shares of the Company's Common Stock (the "McDermott
Share Exchange"), all of which will be sold in the Offering. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised and that the Partners Share Exchange
and the McDermott Share Exchange each have been completed. As used herein,
unless the context requires otherwise, references to the "Company" include
Universal Fabricators and its predecessor. Certain technical terms are defined
in the "Glossary of Certain Technical Terms" appearing immediately before the
Index to Financial Statements.
THE COMPANY
GENERAL. UNIFAB International, Inc. is an industry leader in the custom
fabrication of decks and modules of drilling and production equipment weighing
up to 3,500 tons for offshore oil and gas platforms, based on the number of
decks delivered, and has special expertise in the fabrication of decks with
complex piping requirements. Decks and modules fabricated by the Company can be
installed on fixed and floating platforms regardless of water depth. The Company
also fabricates jackets for fixed platforms; pilings and other rolled tubular
steel sections; compressor and generator packages; platform living quarters;
subsea templates; bridges for connecting offshore platforms; wellhead
protectors; and modules for the onshore petrochemical and refining industries.
In addition, the Company refurbishes and retrofits existing jackets and decks
and performs offshore piping hook-up and platform maintenance services.
Structures fabricated by the Company are installed in oil and gas producing
waters around the world, primarily the U.S. Gulf of Mexico (the "Gulf of
Mexico") and offshore West Africa.
The Company, founded in 1980, has been profitable for each of the last five
years largely as a result of management's ability to control costs, provide high
quality, reliable services, and expand successfully into international markets.
The Company's revenue increased 139% from $27.9 million in its fiscal year ended
March 31, 1995 to $66.7 million in the fiscal year ended March 31, 1997. During
the same period, both the Company's workforce and direct labor hours worked
increased by approximately 105%.
Demand for the Company's services is primarily a function of worldwide
offshore oil and gas activity. Over the past four years, improvements in
production techniques and seismic and drilling technology, together with
relatively stable oil and gas prices, have resulted in accelerated drilling
activity in the Gulf of Mexico and continued strong activity levels worldwide.
The number of active offshore drilling rigs worldwide is at its highest point
since 1986. The average number of active offshore rigs in the Gulf of Mexico has
increased from approximately 80 for the year ended December 31, 1992 to more
than 155 for the year ended December 31, 1996.
Due to the time required to drill an exploratory offshore well, formulate a
development plan and design offshore platforms, the fabrication and installation
of such platforms usually lag exploratory drilling by one to three years. As a
result, high levels of drilling activity worldwide, particularly in the Gulf of
Mexico, have only recently impacted the demand for the Company's custom
fabrication services. The Company believes its strong presence in both overseas
markets and the Gulf of Mexico market, coupled with continued strong oil and gas
activity in these markets, has enabled it to selectively obtain high margin
fabrication work and benefit from increased pricing levels.
1
<PAGE> 5
The Company's operations are conducted on approximately 140 acres of land
and 225,000 square feet of covered fabrication area at the Port of Iberia,
approximately 20 miles southeast of Lafayette, Louisiana and 30 miles north of
the Gulf of Mexico. Current access routes to the Gulf of Mexico permit the
transporting of jackets for use in waters up to 300 feet deep and decks and
other structures weighing up to 3,500 tons. A by-pass along one of these
waterways could provide access from the Company's facilities to the Gulf of
Mexico for structures weighing up to 6,000 tons, if it were to be reopened and
dredged to sufficient depth. Local port commissions have proposed the reopening
and dredging of this by-pass with state and local funds. The Company believes
that there is widespread support for this proposal and that the by-pass may be
reopened within the next two years. No assurance can be given as to whether or
when such project will be completed or whether the increased channel depth will
be maintained. If the project is not completed by state or local authorities,
the Company could pay to have this bypass reopened and dredged, which expense
may be economically justifiable in connection with the large revenue amounts
typically derived from fabrication of large structures.
1992 EXPANSION TRANSACTION. The Company's predecessor, Universal Partners,
was organized in 1980 by its founder, Dailey J. Berard. In 1992, in order to
expand its capabilities at the Port of Iberia and meet increasing demand for its
services, Universal Partners entered into an agreement with McDermott, a
subsidiary of McDermott International, Inc. Universal Partners contributed as a
going concern to the then newly-formed Universal Fabricators approximately 50
acres of leased land, its buildings and fabrication equipment, and $2.4 million
in cash. McDermott contributed an inactive fabrication yard directly across a
canal from the land leased by Universal Partners, which included approximately
85 acres of land, 200,000 square feet of covered fabrication space and various
equipment. This transaction (the "Expansion Transaction") substantially enlarged
the Company's yard space and increased covered fabrication area from 25,000
square feet to approximately 225,000 square feet. Both before and after the
Expansion Transaction, the day-to-day operations of the Company have been
conducted by Dailey J. Berard and the other members of the Company's management
team.
In the Expansion Transaction, McDermott received 49% of the outstanding
stock of Universal Fabricators. McDermott will sell all of its shares of Common
Stock as part of the Offering in connection with a previously announced strategy
of returning to core businesses by disposing of certain assets, including
certain financial investments. The Company will use a portion of the proceeds of
the Offering to secure McDermott's release of its rights under certain
agreements entered into in connection with the Expansion Transaction.
GROWTH AND PROFITABILITY STRATEGY
The Company's growth and profitability strategy is to capitalize on the
positive trends and current opportunities in heavy marine fabrication for the
oil and gas industry. Key elements of the Company's strategy are to:
- PURSUE EXPANDING MARKETS. The Company intends to continue to pursue
high-margin fabrication work in both domestic and international offshore
oil and gas producing areas where demand for its services has
substantially increased over the last five years. In fiscal 1997, the
Company derived 36% of its revenue from projects designed for
installation in the Gulf of Mexico and believes that an increasing
portion of its capacity will be used to satisfy demand for such projects.
In addition, a series of large oil and gas projects are being developed
for offshore Nigeria, Mexico, Brazil and Venezuela. The Company believes
that these projects, as well as projects in the Gulf of Mexico, will
provide it with significant opportunities to obtain high-margin
fabrication work in both the current fiscal year and thereafter.
- EXPAND FACILITIES. The Company intends to use a portion of the proceeds
of the Offering to construct a new slip and bulkhead and develop the
adjacent yard space that will enable the Company to construct and load
out projects weighing up to 6,000 tons. In addition, the Company intends
to acquire and install a new four-inch rolling mill which will enable the
Company to satisfy all of its rolled good requirements in-house,
including larger diameter pipe not currently rolled by the Company. The
Company believes that the enhanced capabilities provided by the new
facilities will provide the
2
<PAGE> 6
Company with opportunities to satisfy its customers' increasing needs for
structures usable in deep waters throughout the world.
- MANAGE BACKLOG. The Company has historically attempted to manage its
backlog in order to benefit from pricing trends. In periods of rising
prices, the Company intentionally avoids building high levels of backlog
in order to maximize its ability to pursue higher margin projects. The
Company believes that, as a low-cost fabricator, it is well positioned to
benefit from this strategy.
- IMPROVE WORKFORCE EFFICIENCY. The Company believes that its success has
been founded on its well motivated workforce, efficient management and
low overhead costs. To take advantage of the increased demand for its
services, the Company will continue to emphasize its low cost structure
and will seek to increase the productivity of its workforce by using a
portion of the proceeds of the Offering to purchase additional automated,
labor-saving equipment and to expand and upgrade its existing buildings
and equipment. The Company also intends to expand its investment in
employee education and training in order to upgrade employee skill levels
and productive capacity.
- INCREASE EMPLOYEE POOL. In fiscal 1997, the Company added approximately
95 full-time production employees to its workforce. The Company estimates
that its current facility could accommodate a workforce of more than
double the 408 workers employed by the Company at July 31, 1997. The
Company intends to continue its efforts to increase its skilled workforce
in order to increase the Company's production capacity. To address the
current shortage of skilled workers in south Louisiana, the Company has
been cooperating with local and regional associations and government
authorities to foster the training of skilled workers. The Company
believes that there is a large number of trainable employees residing in
reasonable proximity to its facility. The Company further believes that
companies whose products and services are complementary to those of the
Company are available for acquisition and that its capital structure
after the Offering will enable it to pursue such acquisition
opportunities as a means of expanding its skilled workforce.
The Company is incorporated under the laws of the State of Louisiana, its
principal executive offices are located at 5007 Port Road, New Iberia, Louisiana
70562, its mailing address is P.O. Box 11308, New Iberia, Louisiana 70560 and
its telephone number is (318) 367-8291.
3
<PAGE> 7
THE OFFERING
Common Stock offered:
By the Company........... 1,100,000
By the Selling
Shareholder............ 1,715,000
Total.................... 2,815,000
Common Stock to be
outstanding after the
Offering................. 4,600,000 shares(1)
Use of Proceeds............ To fund (i) approximately $7.0 million of capital
expenditures for certain new equipment, slips,
bulkheads and load out systems and for the upgrade
and purchase of yard space, land, buildings and
equipment and (ii) a $6.3 million payment to
McDermott for the surrender of its rights under the
Shareholders' Agreement and the Put/Call Agreement.
See "The Company" and "Certain Transactions." The
balance of the proceeds will be used to provide
working capital and for general corporate purposes.
See "Use of Proceeds."
The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholder.
Nasdaq National Market
Symbol................... UFAB
- ---------------
(1) Excludes 133,500 shares issuable upon exercise of outstanding options. See
"Management -- Compensation Pursuant to Plans -- Long-Term Incentive Plan."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In particular, prospective investors should be aware of the effect on the
Company of the risks presented by the factors listed under "Risk Factors."
4
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary historical financial and operating
data as of the dates and for the periods indicated. The historical financial
data for each year in the three-year period ended March 31, 1997, and as of
March 31, 1997, are derived from the audited financial statements of Universal
Fabricators. The summary financial data as of June 30, 1997 and for the three
months ended June 30, 1996 and 1997 are derived from the unaudited financial
statements of Universal Fabricators for such periods. In the opinion of
management, the unaudited financial statements of Universal Fabricators reflect
all adjustments (consisting of only normal recurring adjustments) necessary for
fair presentation of the financial condition and results of operations for these
periods. Results for interim periods are not necessarily indicative of results
for a full year. Immediately prior to completion of the Offering, Universal
Fabricators will become a wholly owned subsidiary of UNIFAB International, Inc.,
which will have no other significant operations or assets. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------------------------------- -------------------
1993(1) 1994 1995 1996 1997 1996 1997
---------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue................................. $ 25,369 $ 29,926 $ 27,883 $ 51,807 $ 66,724 $ 18,419 $ 15,503
Cost of revenue......................... 21,239 27,211 23,174 40,362 58,589 16,295 13,314
---------- -------- -------- -------- -------- -------- --------
Gross profit............................ 4,130 2,715 4,709 11,445 8,135 2,124 2,189
General and administrative expense...... 1,207 1,228 1,326 1,419 1,637 342 409
---------- -------- -------- -------- -------- -------- --------
Operating income........................ 2,923 1,487 3,383 10,026 6,498 1,782 1,780
Other income (expense), net............. 84 21 38 315 82 26 24
---------- -------- -------- -------- -------- -------- --------
Income before income taxes.............. 3,007 1,508 3,421 10,341 6,580 1,808 1,804
Income tax expense...................... 1,112 555 1,286 3,888 2,555 709 660
---------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 1,895 $ 953 $ 2,135 $ 6,453 $ 4,025 $ 1,099 $ 1,144
========== ======== ======== ======== ======== ======== ========
Net income per share (unaudited)(2)..... $ 0.54 $ 0.27 $ 0.61 $ 1.84 $ 1.15 $ 0.31 $ 0.33
========== ======== ======== ======== ======== ======== ========
Pro forma net income per share
(unaudited)(9)........................ $ 0.88 $ 0.25
======== ========
Cash dividends declared per common share
(unaudited)(2)........................ -- -- $ 0.25 $ 0.55 $ 1.66 $ 1.66 $ 1.03
Weighted average common shares
(unaudited)(2)........................ 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Other Financial Data:
Depreciation and amortization........... $ 125 $ 381 $ 424 $ 390 $ 471 96 124
Capital expenditures.................... $ 20 $ 110 $ 179 $ 402 $ 821 325 50
Net cash provided by (used in) operating
activities............................ (1,181) (480) 3,392 4,285 2,328 1,570 5,643
Net cash provided by (used in) investing
activities............................ (20) (110) (170) (394) (803) (318) (50)
Net cash provided by (used in) financing
activities............................ 2,400 531 (1,389) (1,921) (5,807) (2,962) (3,622)
EBITDA(3)............................... $ 3,048 $ 1,868 $ 3,807 $ 10,416 $ 6,969 1,878 1,904
EBITDA margin(3)........................ 12.0% 6.2% 13.7% 20.1% 10.4% 10.2% 12.3%
Operating Data:
Direct labor hours worked............... 520,000(4) 484,000 436,000 656,000 902,000 218,000 260,000
Number of employees..................... 230 215 210 330 425 362 404
Backlog (at end of period).............. $ 6,976 $ 8,917 $ 31,994 $ 42,311 $ 30,221 $ 35,426 $ 21,142
</TABLE>
5
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Industry Data:
U.S. Gulf of Mexico:
Rig utilization rates(5)................................ 49.3% 76.5% 76.2% 76.2% 88.0%
Blocks leased(6)........................................ 204 336 560 835 1,508
Drilling rigs under contract(7)......................... 79 116 133 135 158
Offshore platforms installed(8)......................... 53 81 127 89 114
Worldwide:
Rig utilization rates(5)................................ 76.0% 81.9% 81.1% 83.9% 89.5%
Drilling rigs under contract(7)......................... 519 545 536 541 572
Offshore platforms installed(8)......................... 192 219 252 187 230
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(9)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital........................................... $ 5,788 $ 7,434
Property, plant and equipment, net........................ 5,267 12,267
Total assets.............................................. 22,412 31,058
Debt...................................................... -- --
Shareholders' equity...................................... 9,723 18,369
</TABLE>
- ---------------
(1) The income statement data, other financial data and operating data include
the results of Universal Partners for the period from April 1, 1992 through
November 30, 1992 and Universal Fabricators for the period from December 1,
1992 through March 31, 1993.
(2) The unaudited share and per share data give retroactive effect to the
completion of the Partners Share Exchange and the McDermott Share Exchange.
See "The Company."
(3) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus depreciation
and amortization. EBITDA margin is calculated by dividing EBITDA by
revenue. Neither EBITDA nor EBITDA margin should be considered as an
alternative to net income, or any other measure of operating performance in
accordance with generally accepted accounting principles. EBITDA and EBITDA
margin are widely used by financial analysts as a measure of financial
performance. The Company's measurements of EBITDA and EBITDA margin may not
be comparable to similarly titled measures reported by other companies.
(4) Reflects the number of direct labor hours worked for the year ended
December 31, 1992.
(5) Represents the average utilization rate for drilling rigs located in the
U.S. Gulf of Mexico and worldwide, respectively, during the period
indicated. Data obtained from Offshore Data Services.
(6) Represents the number of 5,000 acre tracts leased by the Minerals
Management Service (United States Department of the Interior) ("MMS") to
oil and gas companies in the U.S. Gulf of Mexico. Data obtained from the
MMS.
(7) Represents the average number of drilling rigs under contract in the U.S.
Gulf of Mexico and throughout the world, respectively, for the period
presented. Data obtained from Offshore Data Services.
(8) Represents the number of decks installed on fixed development drilling and
production platforms installed in the U.S. Gulf of Mexico and worldwide,
respectively, in the period presented. Data obtained from Offshore Data
Services.
(9) Assumes (i) the completion of the Partners Share Exchange and the McDermott
Share Exchange and (ii) the public offering of 1,100,000 shares of Common
Stock by the Company at an assumed price of $15.00 per share resulting in
net proceeds of $14.9 million (after deducting the underwriting discount
and estimated expenses of the Offering) and the application thereof as
described herein. See "Use of Proceeds."
6
<PAGE> 10
THE COMPANY
UNIFAB International, Inc., was formed as a Louisiana corporation in July
1997 to serve as the parent corporation for Universal Fabricators, a Delaware
corporation established in 1992. Universal Fabricators' predecessor, Universal
Partners, was organized as a Louisiana corporation in 1980 by its founder,
Dailey J. Berard.
In 1992, in order to expand its capabilities at the Port of Iberia and meet
increasing demand for its services, Universal Partners entered into an agreement
with McDermott, pursuant to which (i) Universal Partners contributed as a going
concern to the then newly-founded Universal Fabricators approximately 50 acres
of leased land, its buildings and fabrication equipment, and $2.4 million cash,
and (ii) McDermott contributed an inactive fabrication yard directly across a
canal from the land leased by Universal Partners, which included approximately
85 acres of land, 200,000 square feet of covered fabrication space and various
equipment. In exchange, Universal Partners received 51% and McDermott received
49% of the common stock of Universal Fabricators. The Expansion Transaction
became effective December 1, 1992 and substantially enlarged the Company's yard
space and increased its covered fabrication space from 25,000 square feet to
225,000 square feet. Both before and after the Expansion Transaction, the
day-to-day operations of the Company have been conducted by Dailey J. Berard and
the other members of the Company's management team. Although McDermott
representatives have occupied two of five seats on Universal Fabricators' board
of directors, McDermott has remained essentially a passive investor.
In connection with the Expansion Transaction, Universal Partners and
McDermott entered into several agreements which set forth their respective
rights and obligations with respect to Universal Fabricators and the shares of
common stock of Universal Fabricators owned by each of them, all of which will
be terminated in connection with the Offering:
Shareholders' Agreement: Pursuant to the shareholders' agreement (the
"Shareholders' Agreement") between Universal Partners and McDermott, each
party has a right of first refusal with respect to sales of common stock of
Universal Fabricators by the other. In addition, no transfer of such common
stock is allowed until December 1999, and public offerings of the common
stock are prohibited, unless the parties agree otherwise. The Shareholders'
Agreement also provides for a five-member board of directors, three of whom
are to be elected by Universal Partners and two by McDermott. Most major
transactions and changes in corporate governance must be approved by either
the unanimous vote of the shareholders or a majority vote of the board of
directors, which majority includes at least one director elected by each
party. The Shareholders' Agreement also provides that, unless determined
otherwise by a majority of directors including at least one director
elected by each party, 90% of Universal Fabricators' net income for each
year, less reserves, must be distributed to shareholders as dividends.
Put/Call Agreement: Pursuant to an agreement entered into between
Universal Partners and McDermott (the "Put/Call Agreement"), Universal
Partners has the right to require McDermott to purchase all of its shares
of common stock in Universal Fabricators at a purchase price equal to 51%
of the product of (i) 4.5 and (ii) Universal Fabricators' average net
income for the two years prior to the exercise of the put option. Universal
Partners may exercise its right at any time from April 1, 1998 to June 30,
1998 and from April 1, 1999 to June 30, 1999. McDermott, on the other hand,
from April 1, 1999 to June 30, 1999, has the right to purchase Universal
Partners' shares of common stock in Universal Fabricators at the same
purchase price.
Other Agreements: McDermott and Universal Fabricators also entered
into a lease covering Universal Fabricators' administrative office and five
acres of surrounding land. McDermott is also the guarantor of Universal
Fabricators' revolving line of credit with a commercial lender (the
"Existing Credit Facility") and has guaranteed certain letters of credit
issued under the Existing Credit Facility and by certain other banks in
connection with certain foreign contracts.
Immediately prior to the completion of the Offering, Universal Partners
will exchange its shares of common stock of Universal Fabricators for 1,785,000
shares of the Company's Common Stock, which will be distributed to the
shareholders of Universal Partners in connection with the dissolution of
Universal Partners,
7
<PAGE> 11
which is expected to occur promptly after the completion of the Offering.
Concurrently, McDermott will exchange all of the shares of Universal Fabricators
common stock owned by it for 1,715,000 shares of Common Stock of the Company.
McDermott has agreed that in the Offering it will sell all of the shares of
Common Stock of the Company it receives pursuant to the McDermott Share
Exchange, and that upon consummation of the Offering, it will (i) sell to the
Company approximately 18 acres of land, including the land and building
currently leased by the Company from McDermott, for $700,000 and (ii) surrender
all of its rights under the Shareholders' Agreement and the Put/Call Agreement
for $6.3 million. See "Certain Transactions" and "Use of Proceeds." In addition,
McDermott will no longer guarantee borrowings under the Existing Credit Facility
or provide credit support for any of the letters of credit issued on behalf of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
8
<PAGE> 12
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
investment considerations set forth below, as well as the other information
contained in this Prospectus.
CYCLICALITY; DEPENDENCE ON ACTIVITY IN THE OIL AND GAS INDUSTRY
The demand for the Company's services has traditionally been cyclical,
depending on the condition of the oil and gas industry and, in particular, the
level of capital expenditures of oil and gas companies that operate in offshore
oil and gas producing areas throughout the world. These capital expenditures
have been influenced by prevailing oil and natural gas prices; exploration and
production companies' expectations about future demand and prices; the cost of
exploring for, producing and delivering oil and gas; the sale and expiration
dates of offshore leases in the United States and overseas; the discovery rate
of new oil and gas reserves in offshore areas; local and international political
and economic conditions; and the ability of oil and gas companies to access or
generate capital sufficient to fund capital expenditures for offshore
exploration, development and production activities. Historically, oil and
natural gas prices and the level of offshore drilling and exploration activity
have fluctuated substantially, resulting in significant fluctuations in demand
for the Company's services. A significant decline in worldwide demand or
prolonged reduction in oil or natural gas prices in the future would likely
depress offshore drilling and development activity. A substantial reduction of
such activity would reduce demand for the Company's services and could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General."
NEED FOR SKILLED WORKERS
The Company's ability to remain productive and profitable depends
substantially on its ability to retain and attract skilled construction workers,
primarily welders, fitters and equipment operators. The Company's ability to
expand its operations depends primarily on its ability to increase its skilled
workforce. The demand for skilled workers in south Louisiana is high and the
supply of skilled workers is extremely limited, and no assurance can be given
that the Company will succeed in increasing the size of its workforce through
acquisitions, training, new hiring programs or otherwise. Although the Company
believes that there are a large number of trainable workers residing in
reasonable proximity to its facilities, there can be no assurances that the
Company will be successful in recruiting and training such workers due to a
variety of factors, including the current skill levels of such workers, the
potential inability or lack of desire by such workers to either commute to the
Company's facilities or relocate to areas closer to the Company's facilities,
and competition for workers from other industries. While the Company believes
that its wage rates are competitive and that its relationship with its skilled
workforce is good, a significant increase in the wages paid by competing
employers could result in a reduction in the Company's skilled workforce,
increases in the wage rates paid by the Company, or both. If either of these
events occur, in the near term, the profits realized by the Company from work in
progress would be reduced or eliminated and, in the long term, the production
capacity and profitability of the Company could be diminished and the growth
potential of the Company could be impaired. As another part of its strategy to
increase its employee pool, the Company plans to pursue acquisitions of
companies whose services are complementary to those of the Company. There can be
no assurance, however, that the Company will be able to identify and acquire
acceptable acquisition candidates on terms favorable to the Company or that the
Company will be able to integrate such acquisitions successfully. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Business -- Employees."
FACILITY LIMITATIONS
The Company owns one two-inch rolling mill, which currently supplies
approximately 80% of the rolled goods necessary to complete the Company's
projects. Although the rolling mill has not caused any substantial downtime for
the Company, it is an older piece of equipment that requires constant
maintenance. If the rolling mill were to become inoperable for a material amount
of time, the Company would be forced to purchase rolled goods from other
suppliers. There can be no assurance as to the Company's ability to purchase
such
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<PAGE> 13
goods in the quantities desired and there can be no assurance that the prices at
which these products may be purchased would not be materially higher than the
internal costs that the Company would otherwise bear in producing such rolled
goods. The loss of the rolling mill for a significant period would have a
material adverse effect on the Company's results of operations. The Company
obtains the remainder of its rolled goods from various regional suppliers. As
demand for fabricated services increases, the Company's ability to obtain the
rolled steel that it needs at acceptable prices decreases. If the Company were
not able to obtain such products or if prices for such goods became
prohibitively expensive, the Company's profitability and results of operations
could be materially adversely affected. See "Business -- Facilities and
Equipment -- Equipment" and "-- Materials."
Due to the limitations of the various access routes from the Company's
facilities at the Port of Iberia to the Gulf of Mexico, the Company is currently
unable to deliver structures weighing over 3,500 tons. One main route to the
Gulf of Mexico, the Freshwater Bayou Channel, provides 12 feet of water depth to
the Gulf of Mexico, but the dimensions of locks on this channel prevent the
transport of structures more than 80 feet in width. There is a by-pass channel
around these locks that, if usable, would permit continuous passage to the Gulf
of Mexico with at least 12 feet of water depth at all points and without any
material width restrictions. This water depth would generally permit the
transportation of structures weighing up to 6,000 tons, which the Company will
be able to fabricate once the new slip and bulkhead is constructed (to be funded
with a portion of the proceeds of this Offering). Due to the silt that has built
up on both sides of the by-pass, however, the by-pass is currently impassable
without extensive dredging. On the basis of amounts spent in the past by
contractors other than the Company in order to facilitate the transportation of
certain structures, it is estimated that the cost of dredging the silt from the
by-pass and opening the by-pass channel would be approximately $400,000 to
$500,000. Recently, the Abbeville Port Commission has proposed that the State of
Louisiana fund the reopening and dredging of the by-pass, a project that would
open the by-pass for at least one year and possibly longer, depending upon the
extent of future traffic through the by-pass. The Company believes that there is
widespread support for this proposal and that the by-pass may be reopened within
the next two years. There can be no assurance as to whether or when such project
will be completed or whether the increased channel depth will be maintained. If
this project is not completed by the state, the Company would remain unable to
deliver structures weighing over 3,500 tons unless it determined to incur the
additional dredging costs described above.
BACKLOG
The Company's backlog is based on management's estimate of the remaining
labor, material and subcontracting costs to be incurred with respect to those
projects on which a customer has authorized the Company to begin work or
purchase materials pursuant to written contracts, letters of intent, or other
forms of authorization. Most projects currently included in the Company's
backlog are subject to change and/or termination at the option of the customer,
either of which could substantially change the amount of backlog currently
reported. In the case of a termination, the customer is generally required to
pay the Company for work performed and materials purchased through the date of
termination, and in some cases, pay the Company termination fees; however, due
to the large dollar amounts of backlog estimated for each of a small number of
projects, amounts included in the Company's backlog could decrease substantially
if one or more of these projects were to be terminated by the Company's
customers. Approximately 57% of the Company's backlog at June 30, 1997 was
attributable to two projects. Termination of one or more of these large projects
could have a material adverse effect on the Company's revenue, net income and
cash flow for fiscal 1998. While the Company has restrained the growth of its
backlog in order to improve the prices it obtains for its services, such a
strategy in times of decreasing demand or increasing lead times for purchases of
materials could accelerate a decline in the Company's profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Business -- Backlog."
OPERATING RISKS
The Company's fabrication of large steel structures involves certain
operating hazards that can cause personal injury or loss of life, severe damage
to and destruction of property and equipment and suspension of
10
<PAGE> 14
operations. The failure of such structures during and after installation can
result in similar injuries and damages. The Company also has employees engaged
in offshore operations that are covered by provisions of the Jones Act, the
Death on the High Seas Act and general maritime law, which laws operate to make
the liability limits established by state workers' compensation laws (which
cover the Company's other employees) inapplicable to these employees and,
instead, permit them or their representatives to pursue actions against the
Company for damages for job-related injuries, with generally no limitations on
the Company's potential liability. In addition, due to their proximity to the
Gulf of Mexico, the Company's facilities are subject to the possibility of
physical damage caused by hurricanes or flooding. Although the Company maintains
such insurance protection as it considers economically prudent, there can be no
assurance that its insurance will be sufficient or effective under all
circumstances or against all claims or hazards to which the Company may be
subject, nor does the Company carry insurance for the loss of profits that may
result from such hazards. A successful claim or damage resulting from a hazard
for which the Company is not fully insured could have a material adverse effect
on the Company. Moreover, no assurance can be given that the Company will be
able to maintain adequate insurance in the future at rates that it considers
economically prudent. See "Business -- Insurance."
A majority of the Company's revenue in recent years has resulted from
projects constructed for overseas installation. Although the Company delivers
the structures that it fabricates at its Port of Iberia facility and has
historically received payment only in United States dollars, the Company is
nevertheless subject to delays in collecting receivables from contractors and
oil and gas companies with respect to projects installed overseas. Oil and gas
operations in overseas locations in which the Company's products have been
installed are subject to a number of risks inherent in business operations in
foreign countries, including political, social and economic instability;
nullification, modification or renegotiation of contracts; import-export quotas;
and other forms of public and governmental regulation, all of which are beyond
the control of the Company. Additionally, the ability of the Company to compete
in international markets may be adversely affected by import duties and fees, by
foreign taxes, by foreign governmental regulations that favor or require the
awarding of contracts to local contractors, or by regulations requiring foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction.
CONTRACT BIDDING RISKS
Due to the nature of the marine construction industry, most of the
Company's projects are performed pursuant to fixed-price contracts, although
some projects are performed on a time and materials basis. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." Under fixed-price contracts, the Company receives the
price fixed in the contract, subject to adjustment only for change orders placed
by the customer. As a result, with respect to fixed-price contracts, the Company
is responsible for all cost overruns. Under time and materials arrangements, the
Company receives a specified hourly rate for direct labor hours (which exceeds
its direct labor costs) and a specified percentage mark-up over its cost for
materials. As a result, with respect to time and materials contracts, the
Company is protected against cost overruns but does not benefit directly from
cost savings. The revenue, costs and gross profit realized on a contract will
often vary from the estimated amounts on which such contracts were originally
based for various reasons, including errors in estimates or bidding, changes in
the availability and cost of labor and material and variations in productivity
from the original estimates. These variations and the risks inherent in the
marine construction industry may result in revenue and gross profits different
from those originally estimated and reduced profitability or losses on projects.
Depending on the size of a project, variations from estimated contract
performance can have a significant impact on the Company's operating results for
any particular fiscal quarter or year.
Most of the Company's fixed price contracts also provide for incentive
payments for early delivery of projects and liquidated damages for late
delivery. If the Company were to miss the delivery date specified by any of its
contracts, whether due to problems with its rolling mill, labor shortages,
adverse weather conditions or other causes, and such delay was not excused under
the terms of such contract or by the customer, the Company could be subject to
liquidated damages which could materially adversely affect the Company's
profitability and results of operations.
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<PAGE> 15
PERCENTAGE-OF-COMPLETION ACCOUNTING
Most of the Company's revenue and income is recognized on a
percentage-of-completion basis based on the ratio which labor and subcontracting
costs incurred bears to the total estimated labor and subcontracting costs
required for completion. Accordingly, expected labor hours, costs and profits
are reviewed monthly as the work progresses, and adjustments proportionate to
the percentage of completion are reflected in revenue for the period when such
estimates are revised. To the extent that these adjustments result in a
reduction or elimination of previously reported profits, the Company would have
to recognize a charge against current earnings, which may be significant
depending on the size of the project or the adjustment. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General."
SEASONALITY AND WEATHER RISKS
The Company's operations are subject to seasonal variations in weather
conditions and daylight hours. Since most of the Company's construction
activities take place outdoors, the average number of direct labor hours worked
per day generally declines by approximately one and one-half hours in the winter
months as compared to the summer months due to an increase in rainy and cold
conditions and a decrease in daylight hours. Operations may also be affected by
the rainy weather, hurricanes and other storms prevalent along the Gulf Coast
throughout the year. As a result, the Company's revenue and gross profit during
the third and fourth quarters of each fiscal year are subject to being
disproportionately low as compared to the first and second quarters, although,
in recent years, that has not been the case. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General."
DEPENDENCE ON SIGNIFICANT CUSTOMERS
A large portion of the Company's revenue has historically been generated by
a few customers, although not necessarily the same customers from year to year.
For example, the Company's largest customers (those which individually accounted
for more than 10% of revenue in a given year) collectively accounted for 39.3%
(two customers), 64.4% (two customers) and 60.6% (two customers) of revenue for
fiscal 1995, 1996 and 1997, respectively. At June 30, 1997, 57% of the Company's
backlog was attributable to two projects.
Although the Company's direct customers on many projects are installation
contractors, each project is ultimately fabricated for use by an oil and gas
company. The Company, from time to time, contracts with multiple installation
contractors who may be supplying structures to the same oil and gas company and,
in some instances, contracts directly with the oil and gas companies. Thus,
concentration among the Company's customers may be greater when the customer is
viewed as the oil and gas company rather than the installation contractor. For
example, at June 30, 1997, the Company estimates that approximately 89% of its
backlog was for projects to be built for three oil and gas companies.
Because the level of fabrication that the Company may provide, directly or
indirectly, to any particular oil and gas company depends, among other things,
on the size of that company's capital expenditure budget devoted to platform
construction in a particular year and the Company's ability to meet the
customer's delivery schedule, companies that account for a significant portion
of the Company's revenue in one fiscal year, whether as a direct customer or
through subcontracted projects, may represent an immaterial portion of revenue
in subsequent years. The level of fabrication that the Company may provide as a
subcontractor to an offshore construction company depends, among other things,
on the ability of that company to successfully obtain prime contracts with oil
and gas companies and the ability of the Company to meet the delivery schedule
of the prime contractor. Thus, the prime contractors who account for a
significant portion of revenue in one fiscal year may represent an immaterial
portion of revenue in subsequent years. However, the loss of any significant
customer (whether an oil and gas company with which the Company directly
contracts or a prime contractor for which the Company has provided services on a
subcontract basis) for any reason, including a sustained decline in an oil and
gas company's capital expenditure budget or the prime contractor's inability to
successfully obtain contracts, or other competitive factors, could result in a
substantial loss of revenue and have a material adverse effect on the Company's
operating performance. See "Business -- Customers and Contracting."
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<PAGE> 16
COMPETITION
Marine construction companies servicing the oil and gas industry compete
intensely for available projects. Contracts for the Company's services are
generally awarded on a competitive bid basis. Price and the contractor's ability
to meet a customer's delivery schedule are the principal factors in determining
which qualified contractor is awarded the job. Customers may also consider,
among other things, the availability and capabilities of equipment, as well as
the reputation, experience and safety record of the contractor. The Company
competes with both large and small companies, and certain of these competitors
have greater financial and other resources than the Company. In addition,
because of subsidies, import duties and fees, taxes imposed on foreign operators
and lower wage rates in foreign countries, along with fluctuations in the value
of the U.S. dollar and other factors, the Company may not be able to remain
competitive with foreign contractors for projects designed for use in
international locations. See "Business -- Competition."
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to and affected by
various types of governmental regulation, including workplace safety regulations
and numerous federal, state and local environmental protection laws and
regulations, compliance with which is becoming increasingly expensive. Such laws
and regulations are complex, stringent and are often changed. Sanctions for
noncompliance may include revocation of or suspension of permits, corrective
action orders, cease and desist orders, administrative or civil penalties and
criminal prosecution. There can be no assurance that the Company is or will be
at all times in full compliance with all applicable laws and regulations.
Failure to comply could have a material adverse effect on the Company.
Certain environmental laws provide for strict, joint and several liability,
without regard to fault or negligence, for remediation of spills and other
releases of hazardous substances. In addition, companies may be subject to
claims alleging personal injury, property damage or natural resource damage as a
result of the handling of hazardous substances. These laws and regulations may
also expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company that were in compliance with all applicable
laws at the time such acts were performed.
In addition, the Company depends on the demand for its services from the
oil and gas industry and is affected by changing taxes, price controls and other
laws and regulations relating to the oil and gas industry generally. The
adoption of laws and regulations curtailing exploration and development drilling
for oil and gas for economic, environmental and other policy reasons would
adversely affect the Company's operations by limiting demand for its services.
The Company cannot determine to what extent future operations and earnings of
the Company may be affected by new legislation, new regulations or changes in
existing regulations. See "Business -- Government and Environmental Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on, among other things, the continued active
participation of Dailey J. Berard, President and Chief Executive Officer of the
Company, and certain of the Company's other officers and key operating
personnel. The loss of the services of any one of these persons could have a
material adverse effect on the Company. See "Management."
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of the Offering, the Company will have outstanding
4,600,000 shares of Common Stock (excluding 133,500 shares issuable upon the
exercise of outstanding options). All of the 2,815,000 shares of Common Stock
offered hereby will be eligible for sale in the public market without
restriction upon completion of the Offering. All of the remaining 1,785,000
shares of Common Stock are "restricted securities" as that term is defined in
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act").
The Company, each of the Company's directors and executive officers and certain
shareholders have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock in the public market for 180 days from the date of this
Prospectus without the prior consent of the Underwriters. See "Underwriting."
Subject to this
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<PAGE> 17
agreement, after the completion of the Offering, the Company's existing
shareholders may sell shares of Common Stock pursuant to Rule 144 under the
Securities Act or otherwise. In addition upon completion of the Offering, the
Company will enter into an employment agreement with Dailey J. Berard (a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part), which grants Mr. Berard the right to demand
registration of all of the shares of Common Stock owned by him (subject to a
minimum of 100,000 shares) if Mr. Berard's employment as President and Chief
Executive Officer of the Company is terminated for any reason except death,
disability or Cause (as defined therein). Although the Company cannot predict
the timing or amount of future sales of Common Stock or the effect that the
availability of such shares for sale will have on the market price prevailing
from time to time, sales of substantial amounts of Common Stock in the public
market following this Offering could adversely affect the market price of the
Common Stock. See "Principal and Selling Shareholders" and "Shares Eligible for
Future Resale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF MARKET PRICE; DILUTION
Prior to the Offering, there has been no public market for the Common
Stock. Although application has been made to list the Common Stock offered
hereby on the Nasdaq National Market, there can be no assurance that a market
for the Common Stock will develop or, if developed, will be sustained. The
initial public offering price of the Common Stock will be determined by
negotiations between the Company, the Selling Shareholder and the Underwriters.
For the factors considered in such negotiations, see "Underwriting." There can
be no assurance that future market prices at which the Common Stock will sell in
the public market after the Offering will not be lower than the initial public
offering price. Following the Offering, the market price of the Common Stock may
fluctuate depending on various factors, including the general economy, stock
market conditions, general trends in the marine construction business,
fluctuations in oil and gas prices, announcements by the Company or its
competitors and variations in the Company's quarterly and annual operating
results. In addition, purchasers of the Common Stock offered hereby, assuming an
initial public offering price of $15.00 per share, will incur immediate dilution
of $27.6 million ($9.82 per share) in the pro forma net tangible book value of
their investment. See "Dilution."
DIVIDENDS
The Company currently intends to retain earnings, if any, to meet its
working capital requirements and to finance the future operation and growth of
the Company's business and, therefore, does not plan to pay cash dividends to
holders of its Common Stock in the foreseeable future. See "Dividend Policy."
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<PAGE> 18
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the shares of
Common Stock offered hereby, after deducting the underwriting discount and
offering expenses, will be approximately $14.9 million (assuming an initial
offering price of $15.00 per share). The Company intends to use approximately
$7.0 million of its net proceeds to fund capital expenditures anticipated to be
made within 12 months of the completion of the Offering to improve the Company's
facilities and the productivity of its workforce, including approximately $4.0
million to acquire and install a four-inch rolling mill, approximately $1.7
million to construct a new slip and bulkhead and to build a new load out system
for use with the new slip, approximately $500,000 to expand and improve the
Company's pipe shop, $700,000 to purchase approximately 18 acres of land from
McDermott, including the land currently leased from McDermott, where the
Company's 12,000 square foot main office building is located, and $100,500 for
an additional 10 acres from Universal Partners. The Company will use $6.3
million of the net proceeds to secure the release by McDermott of its rights
under the Shareholders' Agreement and the Put/Call Agreement. See "The Company"
and "Certain Transactions." Any remaining proceeds will be used for working
capital and general corporate purposes. Until used, the Company intends to
invest the net proceeds in money market funds, certificates of deposit or short-
term, interest bearing securities.
Construction of the new slip will involve dredging to create a new slip at
the Company's facilities, building out a steel bulkhead around the new slip and
filling in the work area surrounding the new slip with limestone. The Company
will also install a new load-out system, consisting of rails and skidways, that
will be able to support structures weighing up to 6,000 tons. The pipe shop
improvements will involve the upgrade and automation of much of the pipe shop's
equipment, which management believes will increase its productivity and
capacity. Management believes that the new slip and surrounding work areas will
increase the Company's capacity for smaller structures. These improvements will
also enable the Company to bid on projects in excess of 3,500 tons that may be
priced at levels that warrant the expense of dredging the Freshwater Bayou
Channel privately, if not reopened with local or state funds. See "Risk
Factors -- Facility Limitations."
The purchase price for the land to be acquired from Universal Partners is
based upon an independent appraisal of the land, and the purchase price for the
land to be acquired from McDermott was determined through negotiations between
McDermott and the Company, who was represented by Mr. Berard, its President and
Chief Executive Officer. The Company's management believes that these prices
reflect the fair market value of such properties, if sold in arms' length
transactions.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholder.
DIVIDEND POLICY
After the Offering, the Company intends to retain earnings, if any, to meet
its working capital requirements and to finance the future operation and growth
of its business and, therefore, does not plan to pay cash dividends to holders
of its Common Stock in the foreseeable future. Upon completion of the Offering,
the Company expects to enter into a credit facility containing financial
covenants that may restrict the Company's ability to pay dividends. The
Shareholders' Agreement, which will be terminated in connection with the
Offering, requires that, unless determined otherwise by a majority of directors
of Universal Fabricators, including at least one director elected by each of
McDermott and Universal Partners, 90% of Universal Fabricators' net income for
the previous fiscal year, less reserves, for each fiscal year be distributed to
McDermott and Universal Partners as dividends. For the fiscal years ending March
31, 1995, 1996 and 1997, Universal Fabricators paid dividends of approximately
90% of its net income, totaling $1.9 million, $5.8 million and $3.6 million,
respectively. See "Risk Factors -- Dividends."
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<PAGE> 19
DILUTION
After giving effect to the formation and capitalization of UNIFAB
International, Inc., the Partners Share Exchange and the McDermott Share
Exchange, the pro forma net tangible book value of the Company at June 30, 1997
would have been $9.7 million, or $2.78 per share of Common Stock. On a pro forma
basis, net tangible book value per share of Common Stock represents the amount
of the Company's tangible net worth (total tangible assets less total
liabilities) divided by the total number of shares of Common Stock outstanding.
After giving effect to the Offering (assuming an initial public offering price
of $15.00 per share and deducting the underwriting discount and offering
expenses estimated at $1.6 million), the pro forma net tangible book value of
the Company at June 30, 1997 would have been approximately $18.4 million or
$3.99 per share of Common Stock. This represents an immediate increase in net
tangible book value of $1.21 per share of Common Stock to current holders of
Common Stock and an immediate dilution of approximately $9.82 per share to the
new investors purchasing shares in the Offering.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial net public offering price per share................. $13.81
Pro forma net tangible book value per share at June 30,
1997 (without taking into account the Offering)(1)..... $2.78
Increase in pro forma net tangible book value per share
attributable to the sale of Common Stock in the
Offering............................................... $1.21
-----
Adjusted pro forma net tangible book value per share after
giving effect to the Offering(1).......................... $ 3.99
------
Dilution in pro forma net tangible book value per share to
the purchasers of Common Stock offered hereby(1).......... $ 9.82
======
</TABLE>
The following table summarizes, on a pro forma basis, at June 30, 1997, the
number of shares of Common Stock to be issued by the Company in connection with
the Partners Share Exchange, the McDermott Share Exchange and the Offering, the
total consideration received by the Company and the average price per share of
Common Stock paid by existing shareholders and by investors in the Offering
(assuming an initial public offering price of $15.00 per share) before deducting
the estimated underwriting discount and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).............. 3,500,000 76% $ 6,519,664 28% $ 1.86
New investors......................... 1,100,000 24% 16,500,000 72% $15.00
--------- ---- ----------- ---- ------
Total....................... 4,600,000 100% 23,019,664 100%
========= ==== =========== ====
</TABLE>
- ---------------
(1) Excludes 133,500 shares issuable upon the exercise of outstanding options.
See "Management -- Compensation Pursuant to Plans -- Long-Term Incentive
Plan."
16
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997; on a pro forma basis, as of June 30, 1997, giving effect to the
formation and capitalization of UNIFAB International, Inc., the Partners Share
Exchange and the McDermott Share Exchange; and on a pro forma basis as adjusted
to reflect the sale by the Company of 1,100,000 of the shares of Common Stock
offered hereby at an assumed initial public offering price of $15.00 per share
and the application of the estimated net proceeds thereof as described in "Use
of Proceeds." The Company was formed on July 17, 1997 with an initial
capitalization of $1,000. The table set forth below should be read in
conjunction with the financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities..................... $ -- $ --
-------- --------
Shareholders' equity:
Preferred Stock, no par value per share, 5,000,000 shares
authorized; none issued or outstanding................. -- --
Common Stock, $0.01 par value per share, 20,000,000 shares
authorized; 3,500,000 shares issued and outstanding;
4,600,000 shares issued and outstanding as
adjusted(1)............................................ 35 46
Additional paid-in capital................................ 6,485 15,119
Retained earnings......................................... 3,204 3,204
-------- --------
Total shareholders' equity........................ 9,724 18,369
-------- --------
Total capitalization........................................ $ 9,724 $ 18,369
======== ========
</TABLE>
- ---------------
(1) Excludes 133,500 shares issuable upon exercise of outstanding options. See
"Management -- Compensation Pursuant to Plans -- Long-Term Incentive Plan."
17
<PAGE> 21
SELECTED FINANCIAL AND OPERATING DATA
The income statement data for each of the years in the three years ended
March 31, 1997 and the balance sheet data as of March 31, 1995, 1996 and 1997
are derived from the financial statements of Universal Fabricators which have
been audited by Ernst & Young LLP. The selected financial data as of June 30,
1997 and for the three month periods then ended are derived from the unaudited
consolidated statements of Universal Fabricators for such periods. In the
opinion of management, the unaudited financial statements of Universal
Fabricators reflect all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of the financial condition and
results of operations for these periods. Results for interim periods are not
necessarily indicative of results for a full year. Immediately prior to
completion of the Offering, Universal Fabricators will become a wholly owned
subsidiary of UNIFAB International, Inc., which will have no other significant
operations or assets. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------------------------ -----------------
1993(1) 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue....................................... $25,369 $29,926 $27,883 $51,807 $66,724 $18,419 $15,503
Cost of revenue............................... 21,239 27,211 23,174 40,362 58,589 16,295 13,314
------- ------- ------- ------- ------- ------- -------
Gross profit.................................. 4,130 2,715 4,709 11,445 8,135 2,124 2,189
General and administrative expense............ 1,207 1,228 1,326 1,419 1,637 342 409
------- ------- ------- ------- ------- ------- -------
Operating income.............................. 2,923 1,487 3,383 10,026 6,498 1,782 1,780
Other income (expense), net................... 84 21 38 315 82 26 24
------- ------- ------- ------- ------- ------- -------
Income before income taxes.................... 3,007 1,508 3,421 10,341 6,580 1,808 1,804
Income tax expense............................ 1,112 555 1,286 3,888 2,555 709 660
------- ------- ------- ------- ------- ------- -------
Net income.................................... $ 1,895 $ 953 $ 2,135 $ 6,453 $ 4,025 $ 1,099 $ 1,144
======= ======= ======= ======= ======= ======= =======
Net income per share (unaudited)(2)........... $ 0.54 $ 0.27 $ 0.61 $ 1.84 $ 1.15 $ 0.31 $ 0.33
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share(5)............. $ 0.88 $ 0.25
======= =======
Cash dividends declared per common share
(unaudited)(2).............................. -- -- $ 0.25 $ 0.55 $ 1.66 $ 1.66 $ 1.03
Weighted average common shares
(unaudited)(2).............................. 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Other Financial Data:
Depreciation and amortization................. $ 125 $ 381 $ 424 $ 390 $ 471 $ 96 $ 124
Capital expenditures.......................... $ 20 $ 110 $ 179 $ 402 $ 821 $ 325 $ 50
Net cash provided by (used in) operating
activities.................................. (1,181) (480) 3,392 4,285 2,328 1,570 5,643
Net cash provided by (used in) investing
activities.................................. (20) (110) (170) (394) (803) (318) (50)
Net cash provided by (used in) financing
activities.................................. 2,400 531 (1,389) (1,921) (5,807) (2,962) (3,622)
EBITDA(3)..................................... $ 3,048 $ 1,868 $ 3,807 $10,416 $ 6,969 $ 1,878 $ 1,904
EBITDA margin(3).............................. 12.0% 6.2% 13.7% 20.1% 10.4% 10.2% 12.3%
Operating Data:
Direct labor hours worked..................... 520,000(4) 484,000 436,000 656,000 902,000 218,000 260,000
Number of employees........................... 230 215 210 330 425 362 404
Backlog (at end of period).................... $ 6,976 $ 8,917 $31,994 $42,311 $30,221 $35,426 $21,142
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......................................... $ 3,181 $ 4,337 $ 5,877 $10,333 $ 8,192 5,788
Property, plant and equipment, net...................... 5,514 5,243 4,986 4,999 5,341 5,267
Total assets............................................ 13,043 14,318 16,173 23,714 26,154 22,412
Debt.................................................... -- 531 -- -- -- --
Shareholders' equity.................................... 7,222 8,175 9,452 13,984 12,201 9,723
</TABLE>
- ---------------
(1) The income statement data, other financial data and operating data include
the results of Universal Partners for the period from April 1, 1992 through
November 30, 1992 and Universal Fabricators for the period from December 1,
1992 through March 31, 1993.
(2) The unaudited share and per share data give retroactive effect to the
completion of the Partners Share Exchange and the McDermott Share Exchange.
See "The Company."
(3) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus depreciation
and amortization. EBITDA margin is calculated by
18
<PAGE> 22
dividing EBITDA by revenue. Neither EBITDA nor EBITDA margin should be
considered as an alternative to net income or any other measure of operating
performance in accordance with general accounting principles. EBITDA and EBITDA
margin are widely used by financial analysts as a measure of financial
performance. The Company's measurement of EBITDA and EBITDA margin may not
be comparable to similarly titled measures reported by other companies.
(4) Reflects the number of direct labor hours worked for the year ended December
31, 1992.
(5) Assumes (i)the completion of the Partners Share Exchange and the McDermott
Share Exchange and (ii) the public offering of 1,100,000 shares of Common
Stock by the Company.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on (i) the level of
oil and gas exploration and development activity of oil and gas companies in the
Gulf of Mexico and offshore West Africa; (ii) the Company's ability to win
contracts through competitive bidding; and (iii) the Company's ability to manage
those contracts to successful completion. The level of exploration and
development activity is related to several factors, including trends of oil and
gas prices, exploration and production companies' expectations of future oil and
gas prices and changes in technology which reduce costs and improve expected
returns on investment. Over the past four years, favorable trends in these
factors have led to increased offshore exploration and development activity.
In addition to higher oil and gas prices, improvements in three-dimensional
seismic, directional drilling, production techniques and other advances in
technology have increased drilling success rates and reduced costs. The number
of active offshore drilling rigs worldwide is at its highest point since 1986.
The average number of active offshore rigs in the Gulf of Mexico has increased
from approximately 80 for the year ended December 31, 1992 to more than 155 for
the year ended December 31, 1996. In addition, the number of leases of
exploratory tracts in the Gulf of Mexico sold to oil and gas companies by the
MMS also has been at record levels.
Lease sales and awards of offshore concessions generally serve as
precursors to drilling and exploration activity and, in turn, increased levels
of offshore drilling and exploration activity generally serve as precursors to
increased demand for platform construction. Due to the time required to drill an
exploratory offshore well, formulate a comprehensive development plan and design
offshore platforms, the fabrication and installation of such platforms usually
lag exploratory drilling by one to three years. As a result, the high levels of
drilling activity worldwide, particularly in the Gulf of Mexico, have only
recently impacted the demand for the Company's custom fabrication services, with
revenue increasing 85.8% to $51.8 million in fiscal 1996 and 28.8% to $66.7
million in fiscal 1997, in each case as compared to the prior fiscal year. There
can be no assurance, however, that drilling activity will continue at such
levels or that oil and gas companies will actively explore and develop the
fields recently leased. Whether these trends continue and the resulting increase
in demand for the Company's services actually occurs is dependent in large part
on the factors listed above.
During the fiscal years ended March 31, 1995, 1996 and 1997, 47%, 58% and
64%, respectively, of the Company's revenue was derived from structures
fabricated for installation in international areas, with the remainder designed
for installation in the Gulf of Mexico. The Company believes that its strong
presence in both overseas markets and the Gulf of Mexico market, coupled with
continued strong oil and gas activity in these markets, has enabled it to
selectively obtain high-margin fabrication work and to benefit from increased
pricing levels. The Company further believes that the increased activity level
in the Gulf of Mexico will lead to an increasing percentage of the Company's
revenue coming from projects intended for installation in the Gulf of Mexico.
The Company has historically attempted to manage its backlog in order to benefit
from pricing trends. In periods of rising prices, the Company intentionally
avoids building high levels of backlog in order to maximize its ability to
pursue higher margin projects. The Company believes that, as a low-cost
fabricator, it is well positioned to benefit from this strategy.
Barges loaded with completed structures weighing up to 3,500 tons can
travel through any of several currently available water routes from the
Company's facilities at the Port of Iberia to the Gulf of Mexico. Special
efforts, including dredging, would be needed to permit barges carrying
structures from 3,500 to 6,000 tons to travel from the Port of Iberia facility
to the Gulf of Mexico, which would add costs to the project that the customer
may not be willing to bear. In addition, the Company needs to construct the new
slip and bulkhead which it intends to fund through a portion of the proceeds of
the Offering to accommodate structures of this size. See "Risk
Factors -- Facility Limitations." Although the Company is not able to produce
jackets designed for water depths over 300 feet as they are too heavy or too
wide to be transported from the Company's facilities, the increased activity in
the deepwater areas of the Gulf of Mexico has benefitted the
20
<PAGE> 24
Company's pricing levels as the Company is able to fabricate decks and modules
weighing up to 3,500 tons for installation on platforms regardless of water
depth.
Most of the Company's fabrication work is performed pursuant to fixed-price
contracts, although some projects are performed on a time and materials basis.
Under fixed-price contracts, the Company receives the price fixed in the
contract, subject to adjustment only for change orders placed by the customer.
As a result, with respect to fixed-price contracts, the Company retains all cost
savings but is also responsible for all cost overruns. Under time and materials
arrangements, the Company receives a specified hourly rate for direct labor
hours worked (which exceeds its direct labor costs) and a specified percentage
mark-up over its cost for materials. As a result, under time and materials
contracts, the Company is protected against cost overruns but does not benefit
directly from cost savings. As the Company is typically able to obtain prices
for materials in excess of its costs, the cost and productivity of the Company's
labor force are the key factors affecting the Company's operating profits.
Consequently, it is essential that the Company control its labor costs and the
productivity of its workforce. See "Business -- Customers and Contracting."
The following table sets forth for the periods presented the percentage of
the Company's revenue derived from each type of contract used by the Company:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------- ----------------
TYPE OF CONTRACT(1) 1995 1996 1997 1996 1997
------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Fixed-Price...................... 80.0% 76.2% 81.0% 86.9% 73.1%
Time and Materials............... 19.6% 23.7% 18.9% 13.0% 26.6%
</TABLE>
- ---------------
(1) Remaining revenues were derived from storage fees.
The ability of the Company to operate profitably and to expand its
operations depends substantially on its ability to attract skilled production
workers, primarily welders, fitters and equipment operators. The Company was
able to add 95 full-time production employees to its workforce in fiscal 1997.
While the supply of production workers is limited, the demand for their services
has increased as oil and gas development and production activity has increased.
As a result, during 1997 the Company increased the average hourly wages of its
employees, instituted a 401(k) Plan and improved several other benefit packages
available to its employees. The Company has also been very active in the
movement to create a more business-oriented educational system in Louisiana,
which lead to the passage of a recent bill that aims to give industry more input
in the teaching at vocational-technical schools. Although there can be no
assurance that such initiatives will be carried out to successful completion,
management believes that, in the long-term, initiatives like these are the best
methods for increasing the pool of well-trained workers in Louisiana. See
"Business -- Employees."
After the Offering, the Company expects to incur additional ongoing general
and administrative costs as a result of (i) the increased costs of being a
public company, including the hiring of additional personnel such as a Chief
Financial Officer, and (ii) an increase in compensation to several employees to
offset the loss of dividend income these employees historically received from
Universal Partners. It is estimated that the increase will be approximately
$650,000 in the first year after the Offering.
The Company's operations are subject to seasonal variations in weather
conditions and daylight hours. Because most of the Company's construction
activities take place outdoors, the number of direct labor hours worked
generally declines in winter months due to an increase in rainy and cold
conditions and a decrease in daylight hours. Operations may also be affected by
the rainy weather, hurricanes and other storms prevalent along the U.S. Gulf
Coast throughout the year. As a result, the Company's revenue, gross profit and
net income during the fourth quarter of each fiscal year are subject to being
disproportionately low as compared to the first and second quarters, and full
year results may not in all cases be a direct multiple of any particular quarter
or combination of quarters. The Company's results for the last three years do
not dramatically reflect this effect due to (i) the large amount of revenue and
income recognized in the third and fourth quarters of 1996 on one particular
project and (ii) the substantial increase in production volume that began in the
third quarter of 1996. The table below indicates for each quarter of the
Company's last three fiscal years the
21
<PAGE> 25
percentage of annual revenue and net income earned and the number of direct
labor hours worked in each quarter.
<TABLE>
<CAPTION>
1995 1996 1997
------------------------- ------------------------- -------------------------
1ST. 2ND 3RD 4TH 1ST. 2ND 3RD 4TH 1ST. 2ND 3RD 4TH
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................... 27% 29% 22% 22% 17% 26% 27% 30% 28% 27% 22% 23%
Net income................ 31% 31% 25% 13% 6% 15% 32% 47% 27% 28% 21% 24%
Direct labor hours worked
(in thousands).......... 127 136 92 81 126 143 194 193 218 242 206 236
</TABLE>
Most of the Company's revenue and expenses are recognized on a
percentage-of-completion basis determined by the ratio that labor and
subcontracting costs incurred bear to the total estimated labor and
subcontracting costs required for completion. Accordingly, expected labor and
subcontracting costs are reviewed monthly as the work progresses, and
adjustments proportionate to the percentage of completion are reflected in
revenue for the period when such estimates are revised. To the extent that these
adjustments result in a reduction of previously reported profits, the Company
would have to recognize a charge against current earnings, which may be
significant depending on the size of the project or the adjustment. Revenue from
time and materials contracts is recognized on the basis of direct labor hours
worked at fixed hourly rates and the cost of materials or sub-contract costs
incurred plus mark-up.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 1997 and 1996
Revenue for the three months ended June 30, 1997 decreased 15.8% to $15.5
million from the $18.4 million generated in the three months ended June 30,
1996. This decrease was primarily due to the large amount of contract materials
purchased in the 1996 period as compared to the 1997 period. Although the
Company's direct labor hours worked during the 1997 period increased 19.5% from
the number worked in the 1996 period and prices realized under fixed-price
contracts were slightly higher in the 1997 period, the decreases in the amount
of contract materials purchased offset these increases.
Cost of revenue was $13.3 million in the three months ended June 30, 1997
compared to $16.3 million in the three months ended June 30, 1996. Cost of
revenue consists of costs associated with the fabrication process, including
direct costs (such as direct labor costs and raw materials) and indirect costs
(such as supervisory labor, utilities, welding supplies and equipment costs)
that can be specifically allocated to projects. These costs decreased as a
percentage of revenues to 85.8% in 1997 from 88.6% in 1996.
Gross profit for the three months ended June 30, 1997 increased to $2.2
million from $2.1 million in the 1996 period as improved margins on fixed price
contracts and a favorable mix of services and materials on the Company's time
and materials contracts offset the decrease in revenue.
General and administrative expense was $0.4 million in the three months
ended June 30, 1997 compared to $0.3 million in the three months ended June 30,
1996. This increase is due to increases in employee costs, primarily salaries
and benefits.
Interest income decreased to $27,000 in the three months ended June 30,
1997 from $48,000 in the three months ended June 30, 1996, as the weighted
average of invested funds was lower in 1997 as compared to 1996, due to larger
than average delays in collecting some international receivables in the quarter.
A large portion of these receivables were collected near the end of the quarter
and resulted in a decrease in receivables at June 30, 1997 compared to March 31,
1997 despite additional billings during the period. The collection period of
international receivables is generally longer than that for receivables from
projects installed in the U.S. Gulf of Mexico.
Comparison of the Years Ended March 31, 1997 and 1996
During the year ended March 31, 1997, the Company's revenue was $66.7
million, a 28.8% increase from the $51.8 million generated in the year ended
March 31, 1996. This increase was primarily caused by an
22
<PAGE> 26
increase in direct labor hours worked and, to a lesser extent, prices realized
under fixed-price contracts. Although direct labor hours worked increased 37.5%
in fiscal 1997 over fiscal 1996, this increase did not result in a proportionate
increase in revenue due to the lower productivity of employees newly hired in
fiscal 1997 compared to the productivity of the Company's longer term employees.
Cost of revenue was $58.6 million in fiscal 1997 compared to $40.4 million
in fiscal 1996. These costs increased as a percentage of revenues to 87.8% in
1997 from 77.9% in fiscal 1996. In fiscal 1996, a major contract obtained on a
fixed-price basis was completed at a materials cost substantially lower than
that estimated in connection with the bid, which the Company had prepared on the
basis of the customer's designs. Had the contract been completed at the
materials cost originally estimated, cost of revenue during fiscal 1996 would
have been increased by approximately $5.5 million.
General and administrative expense was $1.6 million in fiscal 1997 compared
to $1.4 million in fiscal 1996. The Company's general and administrative expense
as a percentage of revenue decreased to 2.5% in 1997 as compared to 2.7% in
fiscal 1996 as the increase in the Company's revenue did not require a
proportionate increase in such expenses.
Interest income decreased to $145,000 in fiscal 1997 from $318,000 in
fiscal 1996, as the weighted average of invested funds was lower in fiscal 1997
as compared to fiscal 1996, due to longer than average delays in collecting some
international receivables in 1997.
Receivables increased in fiscal 1997 primarily because of delays in
collection of receivables from contractors on projects installed in overseas
locations.
Comparison of the Years Ended March 31, 1996 and 1995
During the year ended March 31, 1996, the Company had revenue of $51.8
million as compared to $27.9 million in fiscal 1995, an 85.8% increase. This
increase was primarily due to a 50.5% increase in direct labor hours worked over
1995, and the fact that in connection with a single fixed-price contract
performed in fiscal 1995, the customer, rather than the Company, supplied the
materials.
Cost of revenue was $40.4 million in fiscal 1996 compared to $23.2 million
in 1995. This cost decreased as a percentage of revenue to 77.9% in fiscal 1996
from 83.1% in 1995. This decrease was primarily the result of the Company's
performance during fiscal 1996 on the major contract described above.
General and administrative expense remained relatively constant at $1.4
million in 1996 compared to $1.3 million in fiscal 1995.
Interest income was $318,000 in fiscal 1996 compared to $45,000 in fiscal
1995, as the weighted average of invested funds was higher in fiscal 1996
compared to fiscal 1995, due primarily to higher profits in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its business activities through funds
generated from its operations. Net cash provided by operations was $3.4 million,
$4.3 million and $2.3 million for the years ended March 31, 1995, 1996 and 1997,
respectively, and $5.6 million for the three months ended June 30, 1997. The
Company's capital requirements historically have been for improvements to its
facilities and equipment to increase the productivity of its labor force. During
fiscal 1996 and fiscal 1997, the Company had capital expenditures of $402,000
and $821,000, respectively. The Company spent $50,000 on capital expenditures in
the first quarter of fiscal 1998.
The Shareholders' Agreement requires that, unless determined otherwise by a
majority of directors of Universal Fabricators, including at least one director
elected by each of McDermott and Universal Partners, 90% of Universal
Fabricators' net income for the previous fiscal year, less reserves, for each
fiscal year be distributed to McDermott and Universal Partners as dividends. For
fiscal 1995, 1996 and 1997, Universal Fabricators paid dividends of
approximately 90% of its net income, totaling $1.9 million, $5.8 million and
$3.6 million, respectively. As a result of this practice, the Company has
limited capital expenditures and
23
<PAGE> 27
restrained potential growth. In connection with the Offering, the Shareholders'
Agreement will be terminated. After the Offering, the Company intends to retain
its earnings, if any, for use as working capital and to fund capital
expenditures. The Company's past capital expenditures are not indicative of its
intended capital expenditures after the Offering.
The Company has a $10.0 million revolving line of credit with a commercial
lender. The Existing Credit Facility bears interest at a floating rate 50 basis
points above the prime commercial lending rate as quoted from time to time by
The Chase Manhattan National Bank and is secured by the Company's accounts
receivable. At June 30, 1997, the interest rate on the Existing Credit Facility
was approximately 9.0%. The Existing Credit Facility also provides for the
issuance of letters of credit on behalf of the Company (the "Bank Letters of
Credit"). The amount of outstanding Bank Letters of Credit reduces the Company's
borrowing limit on a dollar-for-dollar basis. As of March 31, 1996 and 1997,
there were $2.5 million and $2.0 million, respectively, in Bank Letters of
Credit outstanding and no other borrowings under the Existing Credit Facility.
As of June 30, 1997, there were $2.0 million in outstanding Bank Letters of
Credit and no other borrowings under the Bank Credit Facility. Outstanding
amounts under the Existing Credit Facility, including Bank Letters of Credit,
are currently guaranteed by McDermott. As of March 31 and June 30, 1997, the
Company also had outstanding letters of credit of approximately $7.0 million
that were obtained on behalf of the Company by McDermott (the "McDermott Letters
of Credit"). Immediately prior to the Offering, the Company expects that
approximately $7.0 million of McDermott Letters of Credit will be outstanding.
Upon completion of the Offering, the Company expects to enter into a new
$20.0 million revolving credit facility with a commercial lender, which will
provide for up to $10.0 million in borrowings for general corporate purposes and
for letters of credit up to $10.0 million (the "New Credit Facility"). The New
Credit Facility is expected to contain financial covenants that will, among
other things, require the Company to maintain certain minimum levels of
shareholders' equity. McDermott will not guarantee any amounts outstanding under
the New Credit Facility, and McDermott will be released from its obligations
under the Existing Credit Facility, all Bank Letters of Credit and McDermott
Letters of Credit. The McDermott Letters of Credit will be replaced by letters
of credit issued as part of an additional $6.3 million available to the Company
for letters of credit under the New Credit Facility. This additional $6.3
million is available to the Company solely to replace the McDermott Letters of
Credit and will be reduced upon the respective expiration dates of the letters
of credit issued to replace the McDermott Letters of Credit, the last of which
is scheduled to expire in January of 2000.
Capital expenditures for the 12 months following the Offering are estimated
to be approximately $7.0 million, which primarily include the purchase and
installation of a four-inch rolling mill, the dredging and construction of a new
slip and loadout facilities for the slip, the purchase of the Company's
administrative office and surrounding land from McDermott, the expansion of the
Company's pipe shop and the purchase of 10 acres of land across the road from
the Company's facility from Universal Partners. See "Use of Proceeds" and
"Certain Transactions." Management believes that the net proceeds of the
Offering, its available funds, cash generated by operating activities and funds
available under the New Credit Facility will be sufficient to fund these capital
expenditures and its working capital needs; however, any expansion of the
Company's operations through future acquisitions may require additional equity
or debt financing.
24
<PAGE> 28
BUSINESS
GENERAL
The Company is an industry leader in the custom fabrication of decks and
modules of drilling and production equipment weighing up to 3,500 tons for
offshore oil and gas platforms, based on the number of decks delivered, and has
special expertise in the fabrication of decks with complex piping requirements.
Decks and modules fabricated by the Company can be installed on fixed and
floating platforms regardless of water depth. The Company also fabricates
jackets for fixed platforms; pilings and other rolled tubular steel sections;
compressor and generator packages; platform living quarters; subsea templates;
bridges for connecting offshore platforms; wellhead protectors; and modules for
the onshore petrochemical and refining industries. In addition, the Company
refurbishes and retrofits existing jackets and decks and performs offshore
piping hook-up and platform maintenance services. Structures fabricated by the
Company are installed in oil and gas producing waters around the world,
primarily the Gulf of Mexico and offshore West Africa.
The Company, founded in 1980, has been profitable for each of the last five
years largely as a result of management's ability to control costs, provide high
quality, reliable services and expand successfully into international markets.
The Company's revenue increased 139% from $27.9 million in its fiscal year ended
March 31, 1995 to $66.7 million in the fiscal year ended March 31, 1997. During
the same period, the Company's workforce and direct labor hours worked increased
by approximately 105%.
Demand for the Company's services is primarily a function of worldwide
offshore oil and gas activity. Over the past four years, improvements in
production techniques and seismic and drilling technology, together with
relatively stable oil and gas prices, have resulted in accelerated drilling
activity in the Gulf of Mexico and continued strong activity levels worldwide.
The number of active offshore drilling rigs worldwide is at its highest point
since 1986. The average number of active offshore rigs in the Gulf of Mexico has
increased from approximately 80 for the year ended December 31, 1992 to more
than 155 for the year ended December 31, 1996.
Due to the time required to drill an exploratory offshore well, formulate a
development plan and design offshore platforms, the fabrication and installation
of such platforms usually lag exploratory drilling by one to three years. As a
result, high levels of drilling activity worldwide, particularly in the Gulf of
Mexico, have only recently impacted the demand for the Company's custom
fabrication services. The Company believes its strong presence in both overseas
markets and the Gulf of Mexico market, coupled with continued strong oil and gas
activity in these markets, has enabled it to selectively obtain high margin
fabrication work and benefit from increased pricing levels.
The Company's operations are conducted on approximately 140 acres of land
and 225,000 square feet of covered fabrication area at the Port of Iberia,
approximately 20 miles southeast of Lafayette, Louisiana and 30 miles north of
the Gulf of Mexico. Current access routes to the Gulf of Mexico permit the
transporting of jackets for use in waters up to 300 feet deep and decks and
other structures weighing up to 3,500 tons. A by-pass along one of these
waterways could provide access from the Company's facilities to the Gulf of
Mexico for structures weighing up to 6,000 tons, if it were to be reopened and
dredged to sufficient depth. Local port commissions have proposed the reopening
and dredging of this by-pass with state and local funds. The Company believes
that there is widespread support for this proposal and that the by-pass may be
reopened within the next two years. No assurance can be given as to whether or
when such project will be completed or whether the increased channel depth will
be maintained. If the project is not completed by state or local authorities,
the Company could pay to have this bypass reopened and dredged, which expense
may be economically justifiable in connection with the large revenue amounts
typically derived from fabrication of large structures.
1992 EXPANSION TRANSACTION. The Company's predecessor, Universal Partners,
was organized in 1980 by its founder, Dailey J. Berard. In 1992, in order to
expand its capabilities at the Port of Iberia and meet increasing demand for its
services, Universal Partners entered into an agreement with McDermott, a
subsidiary of McDermott International, Inc. Universal Partners contributed as a
going concern to the then newly-formed Universal Fabricators approximately 50
acres of leased land, its buildings, fabrication equip-
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ment, and $2.4 million in cash. McDermott contributed an inactive fabrication
yard directly across a canal from the land leased by Universal Partners, which
included approximately 85 acres of land, 200,000 square feet of covered
fabrication space and various equipment. The Expansion Transaction substantially
enlarged the Company's yard space and increased covered fabrication area from
25,000 square feet to approximately 225,000 square feet. Both before and after
the Expansion Transaction, the day-to-day operations of the Company have been
conducted by Dailey J. Berard and the other members of the Company's management
team.
In the Expansion Transaction, McDermott received 49% of the outstanding
stock of Universal Fabricators. McDermott will sell all of its shares of Common
Stock as part of the Offering in connection with a previously announced strategy
of returning to core businesses by disposing of certain assets, including
certain financial investments. The Company will use a portion of the proceeds of
the Offering to secure McDermott's release of its rights under certain
agreements entered into in connection with the Expansion Transaction.
GROWTH AND PROFITABILITY STRATEGY
The Company's growth and profitability strategy is to capitalize on the
positive trends and current opportunities in heavy marine fabrication for the
oil and gas industry. Key elements of the Company's strategy are to:
- PURSUE EXPANDING MARKETS. The Company intends to continue to pursue
high-margin fabrication work in both domestic and international offshore
oil and gas producing areas where demand for its services has
substantially increased over the last five years. In fiscal 1997, the
Company derived 36% of its revenue from projects designed for
installation in the Gulf of Mexico and believes that an increasing
portion of its capacity will be used to satisfy demand for such projects.
In addition, a series of large oil and gas projects are being developed
for offshore Nigeria, Mexico, Brazil and Venezuela. The Company believes
that these projects as well as projects in the Gulf of Mexico will
provide it with significant opportunities to obtain high-margin
fabrication work in both the current fiscal year and thereafter.
- EXPAND FACILITIES. The Company intends to use a portion of the proceeds
of the Offering to construct a new slip and bulkhead and develop the
adjacent yard space that will enable the Company to construct and load
out projects weighing up to 6,000 tons. In addition, the Company intends
to acquire and install a four-inch rolling mill which will enable the
Company to satisfy all of its rolled good requirements in-house,
including larger diameter pipe not currently rolled by the Company. The
Company believes that the enhanced capabilities provided by the new
facilities will provide the Company with opportunities to satisfy its
customers' increasing needs for structures usable in deep waters
throughout the world.
- MANAGE BACKLOG. The Company has historically attempted to manage its
backlog in order to benefit from pricing trends. In periods of rising
prices, the Company intentionally avoids building high levels of backlog
in order to maximize its ability to pursue higher margin projects. The
Company believes that, as a low-cost fabricator, it is well positioned to
benefit from this strategy.
- IMPROVE WORKFORCE EFFICIENCY. The Company believes that its success has
been founded on its well motivated workforce, efficient management and
low overhead costs. To take advantage of the increased demand for its
services, the Company will continue to emphasize its low cost structure
and will seek to increase the productivity of its workforce by using a
portion of the proceeds of the Offering to purchase additional automated,
labor-saving equipment and to expand and upgrade its existing buildings
and equipment. The Company also intends to expand its investment in
employee education and training in order to upgrade employee skill levels
and productive capacity.
- INCREASE EMPLOYEE POOL. In fiscal 1997, the Company added approximately
95 full-time production employees to its workforce. The Company estimates
that its current facility could accommodate a workforce of more than
double the 408 workers employed by the Company at July 31, 1997. The
Company intends to continue its efforts to increase its skilled workforce
in order to increase the
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<PAGE> 30
Company's production capacity. To address the current shortage of skilled
workers in south Louisiana, the Company has been cooperating with local
and regional associations and government authorities to foster the
training of skilled workers. The Company believes that there is a large
number of trainable employees residing in reasonable proximity to its
facility. The Company further believes that companies whose products and
services are complementary to those of the Company are available for
acquisition and that its capital structure after the Offering will enable
it to pursue such acquisition opportunities as a means of expanding its
skilled workforce.
DESCRIPTION OF OPERATIONS
The Company's primary activity is the fabrication of decks and modules for
offshore oil and gas drilling and production platforms. The Company has
extensive experience in the fabrication of decks and modules with complex piping
requirements and believes that its reputation for efficient, timely and high
quality production of these structures gives it a competitive advantage in
obtaining projects of this type. The decks and modules built by the Company may
weigh up to 3,500 tons and can be installed on platforms regardless of water
depth. The Company also fabricates jackets for fixed production platforms for
use in up to 300 feet of water. Other structures fabricated by the Company
include pilings and other rolled tubular steel sections; modules of drilling and
production equipment; compressor and generator packages; platform living
quarters; subsea templates; bridges for connecting offshore platforms; wellhead
protectors; other structures used in production and development activities; and
modules for the onshore petrochemical and refining industries. The Company can
construct and has in the past constructed platform drilling rigs, posted
drilling rigs and barges.
FABRICATION OF DECKS AND OTHER OFFSHORE PLATFORM COMPONENTS. The Company
fabricates decks and modules for fixed and floating offshore platforms as well
as jackets for fixed offshore platforms. A fixed platform is the traditional
type of platform used for the offshore drilling and production of oil and gas.
Most fixed platforms currently in use are of the traditional jacket-type design.
Recently there has been an increase in the use of floating platforms as a result
of increased drilling and production activities in deeper waters. Floating
platforms are of three basic types: tension-leg platforms, spar platforms and
floating production facilities. See "Glossary of Certain Technical Terms." Fixed
platforms are generally better suited for shallower water depths, whereas
floating platforms, although they can be used in any water depth, are primarily
used in water depths greater than 1,000 feet. Because they are mobile (and can
therefore be reused), floating platforms are sometimes used in water depths that
could accommodate fixed platforms, particularly where the petroleum reservoir
has a relatively short production life.
The Company also fabricates subsea templates which often form a part of a
subsea production system. Subsea production systems, which are systems that
contain primary well control equipment and rest directly on the ocean floor, are
becoming more prevalent in very deep water, in areas subject to severe weather
conditions and in smaller fields with relatively short production lives that are
located near existing infrastructures. These systems are generally connected to
existing surface facilities, which augment subsea hydrocarbon processing and
transportation operations.
The most common type of fixed platform consists of a deck structure located
above the level of the storm waves and supported by a jacket. A jacket is a
tubular steel, braced structure extending from the mudline on the seabed to a
point above the water surface which is in turn supported on tubular steel
pilings driven deep into the seabed. The deck structure is designed to
accommodate multiple functions, including drilling, production, separating,
gathering, piping, compression, well support and crew quartering. Most fixed
platforms built today can accommodate both drilling and production operations.
These combination platforms are generally larger and more costly than
single-purpose structures. However, because directional drilling techniques
permit a number of wells to be drilled from a single platform and because
drilling and production can take place simultaneously, combination platforms are
often more cost effective.
Decks are built as either a single structure or in modular units. The
composition and quantity of petroleum in the well stream generally determine the
design of the production deck on a processing platform. Typical deck production
equipment includes crude oil pumps, gas and oil separators, gas compressors and
electricity generators. Much of this equipment involves the use of complex
piping and electrical components.
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The equipment, piping and controls associated with major process subsystems are
often joined together in modules which can then be installed on the deck as a
unit either on land or offshore. Platforms can be joined by bridges to form
complexes of platforms to service very large projects and to improve safety by
dividing functions among specialized platforms. Floating platforms, like fixed
platforms, support decks or modules with equipment to perform oil and gas
processing and may support drilling operations as well.
Most of the structural steel used in the Company's operations arrives at
the Company's fabrication yards as standard steel shapes and steel plate. The
standard shapes and plate are cut to appropriate sizes or shapes and, in some
cases, rolled into tubular sections by the Company's rolling mill. These
sections are welded together into structures that become part of decks, modules,
jackets and other platform structures.
While the structural portion of a deck or module is being assembled,
process piping is fabricated in the Company's pipe shop. Piping is made into
spools by fitting and welding together pipe and pipe fittings. To the extent
possible, pipe supports and pipe spools are installed onto the various
structural subassemblies of a deck or module before final assembly. The
completed structural subassemblies are then lifted, positioned and welded
together. Finally, the oil and gas process equipment along with the remaining
pipe supports and pipe spools, valves and electrical and instrumentation
components are installed and connected. The Company has installed both carbon
and alloy steel piping in accordance with accepted industry codes and has also
installed process piping for sour gas service, which requires adherence to more
stringent industry code requirements.
The Company typically performs a wide range of testing and commissioning
activities. Virtually every contract requires as a minimum non-destructive
testing of structural and piping welds, piping hydrostatic pressure testing, and
loop testing of instrumentation and electrical systems. Commissioning of certain
process subsystems is also commonly performed by the Company. A series of
protective coatings is applied to the critical areas of the deck or module to
resist the extremely corrosive conditions in an offshore environment. The
Company generally subcontracts certain parts of the work to qualified
subcontractors, particularly electrical, instrumentation and painting.
The Company generally purchases equipment and pressure vessels to customer
specifications from qualified vendors. However, some or all of the equipment and
pressure vessels may be supplied by the customer. The Company typically procures
most of the piping, pipe fittings, valves, instrumentation and electrical
materials in accordance with the customer's specifications as part of its
contract.
Jackets are generally built in sections so that, to the extent possible,
much of their fabrication is done on the ground. As each section of legs and
bracing is completed it is lifted by a crawler crane and then joined to another
up righted section. When a deck, module or jacket is complete and ready for load
out, it is moved along a skidway and loaded onto a cargo barge. Using
ocean-going tugs, the barge and its cargo are transported to the offshore site
for installation by a marine construction contractor.
REFURBISHMENT. The Company is also active in the market for the
refurbishment of existing jackets and decks. Platform operators occasionally
remove platforms previously installed in the Gulf of Mexico and return the
platforms to a fabricator for refurbishment, which usually consists of general
repairs and maintenance work and, in some cases, modification. Approximately
18.7% of the Company's backlog at June 30, 1997, consisted of refurbishment
work. In addition to structures included in backlog, there are a substantial
number of structures stored by customers on Company premises, pending
instructions from the customer to commence refurbishment. Because refurbishment
is generally not time-critical, the Company is able to use this work as a means
of keeping employees productively occupied between other more time-critical
projects. Refurbishment work is most often conducted on a time and materials
basis.
OFFSHORE SERVICES. The Company also has a number of employees (ranging from
approximately 25 to 50) whom it contracts to send offshore in crews to perform
piping interconnect and general maintenance and repair services on offshore
platforms. Oil and gas companies, which have traditionally performed this type
of work using their own employees, have recently been outsourcing this work and
the Company believes that this trend is likely to continue.
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FACILITIES AND EQUIPMENT
FACILITIES. The Company's corporate headquarters and main fabrication yard
are located on the Port of Iberia in New Iberia, Louisiana, approximately 20
miles southeast of Lafayette, Louisiana and 30 miles north of the Gulf of
Mexico. This facility includes approximately 105 acres developed for
fabrication, one 12,000 square-foot office building that houses administrative
staff, approximately 225,000 square feet of covered fabrication area, and
approximately 25,000 square feet of warehouse storage area. The yard also has
approximately 8,000 linear feet of water frontage, of which 1,200 feet is steel
bulkhead which permits outloading of heavy structures. The Company currently
leases approximately 55 acres of the Port of Iberia facility, including the
Company's office building and five surrounding acres which are currently leased
from McDermott and will be purchased with proceeds of the Offering. With a
portion of the proceeds of the Offering, the Company also intends to purchase
approximately 13 additional acres from McDermott and 10 acres from Universal
Partners.
The structures that the Company fabricates are transported from the
Company's facilities by barge to the Gulf of Mexico by offshore construction
companies. Due to the water depths of these waterways (9 to 11 feet), these
barges are currently unable to transport structures weighing over 3,500 tons.
One main route to the Gulf of Mexico, the Freshwater Bayou Channel, provides 12
feet of water depth to the Gulf of Mexico, but the dimensions of locks on this
channel prevent the transport of structures more than 80 feet in width. There is
a by-pass channel around these locks that, if usable, would permit continuous
passage to the Gulf of Mexico with at least 12 feet of water depth at all points
and without any material width restrictions. This water depth would generally
permit the transportation of structures weighing up to 6,000 tons, which the
Company will be able to fabricate once the new slip and bulkhead is constructed
(to be funded with a portion of the proceeds of this Offering). Due to the silt
that has built up on both sides of the by-pass, the by-pass is currently
impassable without extensive dredging. On the basis of amounts spent in the past
by contractors other than the Company in order to facilitate the transportation
of certain structures, it is estimated that the cost of dredging the silt from
the by-pass and opening the by-pass channel would be $400,000 to $500,000.
Recently, the Abbeville Port Commission has proposed that the State of Louisiana
fund the reopening and dredging of the by-pass, a project that would open the
by-pass for at least one year and possibly longer, depending upon the extent of
future traffic through the by-pass. The Company believes that there is
widespread support for this proposal and that the by-pass may be reopened within
the next two years. There can be no assurance however as to whether or when such
project will be completed or whether the increased channel depth will be
maintained. If this project is not completed by the state, the Company would
remain unable to deliver structures weighing over 3,500 tons unless it
determined to incur the additional costs described above.
EQUIPMENT. The Company's main yard houses its two-inch plate roll, a
Wheelabrator grit blast system, a hydraulic press brake, and various other
equipment needed to build offshore structures and fabricate steel components.
The Company also has an automatic plate cutting machine used for cutting steel
in complex geometric sections and various other equipment used in the Company's
fabrication business. The Company also currently uses nine crawler cranes, which
range in tonnage capacity from 50 to 230 tons. Of these cranes, five are owned
by the Company and four are leased. The Company performs routine maintenance on
all of its equipment.
The Company's plate rolling mill allows it to roll approximately 6,000 tons
of pipe per year. The Company's current rolling mill satisfies approximately 80%
of the Company's current needs, with the Company using outside suppliers or
other fabricators for the rest of its rolled goods. The Company intends to use a
portion of the proceeds of the Offering to purchase a four-inch rolling mill
which would enable the Company to do all of its plate rolling at its fabrication
facility. This should enable the Company to coordinate all aspects of platform
construction, which can reduce the risk of cost overruns, delays in project
completion and labor costs. In addition, the four-inch rolling mill may also be
used to roll steel for other fabricators on a subcontracting basis. The
Company's grit blast system can blast steel at a rate approximately ten times
faster than conventional sandblasting. This greatly reduces labor costs and also
decreases the Company's use of conventional sandblasting, which is considered to
be a more hazardous and slower method of preparing steel for painting.
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MATERIALS
The principal materials used by the Company in its fabrication
business -- standard steel shapes, steel plate, piping, pipe fittings, valves,
welding gases, fuel oil, gasoline and paint -- are currently available in
adequate supply from many sources. The Company does not depend upon any single
supplier or source.
Although the Company's rolling mill has not caused any substantial downtime
for the Company, it is an older piece of equipment that requires constant
maintenance. If the rolling mill were to become inoperable for a material amount
of time, the Company would be forced to purchase rolled goods from other
suppliers. There can be no assurance as to the Company's ability to purchase
such goods in the quantities desired and there can be no assurance that prices
at which these products may be purchased would not be materially higher than the
internal costs that the Company would otherwise bear in producing such rolled
goods. Loss of the rolling mill for a significant period of time would have a
material adverse effect on the Company's results of operations. The Company
obtains the remainder of its rolled goods from various regional suppliers. As
demand for fabricated structures increases, the Company's ability to obtain the
rolled steel that it needs at acceptable prices decreases. If the Company were
not able to obtain such products or if prices for such goods became
prohibitively expensive, the Company's profitability and results of operations
could be materially adversely affected. See "Risk Factors -- Facility
Limitations."
SAFETY AND QUALITY ASSURANCE
Management is concerned with the safety and health of the Company's
employees and maintains a safety assurance program to reduce the possibility of
costly accidents. The Company's safety department establishes guidelines for
compliance with all applicable state and federal safety regulations. Such laws
and regulations are complex, stringent and are often changed. Sanctions for
noncompliance may include revocation of or suspension of permits, corrective
action orders, cease and desist orders, administrative or civil penalties and
criminal prosecution. There can be no assurance that the Company is or will be
at all times in full compliance with all applicable laws and regulations.
Failure to comply could have a material adverse effect on the Company.
The Company provides training and safety education through orientations for
new employees and subcontractors, daily crew safety meetings and first aid and
CPR training. The Company also employs several safety engineers. The Company has
a comprehensive drug testing program and conducts periodic employee health
screenings. A safety committee, whose members consist of management
representatives and peer elected field representatives, meets monthly to discuss
safety concerns and suggestions that could prevent future accidents. The Company
has at times contracted with a third-party safety consultant to provide training
and suggestions and a licensed emergency medical technician in its ongoing
commitment to a safe and healthy work environment. The Company believes that its
safety program and commitment to quality are vital to attracting and retaining
customers and employees.
The Company fabricates to the standards of the American Petroleum
Institute, the American Welding Society, the American Society of Mechanical
Engineers and specific customer specifications. The Company uses welding and
fabrication procedures in accordance with the latest technology and industry
requirements. Training programs are conducted to upgrade skilled personnel and
maintain high quality standards. In addition, the Company maintains on-site
facilities for the x-ray of all pipe welds, which process is performed by an
independent contractor. Management believes that these programs generally
enhance the quality of its products and reduce their repair rate.
CUSTOMERS AND CONTRACTING
The Company's customers are primarily major and independent oil and gas
companies and offshore marine construction contractors. The Company's structures
are used primarily offshore West Africa and in the Gulf of Mexico. The Company
does not anticipate that the sale of McDermott's interest in the Company as part
of the Offering will have a significant effect on the demand for its services or
its ability to obtain fabrication work.
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A large portion of the Company's revenue has historically been generated by
a few customers, although not necessarily the same customers from year-to-year.
At June 30, 1997, 57% of the Company's backlog was attributable to two projects.
The following table provides information with respect to customers who accounted
for more than 10% of the Company's revenue for each of the four fiscal years
ending March 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, CUSTOMER % OF REVENUE
- -------------------- -------- ------------
<C> <C> <C>
1997 Bouygues Offshore 35
McDermott-ETPM West, Inc.* 26
1996 Mobil Producing Nigeria Unlimited 53
Shell Offshore Inc. 11
1995 Overseas Bechtel Inc. 29
Shell Offshore Inc. 10
1994 British Gas Tunisia, Ltd. 16
ABB Lummus Crest, Inc. 14
Pennzoil Exploration & Production Co., Inc. 12
</TABLE>
- ---------------
* McDermott-ETPM West, Inc. is a joint venture between an affiliate of McDermott
and a third party. Neither McDermott nor its affiliate exercises day-to-day
control over the joint venture.
Although the Company's direct customers on many projects are installation
contractors, each project is ultimately fabricated for use by an oil and gas
company. The Company, from time to time, contracts with multiple installation
contractors who may be supplying structures to the same oil and gas company and,
in some instances, contracts directly with the oil and gas companies. Thus,
concentration among the Company's customers may be greater when the customer is
viewed as the oil and gas company rather than the installation contractor. For
example, at June 30, 1997, the Company estimates that approximately 89% of its
backlog was for projects to be built for three oil and gas companies.
Because the level of fabrication that the Company may provide, directly or
indirectly, to any particular oil and gas company depends, among other things,
on the size of that company's capital expenditure budget devoted to platform
construction in a particular year and the Company's ability to meet the
customer's delivery schedule, companies that account for a significant portion
of the Company's revenue in one fiscal year may represent an immaterial portion
of revenue in subsequent years. The level of fabrication that the Company may
provide as a subcontractor to an offshore construction company depends, among
other things, on the ability of that company to successfully obtain prime
contracts with oil and gas companies and the ability of the Company to meet the
delivery schedule of the prime contractor. Thus, the prime contractors who
account for a significant portion of revenue in one fiscal year may represent an
immaterial portion of revenue in subsequent years. However, the loss of any
significant customer (whether an oil and gas company with which the Company
directly contracts or a prime contractor for which the Company has provided
services on a subcontract basis) for any reason, including a sustained decline
in an oil and gas company's capital expenditure budget or the prime contractor's
inability to successfully obtain contracts, or other competitive factors, could
result in a substantial loss of revenue and have a material adverse effect on
the Company's operating performance. See "Risk Factors -- Dependence on
Significant Customers."
Most of the Company's projects are awarded on a fixed-price basis, and
while customers may consider other factors, including the availability,
capability, reputation and safety record of a contractor, price and the ability
to meet a customer's delivery schedule are the principal factors on which the
Company is awarded contracts. The Company's contracts generally vary in length
from one month to eighteen months depending on the size and complexity of the
project.
Under fixed-price contracts, the Company receives the price fixed in the
contract, subject to adjustment only for change orders placed by the customer.
As a result, with respect to fixed-price contracts, the Company retains all cost
savings but is also responsible for all cost overruns. Under time and materials
arrangements, the Company receives a specified hourly rate for direct labor
hours worked (which exceeds its direct labor costs) and a specified percentage
mark-up over its cost for materials. As a result, under time and materials
contracts,
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the Company is protected against cost overruns but does not benefit directly
from cost savings. As the Company is typically able to obtain prices for
materials in excess of its costs, the cost and productivity of the Company's
labor force are the key factors affecting the Company's operating profits.
Consequently, it is essential that the Company control its labor costs and the
productivity of its workforce. Each project is reviewed on at least a weekly
basis by the Company's top management to insure that difficulties and cost
overruns can be identified early in the project and corrected. Although no
assurance can be given that the Company will realize profits on its current or
future contracts, the Company believes that the active involvement of its top
management reduces the likelihood of significant cost overruns. See "Risk
Factors -- Contract Bidding Risks."
COMPETITION
The offshore platform fabrication industry is highly competitive and
influenced by events largely outside of the control of offshore platform
fabrication companies. Since 1992, there has been a consolidation in the
industry as several marine construction companies have combined with other
companies or ceased operations altogether. As a result of this consolidation,
there are approximately eight remaining domestic competitors for custom
fabrication projects, several of which are substantially larger and have greater
resources and capabilities than the Company. These companies compete intensely
for available projects, which are generally awarded on a competitive bid basis
with customers usually requesting bids on projects one to three months prior to
commencement. For international projects, the Company competes with many of the
same domestic fabricators, as well as with several foreign fabricators, some of
which are substantially larger and have greater financial resources and
capabilities than the Company.
The Company's marketing staff contacts offshore construction contractors
and oil and gas companies to obtain information as to upcoming projects so that
the Company will be well positioned to bid for the projects. Although price and
the contractor's ability to meet a customer's delivery schedule are the
principal factors in determining which qualified fabricator is awarded a
contract for a project, customers also consider, among other things, the
availability of technically capable personnel and facility space, a fabricator's
efficiency, condition of equipment, reputation, safety record and customer
relations. The Company believes that the limited availability of experienced
supervisory and management personnel, as well as skilled laborers, presents the
greatest barrier to entry to new companies trying to enter the fabrication
industry.
The Company believes that its competitive pricing, expertise in fabricating
offshore marine structures and its long-term relationships with international
customers will enable it to continue to compete effectively for projects
destined for international waters. The Company recognizes, however, that foreign
governments often use subsidies and incentives to create jobs where oil and gas
production is being developed. The additional transportation costs that will be
incurred when exporting structures from the U.S. to foreign locations may hinder
the Company's ability to successfully bid for projects against foreign
competitors. Because of subsidies, import duties and fees, taxes on foreign
operators and lower wage rates in foreign countries along with fluctuations in
the value of the U.S. dollar and other factors, the Company may find it
increasingly difficult to remain competitive with foreign contractors for
projects designed for use in international waters.
BACKLOG
As of June 30, 1997, the Company's backlog was approximately $21.1 million,
all of which management expects to be performed by June 30, 1998. Of the
Company's backlog at June 30, 1997, 57% was attributable to two projects.
The Company's backlog is based on management's estimate of the remaining
labor, material and subcontracting costs to be incurred with respect to those
projects as to which a customer has authorized the Company to begin work or
purchase materials pursuant to written contracts, letters of intent or other
forms of authorization. Often, however, original contract prices are based on
incomplete engineering and design specifications. As engineering and design
plans are finalized or changes to existing plans are made, the total contract
price to complete such projects is likely to change. In addition, most projects
currently included in the Company's backlog are subject to termination at the
option of the customer, although the customer in that
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case is generally required to pay the Company for work performed and materials
purchased through the date of termination and, in some instances, pay the
Company termination fees. See "Risk Factors -- Backlog."
GOVERNMENT AND ENVIRONMENTAL REGULATION
Many aspects of the Company's operations and properties are materially
affected by federal, state and local regulation, as well as certain
international conventions and private industry organizations. The exploration
and development of oil and gas properties located on the outer continental shelf
of the United States is regulated primarily by the MMS. The MMS has promulgated
federal regulations under the Outer Continental Shelf Lands Act requiring the
construction of offshore structures located on the outer continental shelf to
meet stringent engineering and construction specifications. The Company is not
directly affected by regulations applicable to offshore construction operations
as are its customers which install and operate the structures fabricated by the
Company, but the Company is required to construct these structures in accordance
with customer design which must comply with applicable regulations; to the
extent such regulations detrimentally affect customer activities, the operations
of the Company may be adversely affected. Violations of the laws and related
regulations directly affecting the Company's operations can result in
substantial civil and criminal penalties as well as injunctions curtailing
operations. The Company believes that its operations are in compliance with
these and all other laws and related regulations affecting the fabrication of
structures for delivery to the outer continental shelf of the United States and
the laws and related regulations governing other areas of the world. In
addition, the Company depends on the demand for its services from the oil and
gas industry and, therefore, is affected by changing taxes, price controls and
other laws and regulations relating to the oil and gas industry. In addition,
offshore construction and drilling in certain areas have been opposed by
environmental groups and, in certain areas, has been restricted or prohibited.
To the extent laws or regulations are enacted or other governmental actions are
taken that prohibit or restrict offshore construction and drilling or impose
environmental protection requirements that result in increased costs to the oil
and gas industry in general and the offshore construction industry in
particular, the business and prospects of the Company could be adversely
affected, although such restrictions in the areas where the Company's products
are used have not been substantial. The Company cannot determine to what extent
future operations and earnings of the Company may be affected by new
legislation, new regulations or changes in existing laws or regulations.
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent federal, state and local environmental laws
and regulations, including those governing discharges into the air and water,
the handling and disposal of solid and hazardous wastes, the remediation of soil
and groundwater contaminated by hazardous substances and the health and safety
of employees. These laws may provide for "strict liability" for damages to
natural resources and threats to public health and safety, rendering a party
liable for environmental damage without regard to negligence or fault on the
part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, cease and desist orders, administrative or
civil penalties and criminal prosecution. Certain environmental laws provide for
strict, joint and several liability, without regard to fault or negligence, for
remediation of spills and other releases of hazardous substances. In addition,
the Company may be subject to claims alleging personal injury, property damage
or natural resource damage as a result of the handling of hazardous substances.
Such laws and regulations may also expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, and similar laws provide for responses to and liability for
releases of hazardous substances into the environment. Additionally, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Safe Drinking Water Act, the Emergency Planning and Community Right to Know Act,
each as amended, and similar state or local counterparts to these federal laws,
regulate air emissions, water discharges, hazardous substances and wastes, and
require public disclosure related to the use of various hazardous substances.
Compliance with such environmental laws and regulations requires the acquisition
of permits and other authorizations for certain activities and compliance with
various standards and procedural requirements.
33
<PAGE> 37
The Company is currently in the process of applying for certain permits
from the Louisiana Department of Environmental Quality for its facilities and
upgrading its general environmental compliance. These permits are necessary for
the operation of certain facilities in accordance with environmental
requirements. While there can be no assurance that the permits will be issued,
management believes that the Company will be able to obtain the required permits
and bring its facilities into substantial compliance with current regulatory
standards without material effect to its operations. The Company has budgeted
$150,000 for the costs of completing the necessary environmental permitting and
compliance matters.
In addition to the Company's operations, in the past other industrial
operations have been conducted by other entities on the properties now utilized
by the Company. Although the Company does not believe that there are any
material remediation requirements on its properties, it is possible that these
past operations may have caused unknown environmental conditions to exist that
might in the future require remediation.
The Company's operations are also governed by laws and regulations relating
to workplace safety and worker health, primarily the Occupational Safety and
Health Act and regulations promulgated thereunder. In addition, various other
governmental and quasi-governmental agencies require the Company to obtain
certain miscellaneous permits, licenses and certificates with respect to its
operations. The kind of permits, licenses and certificates required in the
Company's operations depend upon a number of factors. The Company believes that
it has all such miscellaneous permits, licenses and certificates that are
material to the conduct of its existing business.
The Company's efforts to comply with the laws and regulations discussed in
this section have entailed certain additional expenses and changes in operating
procedures. These expenses have not been substantial over the past ten years,
and the Company believes that, except for the amount budgeted for permitting
matters as discussed above, compliance with these laws and regulations will not
have a material adverse effect on the Company's business or financial condition
for the foreseeable future. However, future events, such as changes in existing
laws and regulations or their interpretation, more vigorous enforcement policies
of regulatory agencies, stricter or different interpretations of existing laws
and regulations or adoption of new laws and regulations, may require additional
expenditures by the Company, which expenditures may be material. See "Risk
Factors -- Regulatory and Environmental Matters."
The Company also has employees engaged in offshore operations which are
covered by provisions of the Jones Act, the Death on the High Seas Act and
general maritime law, which laws operate to make the liability limits
established under state workers' compensation laws (which are applicable to the
Company's other employees) inapplicable to these employees and, instead, permit
them or their representatives to pursue actions against the Company for damages
or job related injuries, with generally no limitations on the Company's
potential liability.
In addition to government regulation, various private industry
organizations, such as the American Petroleum Institute, the American Society of
Mechanical Engineers and the American Welding Society, promulgate technical
standards that must be adhered to in the fabrication process.
INSURANCE
The Company maintains insurance against property damage caused by fire,
flood, explosion and similar catastrophic events that may result in physical
damage or destruction to the Company's facilities. The Company also maintains
general liability insurance, workers' compensation liability and maritime
employer's liability insurance. All policies are subject to deductibles and
other coverage limitations. Although management believes that the Company's
insurance is adequate, there can be no assurance that the Company will be able
to maintain adequate insurance at rates which management considers commercially
reasonable, nor can there be any assurance such coverage will be adequate to
cover all claims that may arise.
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings primarily
involving commercial claims, workers' compensation claims, and claims for
personal injury under the General Maritime Laws of the United
34
<PAGE> 38
States and the Jones Act. While the outcome of these lawsuits, legal proceedings
and claims cannot be predicted with certainty, management believes that the
outcome of all such proceedings, even if determined adversely, would not have a
material adverse effect on the Company's business or financial condition.
EMPLOYEES
During the fiscal year ended March 31, 1997, the number of Company
employees increased by 95 full-time production employees to 425 at year-end. As
of July 31, 1997, the Company had approximately 408 employees. The Company also
engages the services of subcontractors. Management estimates that these
subcontractors provide from time to time approximately 50 to 125 workers to
perform certain tasks in connection with the Company's projects. None of the
Company's employees is employed pursuant to a collective bargaining agreement,
and the Company believes that its relationship with its employees is good.
The Company's ability to remain productive and profitable depends
substantially on its ability to attract and retain skilled construction workers,
primarily welders, fitters and equipment operators. In addition, the Company's
ability to expand its operations depends primarily on its ability to increase
its workforce. The demand for such workers is high, and the supply is extremely
limited. While the Company believes its relationship with its skilled labor
force is good, a significant increase in the wages paid by competing employers
could result in a reduction in the Company's skilled labor force, increases in
the wage rates paid by the Company, or both. If either of these occurs, in the
near-term, the profits expected by the Company from work in progress could be
reduced or eliminated and, in the long-term, to the extent such wage increases
could not be passed on to the Company's customers, the production capacity of
the Company could be diminished and the growth potential of the Company could be
impaired. See "Risk Factors -- Need for Skilled Workers."
The Company has taken an active role in the movement to create a more
business-oriented educational system in Louisiana. For example, Dailey J.
Berard, the Company's President, Chief Executive Officer and Chairman of the
Board, has recently been appointed by Louisiana Governor Mike Foster to the
Louisiana Workforce Commission, a group consisting of 25 members, 11 of whom are
representatives of business and industry. This Commission, which was established
by recent Louisiana legislation, will oversee the spending of $400 million in
job training funds appropriated by the legislature. The Commission will
coordinate federal worker training programs, exercise authority over policy and
funding decisions for worker training programs, oversee an occupational
information system and create regional employer-oriented workforce boards.
Although there can be no assurance that such initiatives will enable the Company
to meet its hiring needs, management believes that, in the long-term,
initiatives like these are the best methods for increasing the pool of skilled
workers from which it can draw employees.
35
<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of the date of this Prospectus, certain
information with respect to the Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dailey J. Berard.......................... 68 President, Chief Executive Officer and
Chairman of the Board
Larry L. Clement.......................... 53 Vice President -- Operations
Dennis W. LaFleur......................... 51 Vice President -- International Sales
David J. Berard........................... 51 Vice President -- Domestic Sales
Louis C. Peltier.......................... 67 Vice President -- Power and Equipment
Peter J. Roman............................ 46 Vice President and Chief Financial Officer
Charles E. Broussard...................... 72 Director
Perry Segura.............................. 67 Director
Richard E. Roberson, Jr................... 60 Director
George C. Yax............................. 56 Director
</TABLE>
Dailey J. Berard has served as President, Chief Executive Officer and
Chairman of the Board of the Company since its founding in 1980. He was trained
as a civil engineer and has over 45 years of experience in the oil service
industry, working with several different companies, including Houston-New
Orleans, Inc., Houston Systems Manufacturing Company and Norman Offshore
Pipelines, Inc. Mr. Berard and David J. Berard are brothers.
Larry L. Clement has been employed by the Company since 1980, and has
served as the Company's Vice President -- Operations since 1992. From 1976 to
1980, Mr. Clement served as Yard Superintendent for Houston Systems
Manufacturing Company and has over 25 years of experience in the fabrication
industry.
Dennis W. LaFleur has been employed by the Company since 1981, and has
served as the Company's Vice President -- International Sales since 1995 and as
Vice President - Sales since 1992. From 1977 to 1981, he served as Chief
Engineer for Houston Systems Manufacturing Company, and from 1974 to 1977 served
as a project engineer for Houston Construction Company.
David J. Berard has been employed by the Company since 1981, and has served
as the Company's Vice President -- Domestic Sales since 1995. Mr. Berard held
various positions with the Company since he joined the Company in 1981,
including Corporate Secretary from 1992 to 1995. From 1978 to 1981, he served as
the district manager for the fabrication yard of Waukesha Pearce Industries, and
from 1973 to 1978 served as the General Superintendent of Fabrication for
Houston Systems Manufacturing Company. Mr. Berard and Dailey J. Berard are
brothers.
Louis C. Peltier has been employed by the Company since 1981, and has
served as the Company's Vice President-Power and Equipment since 1992. Prior to
joining the Company, from 1947 to 1981, Mr. Peltier was employed by Waukesha
Pearce Industries in various positions, including District Manager.
Peter J. Roman was appointed Vice President and Chief Financial Officer on
June 30, 1997. Since June 1984, Mr. Roman has been a certified public accountant
with the international accounting firm of Ernst & Young LLP, most recently as a
senior manager. Mr. Roman graduated from Louisiana State University in 1984 with
a B.S. in Accounting and is a member of the Louisiana State Society of Certified
Public Accountants and the American Institute of Certified Public Accountants.
36
<PAGE> 40
Charles E. Broussard has been a director of the Company and its
predecessors since 1980. Mr. Broussard is currently the owner of Flying J.
Ranch, Inc., a cattle and rice farm in southern Louisiana. Mr. Broussard has
over 40 years of experience in the real estate and import/export businesses.
Perry Segura has been a director of the Company and its predecessors since
1980. Mr. Segura is an architect in New Iberia, Louisiana and is also active in
real estate development in south Louisiana. Mr. Segura was Vice Chairman of the
Board of Supervisors of Louisiana State University for the 1996-97 year and is
Chairman for the current year. Mr. Segura graduated from Louisiana State
University with a B.S. in Architectural Engineering in 1954.
Richard E. Roberson, Jr. joined the Company's Board of Directors in July
1997. He served as Vice President, Chief Financial Officer, Treasurer and a
director of Global Industries, Ltd. from December 1992 to May 1996, when he
retired. From March 1986 until September 1991, Mr. Roberson served as Vice
President -- Finance for Ocean Drilling & Exploration Company. Mr. Roberson has
over 30 years of experience in the oil and gas and oil service industry,
including over 20 years as an accounting and financial officer.
George C. Yax joined the Company's Board of Directors in July 1997. He is a
co-founder of American Oilfield Divers, Inc. ("AOD"), a publicly traded provider
of subsea products and services to the oil and gas industry, and has served as a
Chairman of the Board of AOD since its inception in 1981. Mr. Yax served as
President and Chief Executive Officer of AOD from its inception until December
1996. Mr. Yax has over 28 years of experience in the subsea services industry.
Mr. Yax is a director of the National Oceans Industries Association and has also
served in various officer capacities for the Association of Diving Contractors.
Mr. Yax holds a BBA degree and an MBA degree from Sam Houston University.
The Company's Articles of Incorporation ("Articles") and By-laws provides
for the Board of Directors to be divided into three classes of directors with
each class to be as nearly equal in number of directors as possible, with
directors serving staggered three-year terms. The terms of the Class I
directors, Messrs. Segura and Roberson, will expire in 1998. The terms of the
Class II directors, Messrs. Broussard and Yax, will expire in 1999, and the term
of the Class III director, Mr. Berard, will expire in 2000. Each director serves
until the end of his term or until his successor is elected and qualified. See
"Description of Capital Stock -- Certain Charter and By-law Provisions."
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is paid an annual
director's fee of $12,000 plus $1,000 for each board or committee meeting
attended. All directors are reimbursed for reasonable out-of-pocket expenses
incurred in attending board and committee meetings. Each director who is not an
employee of the Company, upon consummation of the Offering, will also receive
options to purchase 2,500 shares of Common Stock with an exercise price equal to
the Price to Public set forth on the cover page of this Prospectus and an annual
grant of options to purchase no more than 2,500 shares of Common Stock (with the
exact number to be set annually by the Compensation Committee) at an exercise
price equal to the market price of the Common Stock on the date of the annual
meeting of shareholders. These options will be immediately exercisable.
COMMITTEES
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's annual audit
and meets with the Company's independent public accountants to review the
Company's internal controls and financial management practices. The current
members of the Audit Committee are Messrs. Roberson and Segura.
The Compensation Committee recommends to the Board of Directors
compensation for the Company's key employees, administers the Company's stock
incentive plan and performs such other functions as may be prescribed by the
Board of Directors. The current members of the Compensation Committee are
Messrs. Broussard and Yax.
37
<PAGE> 41
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to its Chief Executive
Officer for the year ended March 31, 1997. No other employee of the Company
earned more than $100,000 in fiscal year 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- -------- ------- ---------------
<S> <C> <C> <C> <C>
Dailey J. Berard, President and Chief Executive
Officer....................................... 1997 $125,449 $50,015 $10,622
</TABLE>
- ---------------
(1) Includes amounts credited to Mr. Berard's account under the Company's 401(k)
Plan, interest earned by Mr. Berard on deferred compensation amounts and the
cost of Mr. Berard's membership in the Lafayette Petroleum Club which the
Company pays. The Company accrues interest on compensation deferred by Mr.
Berard at the prime rate as quoted by the Chase Manhattan Bank from time to
time. See "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to July 1997, the Company did not have a compensation committee. Mr.
Dailey J. Berard participated in deliberations of the Company's Board of
Directors concerning executive officer compensation.
In connection with the Expansion Transaction, the Company and Mr. Dailey J.
Berard entered into an employment agreement that was negotiated between Mr.
Berard and McDermott. Pursuant to this agreement, Mr. Berard agreed to serve as
President and Chief Executive Officer of the Company so long as he remained a
shareholder of Universal Partners. Mr. Berard receives an annual salary set by
the Board of Directors and a cash bonus, the amount of which is dependent on the
Company's return on capital. This agreement will be terminated upon completion
of the Offering.
Upon completion of the Offering, the Company and Mr. Berard will enter into
a five-year employment and non-competition agreement (the "New Employment
Agreement"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The terms of the New Employment
Agreement are the result of negotiations between Mr. Berard and the Company's
Board of Directors.
Pursuant to the New Employment Agreement, Mr. Berard will receive a yearly
salary of $180,000 and will receive, as a bonus, up to 100% of his annual salary
depending on the Company's net income return on capital. If, during the term of
the New Employment Agreement, Mr. Berard's status as an employee is terminated
for any reason other than death, disability or Cause (as defined therein) or Mr.
Berard terminates his employment for Good Reason (as defined therein), Mr.
Berard will be entitled (i) to receive compensation earned through the date of
his termination, compensation previously deferred by Mr. Berard and any accrued
vacation pay (in each case to the extent not previously paid), (ii) to receive
in a lump sum amounts due for the remainder of the employment term and (iii) to
demand that the Company register any shares of Common Stock held by him for sale
under the Securities Act (subject to a minimum of 100,000 shares) and pay all
expenses related thereto except underwriting fees, discounts and commissions,
legal fees of counsel for Mr. Berard and broker-dealer charges. See "Certain
Transactions" and "Shares Eligible for Future Resale." If, during the term of
the New Employment Agreement and following a change-in-control of the Company,
Mr. Berard's status as an employee is terminated for any reason other than
death, disability or Cause or Mr. Berard terminates his employment for Good
Reason, he will receive the amount described in clause (i) above plus the
greater of (x) the amount described in clause (ii) above and (y) two times his
annual salary. In addition, upon a change-in-control, all options granted to Mr.
Berard under the Company's long-term incentive plan will vest and become
exercisable. See "-- Compensation Pursuant to Plans -- Long-Term Incentive
Plan." These provisions could have a negative influence on any attempt to
acquire control of the Company, which could deprive shareholders of the
opportunity to sell their Common Stock at a premium in the market, and could
serve to entrench management.
38
<PAGE> 42
COMPENSATION PURSUANT TO PLANS
Long-Term Incentive Plan. In July 1997, the Company adopted and its
shareholder approved the Long-Term Incentive Plan (the "1997 Plan") to provide
long-term incentives to its key employees, including officers and directors who
are employees of the Company (the "Eligible Employees"). There are currently
approximately 30 Eligible Employees. Under the 1997 Plan, which is administered
by the Compensation Committee of the Board of Directors, the Company may grant
incentive stock options, non-qualified stock options, restricted stock, other
stock-based awards or any combination thereof (the "Incentives") to Eligible
Employees. The Compensation Committee will determine who will receive Incentives
and will establish the exercise price of any stock options granted under the
Incentive Plan, provided that the exercise price may not be less than the fair
market value of the Common Stock on the date of grant. The option exercise price
may be paid in cash, in Common Stock held for at least six months (unless
otherwise determined by the Compensation Committee), or through a
broker-assisted exercise arrangement approved by the Compensation Committee.
A total of 460,000 shares of Common Stock are available for issuance under
the 1997 Plan. Incentives with respect to no more than 200,000 shares of Common
Stock may be granted to any single Eligible Employee in one calendar year.
Proportionate adjustments will be made to the number of shares subject to the
1997 Plan, including the shares subject to outstanding Incentives, in the event
of any recapitalization, stock dividend, stock split, combination of shares or
other change in the Common Stock. In the event of such adjustments, the purchase
price of any outstanding option will be adjusted as and to the extent
appropriate, in the reasonable discretion of the Compensation Committee, to
provide participants with the same relative rights before and after such
adjustment.
Pursuant to the 1997 Plan, each director who is not an employee of the
Company will receive options to purchase 2,500 shares upon consummation of the
Offering at the Price to Public set forth on the cover page of this Prospectus.
In addition, at each annual meeting of the Company's shareholders, each director
who is not an employee of the Company and continues to serve as a director will
receive options to purchase no more than 2,500 shares of Common Stock (with the
exact number to be set annually by the Compensation Committee) at an exercise
price equal to the market price of the Common Stock on the date of the annual
meeting of shareholders. These options will be immediately exercisable and will
expire ten years following the date of grant. There are currently four
non-employee directors.
All outstanding Incentives will automatically become exercisable and fully
vested and all performance criteria will be deemed to be waived by the Company
upon (i) approval by the shareholders of the Company of a reorganization, merger
or consolidation of the Company or sale of all or substantially all of the
assets of the Company, unless (x) all or substantially all of the individuals
and entities who were the beneficial owners of the Company's outstanding Common
Stock and voting securities entitled to vote generally in the election of
directors immediately prior to such transaction have direct or indirect
beneficial ownership, respectively, of more than 50% of the then outstanding
shares of common stock, and more than 50% of the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the resulting entity; (y) except to the extent that such ownership
existed prior to the transaction, no person (excluding any corporation resulting
from the transaction or any employee benefit plan or related trust of the
Company or the resulting corporation) beneficially owns, directly or indirectly,
30% or more of the then outstanding shares of common stock of the resulting
corporation or 30% or more of the combined voting power of the then outstanding
voting securities of the resulting entity; or (z) a majority of the board of
directors of the resulting entity were members of the Company's board of
directors at the time of the execution of the initial agreement or of the action
of the Board providing for the transaction; (ii) approval by the shareholders of
the Company of a complete liquidation or dissolution of the Company; (iii) a
person or group of persons becoming the beneficial owner of more than 30% of the
Company's voting stock (subject to certain exceptions); or (iv) the replacement
of a majority of the Board in a contested election (a "Significant
Transaction"). The Compensation Committee also has the authority to take several
actions regarding outstanding Incentives upon the occurrence of a Significant
Transaction, including requiring that outstanding options remain exercisable
only for a limited time, providing for mandatory conversion of outstanding
options in exchange for either a cash payment or Common Stock, making equitable
adjustments to Incentives or providing that outstanding options will become
options relating to securities to which a participant would have
39
<PAGE> 43
been entitled in connection with the Significant Transaction if the options had
been exercised. These provisions could have a negative influence on any attempt
to acquire control of the Company, which could deprive shareholders of the
opportunity to sell their Common Stock at a premium in the market, and could
serve to entrench management.
The Board may amend the 1997 Plan without shareholder approval, unless
shareholder approval is deemed necessary or advisable in order to comply with
tax or regulatory requirements.
As of the date of this Prospectus, options to purchase 133,500 shares of
Common Stock have been granted under the 1997 Plan to directors and key
employees of the Company, including options to purchase 65,000, 8,000, 8,000,
8,000, 4,000 and 4,000 shares to Messrs. Dailey J. Berard, Clement, LaFleur,
David J. Berard, Peltier and Roman, respectively. Executive officers as a group
were granted options to purchase 97,000 shares, other employees as a group were
granted options to purchase 26,500 shares and non-employee directors as a group
will be granted options to purchase 10,000 shares upon consummation of the
Offering. All of the options granted as of the date of this Prospectus under the
1997 Plan have a ten-year term and an exercise price equal to the initial public
offering price. These grants will be effective only upon consummation of the
Offering. One-third of these options granted to the Company's employees will
become exercisable upon completion of the Offering, with the remainder becoming
exercisable in equal installments on the first and second anniversaries of the
completion of the Offering.
The optionee will not realize any income for federal income tax purposes,
nor will the Company realize any deduction, upon the grant of a non-qualified
stock option. Upon exercise, the optionee will realize ordinary income measured
by the difference between the aggregate fair market value of the shares of
Common Stock on the exercise date and the aggregate exercise price, and the
Company will be entitled to a deduction in the same amount.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
As permitted by Louisiana Law, the Company's Articles contain certain
provisions eliminating the personal liability of the directors and officers to
the Company and its shareholders for monetary damages for breaches of their
fiduciary duties as directors or officers, except for (i) a breach of a
director's or officer's duty of loyalty to the Company or to its shareholders,
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) dividends or stock repurchases or
redemptions that are illegal under Louisiana law and (iv) any transaction from
which he or she receives an improper personal benefit. In addition, the Articles
provide that if Louisiana law is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of the directors
shall be eliminated or limited to the fullest extent permitted by Louisiana law,
as amended. These provisions pertain only to breaches of duty by directors as
directors and not in any other corporate capacity, such as officers, and limit
liability only for breaches of fiduciary duties under Louisiana corporate law
and not for violations of other laws such as the federal securities laws.
As a result of the inclusion of such provisions, shareholders may be unable
to recover monetary damages against directors or officers for actions taken by
them that constitute negligence or gross negligence or that are in violation of
their fiduciary duties, although it may be possible to obtain injunctive or
other equitable relief with respect to such actions. If equitable remedies are
found not to be available to shareholders in any particular case, shareholders
may not have any effective remedy against the challenged conduct. These
provisions may have the effect of reducing the likelihood of derivative
litigation against directors or officers that might have benefitted the Company.
The Company believes that such provisions are necessary to attract and
retain qualified individuals to serve as directors and officers. In addition,
such provisions will allow directors and officers to perform their duties in
good faith without undue concern about personal liability if a court finds their
conduct to have been negligent or grossly negligent. On the other hand, the
potential remedies available to a Company shareholder will be limited, and it is
possible, although unlikely, that directors and officers protected by these
provisions may not demonstrate the same level of diligence or care that they
would otherwise demonstrate.
40
<PAGE> 44
The Company's Bylaws require the Company to indemnify its directors and
officers against certain expenses and costs, judgments, settlements and fines
incurred in the defense of any claim, including any claim brought by or in the
right of the Company, to which they were made parties by reason of being or
having been directors and officers, subject to certain conditions and
limitations.
In addition, each of the Company's directors and executive officers has
entered into an indemnity agreement with the Company, pursuant to which the
Company has agreed under certain circumstances to purchase and maintain
directors' and officers' liability insurance. The agreements also provide that
the Company will indemnify the directors and executive officers against any
costs and expenses, judgments, settlements and fines incurred in connection with
any claim involving a director or executive officer by reason of his position as
a director or executive officer that are in excess of the coverage provided by
such insurance; provided that the director or executive officer meets certain
standards of conduct. A form of indemnity agreement containing such standards of
conduct is included as an exhibit to the Registration Statement of which this
Prospectus forms a part. Under the indemnity agreements, the Company is not
required to purchase and maintain directors' and officers' liability insurance
if it is not reasonably available or, in the reasonable judgment of the Board of
Directors, there is insufficient benefit to the Company from the insurance.
41
<PAGE> 45
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding beneficial ownership of the Common Stock (assuming the
Partners Share Exchange (and dissolution of Universal Partners) and the
McDermott Share Exchange had occurred on such date) by (i) the Selling
Shareholder, (ii) each shareholder known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (iii) each director of
the Company, (iv) each of the Company's executive officers, and (v) all of the
Company's directors and executive officers as a group. Unless otherwise
indicated, the Company believes that the shareholders listed below have sole
investment and voting power with respect to their shares based on information
furnished to the Company by such shareholders.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
COMMON STOCK
-------------------
NUMBER OF SHARES SHARES TO BE SOLD BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED IN THE OFFERING OFFERING OFFERING
------------------------ ------------------ ----------------- -------- --------
<S> <C> <C> <C> <C>
McDermott Incorporated(1)................... 1,715,000 1,715,000 49.0% --
Dailey J. Berard(1)......................... 436,312(2) -- 11.8% 9.4%
Charles E. Broussard(3)..................... 408,934(2) -- 11.6% 8.8%
Perry Segura(4)............................. 437,672(2) -- 12.4% 9.5%
Larry L. Clement............................ 43,721(2) -- 1.2% *
Dennis LaFleur.............................. 43,721(2) -- 1.2% *
David J. Berard............................. 43,721(2) -- 1.2% *
Louis C. Peltier............................ 42,387(2) -- 1.2% *
Peter J. Roman.............................. 1,333(2) -- * *
Richard E. Roberson, Jr..................... 2,500(2) -- * *
George C. Yax............................... 2,500(2) -- * *
All directors and executive officers as a
group (10 persons)........................ 1,462,801(5) -- 40.6% 31.5%
</TABLE>
- ---------------
* Less than one percent.
(1) The address of McDermott Incorporated is 1450 Poydras Street, New Orleans,
Louisiana 70112. The address of Mr. Dailey J. Berard is c/o Universal
Fabricators Incorporated, 5007 Port Road, New Iberia, Louisiana 70562.
(2) Includes the following number of shares issuable upon the exercise of
options held by each of the following that will become exercisable upon
completion of the Offering: Mr. Dailey Berard, 21,667; Mr. Broussard, 2,500;
Mr. Segura, 2,500; Mr. Clement, 2,667; Mr. LaFleur, 2,667; Mr. David Berard,
2,667; Mr. Peltier, 1,333; Mr. Roman, 1,333; Mr. Roberson, 2,500 and Mr.
Yax, 2,500.
(3) Includes 151,900 shares owned by a company controlled by Mr. Broussard. His
address is 23604 S. Louisiana Highway 82, Kaplan, Louisiana 70548.
(4) Includes 373,591 shares owned by a company controlled by Mr. Segura. His
address is P.O. Box 13410, New Iberia, Louisiana 70562.
(5) Includes 42,334 shares issuable upon exercise of options held by the
Company's directors and executive officers that will become exercisable upon
completion of the Offering.
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<PAGE> 46
CERTAIN TRANSACTIONS
Since December 1992, the Company has leased its main administrative offices
and five acres of surrounding land from McDermott for a nominal fee. Upon
completion of the Offering, the Company will purchase the building and the land,
together with approximately 13 additional acres, from McDermott for $700,000,
which management believes is the fair market value of the land and building, if
sold in an arms' length transaction. The purchase price for this land was
determined by negotiations between McDermott and the Company, who was
represented by Mr. Berard, its President and Chief Executive Officer. In
addition, the Company will pay $6.3 million to McDermott for the release of its
rights under the Shareholders' Agreement and the Put/Call Agreement. See
"Formation of the Company" and "Use of Proceeds."
The Company has agreed to purchase 10 acres of land adjacent to its
facilities from Universal Partners upon completion of the Offering for $100,500.
The proceeds of this sale (or interests therein through a liquidating trust)
will be distributed to the shareholders of Universal Partners in connection with
the dissolution of Universal Partners, which is expected to occur promptly after
completion of the Offering. Shareholders of Universal Partners who are also
directors and officers of the Company will receive, in the aggregate,
approximately $80,000 (or trust interests therein) pursuant to this
distribution. Based upon an independent appraisal, the Company believes the
purchase price for the land represents its fair market value, if sold in an
arms' length transaction. See "The Company" and "Use of Proceeds."
The Company has from time to time provided fabrication services as a
subcontractor to McDermott-ETPM West, Inc., which is an offshore construction
company and an affiliate of McDermott. The Company provides fabrication services
to this joint venture on the same basis as it does for other offshore
construction companies and believes that it obtained the contracts for these
services because of the quality of its bids and not because of its relationship
with McDermott. In fiscal 1997, the Company generated approximately $17.4
million in revenue from such projects. As of July 31, 1997, the Company had an
account receivable from McDermott-ETPM West, Inc. in the amount of $1.1 million,
which the Company expects to collect in full. The Company continues to bid as a
subcontractor for fabrication projects from McDermott-ETPM West, Inc., and
expects that its bids will continue to be considered on the same basis after the
Offering. In addition, the Company has from time to time purchased rolled goods
from J. Ray McDermott, Inc., also an affiliate of McDermott, and in fiscal 1997,
the cost of such purchases was approximately $330,000. The Company believes that
all of these transactions were performed on an arm's length basis at prices that
are typical for similar transactions between unrelated parties. The Company does
not anticipate that the sale of McDermott's interest in the Company as part of
the Offering will have any significant adverse effect on the Company.
Pursuant to the New Employment Agreement, the Company has granted Mr.
Dailey Berard the right to demand registration for sale under the Securities Act
of any shares of Common Stock that he owns (subject to a minimum of 100,000
shares), if, during the term of the New Employment Agreement, he is removed as
the Company's President and Chief Executive Officer for any reason other than
death, disability or Cause (as defined therein) or he terminates his employment
with the Company for Good Reason (as defined therein). The Company has agreed to
pay all the expenses of such registration, other than underwriting fees,
discounts and commissions, legal fees of counsel for Mr. Berard and
broker-dealer charges. See "Risk Factors -- Sales Eligible for Future Resale"
and "Management -- Compensation Committee Interlocks and Insider Participation."
In 1997, Universal Fabricators distributed $370,000 to Universal Partners
to reimburse Universal Partners for the costs of settling an uninsured worker's
compensation claim which arose prior to the Expansion Transaction. Certain
officers and directors of the Company collectively own approximately 80% of the
stock of Universal Partners.
Mr. Dailey J. Berard has deferred the receipt of all bonus payments due him
since the Expansion Transaction. The Company accrues interest on such sums at
the prime rate as quoted by the Chase Manhattan Bank from time to time and, as
of March 31, 1997, the Company owed Mr. Berard approximately $133,000.
43
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.01 par value per share, and 5,000,000 shares of preferred
stock, no par value per share, issuable in series (the "Preferred Stock"). Upon
completion of the Partners Share Exchange and the McDermott Share Exchange
immediately prior to the consummation of the Offering, the Company will have
3,500,000 shares of Common Stock outstanding, which will be held of record by
approximately 33 persons, and no shares of Preferred Stock will be outstanding.
Prior to the Offering, there has been no public market for the Common Stock.
Although application has been made to have the Common Stock listed on the Nasdaq
National Market, there can be no assurance that a market for the Common Stock
will develop or, if developed, will be sustained. See "Risk Factors -- No Prior
Market; Possible Volatility of Market Price; Dilution." The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Company's Certificate and By-laws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of shareholders;
shareholders may not cumulate votes for the election of directors. Subject to
any preferences accorded to the holders of the Preferred Stock, if and when
issued by the Board of Directors, holders of Common Stock are entitled to
dividends at such times and in such amounts as the Board of Directors may
determine. The Company currently does not intend to pay dividends for the
foreseeable future. Upon the dissolution, liquidation or winding up of the
Company, after payment of debts, expenses and the liquidation preference plus
any accrued dividends on any outstanding shares of Preferred Stock, the holders
of Common Stock will be entitled to receive all remaining assets of the Company
ratably in proportion to the number of shares held by them. Holders of Common
Stock have no preemptive, subscription or conversion rights and are not subject
to further calls or assessments, or rights of redemption by the Company. The
outstanding shares of Common Stock are, and the shares of Common Stock being
sold in the Offering will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority, without approval of the
shareholders, to issue shares of Preferred Stock in one or more series and to
fix the number of shares and rights, preferences and limitations of each series.
Among the specific matters with respect to the Preferred Stock that may be
determined by the Board of Directors are the dividend rights, the redemption
price, if any, the terms of a sinking fund, if any, the amount payable in the
event of any voluntary liquidation, dissolution or winding up of the affairs of
the Company, conversion rights, if any, and voting powers, if any.
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to make
more difficult or to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of the Company's management. If, in the exercise of its
fiduciary obligations, the Board of Directors were to determine that a takeover
proposal was not in the Company's best interest, such shares could be issued by
the Board of Directors without shareholder approval in one or more transactions
that might prevent or make more difficult or costly the completion of the
takeover transaction by diluting the voting or other rights of the proposed
acquiror or insurgent shareholder group, by creating a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent Board of Directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise. In this regard, the Company's
Articles grant the Board of Directors broad power to establish the rights and
preferences of the authorized and unissued Preferred Stock, one or more series
of which could be issued that would entitle holders (i) to vote separately as a
class on any proposed merger or consolidation, (ii) to cast a proportionately
larger vote together with the Common Stock on any such transaction or for all
purposes, (iii) to elect directors having terms of office or voting rights
greater than those of other directors, (iv) to convert Preferred Stock into a
greater number of shares of Common Stock or other securities, (v) to demand
redemption at a specified
44
<PAGE> 48
price under prescribed circumstances related to a change of control or (vi) to
exercise other rights designated to impede a takeover. The issuance of shares of
Preferred Stock pursuant to the Board of Directors' authority described above
may adversely effect the rights of holders of the Common Stock.
In addition, certain other charter provisions that are described below may
have the effect of, either alone or in combination with each other or with the
existence of authorized but unissued capital stock, of making more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Classified Board of Directors. The Articles and By-laws divide the members
of the Board of Directors who are elected by the holders of the Common Stock
into three classes serving three-year staggered terms.
Advance Notice of Intention to Nominate a Director. The Articles and
By-laws permit a shareholder to nominate a person for election as a director
only if written notice of such shareholder's intent to make a nomination has
been given to the Secretary of the Company not less than 45 days or more than 90
days prior to an annual meeting, unless less than 55 days notice is given of the
meeting, in which case notice by the shareholder must be received on the 10th
day after notice of the meeting was given. This provision also requires that the
shareholder's notice set forth, among other things, a description of all
arrangements or understandings between the nominee and the shareholder pursuant
to which the nomination is to be made or the nominee is to be elected and such
other information regarding the nominee as would be required to be included in a
proxy statement filed pursuant to the proxy rules promulgated under the
Securities Exchange Act of 1934, as amended, had the nominee been nominated by
the Board of Directors of the Company. Any nomination that fails to comply with
these requirements may be disqualified.
Shareholders' Right to Call Special Meeting. The Articles and By-laws
provide that a special shareholders' meeting may be requested by a shareholder
or group of shareholders holding in the aggregate 50% or more of the Company's
total voting power.
Removal of Directors; Filling Vacancies on Board of Directors. The Articles
and By-laws provide that any director elected by holders of the Common Stock may
be removed at any time by a two-thirds vote of the entire Board of Directors,
unless there is a person who is the beneficial owner of more than 50% of the
outstanding shares of Common Stock, in which case the removal may only be for
cause. In addition, any director or the entire Board may be removed at any time
for cause by a vote of the holders of not less than two-thirds of the total
voting power held by all holders of voting stock present or represented at a
special stockholders' meeting called for that purpose. "Cause" is defined for
these purposes as conviction of a felony involving moral turpitude or
adjudication of gross negligence or misconduct in the performance of duties in a
matter of substantial importance to the Company. The Articles and By-laws also
provide that any vacancies on the Board of Directors (including any resulting
from an increase in the authorized number of directors) may be filled only by
the affirmative vote of two-thirds of the remaining directors or by the
shareholders, who have the right to fill the vacancy at any special meeting
called for that purpose prior to such action by the Board.
Adoption and Amendment of By-laws. The Articles provide that By-laws may be
(i) adopted only by a two-thirds vote of the entire Board of Directors and (ii)
amended or repealed by either a two-thirds vote of the entire Board of Directors
or the holders of 80% of the total voting power present or represented at any
shareholders' meeting. Any provisions amended or repealed by the shareholders
may be re-amended or re-adopted by the Board of Directors.
Consideration of Tender Offers and Other Extraordinary Transactions. Under
Louisiana law, the Board of Directors, when considering a tender offer, exchange
offer, merger or consolidation, may consider, among other factors, the social
and economic effects of the proposal on the Company, its subsidiaries and their
respective employees, customers, creditors and communities.
Amendment of Certain Provisions of the Articles; Other Corporate
Action. The Company's Articles require, unless the action has been approved by
two-thirds vote of the entire Board of Directors, the affirmative vote of not
less than 80% of the total voting power of the Company to amend, alter or repeal
the provisions of the Articles relating to (i) the classification, filling of
vacancies and removal of the Board of Directors,
45
<PAGE> 49
(ii) amendments to the By-laws, (iii) the Company's election not to be governed
by certain Louisiana laws relating to business combinations, (iv) limitation of
liability and indemnification of directors and officers, (v) amendments to the
Articles and (vi) the calling of meetings of shareholders. An amendment to the
Articles not affecting any of such provisions may be approved by vote of a
majority of the voting power present or represented at a meeting of
shareholders. The Articles also require the vote of 80% of the total voting
power to approve an amendment or a repeal of any provisions of the Articles in a
way that would reduce the limitation of liability or indemnification of any
person or power of the Board of Directors with respect thereto provided for in
the Articles. Unless approved by a vote of at least two-thirds of the Board of
Directors, a merger, consolidation, sale of all or substantially all of the
assets or a voluntarily dissolution of the Company may be authorized only by the
affirmative vote of the holders of 80% of the total voting power. If approved by
two-thirds of the entire Board of Directors, any such action may be authorized
by vote of a majority of the voting power present or represented at a meeting of
shareholders.
The provisions of the Company's Articles and By-laws summarized in the
preceding paragraphs may have antitakeover effects and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider in
such stockholder's best interest, including those attempts that might result in
the payment of a premium over the market price for the shares of Common Stock
held by such shareholder.
Louisiana Control Share Acquisition Statute. The Louisiana Control Share
Acquisition Statute provides that any shares acquired by a person or group (an
"Acquiror") in an acquisition that causes such person or group to have the power
to direct the exercise of voting power in the election of directors in excess of
20%, 33 1/3% or 50% thresholds shall have only such voting power as shall be
accorded by the holders of all shares other than "interested shares," as defined
below, at a meeting called for the purpose of considering the voting power to be
accorded to such shares. "Interested shares" include all shares as to which the
Acquiror, any officer of a company and any director of a company who is also an
employee of a company may exercise or direct the exercise of voting power. If a
meeting of shareholders is held to consider the voting rights to be accorded to
any Acquiror and the shareholders do not vote to accord voting rights to such
shares, a company may have the right to redeem the shares held by the Acquiror
for their fair value. The statute permits the articles of incorporation or
by-laws of a company to exclude from the statute's application acquisitions
occurring after the adoption of the exclusion. The Company's By-laws do contain
such an exclusion; however, the Company's Board of Directors or shareholders, by
amendment to this provision of the By-laws could reverse this election.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.
46
<PAGE> 50
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Selling Shareholder, the Company and the Underwriters named below (the
"Underwriting Agreement"), the Company and the Selling Shareholder have agreed
to sell to each of such Underwriters named below, and each of such Underwriters,
for whom Morgan Keegan & Company, Inc. and Stephens Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Shareholder, the respective number of shares of
Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF
UNDERWRITER COMMON STOCK
----------- ----------------
<S> <C>
Morgan Keegan & Company, Inc. ..............................
Stephens Inc. ..............................................
---------
Total............................................. 2,815,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased. The Underwriters have informed the
Company that no sales of Common Stock will be confirmed to discretionary
accounts.
The Company has been advised by the Underwriters that they propose
initially to offer the shares of Common Stock in part directly to the public at
the public offering price set forth on the cover page of this Prospectus, and in
part to certain securities dealers at such price less a concession of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the Representatives.
The Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described below.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, the Selling Shareholder nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company, the Selling Shareholder nor any of the
Underwriters makes any representation that the Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
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<PAGE> 51
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 422,250
additional shares of Common Stock solely to cover overallotments, if any. If the
Underwriters exercise their overallotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them, as shown in the table above, bears to the 2,815,000
shares of Common Stock offered hereby.
The Company, all of the Company's directors and executive officers and
certain shareholders, who beneficially own an aggregate of 1,585,963 shares of
Common Stock, have agreed, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
the Prospectus, not to offer, sell, contract to sell or otherwise dispose of any
securities of the Company (other than, with respect to the Company, pursuant to
employee stock option plans existing, or on the conversion or exchange of
convertible or exchangeable securities outstanding, on the date of this
Prospectus or in connection with acquisitions of businesses or assets by the
Company) which are substantially similar to the shares of the Common Stock or
which are convertible or exchangeable into securities which are substantially
similar to the shares of the Common Stock without the prior consent of the
Representatives.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be negotiated
between the Company, the Selling Shareholder and the Representatives. Among the
factors to be considered in determining the initial public offering price of the
Common Stock will be prevailing market and economic conditions, revenues and
earnings of the Company, the state of the Company's business operations, an
assessment of the Company's management and consideration of the above factors in
relation to market valuation of companies in related businesses and other
factors deemed relevant. There can be no assurance, however, that the prices at
which the Common Stock will sell in the public market after the Offering will
not be lower than the initial public offering price.
The Company and the Selling Shareholder have agreed separately to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act.
Pursuant to an agreement between Stephens Inc., one of the Underwriters,
and First Commerce Corporation, Stephens Inc. has agreed to pay to First
National Bank of Lafayette, an affiliate of First Commerce Corporation, a
finder's fee in connection with the Offering in an amount anticipated not to
exceed $85,000.
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of the Offering, the Company will have 4,600,000 shares of
Common Stock outstanding. The 2,815,000 shares of Common Stock sold in the
Offering (plus any additional shares sold upon the Underwriters' exercise of
their over-allotment option) will be freely transferable without restriction
under the Securities Act by persons who are not deemed to be affiliates of the
Company or acting as underwriters, as those terms are defined in the Securities
Act. The remaining 1,785,000 shares of Common Stock held by existing
shareholders were acquired in transactions not requiring registration under the
Securities Act and will be "restricted stock" within the meaning of Rule 144.
Consequently, such shares may not be resold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, such as Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, if at least one year has
elapsed since shares of Common Stock that constitute restricted stock were last
acquired from the Company or an affiliate of the Company, the holder is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of one percent of the total shares of Common Stock then outstanding
or the average weekly trading volume of the Common Stock in the over-the-counter
market during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission. Sales under Rule 144
are subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. If at least two
years have elapsed since the shares were last acquired from the Company or an
affiliate, a person who has not been an affiliate of the Company at any time
during the three
48
<PAGE> 52
months preceding the sale is entitled to sell such shares under Rule 144(k)
without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information concerning the
Company. All of the 1,785,000 shares of restricted stock within the meaning of
Rule 144 held by existing shareholders of the Company will be eligible for sale
following the Offering in reliance on Rule 144, subject to volume limitations
with respect to an aggregate of 1,543,629 shares of Common Stock held by
affiliates and subject to the contractual "lock-up" restrictions described
below.
Pursuant to the New Employment Agreement, the Company has granted Mr.
Dailey J. Berard the right to demand registration of the shares the Common Stock
held by him upon the occurrence of certain events. The exercise of such
registration rights is subject to the contractual "lock-up" restrictions
described below. See "Management -- Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions."
The Company and each of its directors and its executive officers have
agreed that they will not, with certain limited exceptions, issue, offer for
sale, sell, transfer, grant options to purchase or otherwise dispose of any
shares of Common Stock (other than stock issued or options granted pursuant to
the Company's stock incentive plans) without the prior written consent of the
Representatives for a period of 180 days from the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that a significant public market for the
Common Stock will develop or be sustained after the Offering. Any future sale of
substantial amounts of Common Stock in the open market may adversely affect the
market price of the Common Stock offered hereby.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby is being passed
upon for the Company by Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., New Orleans, Louisiana. Certain legal matters in connection with the
shares of Common Stock offered hereby are being passed upon for the Underwriters
by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The financial statements of Universal Fabricators Incorporated as of March
31, 1996 and 1997, and for each of the three years in the period ended March 31,
1997, and the balance sheet of UNIFAB International, Inc. as of July 17, 1997
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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<PAGE> 53
OTHER INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock being offered pursuant to this Prospectus. This Prospectus does not
contain all information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. Statements contained herein concerning the provisions of any
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed or incorporated by reference as an exhibit to
the Registration Statement. The Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission (http://www.sec.gov). The Company intends to furnish its
shareholders with annual reports containing audited financial statements
certified by independent public accountants.
50
<PAGE> 54
GLOSSARY OF CERTAIN TECHNICAL TERMS
<TABLE>
<S> <C>
COMMISSIONING: Functional testing of equipment and systems without the
introduction of hydrocarbons.
DECK: The component of a platform on which development drilling,
production, separating, gathering, piping, compression, well
support, crew quartering and other functions related to
offshore oil and gas development are conducted.
DIRECT LABOR HOURS: Direct labor hours are hours worked by employees directly
involved in the production of the Company's products. These
hours do not include contractor labor hours and support
personnel hours such as maintenance, warehousing and
drafting.
FIXED PLATFORM: A platform consisting of a rigid jacket which rests on
tubular steel pilings driven into the seabed and which
supports a deck structure above the water surface.
FLOATING PRODUCTION FACILITY: Floating structure (e.g., ship or semi-submersible vessel)
upon which drilling and production equipment is mounted.
GRIT BLAST SYSTEM: System of preparing steel for coating by using steel grit
rather than sand as a blasting medium.
JACKET: A component of a fixed platform consisting of a tubular
steel, braced structure extending from the mudline of the
seabed to a point above the water surface. The jacket is
supported on tubular steel pilings driven into the seabed.
MODULES: Packaged equipment usually consisting of major production,
utility or compression equipment with associated piping and
control system.
OFFSHORE: In unprotected waters outside coastlines.
PILES: Rigid tubular pipes that are driven into the seabed to
support platforms.
PLATFORM: A structure from which offshore oil and gas drilling and
production are conducted.
PLATFORM DRILLING RIG: A drilling rig designed to be mounted atop a fixed platform.
POSTED DRILLING RIG: A drilling rig mounted on steel columns fixed to a barge
that is sunk upon reaching a desired drilling location.
SOUR GAS: Natural gas that contains sulphur compounds in excess of a
specified amount.
SPAR PLATFORM: Vertically floating, large-diameter cylindrical platform
supporting a relatively conventional offshore drilling and
production deck and positioned on site with lateral mooring
systems connected to piling or anchors.
SUBSEA TEMPLATES: Tubular frames which are placed on the seabed and anchored
with piles. Usually a series of oil and gas wells are
drilled through these underwater structures.
TENSION-LEG PLATFORM (TLP): A platform consisting of a deck situated atop four or more
separate column-shaped semi-submersible hulls, which are
positioned on-site by vertical tendons (pipes) that run from
the columns to the sea floor.
</TABLE>
51
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNIFAB INTERNATIONAL, INC.
Report of Independent Auditors.............................. F-2
Balance Sheet -- July 17, 1997.............................. F-3
Notes to Balance Sheet...................................... F-4
UNIVERSAL FABRICATORS INCORPORATED
Report of Independent Auditors.............................. F-5
Balance Sheets -- March 31, 1996 and 1997 and June 30, 1997
(Unaudited)............................................... F-6
Statements of Income -- Years Ended March 31, 1995, 1996 and
1997 and Three Months Ended June 30, 1996 (Unaudited) and
1997 (Unaudited).......................................... F-7
Statements of Shareholders' Equity -- Years Ended March 31,
1995, 1996 and 1997 and Three Months Ended June 30, 1996
(Unaudited) and 1997 (Unaudited).......................... F-8
Statements of Cash Flows -- Years Ended March 31, 1995, 1996
and 1997 and Three Months Ended June 30, 1996 (Unaudited)
and 1997 (Unaudited)...................................... F-9
Notes to Financial Statements............................... F-10
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF UNIFAB
INTERNATIONAL, INC.
Pro Forma Balance Sheet (Unaudited) -- June 30, 1997........ F-16
Pro Forma Statement of Income (Unaudited) -- Year Ended
March 31, 1997 and the three months ended June 30, 1997... F-17
Notes to Pro Forma Financial Statements (Unaudited)......... F-19
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
UNIFAB International, Inc.
We have audited the accompanying balance sheet of UNIFAB International,
Inc. as of July 17, 1997. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of UNIFAB International, Inc. at July
17, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
July 17, 1997, except for Notes 2 and 3,
as to which the date is August 28, 1997
F-2
<PAGE> 57
UNIFAB INTERNATIONAL, INC.
BALANCE SHEET
JULY 17, 1997
ASSETS
<TABLE>
<S> <C>
Cash........................................................ $1,000
======
SHAREHOLDER'S EQUITY
Preferred stock -- authorized 5,000,000 shares; no shares
outstanding; no par value................................. $ --
Common stock -- authorized 20,000,000 shares; 1,000 shares
outstanding; $.01 par value............................... 10
Additional paid-in capital.................................. 990
------
Total shareholder's equity........................ $1,000
======
</TABLE>
See accompanying notes.
F-3
<PAGE> 58
UNIFAB INTERNATIONAL, INC.
NOTES TO BALANCE SHEET
JULY 17, 1997
1. DESCRIPTION OF BUSINESS
UNIFAB International, Inc. (the Company) was formed on July 16, 1997 to
serve as the parent corporation of Universal Fabricators Incorporated (Universal
Fabricators), 51% of the outstanding common stock of which is currently owned by
Universal Partners, Inc. (Universal Partners) and 49% of such stock is owned by
McDermott Incorporated (McDermott).
Other than the initial capitalization of the Company with $1,000 on July
16, 1997, the Company had no operations or transactions as of July 17, 1997.
2. INITIAL PUBLIC OFFERING AND RELATED MATTERS
On August 26, 1997, the board of directors and shareholders of the Company
authorized agreements whereby immediately prior to the completion of an initial
public offering of 3,237,250 shares (422,250 of which represents Underwriters'
overallotment) of the Company's $.01 par value common stock, Universal Partners
will exchange the shares of Universal Fabricators common stock owned by it for
1,785,000 shares of common stock of the Company. Concurrently, McDermott will
exchange the shares of Universal Fabricators' common stock owned by it for
1,715,000 shares of common stock in the Company.
On August 28, 1997, an agreement was entered into, subject to completion of
the Offering of the Company's common stock, which would: (1) terminate and
release Universal Partners and McDermott from the other's obligations under the
Shareholders' Agreement, including the requirement (in the absence of consent by
directors appointed by both Universal Partners and McDermott) to distribute 90%
of the net income for the prior fiscal year to shareholders, and (2) terminate
the Put/Call Agreement, including the cancellation of an option held by
McDermott which allowed it to acquire the other 51% of Universal Fabricators'
common stock. To terminate this option and to secure McDermott's release of its
rights under these agreements, the Company agreed to pay $6,300,000 to McDermott
upon completion of the Offering.
3. STOCK OPTION PLAN
In August, 1997, the board of directors adopted and its shareholders
approved a stock option plan to provide long-term incentives to its key
employees, including officers and directors who are employees of the Company.
Under the terms of this plan, the Company may grant incentive stock options,
nonqualified stock options, restricted stock and stock awards. The number of
shares granted under this plan is limited to an aggregated amount of 460,000
shares. No more than 200,000 shares of stock may be granted through the plan to
a single participant in a calendar year. The options will have an exercise price
of not less than the fair market value of the stock on the date of grant.
Subject to the completion of the Offering, the Company has granted options to
purchase 133,500 shares to directors and key employees of the Company at the
initial public offering price per share. Such options have a ten year term and
one-third are exercisable at the grant date (which will be the date of the
Offering for the options already granted), one-third on the first anniversary
thereof and the remaining one-third on the second anniversary.
F-4
<PAGE> 59
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Universal Fabricators Incorporated
We have audited the accompanying balance sheets of Universal Fabricators
Incorporated as of March 31, 1996 and 1997 and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Universal Fabricators
Incorporated at March 31, 1996 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
April 17, 1997, except for Note 6, as to which
the date is June 19, 1997 and Note 7,
as to which the date is August 28, 1997
F-5
<PAGE> 60
UNIVERSAL FABRICATORS INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31
------------------------- JUNE 30,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 4,942,775 $ 659,626 $ 2,630,154
Accounts receivable................................... 9,969,508 19,368,473 13,898,217
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. 3,356,396 239,097 105,745
Prepaid expenses...................................... 263,678 444,045 404,613
Other assets.......................................... 182,481 102,062 105,428
----------- ----------- -----------
Total current assets.......................... 18,714,838 20,813,303 17,144,157
Property, plant and equipment, net...................... 4,998,858 5,341,122 5,267,408
----------- ----------- -----------
Total assets.................................. $23,713,696 $26,154,425 $22,411,565
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft........................................ $ 715,576 $ 763,010 1,204,559
Accounts payable...................................... 2,729,321 6,210,166 4,743,198
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. 3,373,695 4,317,837 3,602,749
Accrued liabilities................................... 804,671 813,762 872,768
Income tax payable.................................... 758,786 516,462 933,244
----------- ----------- -----------
Total current liabilities..................... 8,382,049 12,621,237 11,356,518
Deferred income taxes................................... 1,347,863 1,332,168 1,332,168
Shareholders' equity:
Common stock, $1 par value:
Class A, 510 shares authorized and issued.......... 510 510 510
Class B, 490 shares authorized and issued.......... 490 490 490
Additional paid-in capital............................ 6,517,664 6,517,664 6,517,664
Retained earnings..................................... 7,465,120 5,682,356 3,204,215
----------- ----------- -----------
Total shareholders' equity.................... 13,983,784 12,201,020 9,722,879
----------- ----------- -----------
Total liabilities and shareholders' equity.... $23,713,696 $26,154,425 $22,411,565
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 61
UNIVERSAL FABRICATORS INCORPORATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 THREE MONTHS ENDED JUNE 30
--------------------------------------- ---------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue......................... $27,882,808 $51,807,144 $66,724,504 $18,419,238 $15,503,153
Cost of revenue................. 23,174,004 40,361,724 58,589,197 16,295,480 13,313,942
----------- ----------- ----------- ----------- -----------
Gross profit.................... 4,708,804 11,445,420 8,135,307 2,123,758 2,189,211
General and administrative
expense....................... 1,325,689 1,419,668 1,637,563 342,136 408,902
----------- ----------- ----------- ----------- -----------
Income from operations.......... 3,383,115 10,025,752 6,497,744 1,781,622 1,780,309
Other income (expense):
Interest expense.............. (6,935) (3,092) (63,304) (21,696) (3,359)
Interest income............... 45,059 318,185 145,155 47,598 27,016
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 3,421,239 10,340,845 6,579,595 1,807,524 1,803,966
Income tax provision............ 1,286,386 3,888,158 2,554,941 708,908 659,918
----------- ----------- ----------- ----------- -----------
Net income...................... $ 2,134,853 $ 6,452,687 $ 4,024,654 $ 1,098,616 $ 1,144,048
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 62
UNIVERSAL FABRICATORS INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1994.................... 1,000 $1,000 $6,517,664 $ 1,656,770 $ 8,175,434
Dividends paid............................ -- -- -- (857,822) (857,822)
Net income................................ -- -- -- 2,134,853 2,134,853
----- ------ ---------- ----------- -----------
Balance at March 31, 1995................... 1,000 1,000 6,517,664 2,933,801 9,452,465
Dividends paid............................ -- -- -- (1,921,368) (1,921,368)
Net income................................ -- -- -- 6,452,687 6,452,687
----- ------ ---------- ----------- -----------
Balance at March 31, 1996................... 1,000 1,000 6,517,664 7,465,120 13,983,784
Dividends paid............................ -- -- -- (5,807,418) (5,807,418)
Net income................................ -- -- -- 4,024,654 4,024,654
----- ------ ---------- ----------- -----------
Balance at March 31, 1997................... 1,000 1,000 6,517,664 5,682,356 12,201,020
----- ------ ---------- ----------- -----------
Dividends paid (unaudited)................ -- -- -- (3,622,189) (3,622,189)
Net income (unaudited).................... -- -- -- 1,144,048 1,144,048
----- ------ ---------- ----------- -----------
Balance at June 30, 1997 (unaudited)........ 1,000 $1,000 $6,517,664 $ 3,204,215 $ 9,722,879
===== ====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 63
UNIVERSAL FABRICATORS INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 THREE MONTHS ENDED JUNE 30
------------------------------------ --------------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $2,134,853 $6,452,687 $4,024,654 $ 1,098,616 $ 1,144,048
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 423,949 389,711 471,305 95,832 123,638
(Gain) loss from sale of equipment........ 3,028 (8,000) (10,125) (7,375) 282
Deferred income taxes..................... 4,620 (72,919) (20,208) 742 (3,364)
Changes in operating assets and
liabilities:
Accounts receivable..................... 209,626 (2,871,872) (9,398,965) (10,975,253) 5,470,256
Net costs and estimated earnings in
excess of billings and billings in
excess of costs and estimated
earnings on uncompleted contracts.... 1,566,493 (2,530,466) 4,061,441 4,215,181 (581,736)
Prepaid expenses and other assets....... (544,191) 658,534 (95,435) (553,397) 39,430
Bank overdraft.......................... -- 715,576 47,434 131,512 441,549
Accounts payable and accrued
liabilities.......................... (406,788) 792,983 3,489,936 6,855,421 (1,407,962)
Income taxes payable.................... -- 758,786 (242,324) 708,908 416,782
---------- ---------- ---------- ------------ -----------
Net cash provided by operating activities..... 3,391,590 4,285,020 2,327,713 1,570,187 5,642,923
Cash flows from investing activities:
Proceeds from sale of equipment............. 9,500 8,000 17,175 7,375 --
Purchases of equipment...................... (179,351) (402,405) (820,619) (325,152) (50,206)
---------- ---------- ---------- ------------ -----------
Net cash used in investing activities....... (169,851) (394,405) (803,444) (317,777) (50,206)
Cash flows from financing activities:
Dividends paid.............................. (857,822) (1,921,368) (5,807,418) (2,961,783) (3,622,189)
Net change in short-term borrowings......... (531,141) -- -- -- --
---------- ---------- ---------- ------------ -----------
Net cash used in financing activities....... (1,388,963) (1,921,368) (5,807,418) (2,961,783) (3,622,189)
---------- ---------- ---------- ------------ -----------
Net change in cash and cash equivalents..... 1,832,776 1,969,247 (4,283,149) (1,709,373) 1,970,528
Cash and cash equivalents at beginning of
period.................................... 1,140,752 2,973,528 4,942,775 4,942,775 659,626
---------- ---------- ---------- ------------ -----------
Cash and cash equivalents at end of
period.................................... $2,973,528 $4,942,775 $ 659,626 $ 3,233,402 $ 2,630,154
========== ========== ========== ============ ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Income taxes................................ $1,370,700 $3,173,014 $2,817,473 -- $ 243,136
========== ========== ========== ============ ===========
</TABLE>
See accompanying notes.
F-9
<PAGE> 64
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending March
31, 1998.
DESCRIPTION OF BUSINESS
Universal Fabricators Incorporated (the Company) fabricates and assembles
jackets, decks, topside facilities, quarters buildings, drilling rigs and
equipment for installation and use offshore in the production, processing and
storage of oil and gas. The Company's main fabrication yard is located in the
Port of Iberia in New Iberia, Louisiana. The Company's customers are principally
in the oil and gas industry. Receivables are generally not collateralized.
Credit losses have been insignificant.
The operating cycle of the Company's contracts is typically less than one
year, although some large contracts may exceed one year's duration. Assets and
liabilities have been classified as current and noncurrent under the operating
cycle concept, whereby all contract-related items are regarded as current
regardless of whether cash will be received within a 12-month period. At March
31, 1997, it was anticipated that substantially all contracts in progress, and
receivables associated therewith, would be completed and collected within a
12-month period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE AND COST RECOGNITION
Revenue from fixed-price contracts is recognized on the
percentage-of-completion method, measured by the ratio which labor and
subcontract costs incurred to date bear to total estimated labor and subcontract
costs. In the case of long-term contracts extending over one or more fiscal
years, revisions of the cost and profit estimated during the course of the work
are reflected in the accounting period in which the facts which require revision
become known. At the time a loss on a contract becomes known, the entire amount
of the ultimate loss is accrued. Variations from estimated contract performance
could result in a material adjustment to operating results for any fiscal year.
Revenue from time and materials contracts is recognized on the basis of direct
labor hours worked at fixed hourly rates and the cost of materials or
subcontract costs incurred plus mark-up.
Contract costs include direct labor, material, subcontract costs and
allocated indirect costs related to contract performance. General and
administrative costs are charged to expense as incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
principally by the straight-line and declining-balance methods over the
estimated lives of the assets, which range from 19 to 31 years for building and
bulkhead and 3 to 12 years for yard and other equipment.
F-10
<PAGE> 65
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amounts
reported in the balance sheets for cash and cash equivalents approximate their
fair value.
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments at March 31,
1997, including cash and cash equivalents and accounts receivable, closely
approximates fair value.
DESCRIPTION OF CAPITAL STOCK
The Company has two classes of common stock, Class A and Class B, and no
class of preferred stock outstanding. The Class A common stock, all of which is
owned by Universal Partners, Inc. and the Class B common stock, all of which is
owned by McDermott Incorporated, are identical in all respects, except that the
holder of the Class A common stock has the right to elect three-fifths of the
Company's Board of Directors and the holder of the Class B common stock has the
right to elect two-fifths of the Company's Board of Directors. In addition, any
shares of common stock issued by the Company must be issued on a 51%/49% basis
between Class A shares and Class B shares, respectively, and the holder of each
class of stock has preemptive rights with respect to any shares of common stock
of its class to be issued.
RECLASSIFICATIONS
Certain amounts previously reported have been reclassified to conform with
the presentation at March 31, 1997.
2. CONTRACTS IN PROGRESS
Information pertaining to contracts in progress at March 31 follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts........... $ 22,376,762 $ 37,077,023
Estimated earnings................................ 8,171,189 4,488,532
------------ ------------
30,547,951 41,565,555
Less billings to date............................. (30,565,250) (45,644,295)
------------ ------------
$ (17,299) $ (4,078,740)
============ ============
Included in the accompanying balance sheets under
the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... $ 3,356,396 $ 239,097
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... (3,373,695) (4,317,837)
------------ ------------
$ (17,299) $ (4,078,740)
============ ============
</TABLE>
Accounts receivable includes retainages and unbilled receivables,
respectively, of $46,686 and $395,541 at March 31, 1996 and $10,035 and $478,452
at March 31, 1997.
F-11
<PAGE> 66
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at March 31, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land.................................................. $ 756,000 $ 756,000
Building and bulkhead, including leasehold
improvements........................................ 3,528,627 3,780,243
Yard equipment........................................ 2,839,118 3,319,830
Other equipment....................................... 448,166 505,545
---------- ----------
7,571,911 8,361,618
Less accumulated depreciation......................... 2,573,053 3,020,496
---------- ----------
$4,998,858 $5,341,122
========== ==========
</TABLE>
The Company leases land upon which a portion of its facilities are located
under noncancelable operating leases. The leases expire in fiscal year 2004 and
have two ten-year renewal options. Future minimum payments under the leases are
as follows:
<TABLE>
<S> <C>
1998............................................. $ 174,759
1999............................................. 174,759
2000............................................. 174,759
2001............................................. 174,759
2002............................................. 153,089
2003 and after................................... 194,355
----------
$1,046,480
==========
</TABLE>
Rent expense during the years ended March 31, 1995, 1996 and 1997 was
$948,988, $920,619 and $1,455,679, respectively, which includes rent on
cancelable equipment leases.
4. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
as of March 31 were as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities -- excess of financial
statement basis over income tax basis of property,
plant and equipment............................... $1,347,863 $1,332,168
Deferred tax assets -- primarily excess of income
tax basis over financial statement basis of
contracts......................................... 28,949 33,462
---------- ----------
Net deferred tax liabilities........................ $1,318,914 $1,298,706
========== ==========
</TABLE>
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current................................ $1,281,766 $3,961,077 $2,575,149
Deferred............................... 4,620 (72,919) (20,208)
---------- ---------- ----------
$1,286,386 $3,888,158 $2,554,941
========== ========== ==========
</TABLE>
F-12
<PAGE> 67
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax computed at the federal statutory rates to
income tax expense is:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Tax at federal statutory rates........... $1,163,221 $3,519,296 $2,237,062
Other, primarily state income taxes...... 123,165 368,862 317,879
---------- ---------- ----------
$1,286,386 $3,888,158 $2,554,941
========== ========== ==========
</TABLE>
5. CREDIT ARRANGEMENT
At March 31, 1997, the Company had available a $10,000,000 short-term bank
line of credit which expires in September 1997. The Company was contingently
liable under standby letters of credit totaling $9,065,837 at March 31, 1997
related to retainage and performance guarantees on projects.
6. DIVIDENDS
Under the provisions of a shareholders' agreement, unless otherwise
approved by the board of directors, the Company shall distribute to the
shareholders 90% of its net income for the prior fiscal year. The annual
dividend for each fiscal year shall be paid within the first four months
following the end of each fiscal year. The dividend for the fiscal year ended
March 31, 1997 of $3,622,189 was declared and paid on June 19, 1997.
7. INITIAL PUBLIC OFFERING AND RELATED MATTERS
On June 19, 1997, the Company's board of directors approved the filing of a
Form S-1 Registration Statement with the Securities and Exchange Commission
covering the proposed sale of common stock to the public.
UNIFAB International, Inc. (International) was formed on July 16, 1997 to
serve as the parent corporation of the Company, 51% of the outstanding common
stock of which is currently owned by Universal Partners, Inc. (Universal
Partners) and 49% of such stock is owned by McDermott Incorporated (McDermott).
Immediately prior to the completion of an initial public offering of 3,237,250
shares (422,250 of which represents Underwriters' overallotment) of
International's $.01 par value common stock (the Offering), it is expected that
Universal Partners and McDermott will exchange their respective shares of common
stock of the Company for shares of International's common stock (the Share
Exchange). The shareholders of Universal Partners will receive 1,785,000 shares
of common stock of International and McDermott will receive 1,715,000 shares of
common stock of International in the Share Exchange.
On August 28, 1997, an agreement was entered into, subject to completion of
the Offering of International's common stock, which would: (1) terminate and
release Universal Partners and McDermott from the other's obligations under the
Shareholders' Agreement, including the requirement (in the absence of consent by
directors appointed by both Universal Partners and McDermott) to distribute 90%
of the net income for the prior fiscal year to shareholders, and (2) terminate
the Put/Call Agreement, including the cancellation of an option held by
McDermott which allowed it to acquire the other 51% of the Company's stock. To
terminate this option and to secure McDermott's release of its rights under
these agreements, the Company agreed to pay $6,300,000 to McDermott upon
completion of the Offering.
8. RELATED PARTY TRANSACTIONS
The Company purchased construction materials and subcontract fabrication
work from a shareholder in the amount of $257,165, $38,338 and $329,409 in
fiscal years 1995, 1996 and 1997, respectively, and performed subcontract work
for the shareholder or companies affiliated with the shareholder in the amount
of $144,813, $563,499 and $17,397,179 in fiscal years 1995, 1996 and 1997,
respectively. Included in accounts receivable is $2,028,845 and $2,104,653 from
the shareholder or companies affiliated with the shareholder at
F-13
<PAGE> 68
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1996 and 1997, respectively. In addition, the Company rents an office
building from the shareholder for $100 per year.
Included in cost of revenue in fiscal year 1997 is a $370,000 reimbursement
to a shareholder for the costs of settling an uninsured workers' compensation
claim related to the operating activities of the Company's predecessor.
The deferred bonus arrangement with Mr. Berard allows for deferral of
compensation with deferred amounts payable in cash upon demand, retirement or
termination and amounts deferred are included in general and administrative
expense in the amount of $31,065, $50,015 and $50,015 for fiscal years 1995,
1996 and 1997, respectively. Included in interest expense for fiscal years 1995,
1996 and 1997, is $0, $2,582 and $6,757, respectively, associated with this
deferred bonus arrangement.
9. EMPLOYEE BENEFIT PLAN
Effective April 1, 1996, the Company began sponsoring an employees'
incentive savings plan which allows participants to make contributions by salary
reduction pursuant to Section 401(k) of the Internal Revenue Code. Under this
plan, employees with one year of service with the Company are eligible to
contribute up to 25% of their compensation into the plan, subject to a specified
maximum.
The Company contributes an amount equal to 50% of employee contributions up
to 3% of their base compensation. Matching contributions made by the Company
were approximately $136,000 in fiscal year 1997.
10. MAJOR CUSTOMERS
The Company is not dependent on any one customer, and the contract revenue
earned from each customer varies from year to year based on the contracts
awarded. Contract revenue earned comprising 10% or more of the Company's total
contract revenue earned are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Customer A........................... $8,190,972 $ -- $ --
Customer B........................... -- 27,417,331 --
Customer C........................... 2,772,657 5,936,911 --
Customer D........................... -- -- 23,066,101
Customer E........................... -- -- 17,402,106
</TABLE>
11. CONTINGENCIES
The Company is party to legal proceedings arising in the normal course of
business. It is the opinion of management that the outcome of these matters will
not have a material adverse effect on the Company's financial position or
results of operations.
F-14
<PAGE> 69
UNIFAB INTERNATIONAL, INC.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The accompanying pro forma balance sheet as of June 30, 1997 and the
related pro forma statements of income for the year ended March 31, 1997 and for
the three months ended June 30, 1997 give effect to the proposed exchange of
shares of Universal Fabricators Incorporated (Universal Fabricators) owned by
McDermott Incorporated (McDermott) and Universal Partners, Inc. (Universal
Partners) for shares of UNIFAB International, Inc. (the Company), which will
result in Universal Fabricators being a 100%-owned subsidiary of the Company.
The pro forma financial statements are based on the historical financial
statements of the Company and Universal Fabricators, giving effect to the
assumptions and adjustments in the accompanying note to the pro forma financial
statements. The pro forma financial statements do not give effect to the
Offering.
The pro forma financial statements have been prepared by the Company's
management and include such adjustments to reflect the pro forma financial
statements as if the events described above had occurred as of June 30, 1997 for
the pro forma balance sheet and as of April 1, 1996 for the pro forma statements
of income. The pro forma financial statements may not be indicative of the
results that would have occurred if the events described above had taken place
on the dates indicated or which may be obtained in the future. The pro forma
financial statements should be read in conjunction with the historical financial
statements and notes thereto included elsewhere in this Prospectus.
F-15
<PAGE> 70
UNIFAB INTERNATIONAL, INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
UNIFAB UNIVERSAL
INTERNATIONAL, FABRICATORS
INC. INCORPORATED ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $1,000 $ 2,630,154 $ -- $ 2,631,154
Accounts receivable..................... -- 13,898,217 -- 13,898,217
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ -- 105,745 -- 105,745
Prepaid expenses........................ -- 404,613 -- 404,613
Other assets............................ -- 105,428 -- 105,428
------ ----------- ----------- -----------
Total current assets............ 1,000 17,144,157 -- 17,145,158
Property, plant and equipment, net........ -- 5,267,408 -- 5,267,408
------ ----------- ----------- -----------
Total assets.................... $1,000 $22,411,565 $ -- $22,412,565
====== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft.......................... $ -- $ 1,204,559 $ -- $ 1,204,559
Accounts payable........................ -- 4,743,198 -- 4,743,198
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ -- 3,602,749 -- 3,602,749
Accrued liabilities..................... -- 872,768 -- 872,768
Income tax payable...................... -- 933,244 -- 933,244
------ ----------- ----------- -----------
Total current liabilities....... -- 11,356,518 -- 11,356,518
Deferred income taxes..................... -- 1,332,168 -- 1,332,168
Shareholders' equity:
Common stock............................ 10 1,000 33,990(1) 39,563
3,500
Additional paid-in capital.............. 990 6,517,664 (33,990)(1) 6,484,664
3,500
Retained earnings....................... -- 3,204,215 -- 3,204,215
------ ----------- ----------- -----------
Total shareholders' equity...... 1,000 9,722,879 -- 9,723,879
------ ----------- ----------- -----------
Total liabilities and
shareholders' equity.......... $1,000 $22,411,565 $ -- $22,412,565
====== =========== =========== ===========
</TABLE>
See accompanying notes to pro forma financial statements (unaudited).
F-16
<PAGE> 71
UNIFAB INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
UNIFAB UNIVERSAL
INTERNATIONAL, FABRICATORS
INC. INCORPORATED ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue............................... $ -- $66,724,504 $ -- $66,724,504
Cost of revenue....................... -- 58,589,197 -- 58,589,197
----------- ----------- ----------- -----------
Gross profit.......................... -- 8,135,307 -- 8,135,307
General and administrative expense.... -- 1,637,563 -- 1,637,563
----------- ----------- ----------- -----------
Income from operations................ -- 6,497,744 -- 6,497,744
Other income (expense):
Interest expense.................... -- (63,304) -- (63,304)
Interest income..................... -- 145,155 -- 145,155
----------- ----------- ----------- -----------
Income before income taxes............ -- 6,579,595 -- 6,579,595
Income tax provision.................. -- 2,554,941 -- 2,554,941
----------- ----------- ----------- -----------
Net income............................ $ -- $ 4,024,654 $ -- $ 4,024,654
=========== =========== =========== ===========
Earnings per share of common stock.... $ 1.15(2)
===========
Average common stock outstanding...... 3,500,000
===========
</TABLE>
See accompanying notes to pro forma financial statements (unaudited).
F-17
<PAGE> 72
UNIFAB INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
UNIFAB UNIVERSAL
INTERNATIONAL, FABRICATORS
INC. INCORPORATED ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue............................... $ -- $15,503,153 $ -- $15,503,153
Cost of revenue....................... -- 13,313,942 -- 13,313,942
----------- ----------- ----------- -----------
Gross profit.......................... -- 2,189,211 -- 2,189,211
General and administrative expense.... -- 408,902 -- 408,902
----------- ----------- ----------- -----------
Income from operations................ -- 1,780,309 -- 1,780,309
Other income (expense):
Interest expense.................... -- (3,359) -- (3,359)
Interest income..................... -- 27,016 -- 27,016
----------- ----------- ----------- -----------
Income before income taxes............ -- 1,803,966 -- 1,803,966
Income tax provision.................. -- 659,918 -- 659,918
----------- ----------- ----------- -----------
Net income............................ $ -- $ 1,144,048 $ -- $ 1,144,048
=========== =========== =========== ===========
Earnings per share of common stock.... $ .33(2)
===========
Average common stock outstanding...... 3,500,000
===========
</TABLE>
See accompanying notes to pro forma financial statements (unaudited).
F-18
<PAGE> 73
UNIFAB INTERNATIONAL, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The accompanying pro forma financial statements present the pro forma
financial position of the Company as of June 30, 1997 and the results of its
operations for the year ended March 31, 1997 and for the three months ended June
30, 1997. The Company was incorporated on July 16, 1997 and had no operations
prior to that date. The financial position of the Company presented as of June
30, 1997 represents its initial capitalization.
The pro forma financial statements also include the historical financial
position and results of operations of Universal Fabricators.
The adjustments reflected in the pro forma financial statements are as
follows:
(1) Immediately prior to the completion of the Offering, Universal
Partners will exchange the shares of Universal Fabrications common stock
owned by it for 1,785,000 shares of common stock of the Company.
Concurrently, McDermott will exchange the shares of Universal Fabricators
common stock owned by it for 1,715,000 shares of common stock in the
Company. The common stock account is adjusted to reflect the resulting
3,500,000 shares of $0.01 par value common stock which will be outstanding
after these share exchanges. These share exchanges will be accounted for
similar to a pooling of interests with the transferred assets and
liabilities accounted for at existing carrying amounts.
(2) Pro forma net income per share is calculated by dividing the pro
forma net income for the period by the average common stock outstanding
which reflects the exchange described in Note (1) above.
F-19
<PAGE> 74
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
The Company............................ 7
Risk Factors........................... 9
Use of Proceeds........................ 15
Dividend Policy........................ 15
Dilution............................... 16
Capitalization......................... 17
Selected Financial and Operating
Data................................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 20
Business............................... 25
Management............................. 36
Principal and Selling Shareholders..... 42
Certain Transactions................... 43
Description of Capital Stock........... 44
Underwriting........................... 47
Shares Eligible for Future Resale...... 48
Legal Matters.......................... 49
Experts................................ 49
Other Information...................... 50
Glossary of Certain Technical Terms.... 51
Index to Financial Statements.......... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
2,815,000 SHARES
[UNIFAB INTERNATIONAL LOGO]
UNIFAB INTERNATIONAL, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MORGAN KEEGAN & COMPANY, INC.
STEPHENS INC.
, 1997
================================================================================
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable in connection with the proposed sale of Common
Stock covered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,696
NASD filing fee............................................. 5,356
Listing Fee................................................. 28,000
Printing expenses........................................... 70,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 125,000
Transfer agent fees and expenses............................ 5,000
Miscellaneous expenses...................................... 948
--------
Total expenses............................................ $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Louisiana Business Corporation Law (the "LBCL"), Section 83, (i) gives
Louisiana corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers; (ii) subject to specific
conditions and exclusions, gives a director or officer who successfully defends
such an action the right to be so indemnified; and (iii) authorizes Louisiana
corporations to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other rights to which those indemnified
may be entitled under any by-law, agreement, authorization of shareholders or
otherwise.
The Company's By-laws make mandatory the indemnification of directors and
officers permitted by the LBCL. The standard to be applied in evaluating any
claim for indemnification (excluding claims for expenses incurred in connection
with the successful defense of any proceeding or matter therein for which
indemnification is mandatory without reference to any such standard) is whether
the claimant acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Company. With respect to any
criminal action or proceeding, the standard is that the claimant had no
reasonable cause to believe the conduct was unlawful. No indemnification is
permitted in respect of any claim, issue or matter as to which a director or
officer shall have been adjudged by a court of competent jurisdiction to be
liable for willful or intentional misconduct or to have obtained an improper
personal benefit, unless, and only to the extent that the court shall determine
upon application that, in view of all the circumstances of the case, he is
fairly and reasonably entitled to indemnity for such expenses that the court
shall deem proper.
The Company maintains liability policies to indemnify its officers and
directors against loss arising from claims by reason of their legal liability
for acts as officers and directors, subject to limitations and conditions to be
set forth in the policies.
The Underwriters have also agreed to indemnify the directors and certain of
the Company's officers against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"), or to contribute
to payments that such directors and officers may be required to make in respect
thereof.
Each of the Company's directors and executive officers has entered into an
indemnity agreement with the Company, pursuant to which the Company has agreed
under certain circumstances to purchase and maintain directors' and officers'
liability insurance. The agreements also provide that the Company will indemnify
the directors and executive officers against any costs and expenses, judgments,
settlements and fines incurred in connection with any claim involving a director
or executive officer by reason of his position as director or
II-1
<PAGE> 76
officer that are in excess of the coverage provided by any such insurance,
provided that the director or officer meets certain standards of conduct. A form
of indemnity agreement containing such standards of conduct is included as an
exhibit to this Registration Statement. Under the indemnity agreements, the
Company is not required to purchase and maintain directors' and officers'
liability insurance if it is not reasonably available or, in the reasonable
judgment of the Board of Directors, there is insufficient benefit to the Company
from the insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Partners Share Exchange, the Company will issue
1,785,000 shares of Common Stock to Universal Partners, which will be
distributed to the shareholders of Universal Partners upon its dissolution which
is expected to occur promptly thereafter. The Company will also issue 1,715,000
shares of Common Stock to McDermott Incorporated in exchange for its shares in
Universal Fabricators Incorporated. All of these securities will be offered and
sold immediately prior to the completion of the Offering and without
registration under the Securities Act inasmuch as they are deemed not subject to
registration pursuant to the exemption provided in Section 4(2) of the
Securities Act as securities sold in transactions not involving any public
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Transition Agreement among the Company, McDermott,
Universal Partners, Universal Fabricators and Dailey J.
Berard.*
2.2 -- Form of Agreement and Plan of Share Exchange between the
Company and Universal Partners.*
2.3 -- Form of Share Exchange between the Company and
McDermott.*
3.1 -- Articles of Incorporation of the Company.*
3.2 -- By-laws of the Company.*
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Company's
Articles of Incorporation and By-laws defining the rights
of holders of Common Stock.*
4.2 -- Specimen Common Stock certificate.**
5.1 -- Opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P.*
10.1 -- Form of Indemnity Agreement by and between the Company
and each of its directors and executive officers.*
10.2 -- Form of Credit Agreement between the Company, Universal
Fabricators and Hibernia National Bank.
10.3 -- The Company's Long-Term Incentive Plan.*
10.4 -- Form of Stock Option Agreement under the Company's
Long-Term Incentive Plan.*
10.5 -- Contribution Agreement dated November 30, 1992, between
McDermott and Universal Partners, Inc.*
10.6 -- Shareholders' Agreement dated November 30, 1992, between
McDermott and Universal Partners, Inc.*
10.7 -- Put/Call Agreement dated November 30, 1992, between
McDermott and Universal Partners, Inc.*
10.8 -- Employment Agreement dated November 30, 1992 between
Universal Fabricators Incorporated and Dailey J. Berard.*
10.9 -- Form of Employment Agreement between the Company and
Dailey J. Berard.*
</TABLE>
II-2
<PAGE> 77
<TABLE>
<CAPTION>
<S> <C>
10.10 -- Form of Guaranty Agreement between the Company and Hibernia National Bank.
21.1 -- Subsidiaries of the Company.*
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P.
(included in Exhibit 5.1).*
24.1 -- Powers of Attorney pursuant to which certain directors have signed this
Amendment.*
27.1 -- Financial Data Schedule.*
</TABLE>
- ---------------
* Previously filed.
** Refiled with this Amendment.
(b) Financial Statements Schedules
No schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are required under the
related instructions, as they are inapplicable or not material, or the
information called for thereby is otherwise included in the financial statements
and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to its Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New Iberia, State of Louisiana, on September 15, 1997.
UNIFAB INTERNATIONAL, INC.
By: /s/ DAILEY J. BERARD
----------------------------------
Dailey J. Berard
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registrant's Registration Statement on Form S-1 has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAILEY J. BERARD President, Chief Executive September 15, 1997
- ----------------------------------------------------- Officer and Chairman of
Dailey J. Berard the Board (Principal
Executive Officer)
* Vice President and Chief September 15, 1997
- ----------------------------------------------------- Financial Officer
Peter J. Roman (Principal Financial and
Accounting Officer)
* Director September 15, 1997
- -----------------------------------------------------
Charles E. Broussard
* Director September 15, 1997
- -----------------------------------------------------
Perry Segura
* Director September 15, 1997
- -----------------------------------------------------
Richard E. Roberson, Jr.
* Director September 15, 1997
- -----------------------------------------------------
George C. Yax
*By: /s/ DAILEY J. BERARD
------------------------------------------------
Dailey J. Berard
</TABLE>
II-4
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement*
2.1 -- Transition Agreement among the Company, McDermott,
Universal Partners, Universal Fabrications and Dailey J.
Berard*
2.2 -- Form of Agreement and Plan of Share Exchange between the
Company and Universal Partners*
2.3 -- Form of Share Exchange Agreement between the Company and
McDermott*
3.1 -- Articles of Incorporation of the Company*
3.2 -- By-laws of the Company*
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Company's
Articles of Incorporation and By-laws defining the rights
of holders of Common Stock*
4.2 -- Specimen Common Stock certificate**
5.1 -- Opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P.*
10.1 -- Form of Indemnity Agreement by and between the Company
and each of its directors and executive officers*
10.2 -- Form of Credit Agreement between the Company, Universal
Fabricators and Hibernia National Bank
10.3 -- The Company's Long-Term Incentive Plan*
10.4 -- Form of Stock Option Agreement under the Company's
Long-Term Incentive Plan*
10.5 -- Contribution Agreement dated November 30, 1992, between
McDermott and Universal Partners, Inc.*
10.6 -- Shareholders' Agreement dated November 30, 1992, between
McDermott and Universal Partners, Inc.*
10.7 -- Put/Call Agreement dated November 30, 1992, between
McDermott and Universal Partners, Inc.*
10.8 -- Employment Agreement dated November 30, 1992 between
Universal Fabricators Incorporated and Dailey J. Berard*
10.9 -- Form of Employment Agreement between the Company and
Dailey J. Berard*
10.10 -- Form of Guaranty Agreement between the Company and
Hibernia National Bank.
21.1 -- Subsidiaries of the Company*
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P. (included in Exhibit 5.1)*
24.1 -- Power of Attorney pursuant to which certain directors
have signed this Amendment*
27.1 -- Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed.
** Refiled with this Amendment.
<PAGE> 1
EXHIBIT 4.2
LOGO
UNIFAB INTERNATIONAL, INC.
COMMON STOCK
NUMBER
C
INCORPORATED UNDER THE LAWS
OF THE STATE OF LOUISIANA
COMMON STOCK
SHARES
CUSIP 90467L 10 0
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
SPECIMEN
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER
SHARE, OF UNIFAB INTERNATIONAL, INC.
transferable on the books of the Corporation in person, or by duly authorized
attorney, upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
The Corporation will furnish to any shareholder upon request and
without charge, a summary of the designations, relative rights, preferences and
limitations of the shares of each class and of each series of each preferred or
special class, so far as the same have been fixed, and the authority of the
board to establish other series and to fix the relative rights, preferences and
limitations of the shares of any class or series by amendment of the articles.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
CORPORATE SEAL
SPECIMEN
SECRETARY
SPECIMEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
(DALLAS, TX)
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ....Custodian....
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform
survivorship and not as tenants Gifts to Minors
in common Act..............
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
of the Shares of Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
Attorney
- -------------------------------------------------------------------
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated
-----------
--------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.2
CREDIT AGREEMENT
BETWEEN
UNIVERSAL FABRICATORS INCORPORATED
AS BORROWER,
UNIFAB INTERNATIONAL, INC.
AS GUARANTOR,
AND
HIBERNIA NATIONAL BANK,
AS BANK
DATED SEPTEMBER ___, 1997
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ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Terms Defined Above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II
AMOUNT AND TERMS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2 Revolving Credit Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Revolving Credit Facility Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Borrowing Procedure Under the Revolving Credit Facility. . . . . . . . . . . . . . . . . . 11
(c) Terms and Conditions Governing Letters of Credit. . . . . . . . . . . . . . . . . . . . . . 12
(d) Notes Evidencing Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Revolving Credit Facility Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.3 Non-Revolving LC Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Non-Revolving LC Facility Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Non-Revolving LC Facility Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.4 Interest and Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Undisbursed Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Default Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Method of Calculating Interest and Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 14
(f) Interest Rate Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(g) Conversion of LIBO Rate due to change of laws or impossibility . . . . . . . . . . . . . . 16
(h) LIBO Rate indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.5 Payments, Prepayments, and Reduction or Termination of the
Revolving Credit Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Payments Without Deduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Reduction of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.6 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.7 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE III
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.1. Conditions to Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Completion of Initial Public Offering of Guarantor. . . . . . . . . . . . . . . . . . . . . 18
(b) Loan Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Resolutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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(e) Governmental Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(f) Financial Statement Certification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(g) Certification of Chief Financial Officer. . . . . . . . . . . . . . . . . . . . . . . . . . 19
(h) Certificate of Chief Executive Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(i) Certificate of Incumbency and Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 19
(j) Attorney Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(k) Payment of Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(l) Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.2. Conditions to Each Advance and/or Letter of Credit. . . . . . . . . . . . . . . . . . . . . 20
(a) Continuation of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . 20
(b) No Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Maximum Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1. Corporate Existence; Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.2. Executive Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.3. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.4. Corporate Power; Authorization; Enforceable Obligations. . . . . . . . . . . . . . . . . . 21
Section 4.5. Financials and Projections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Borrower's Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Guarantor's Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.7 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.8 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.9 Use of Proceeds; Margin Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.10 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.11 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.13 Operation of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.14 Rights in Properties; Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.15 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.16 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.17 Registered Office; Principal Place of Business; . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.18 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.19 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.20 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Employment Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.21 Corporate Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.22 Taxpayer I.D. Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.23 Continuing Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.24 Continuing Validity and Enforceability of Guaranty. . . . . . . . . . . . . . . . . . . . . 25
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ARTICLE V
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Financial Statements and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Maintenance of, Existence and Conduct of Business. . . . . . . . . . . . . . . . . . . . . 26
Section 5.3 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.4. Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.5. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.6. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.7. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.8. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.9. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.10. Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.11. Supplemental Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.12. Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.13. SEC Filings; Certain Other Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.14. Compliance with Leases; Additional Mortgages. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.15. Guarantor Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.16. Deposit Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.1. Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.2. Investments; Loans and Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.3. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.4. Employee Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.5. Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.6. Maintenance of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.7. Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.8. Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.9. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.10. Sales of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.11. Cancellation of Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.12. Hedging Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.13. Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.14. Guarantor's Ownership of Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
EVENTS OF DEFAULT; RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.2 Other Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.3 Other Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.4 Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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Section 7.5 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.6 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.7 Representation or Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.1 Bank's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.2 Financial Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.3 Delay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.7 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.8 Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.9 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.10 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.11 Execution in Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.13 Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT ("Agreement"), dated as of September
___, 1997, effective as of the Effective Date as defined herein below, between
UNIVERSAL FABRICATORS INCORPORATED, a Delaware corporation ("Borrower"), UNIFAB
INTERNATIONAL, INC., a Louisiana corporation ("Guarantor"), and HIBERNIA
NATIONAL BANK, a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Bank extend credit to Borrower in the form
of a revolving credit facility in the maximum principal amount of Twenty
Million and no/100 ($20,000,000.00) Dollars to provide for (i) Ten Million and
no/100 ($10,000,000.00) Dollars for general corporate purposes, and (ii) Ten
Million and no/100 ($10,000,000.00) Dollars for the issuance of certain standby
letters of credit, including performance and retainage letters of credit
("Revolving Credit Facility"), and
WHEREAS, Borrower has requested that Bank issue certain performance
and retainage letters of credit in the form of a non-revolving letter of credit
facility, not to exceed the aggregate principal amount of Seven Million Twenty
Four Thousand Four Hundred Twenty Eight and 50/100 ($7,024,428.50) Dollars
("Non-Revolving LC Facility") for the issuance of certain performance and
retainage letters of credit for the account of Borrower, to substitute and
replace certain letters of credit presently issued for the account of McDermott
International, Inc. ("MII") on behalf of Borrower ("MII Letters of Credit"),
and
WHEREAS, Bank is willing to make such loans to and issue such letters
of credit on behalf of Borrower upon the terms and conditions set forth in this
Agreement,
NOW THEREFORE, for and in consideration of the premises and the mutual
undertakings herein expressed, and upon the mutual promises and benefits
received or to be received by each of them, Borrower and Bank do consent and
agree that the respective obligations of Bank and Borrower pursuant to this
Agreement and any commitments previously issued are set forth herein in their
entirety and any obligations by Bank to extend funds to Borrower are set forth
in their entirety herein, and Borrower and Bank hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 TERMS DEFINED ABOVE. As used in this Agreement, the
terms "Agreement", "Borrower", "Bank", "Revolving Credit Facility",
"Non-Revolving LC Facility", "MII", "MII Letters of Credit" shall have the
meanings indicated above.
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SECTION 1.2 DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"ACQUISITION" means any transaction or series of transactions by which
a Person acquires, either directly or through an Affiliate, subsidiary or
otherwise, (a) any or all of the stock or other securities of any class, or
ownership interest, of any other Person other than Affiliates of Borrower or
(b) a substantial portion of the assets, or a division or line of business of
any other Person other than Affiliates of Borrower.
"ADVANCE(S)" shall mean any disbursement to Borrower of the loan
proceeds under the Note, any disbursement by Bank to any beneficiary under any
Letter of Credit, as a result of any draw by such beneficiary under such Letter
of Credit, and all or any portion of such disbursement so long as same remains
outstanding and unpaid.
"AFFILIATE" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with such Person; (b) that directly
or indirectly beneficially owns or holds twenty percent (20%) or more of any
class of voting stock of or of partnership interests of such person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause direction of the management and policies of a Person, whether through
the ownership of voting securities, of partnership interests, by contract, or
otherwise.
"AVAILABLE COMMITMENT" shall mean, at any particular time, an amount
equal to the excess, if any, of (a) the amount of the Commitment over (b) the
sum of (i) the aggregate unpaid principal amount at such time of the Advances
plus (ii) the aggregate undrawn, available amount at such time of all Letters
of Credit then outstanding, plus (iii) the then aggregate amount of all unpaid
outstanding obligations of Borrower to reimburse Bank with respect to any
drawing under a Letter of Credit.
"AVAILABLE NON-REVOLVING LC FUNDS" means, at any particular time, the
remaining undrawn aggregate principal amount available for draw or draft by
beneficiaries on all Letters of Credit issued by Bank.
"BORROWING DATE" means any Business Day specified in a notice pursuant
to Section 2.2(b) as a date on which Borrower requests Bank to make Advances
hereunder.
"BUSINESS DAY" means any day other than a Saturday or Sunday or other
day when national banks located in the City of New Orleans are required or
permitted to be closed.
"CAPITALIZED LEASES" means capital leases and subleases, as defined in
the Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 13, dated November 1976, as amended.
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"CAPITAL EXPENDITURES" has the definition attributed to it under GAAP.
"CASH EQUIVALENTS" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition, (ii) time deposits and certificates of deposits, having
maturities of not more than one years from the date of acquisition, of Bank or
any other domestic commercial bank which has, or the holding company of which
has, a commercial paper rating meeting the requirements specified in clause
(iv) below, (iii) repurchase obligations with a term of not more than 270 days
for underlying securities of the types described in clauses (i) and (ii)
entered into with any bank meeting the qualifications specified in clause (ii)
above, (iv) commercial paper rated at least A-1 or the equivalent thereof by
Standard Poor's Corporation or P-1 or the equivalent thereof by Moody's
Investors Service, Inc. and in either case maturing within one year after the
date of acquisition and (v) investments in money market funds registered under
the Investment Company Act of 1940, as amended, which have net assets of at
least $200,000,000 and at least eighty-five percent (85%) of whose assets
consist of securities and other obligations of the type described in clauses
(i) through (iv) above.
"CHARGES" shall mean all Federal, state, county, city, municipal,
local, foreign or other governmental (including, without limitation, PBGC)
taxes at the time due and payable or levies, assessments, charges, liens,
claims or encumbrances upon or relating to (i) the Loan Documents, (ii) the
Obligations, (iii) Borrower's employees, payroll, income or gross receipts,
(iv) Borrower's ownership or use of any of their assets, or (v) any other
aspect of Borrower's business.
"CLOSING DATE" means the date as of which this Agreement was executed
by the parties hereto.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"CODE AFFILIATE" means each trade or business (whether or not
incorporated) which together with any Borrower is treated as a "single
employer" under subsection (b), (c), (m) or (o) of Section 414 of the Code.
"COMMITMENT" means, for the period from the Effective Date hereof to
and including the Termination Date, Bank's commitment to extend Loans to
Borrower pursuant to the terms of this Agreement.
"DEBT" means: (a) all obligations of Borrower for borrowed money, (b)
all obligations of Borrower evidenced by bonds, notes, debentures or other
similar instruments, (c) all obligations of Borrower to pay the deferred
purchase price of property or services, except trade accounts payable by
Borrower arising in the ordinary course of business which are not past due by
more than sixty (60) days unless such trade accounts payable are being
contested in good faith by appropriate proceedings, (d) all obligations of
Borrower under any Capitalized Leases, (e) all
<PAGE> 9
obligations of Borrower under guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), assumptions or other
contingent obligations, in respect of, or to purchase or otherwise acquire, any
obligation or indebtedness of Borrower or any other obligations, contingent or
otherwise, (f) all obligations secured by a Lien (except trade accounts payable
by Borrower arising in the ordinary course of business which are not past due
by more than sixty (60) days unless such trade accounts payable are being
contested in good faith by appropriate proceedings secured by a vendor's lien)
existing on property owned by Borrower whether or not the obligations secured
thereby have been assumed by Borrower or are non-recourse to the credit of
Borrower, (g) all reimbursement obligations of Borrower relating to letters of
credit, bankers' acceptances and similar instruments but excluding performance
bonds, and (h) all liabilities of Borrower in respect of unfunded vested
benefits under any Plan; provided, however, the term "Debt" shall not include
money borrowed by Borrower to pay premiums on insurance policies obtained by
Borrower in the ordinary course of Borrower's business.
"DEFAULT" means any of the events specified in Article VIII of this
Agreement, provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"DEFAULT RATE" means the per annum rate of interest equal to three
percent (3%) in excess of the LIBO Rate or the Prime Rate in effect on the date
an Event of Default occurs.
"EBIT" means, with respect to any Person for any period, consolidated
net income of such Person for such period, plus (i) Interest Expense for such
Person for such period, and (ii) tax expense for such period for taxes which
have been provided for by such Person for such period, to the extent that any
of the same are deducted from net revenues in determining such Person's
consolidated net income for such period.
"EFFECTIVE DATE" shall mean the day of the completion of the Initial
Public Offering ("IPO") of Guarantor, provided a minimum net proceeds to
Guarantor of $12,000,000.00 is raised and contributed to Borrower.
"ENVIRONMENTAL LAWS" means any and all federal, state and local laws,
regulations, ordinances, orders and requirements pertaining to health, safety
or the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
the Clean Water ct. 33 U.S.C. Section 1251 et seq., the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq., the Louisiana Environmental
Quality Act, La. R.S. 30:2001, et seq., and all similar laws, regulations and
requirements of any governmental authority or agency having jurisdiction over
Borrower, or any of the property or assets of Borrower, as such laws,
regulations and requirements may be amended or supplemented from time to time.
<PAGE> 10
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings, and
interpretations adopted by the Internal Revenue Service or the Department of
Labor thereunder.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with any Borrower would be deemed to be a "single
employer" within the meaning of Section 4001 of ERISA.
"EVENT OF DEFAULT"means the occurrence of any event described in
Article VIII hereof or the occurrence of any other event which with the lapse
of time, or lapse of time and notice to Borrower would constitute an Event of
Default.
"FUNDED INDEBTEDNESS" means principal plus accrued but unpaid interest
for borrowed money.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"GOVERNMENTAL AUTHORITY" means any state, nation or government or any
political subdivision thereof or any agency, department or branch thereof.
"GUARANTOR" shall mean UNIFAB International, Inc., a corporation
organized under the laws of the State of Louisiana, and parent corporation of
Borrower.
"GUARANTY" means the insolido continuing guaranty of the Obligations
of Borrower by Guarantor in favor of Bank.
"HAZARDOUS SUBSTANCE" has the meaning specified in any applicable
Environmental Law and means any substance, product, waste, pollutant, material,
chemical, contaminant, constituent or other material which is or becomes
listed, regulated or addressed under any Environmental Law, including, without
limitation, asbestos, petroleum and polychlorinated biphenyls.
"INDEBTEDNESS"shall mean as to Borrower all liabilities, obligations
and indebtedness of any and every kind and nature, including, without
limitation, all liabilities and all obligations to trade creditors, whether now
or hereafter owing, arising, due or payable, and howsoever evidenced, created,
incurred, acquired or owing, whether primary, secondary, direct, contingent,
fixed or otherwise excluding any minority interest in Borrower and deferred
taxes of Borrower.
<PAGE> 11
Without in any way limiting the generality of the foregoing, Indebtedness shall
specifically include the following without duplication:
(a) amounts outstanding under this Agreement, including,
without limitation, amounts outstanding under the Note, any Letter of
Credit Agreement, and/or the Non-Revolving LC Facility;
(b) all obligations or liabilities of any Person that are
secured by any Lien upon property owned by Borrowers or any of their
Subsidiaries, even though Borrowers shall not have assumed or become
liable for the payment thereof;
(c) all obligations or liabilities created or arising
under any lease or conditional sale or other title retention agreement
with respect to property used or acquired by Borrowers, even though
the rights and remedies of the lessor, seller or Bank thereunder are
limited to repossession of such property;
(d) all Charges.
"INTEREST COVERAGE" means the ratio of EBIT to Interest Expense.
"INTEREST EXPENSE" means with respect to any Person for any period,
interest expense for such Person for such period, determined in accordance with
GAAP.
"INTEREST PERIOD" means with respect to any LIBO Rate Advance:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to
such LIBO Rate Advance and ending one, two, or three
months thereafter, as selected by Borrower in its
notice to Bank of borrowing or notice of conversion,
as the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the day
immediately following the last day of the preceding
interest Period applicable to such LIBO Rate Advance
and ending one, two or three months thereafter, as
selected by Borrower by notice to Bank not less than
two (2) Business Days prior to the last day of the
then current Interest Period with respect thereto;
and
provided, that:
(x) if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period
shall be extended to the next succeeding Business Day
unless the result of such extension would be to carry
such Interest
<PAGE> 12
Period into another calendar month in which event
such Interest Period shall end on the immediately
preceding Business Day;
(y) any Interest Period which, with respect to a LIBO
Rate Advance under the Revolving Credit Facility,
would otherwise extend beyond the Termination Date
shall end on the Termination Date; and
(z) any Interest Period that begins on the last Business
Day of a calendar month (or on day for which there is
no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end
on the last Business Day of a calendar month.
"LETTERS OF CREDIT"shall mean the irrevocable stand-by letters of
credit, including performance and retainage letters of credit issued by Bank
under either the Revolving Credit Facility or the Non-Revolving LC Facility, to
support payment and performance obligations of Borrower incurred by Borrower in
the ordinary course of business, each in such form as may be approved by Bank.
"LIBOR"means with respect to each Interest Period pertaining to a LIBO
Rate Advance, the rate per annum at which Dollar deposits are offered to prime
banks in the London interbank market on telerate, at approximately 11:00 a.m.,
London time, two (2) Business Days before the first day of such Interest
Period, in an amount comparable to the principal amount of the Advance which
shall be made by Bank during such Interest Period, for a period equal to such
Interest Period.
"LIBO RATE" means with respect to each day during an Interest Period
for a LIBO Rate Advance, an interest rate per annum equal to the sum of (a) two
percent (2%) plus (b) LIBOR.
"LIBO RATE ADVANCE"means an Advance which bears interest at the LIBO
Rate.
"LIEN" means any lien, judgment, mortgage, deed of trust, security
interest, tax lien, financing statement, pledge, charge, hypothecation,
assignment, preference, priority or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or title
retention agreement), whether arising by contract, operation of law or
otherwise; provided, however, that the term "Lien" shall exclude any statutory
mechanic's or laborer's lien arising in the ordinary course of the business of
Borrower and its Subsidiaries which is cancelled or bonded within sixty (60)
days of its recordation.
"LOANS"mean collectively the Revolving Credit Facility and the
Non-Revolving LC Facility.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note, the
Guaranty, and any and all other documents, instruments and agreements executed
in connection with the Advances, and the Non-Revolving LC Facility as the
foregoing may be modified, supplemented and/or amended from time to time.
<PAGE> 13
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations, property or financial or other condition of Borrower
and/or Guarantor, or on the ability of Borrower and/or Guarantor, to perform
its obligations under the Loan Documents.
"MAXIMUM NON-REVOLVING LC FACILITY LOAN AMOUNT" shall mean, at any
particular time, an amount equal to $7,024,428.50.
"MAXIMUM REVOLVING CREDIT FACILITY LOAN AMOUNT" shall mean, at any
particular time, an amount equal to $20,000,000.00.
"MII" shall mean McDermott International, Inc.
"MII LETTERS OF CREDIT" shall have the meaning ascribed in Section 2.3
(a).
"NET WORTH" means the sum of the common stock, additional paid-in
capital and retained earnings accounts of Borrower as shown in conformity with
GAAP on its balance sheet at the time of such determination, less the amount of
any treasury stock shown thereon, less any dividends paid, and less the amount
of any intangible assets (such as patents, trademarks, copyrights or goodwill)
shown thereon.
"NON-REVOLVING LC FACILITY TERMINATION DATE" shall be January 3, 2000.
"NOTE(S)"has the meaning ascribed to the term in Section 2.2(d) of
this Agreement.
"OBLIGATIONS" means all obligations, indebtedness and liabilities of
Borrower to Bank, now existing or hereafter arising, whether direct, indirect,
related, unrelated, fixed, contingent, liquidated, unliquidated, joint,
several, or joint and several, including, without limitation, the obligations,
indebtedness, and liabilities of Borrower under this Agreement, the Notes and
the other Loan Documents, and all interest accruing thereon and all attorneys'
fees and other expenses incurred in the enforcement or collection thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PERMITTED INVESTMENT" means:
(a) Acquisitions;
(b) Capital Expenditures;
<PAGE> 14
(c) the acquisition of current assets or liabilities arising from
the sale or lease of goods, the rendition of services or the extension
of credit in the ordinary course of business of the Borrower
including, without limitation, investments in accounts, contract
rights, chattel paper (as defined in the UCC) and notes receivable;
(d) Cash Equivalent Investments;
(e) advances to officers, shareholders, and employees of Borrower
and Guarantor; provided that such advances shall not exceed the
aggregate amount of $100,000 at any one time outstanding for all such
officers, shareholders and employees;
(f) Investments, loans, or advances by Borrower in or to Guarantor
or by Guarantor in or to Borrower,
(g) joint ventures; and
(h) other investments, loans or advances permitted by the Loan
Documents.
"PERMITTED LIENS" shall mean (a) Liens for taxes, assessments or
governmental charges or levies of the same shall not at the time be delinquent
or thereafter can be paid without penalty, or are being contested in good faith
and by appropriate proceedings; (b) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business which secure payment of obligations not more than
sixty (60) days past due; (c) Liens arising out of pledges or deposits under
workmen's compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation; (d) utility
easements, building restrictions and such other encumbrances or charges against
real property as are of a nature generally existing with respect to properties
of a similar character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in the business of
Borrower; (e) lessors' interests under financing leases; (f) Liens on assets of
Borrower not covered by the Loan Documents which liens secure obligations of
Borrower in the ordinary course of business which in the aggregate for all such
obligations of Borrower do not exceed $250,000; and (g) the Liens created
pursuant to the Loan Documents or other Liens in favor of Bank.
"PERSON" means an individual, partnership, limited liability company,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"PLAN" shall mean an employee pension benefit plan as defined in
Section 3(2) and 3(37) of ERISA, maintained by Borrower maintained by, or to
which contributions are made by, Borrowers, or for Borrower's employees.
<PAGE> 15
"PRIME RATE"means that rate of interest announced publicly by Chase
Manhattan Bank, N.A., in New York, New York from time to time as its prime or
base rate. Each change in the interest rate shall take effect on the effective
date of the change in the Prime Rate.
"PRIME RATE ADVANCES"shall mean an Advance which has interest at Prime
Rate.
"RESTRICTED PAYMENT" shall mean any payment on account of the
purchase, redemption or other retirement of Borrower's or Guarantor's Stock.
"REVOLVING CREDIT ADVANCE"shall have the meaning ascribed to it in
Section 2.2(a).
"REVOLVING CREDIT FACILITY TERMINATION DATE" shall be August 31, 2000.
"SOLID WASTE" has the meaning specified in any applicable
Environmental Law.
"SUBSIDIARY"means, as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
"TANGIBLE NET WORTH" means, at a particular time, the amount, if any,
by which (a) the sum of all amounts which would be included under shareholders'
or members' equity on a consolidated basis of any Person, determined in
accordance with GAAP as of such date, less receivables of loans made to
Affiliates, exceeds (b) intangibles.
"TERMINATION DATE" means (i) with respect to the Revolving Credit
Facility August 31, 2000, (ii) with respect to the Non-Revolving LC Facility
January 3, 2000.
"TOTAL DEBT"means the sum of Funded Indebtedness of Borrower plus all
obligations of Borrower under any Capital Leases.
"UNUSED COMMITMENT" shall be have the meaning ascribed to it in
Section 2.2(a).
"UNUSED COMMITMENT FEE"shall be 3/8% of one (1%) percent per annum of
the Unused Commitment.
SECTION 1.3 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings set forth in Section 1.2 hereof or the preamble of this Agreement when
used in any certificate or other documents made or delivered pursuant hereto,
unless otherwise specified therein.
<PAGE> 16
(b) As used herein and in any certificate or other documents made
or delivered pursuant hereto, accounting terms not defined in Section 1.1 and
accounting terms partly defined in Section 1.2 relating to Borrower or
Subsidiary, to the extent not defined, shall have the respective meanings given
to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and "section,"
"Section," "Exhibit" and "Schedule" references are to this Agreement and the
Sections, Exhibits and Schedules to this Agreement unless otherwise specified.
(d) The terms "Accounts," "Chattel Paper," "Contract Rights,"
"Deposit Accounts," "Documents," "General Intangibles," "Instruments,"
"Inventory," "Equipment," and "Fixtures" shall have the meanings as defined in
Article 9 of the Louisiana Commercial Laws (La. R.S. 10:9-101, et seq.).
ARTICLE II
AMOUNT AND TERMS OF CREDIT
SECTION 2.1 LOANS. Subject to the terms and conditions of this
Agreement, and relying on the representations and warranties contained in this
Agreement, and provided no Event of Default exists, Bank agrees to make, and
Borrower agrees to accept the Revolving Credit Facility and the Non-Revolving
LC Facility, (collectively the "Loans"), in the aggregate principal amount at
any one time outstanding not to exceed Twenty Million and no/100
($20,000,000.00) with respect to the Revolving Credit Facility, and Seven
Million Twenty Four Thousand Four Hundred Twenty Eight and 50/100
($7,024,428.50) Dollars with respect to the Non-Revolving LC Facility. Prior to
the Termination Date, Borrower may utilize the Revolving Credit Facility by
borrowing, repaying or prepaying, and re-borrowing such Revolving Credit
Facility in whole or in part, all in accordance with the terms and conditions
hereof.
SECTION 2.2 REVOLVING CREDIT FACILITY.
(a) REVOLVING CREDIT FACILITY TERMS. Upon and subject to the terms
and conditions hereof, Bank agrees to make available, at any time from time to
time on any Business Day until the Revolving Credit Facility Termination Date
and upon the request of Borrower therefor, advances (each, a "Revolving Credit
Advance"), and Letters of Credit in an aggregate principal amount which shall
not at any given time exceed the Maximum Revolving Credit Facility Loan Amount.
Borrower may (i) borrow, repay and reborrow under the Revolving Credit Facility
a principal amount not to exceed Ten Million and No/100 ($10,000,000.00)
Dollars for general corporate purposes, and (ii) may request the issuance of up
to Ten Million and No/100 ($10,000,000.00) Dollars of Letters of Credit,
including performance and retainage letters of credit. Borrower may only use a
maximum of $5,000,000 of the Available Commitment under the Revolving Credit
Facility for acquisitions and capital expenditures. Each Revolving Credit
Advance may be drawn upon by Borrower on any Business Day during the period
from the
<PAGE> 17
Effective Date until August 31, 2000, or such earlier date as may be fixed by
Borrower. The amount of the Revolving Credit Facility available to Borrower
from time to time under the Revolving Credit Facility shall be reduced by the
aggregate of the face amount of any outstanding undrawn Letters of Credit
issued under the Revolving Credit Facility and by all unpaid Advances made by
Bank to Borrower pursuant to this Agreement and the remaining amount of the
Revolving Credit Facility shall constitute the "Unused Commitment." Any draws
made under the Letters of Credit by the beneficiaries thereof shall constitute
Advances as defined in this Agreement. The Unused Commitment available under
the Revolving Credit Facility shall be restored but simultaneously reduced by
the amount of any Advances which are made to Borrower to reimburse Bank for
draws under the Letters of Credit.
(b) Borrowing Procedure Under the Revolving Credit Facility.
Borrower shall give at least two (2) Business Day's prior telephonic notice
from Borrower (to be confirmed in writing) of each proposed Letter of Credit
and of each Advance to be issued under the Revolving Credit Facility. If all
conditions precedent to the issuance of any such Letter of Credit or any such
Advance have been met, Bank will on the date requested ("Borrowing Date") make
each Letter of Credit or Advance available to Borrower at Bank's office at 313
Carondelet Street, New Orleans, Louisiana 70130.
(c) Terms and Conditions Governing Letters of Credit. The terms
and conditions governing the issuance of Letters of Credit by Bank on behalf of
and for the account of Borrower shall be provided for by Bank in its standard
form of Application for Stand-By Letter of Credit, a copy of which is attached
hereto as Exhibit "A", with appropriate insertions and such additional terms
and conditions governing the issuance of specific Letters of Credit as may be
agreed upon by Borrower and Bank at the time of Borrower's request to Bank for
the issuance thereof. Letters of Credit may be issued at any time prior to the
Revolving Credit Facility Termination Date. Each such Letter of Credit shall
have a term not to exceed a period of four years from Effective Date of this
Agreement.
(d) Notes Evidencing Borrowings. The Revolving Credit Facility
shall be evidenced by a promissory note of Borrower payable to the order of
Bank in the original principal amount of TWENTY MILLION AND NO/100 DOLLARS
($20,000,000.00) in the form set forth as Exhibit "B" to this Agreement (the
note, together with any and all renewals, modifications, extensions,
amendments, supplements and/or substitutions therefor being referred to as the
"Note"), with appropriate insertions, shall be dated the date hereof and shall
be payable in full on August 31, 2000. All Advances made by Bank to Borrower
pursuant to this Agreement and all payments of principal shall be recorded by
Bank on the schedule attached to the Note, and shall constitute prime facie
evidence of the accuracy of the information therein recorded. Bank's failure to
record or to record correctly such Advances shall in no way affect Borrower's
obligation to repay same.
<PAGE> 18
(e) Revolving Credit Facility Maturity Date. The Revolving Credit
Facility Maturity Date shall be August 31, 2000 at which time the entire
principal balance and all accrued interest owed under the Revolving Credit
Facility shall be due and payable in full.
SECTION 2.3 NON-REVOLVING LC FACILITY.
(a) Non-Revolving LC Facility Terms. Upon and subject to the terms
and conditions hereof, and upon completion of the Stand-by Letter of Credit
Application containing the same terms and conditions as the MII Letters of
Credit, Bank agrees to issue for the account of Borrower, performance and
retainage Letters of Credit to substitute and replace Letters of Credit which
are currently issued for the account of MII on behalf of Borrowers (the "MII
Letters of Credit"), not to exceed the Maximum Non-Revolving LC Facility Loan
Amount. The amount of the Non-Revolving LC Facility shall be permanently
reduced by the amount of each of the Letters of Credit upon the existing
maturity of each such Letter of Credit as set forth below:
(i) Letter of Credit maturing January 1, 1998 shall reduce the
non-revolving LC Facility by $1,593,485.10,
(ii) Letters of Credit maturing March 9, 1998 shall reduce the
non-revolving LC Facility by $2,483,075.40,
(iii) Letter of Credit maturing November 20, 1998 shall reduce
the non-revolving LC Facility by $532,164.00,
(iv) Letter of Credit maturing January 3, 2000 shall reduce the
non-revolving LC Facility by $2,415,704.00.
(b) Non-Revolving LC Facility Maturity Date. The Non-Revolving LC
Facility Maturity Date shall be January 3, 2000 at which time Borrower shall
reimburse Bank for all principal amounts drawn under each outstanding Letter of
Credit, including interest thereon, owed under the Non-Revolving LC Facility,
shall be due and payable in full.
SECTION 2.4 INTEREST AND FEES.
(a) INTEREST. In the absence of an Event of Default, the unpaid
principal of the Loans shall bear interest on all funds advanced from the date
of disbursement by Bank to the date repaid by Borrower, at a floating rate
equal to either the Prime Rate, adjusted daily, or the LIBO Rate, or some
combination thereof, as specified in Section 2.4(f) below. Accrued interest
under Prime Rate Advances will be due and payable quarterly in arrears on the
last day of each March, June, September and December commencing September 30,
1997. Accrued interest under the LIBO Rate Advances will be due and payable at
the end of each Interest Period. Interest after the Termination Date of the
Loans, for any reason whatsoever, shall be increased to the Default Rate and
shall be payable on demand.
(b) LETTER OF CREDIT FEE Upon the issuance of a Letter of Credit
by Bank on behalf of and for the account of Borrower, a fee of seven-eighths
(7/8) of one percent (1%) per annum on the principal amount of such Letter of
Credit shall be payable annually by Borrower for the number of days such Letter
of Credit is to remain outstanding. The first payment shall be due on
<PAGE> 19
the date of issuance and subsequent payments shall be due on the anniversary
date of the issuance of the Letter of Credit for as long as the Letter of
Credit remains outstanding.
(c) UNDISBURSED COMMITMENT FEE A fee on the average daily amount
of the Unused Commitment, during the period for which payment is made, of
three-eighths (3/8) of one percent (1%) per annum shall be payable by Borrower
quarterly in arrears on the last day of each March, June, September and
December commencing December 31, 1997, and continuing until maturity.
(d) DEFAULT RATE. If an Event of Default shall occur in the
payment on or before the due date of any principal or interest due hereunder or
under any of the other Loan Documents, including, without limitation, the Note,
Borrower will pay interest then (retroactively) from the date of the Event of
Default on such payment up to the date of the actual payment (as well after as
before judgment) at the Default Rate, without regard to whether there has been
an acceleration of the payment of principal. Such interest at the Default Rate
shall be payable on demand.
(e) METHOD OF CALCULATING INTEREST AND FEES. Interest at the Prime
Rate and any fee shall be computed on the basis of a year consisting of 365
days and paid for actual days elapsed, and interest at the LIBO Rate shall be
computed on the basis of a year consisting of 360 days.
(f) INTEREST RATE OPTIONS. Until an Event of Default occurs,
Borrower shall have the following interest rate options:
(i) Revolving Credit Advances to Borrower may from time to time be
(i) LIBO Rate Advances, (ii) Prime Rate Advances, or (iii) any
combination thereof, as requested by Borrower, with respect to
Advances and notices to Bank in accordance with paragraphs
(ii), (iii), and (iv) below; provided that no Advance shall be
made to Borrower as a LIBO Rate Advance under the Revolving
Credit Facility after the day that is one month prior to the
Revolving Credit Facility Termination Date. For purposes of
this paragraph, (i), an Advance shall be deemed "made" upon an
initial borrowing by Borrower under paragraph (ii) below, any
conversion of such Advance under paragraph (iii) below, and
upon any continuation of such Advance under paragraph (iv)
below.
(ii) With respect to any new Advance, Borrower shall provide Bank
with telephonic notice of its intended borrowing, which notice
must be received by Bank prior to 10:00 a.m., New Orleans
time, at least two (2) Business Days prior to the requested
Borrowing Date, which notice shall specify (x) the amount to
be borrowed, (y) the requested Borrowing Date, (z) whether the
borrowing is to be of LIBO Rate Advances or Prime Rate
Advances or a combination thereof, (aa) the respective amounts
of each such type of Advance, and (bb) if the borrowing is to
be entirely or partly of LIBO Rate Advances, the respective
lengths of the Interest Periods therefor.
<PAGE> 20
(iii) Borrower may elect from time to time to convert any of its
LIBO Rate Advances to Prime Rate Advances by giving Bank
telephonic notice of such election, which notice must be
received by Bank prior to 10:00 a.m., New Orleans time, at
least two (2) Business Days prior to the requested conversion;
provided that any such conversion, of LIBO Rate Advances shall
only be made on the last day of an Interest Period with
respect thereto. Borrower may elect from time to time to
convert any of its Prime Rate Advances to LIBO Rate Advances
by giving Bank telephonic notice of such election, which
notice must be received by Bank prior to 10:00 a.m., New
Orleans time, at least two (2) Business Days prior to the
requested conversion. Any such notice of conversion to LIBO
Rate Advances shall specify the length of the initial Interest
Period thereof and the amount of the Prime Rate Advance to be
converted. All or any part of Borrower's outstanding LIBO Rate
Advances or Prime Rate Advances may be converted as provided
herein; provided that (i) no Prime Rate Advance may be
converted into a LIBO Rate Advance when any Event of Default
has occurred and is continuing, (ii) partial conversions of
Prime Rate Advances to LIBO Rate Advances shall be in an
aggregate principal amount of $500,000 or a whole multiple of
$100,00 in excess thereof, (iii) partial conversions of LIBO
Rate Advances to Prime Rate Advances shall be in an aggregate
principal amount of $500,000 or a whole multiple of $100,000
in excess thereof, and (iv) no Prime Rate Advance under the
Revolving Credit Facility may be converted into a LIBO Rate
Advance after the date that is one month prior to the
Revolving Credit Facility Termination Date.
(iv) Any LIBO Rate Advances may be continued as such upon the
expiration of an Interest Period with respect thereto by
Borrower giving Bank telephonic notice, which notice must be
received by Bank prior to 10:00 a.m., New Orleans time, at
least two (2) Business Days prior to the requested
continuation; provided, that (a) no LIBO Rate Advance may be
continued as such when any Event of Default has occurred and
is continuing, (b) no LIBO Rate Advances under the Revolving
Credit Facility may be continued as such after the date which
is one month prior to the Revolving Credit Facility
Termination Date, and (c) any such continuation shall be made
only if, after giving effect thereto, paragraph (v) shall not
be contravened. If Borrower shall fail to give such notice or
if such continuation is not permitted, then Borrower shall be
deemed to have requested that the LIBO Rate Advance be
converted automatically to a Prime Rate Advance on the last
day of the then current Interest Period with respect thereto.
(v) All borrowings, conversions and continuations of Advances
hereunder by Borrower and all selections of Interest Periods
hereunder by Borrower shall be in such amounts and be made
pursuant to such elections so that, after giving effect
thereto, the aggregate principal amount of the Advances to
Borrower constituting each LIBO Rate tranche (i.e., LIBO Rate
Advances made on the same day and having the same Interest
Period) shall be equal to $500,000 or a whole multiple of
<PAGE> 21
$100,000 in excess thereof. If Borrower has no Prime Rate
Advances outstanding, Borrower may have a maximum of five (5)
LIBO Rate tranches in aggregate in effect at any one time,
and, if Borrower has Prime Rate Advances outstanding, Borrower
may have a maximum of four (4) LIBO Rate tranches in aggregate
in effect at any one time.
(vi) Each determination of an interest rate by Bank pursuant to any
provision of this Agreement shall be conclusive and binding on
Borrower in the absence of manifest error. Bank shall, at the
request of Borrower, deliver to Borrower a statement showing
the quotations used by Bank in determining the LIBO Rate.
(vii) If prior to the first day of any Interest Period, Bank shall
have determined (which determination shall be conclusive and
binding upon Borrower) that either:
(a) adequate and reasonable means do not exist for
ascertaining the LIBO Rate for such Interest Period; or
(b) the interest rate determined for such Interest Period
does not adequately and fairly reflect the cost to Bank of
making, maintaining or funding its LIBO Rate Advances during
such Interest Period, in either case with respect to (i)
proposed Advances that Borrower has requested be made as LIBO
Rate Advances, (ii) LIBO Rate Advances that will result from
the requested conversion of Prime Rate Advances into LIBO Rate
Advances, or (iii) the continuation of LIBO Rate Advances
beyond the expiration of the then current Interest Period with
respect thereto; then Bank shall give telephonic notice
thereof to Borrower as soon as practicable thereafter. Unless
Borrower notifies Bank upon receipt of such notice that it
wishes to rescind or modify its request, Bank shall arrange
that (x) any affected LIBO Rate Advances requested by Borrower
shall be made as Prime Rate Advances, (y) any Prime Rate
Advances to Borrower that were to have been converted to LIBO
Rate Advances shall be continued as, or converted to, Prime
Rate Advances, and (z) all outstanding LIBO Rate Advances to
Borrower shall be converted, on the last day of the then
current Interest Period with respect thereto, to Prime Rate
Advances. Until such notice has been withdrawn by Bank, no
further LIBO Rate Advances shall be made to Borrower, nor
shall Borrower have the right to convert Prime Rate Advances
to LIBO Rate Advances.
(g) CONVERSION OF LIBO RATE DUE TO CHANGE OF LAWS OR IMPOSSIBILITY
Notwithstanding any other provision in this Agreement, if the adoption of or
any change in any law or regulation or in the interpretation or application
thereof (whether or not having the force of law) shall make it unlawful or
impossible for Bank to make, maintain or fund LIBO Rate Advances as
contemplated by this Agreement: (a) the commitment of Bank hereunder to make
LIBO Rate Advances, continue LIBO Rate Advances as such and convert Prime Rate
Advances to LIBO Rate Advances shall forthwith be canceled; (b) the Advances
then outstanding as LIBO
<PAGE> 22
Rate Advances, if any, shall be converted automatically to Prime Rate Advances
on the respective last days of the then current Interest Periods with respect
to such Advances or within such earlier period as required by law; and (c)
Borrower shall pay Bank such amounts, if any, as may be required pursuant to
paragraph (h) below.
(h) LIBO RATE INDEMNITY Borrower agrees to indemnify Bank and to
hold Bank harmless from any loss or expense which Bank may sustain or incur as
a consequence of (a) the making by Borrower of a prepayment (whether mandatory
or optional) or any other payment of a LIBO Rate Advance on a day which is not
the last day of the Interest Period with respect thereto, and/or (b) the
conversion, whether voluntary or involuntary, of a LIBO Rate Advance into a
Prime Rate Advance pursuant to this Section, 2.4(f), or otherwise on a day
which is not the last day of an Interest Period with respect thereto,
including, without limitation, in each case any such loss or expense arising
from the reemployment of funds obtained by it to maintain its LIBO Rate
Advances hereunder or from fees payable to terminate the deposits from which
such funds were obtained. This covenant shall survive the termination of this
Agreement and the payment of the Advances and all other obligations hereunder.
SECTION 2.5 PAYMENTS, PREPAYMENTS, AND REDUCTION OR TERMINATION
OF THE REVOLVING CREDIT FACILITY.
(a) METHOD OF PAYMENT. All payments of principal, interest and
other amounts to be made by Borrower under this Agreement, or the Note or other
Loan Documents shall be made to Bank, for the account of Bank, at 313
Carondelet Street, New Orleans, Louisiana 70130 (or at such other address as
Bank may notify Borrower in writing), in immediately available funds, without
setoff, deduction or counterclaim, not later than 2:00 p.m. (New Orleans,
Louisiana time) on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day) and, in the case of payments of principal
under the Revolving Credit Facility, in an amount of at least $100,000.00, or
an integral multiple thereof. Borrower shall, at the time of making each such
payment, specify to Bank the sums payable by Borrower under this Agreement, the
Notes or other Loan Documents to which such payment is to be applied.
Notwithstanding the foregoing sentence, unless and until an Event of Default
shall have occurred and be continuing (in which event such payments shall be
applied by Bank in their sole discretion), all payments received by Bank shall
be applied first to the payment of all amounts (except principal and interest)
at the time due and unpaid hereunder or under any of the other Loan Documents,
then to interest hereon or thereon accrued to the date of payment and finally
to the unpaid principal hereunder or thereunder. Whenever any payment under
this Agreement, the Notes or any other Loan Document shall be stated to be due
on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest.
(b) PAYMENTS WITHOUT DEDUCTION. Borrower shall pay principal,
interest and other amounts under, and in accordance with the terms of, this
Agreement, the Note and the other Loan
<PAGE> 23
Documents free and clear of and without deduction for any and all present and
future taxes, levies, imposts, deductions, charges, withholdings and all other
liabilities whatsoever.
(c) REDUCTION OF CREDIT. Borrower may from time to time, upon at
least three (3) Business Day's prior telephonic notice (confirmed in writing)
to Bank, permanently reduce the amount of the Commitment, provided that at no
time may the Commitment be reduced by Borrower to an amount less than the sum
of the outstanding principal of all Advances and the undrawn amount of Letters
of Credit. Any such reduction of the Commitment shall be in an amount of
$100,000.00 or an integral multiple thereof.
SECTION 2.6 INDEMNITY. Borrower shall indemnify and hold Bank
harmless from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including, without limitation,
reasonable attorneys' fees and disbursements, including those incurred upon any
appeal) which may be instituted or asserted against or incurred by Bank as the
result of its having entered into any of the Loan Documents or extended credit
hereunder; provided, however, that Borrower shall not be liable for such
indemnification to such indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or expense results from such
indemnified Person's gross negligence or willful misconduct.
SECTION 2.7 ACCESS. Bank and any of its officers, employees
and/or agents shall have the right, exercisable as frequently as Bank
reasonably determines to be appropriate, during normal business hours (or at
such other times as may reasonably be requested by Bank), to inspect the
properties and facilities of Borrower or Guarantor and to inspect, audit and
make extracts from all of Borrower's and Guarantor's records, files and books
of account. Borrower and Guarantor shall deliver any document or instrument
reasonably necessary for Bank to obtain records from any service bureau
maintaining records for Guarantor and/or Borrower, and shall maintain duplicate
records or supporting documentation on media, including, without limitation,
computer tapes and discs owned by Borrower and Guarantor. Borrower and
Guarantor shall instruct their banking and other financial institutions to make
available to Bank such information and records as Bank may reasonably request.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1. CONDITIONS TO LOANS. Notwithstanding any other
provision of this Agreement and without affecting in any manner the rights of
Bank hereunder, unless and until the hereinbelow set forth conditions are
satisfied and there shall have been delivered to Bank, evidence in form and
substance satisfactory to Bank, Borrower shall have no rights to obtain any
Advances or Letters of Credit pursuant to this Agreement, and Bank shall not be
obligated to make the funding of the Loans hereunder, the conditions being the
receipt by Bank of the following:
<PAGE> 24
(a) COMPLETION OF INITIAL PUBLIC OFFERING OF GUARANTOR. The
Effective Date of this Agreement shall be the day of the completion of the
Initial Public Offering ("IPO") of Guarantor, and the contribution by Guarantor
to Borrower of the net proceeds of the IPO, provided that a minimum of
$12,000,000.00 of the proceeds of the IPO is contributed by Guarantor to
Borrower. Borrower will not be permitted to request any Advances, or the
issuance of any Letters of Credit, until the completion of the IPO and receipt
by Borrower of the net proceeds of $12,000,000.00. Of the $12,000,000.00
contributed to Borrower, Borrower shall be permitted to pay $7,000,000.00 to
MII (i) $700,000.00 of which shall be for the purchase of 18 acres of land
including the land and buildings leased by Borrower from MII, and (ii)
$6,300,000.00 of which shall be for the surrender of MII's rights under the
Shareholders Agreement dated November 30, 1992 between McDermott Incorporated
and Universal Partners, Inc. and the Put/Call Agreement dated November 30, 1992
between McDermott Incorporated and Universal Partners, Inc. In the event that
the IPO of Guarantor does not occur or the net proceeds to Borrower do not
reach the sum of $12,000,000.00, this Agreement shall terminate and no longer
be in effect.
(b) LOAN DOCUMENTATION. The Loan Documents (and all documents
related thereto), each prepared to the satisfaction of counsel for Bank, duly
executed by an authorized officer of Borrower and/or Guarantor;
(c) NOTE. Borrower's duly executed Note payable to the order of
Bank.
(d) RESOLUTIONS. Resolutions of the board of directors of Borrower
and Guarantor, certified by the Secretary or Assistant Secretary of Borrower
and Guarantor, as of the Closing Date, to be duly adopted and in full force and
effect on such date, authorizing (i) the consummation of each of the
transactions contemplated by the Loan Documents and (ii) specific officers to
execute and deliver this Agreement and the other Loan Documents.
(e) GOVERNMENTAL CERTIFICATES. Governmental certificates, dated
the most recent practicable date prior to the Closing Date, showing that
Borrower and Guarantor are organized and in good standing in the jurisdiction
of their organization and are qualified as a foreign corporation and in good
standing in all other jurisdictions in which they are qualified to transact
business.
(f) FINANCIAL STATEMENT CERTIFICATION. The financial statements
referred to in Section 4.5, each certified by the chief financial officer of
Borrower.
(g) CERTIFICATION OF CHIEF FINANCIAL OFFICER. Certificates of
either the chief financial officer or the chief executive officer of Borrower
and Guarantor, satisfactory in form and substance to Bank, stating that, as of
the Closing Date, to the best of their knowledge, no Material Adverse Effect
has occurred to the business, operations, prospects, properties or financial or
other condition of Guarantor and its Subsidiaries and Borrower taken as a whole
since June 30, 1997.
<PAGE> 25
(h) CERTIFICATE OF CHIEF EXECUTIVE OFFICER. A certificate of
either the chief executive officer or chief financial officer of Borrower and
Guarantor, satisfactory in form and substance to Bank, stating (i) that all of
the representations and warranties contained herein or in any of the Loan
Documents are correct on and as of the Closing Date as though made on and-as of
such date, and no event has occurred and is continuing, or would result from
the Revolving Credit Advance if made on the Closing Date, which constitutes or
would constitute a Default or an Event of Default, (ii) that Bank has a copy of
each agreement or plan or, if not available, a summary thereof, providing for
employment, severance, deferred payments, bonus payments or accruals, profit
sharing arrangements, stock option or stock appreciation rights, incentive
payments, pension or employment benefit contributions or similar payments or
arrangements for the benefit of Borrower's management personnel, which has been
approved by Bank.
(i) CERTIFICATE OF INCUMBENCY AND SIGNATURES. Certificates of the
Secretary or an Assistant Secretary of Borrower and Guarantor, dated the
Closing Date, as to the incumbency and signatures of the officers of Borrower
and Guarantor executing this Agreement, the Note, any of the Loan Documents and
other ancillary agreements and any other certificate or other document to be
delivered pursuant hereto or thereto, together with evidence of the incumbency
of such Secretary or Assistant Secretary.
(j) ATTORNEY OPINION. The opinion of Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P., counsel to Borrower and Guarantor,
addressed to Bank, to the effect that (a) Borrower and Guarantor are
corporations duly organized, validly existing and in good standing under the
laws of the State of their incorporation and qualified as a foreign corporation
in good standing in the State of Louisiana; (b) Borrower has full power to
execute, deliver and perform its obligations under this Agreement, the Notes
and the Loan Documents to which it is a party; (c) Guarantor has full power to
execute, deliver and perform its obligations under this Agreement and the Loan
Documents to which it is a party; (d) such actions have been duly authorized by
all necessary corporate action, and are not in conflict with any provision of
law or of the charter or by-laws of Borrower or Guarantor, nor to the best of
counsel's knowledge, in conflict with any agreement binding upon Borrower or
Guarantor; and (e) this Agreement, the Notes, and the Loan Documents are the
legal and binding obligations of Borrower and Guarantor enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, reorganization, moratorium or similar laws.
(k) PAYMENT OF FEES AND EXPENSES. Payment by Borrower of all
reasonable fees and expenses of Bank's counsel.
(l) ADDITIONAL INFORMATION. Such additional information and
materials as Bank may reasonably request, including, without limitation, copies
of any debt agreements, security agreements and other material contracts.
<PAGE> 26
SECTION 3.2. CONDITIONS TO EACH ADVANCE AND/OR LETTER OF CREDIT.
It shall be a further condition to and funding of an Advance and/or issuance of
a Letter of Credit that the following statements shall be true on the date of
each such funding or issuance:
(a) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of Borrower and Guarantor contained herein or in
any of the Loan Documents shall be correct on and as of the date of each such
Advance and/or issuance of a Letter of Credit as though made on and as of such
date, except to the extent that any such representation or warranty expressly
relates to an earlier date and for changes therein permitted and contemplated
by this Agreement.
(b) NO EVENT OF DEFAULT. No event shall have occurred and be
continuing, or would result from the funding of any Advance and/or issuance of
a Letter of Credit, which constitutes or would constitute a Default or an Event
of Default.
(c) MAXIMUM ADVANCES. The aggregate unpaid principal amount of the
Revolving Credit Facility after giving effect to funding such Advance or the
issuance of such Letter of Credit, shall not exceed the Maximum Revolving
Credit Facility Loan Amount.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to Bank that:
SECTION 4.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Borrower
and Guarantor (i) are corporations duly organized, validly existing and in good
standing under the laws of the state of their incorporation; (ii) are duly
qualified as foreign corporations and in good standing under the laws of each
jurisdiction where the failure to be so qualified would have a Material Adverse
Effect; (iii) have the requisite corporate power and authority and the legal
right to own, pledge, mortgage or otherwise encumber and operate their
properties, to lease the property they operate under lease, and to conduct
their business as now, heretofore and proposed to be conducted; (iv) have all
licenses, permits, consents or approvals from or by, and have made all filings
with, and have given all notices to, all governmental authorities having
jurisdiction, to the extent required for such ownership, operation and conduct;
(v) are in compliance with their certificate or articles of incorporation and
by-laws; and (vi) are in compliance with all applicable provisions of law where
the failure to comply would have a Materially Adverse Effect on the business,
operations, prospects, assets or financial or other condition of Borrower and
Guarantor, and Borrower and Guarantor's ability to pay the obligations in
accordance with the terms thereof.
SECTION 4.2. EXECUTIVE OFFICES. The current location of Borrowers
and Guarantor's executive offices and principal place of business is set forth
on Schedule 4.2 hereto.
<PAGE> 27
SECTION 4.3. SUBSIDIARIES. Borrower has no Subsidiaries. Borrower
is Guarantor's only Subsidiary.
SECTION 4.4. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS. The execution, delivery and performance by Borrower and Guarantor
of the Loan Documents, and all instruments and documents to be delivered by
Borrower and Guarantor, to the extent they are parties thereto, hereunder and
thereunder: (i) are within Borrower's and Guarantor's corporate power; (ii)
have been duly authorized by all necessary or proper corporate action; (iii)
are not in contravention of any provision of Borrower's or Guarantor's
respective certificates or articles of incorporation or by-Laws; (iv) will not
violate any material law or regulation, or any order or decree of any court or
governmental instrumentality; (v) will not conflict with or result in the
breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Borrower or Guarantor are a party or by
which Borrower or Guarantor or any of their property is bound which conflict,
breach, termination, default or acceleration would have a Material Adverse
Effect; (vi) will not result in the creation or imposition of any Lien upon any
of the property of Borrower or Guarantor, and (vii) do not require the consent
or approval of any governmental body, agency, authority or any other Person. At
or prior to the Closing Date, each of the Loan Documents shall have been duly
executed and delivered for the benefit of or on behalf of Borrower and
Guarantor, as the case may be, and upon the Effective Date each shall then
constitute a legal, valid and binding obligation of Borrower and Guarantor, to
the extent they are parties thereto, enforceable against them in accordance
with its terms except as may be limited by applicable bankruptcy laws and
general principles of equity.
SECTION 4.5. FINANCIALS AND PROJECTIONS.
(a) BORROWER'S FINANCIALS Borrower's audited financial statement
as of March 31, 1997, a copy of which has been furnished to Bank, has been
prepared in conformity with GAAP applied on a basis consistent with that of the
preceding fiscal year and period, presents fairly the financial condition of
Borrower as of such date and the results of its operations for the periods then
ended. Borrower's unaudited financial statement as of June 30, 1997, a copy of
which has been previously furnished to Bank, except for the absence of
footnotes normally associated with financial statements prepared in accordance
with GAAP, has been prepared in conformity with GAAP and presents fairly the
financial condition of Borrower as of such date and the results of its
operations for the periods then ended. Since March 31, 1997, there has been no
material adverse change in Borrower's financial condition.
(b) GUARANTOR'S FINANCIALS Audited financials of Guarantor as of
March 31, 1997, a copy of which has been furnished to Bank prior to the date of
this Agreement, have been prepared in accordance with GAAP.
SECTION 4.6 LITIGATION. To the best of Borrower's knowledge,
after due inquiry, no litigation or governmental proceedings are pending or
threatened against Borrower, the results of
<PAGE> 28
which might materially affect Borrower's financial condition or operations,
except those referred to in a schedule furnished contemporaneously herewith and
attached hereto as Schedule 4.6. Other than any liability incident to such
litigation or proceedings or provided for or disclosed in the financial
statements referred to in Section 4.5, Borrower does not have any material
contingent liabilities.
SECTION 4.7 LIENS. None of the assets of Borrower are subject to
any Lien except the Permitted Liens.
SECTION 4.8 PURPOSE. (a) The proceeds of the Revolving Credit
Facility shall be used by Borrower for general corporate purposes including
acquisitions and capital expenditures and for the issuance of certain Standby
Letters of Credit, including performance and retainage letters of credit, and
(b) the proceeds of Non-Revolving LC Facility shall be used for the reissuance
for the account of Borrower of certain performance and retainage Letters of
Credit which are currently issued for the account of MII on behalf of Borrower.
SECTION 4.9 USE OF PROCEEDS; MARGIN SECURITIES. Borrower is not
engaged in the business of purchasing or selling margin stock (as defined in
Regulation U of the Board of Governors of the Federal Reserve System) or
extending credit to others for the purpose of purchasing or carrying margin
stock and no part of the proceeds of any borrowing hereunder will be used to
purchase or carry any margin stock or for any other purpose which would violate
any of the margin regulations of such Board of Governors.
SECTION 4.10 COMPLIANCE WITH ERISA. Borrower is in compliance with
all statutes and governmental rules and regulations applicable to it,
including, without limitation, ERISA. No condition exists or event or
transaction has occurred in connection with any Plan, which could result in
Borrower's incurring any material liability, fine or penalty. No Reportable
Event (as defined in ERISA) has occurred with respect to any such Plan.
Borrower has not withdrawn from any such Plan or initiated steps to do so and
no steps have been taken to terminate any such Plan.
SECTION 4.11 CONSENTS. No consent, approval or authorization of,
or registration or declaration with, any federal or state governmental
authority or other regulatory agent for the validity of the execution and
delivery or for the performance by Borrower of the Loan Documents is required.
SECTION 4.12 TAXES. All Federal, state, local, foreign, and
franchise tax returns, reports and statements required to be filed by Borrower
and Guarantor have been filed with the appropriate governmental agencies in all
jurisdictions in which such returns, reports and statements are required to be
filed, and all Charges and other impositions shown thereon to be due and
payable have been timely paid prior to the date on which any fine, penalty,
interest, late charge or loss may be added thereto for nonpayment thereof, or
any such fine, penalty, interest, late charge or loss has been paid, or has
reserved reasonable amounts for such Charges, fines, interest, loss, late
charges and/or interest upon the books of such company as the case may be.
<PAGE> 29
Borrower and Guarantor have paid when due and payable all requisite Charges on
its income, business, property or operations, including income taxes, franchise
taxes, real and personal property taxes, inventory and merchandise taxes,
capital stock taxes, sales and use taxes, value added taxes, excise taxes,
transfer taxes, employee income withholding, social security and unemployment
taxes, and interest and penalties thereon, or has reserved reasonable amounts
for such taxes, interest and/or penalties upon the books of such company, as
the case may be. Proper and accurate amounts have been withheld by Borrower
from its employees for all periods in full and complete compliance with the
tax, social security and unemployment withholding provisions of applicable
Federal, state, local and foreign law and such withholdings have been paid to
the respective governmental agencies.
SECTION 4.13 OPERATION OF BUSINESS. Borrower possesses all
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
or rights thereto, to conduct its business substantially as now conducted and
as presently proposed to be conducted, and Borrower is not in violation of any
valid rights of others with respect to any of the foregoing.
SECTION 4.14 RIGHTS IN PROPERTIES; LIENS. Borrower has good and
indefeasible title to its properties and assets, real and personal, including
the properties and assets reflected in the financial statements, and none of
the properties, assets or leasehold interests of Borrower is subject to any
Lien, except for Permitted Liens.
SECTION 4.15 DEBT. Borrower has no Debt, except as disclosed in
the financial statements described in Section 4.5 hereof and as otherwise
permitted by this Agreement.
SECTION 4.16 DISCLOSURE. No statement, information, report,
representation or warranty made by Borrower in this Agreement or in any of the
other Loan Documents or furnished by Borrower to Bank in connection with the
negotiation or preparation of this Agreement, or any amendment hereto, contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to Borrower that has not been disclosed in writing to Bank which has
a Material Adverse Effect, or which might in the future have a Material Adverse
Effect, on the business, assets, financial condition or operations of Borrower.
SECTION 4.17 REGISTERED OFFICE; PRINCIPAL PLACE OF BUSINESS; The
principal place of business, chief executive office and registered office of
Borrower and the place where Borrower keeps its books and records are located
5007 Port Road, New Iberia, Louisiana 70562. Borrower has never done any
business from any location other than as set forth in this Section.
SECTION 4.18 INVESTMENT COMPANY ACT. Borrower and Guarantor are
not an "Investment Company" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 4.19 OTHER AGREEMENTS. Borrower and Guarantor are not
parties to any indenture, loan or credit agreement, or to any lease or other
agreement or instrument, or subject
<PAGE> 30
to any charter of corporate restriction which would violate the terms of this
Agreement. Borrower is not in default in any respect in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument which would reasonably have a Material
Adverse Effect.
SECTION 4.20 COMPLIANCE WITH LAW. Borrower is in compliance with
all laws, rules, regulations, orders and decrees which are applicable to
Borrower, or any of their respective properties. Without limiting the
generality of the foregoing:
(a) EMPLOYMENT MATTERS. Borrower is in full compliance with all
applicable laws, rules, regulations and governmental standards regarding
employment, including, without limitation, the minimum wage and overtime
provisions of the Fair Labor Standards Act, as amended (29 U.S.C. Sections
201-219), and the regulations promulgated thereunder, the non-compliance of
which would reasonably have had a Material Adverse Effect.
(b) ENVIRONMENTAL MATTERS.
(i) Borrower and all of their respective properties,
assets and operations are in compliance with all Environmental Laws, the
non-compliance of which would reasonably have had a Material Adverse Effect.
Borrower is not aware of or has not received notice of, any past, present or
future conditions, events, activities, practices or incidents which may
interfere with or prevent the compliance or continued compliance of Borrower
with all Environmental Laws.
(ii) Borrower has obtained, or is in the process of
obtaining, all permits, licenses and authorizations and has filed all plans
which are required under Environmental Laws in order to conduct its business
and/or own its properties and assets including, without limitation, all
Louisiana air emission permits required under any Environmental Law in order to
conduct Borrower's business and/or own its assets or properties.
(iv) No Hazardous Substances or Solid Wastes exist on,
about or within or have been used, generated, stored, transported, disposed of
on, or released from any of the properties or assets of Borrower except in
substantial compliance with Environmental Laws.
SECTION 4.21 CORPORATE NAME. The exact corporate name of Borrower
as it appears in its articles of incorporation is as set forth in the
introduction of this Agreement and Borrower has never done any business in any
location under any other name.
SECTION 4.22 TAXPAYER I.D. NUMBERS. Borrower's Federal Taxpayer
Identification Number is 72-1382998.
SECTION 4.23 CONTINUING REPRESENTATIONS AND WARRANTIES. Each
request by Borrower for an Advance shall constitute a representation and
warranty by Borrower as of the date of such request for an Advance that all
representations and warranties made herein are correct on and as
<PAGE> 31
of such Borrowing Date as if made on and as of such date, except to the extent
that any such representation or warranty expressly relates to an earlier date
and for changes therein permitted and contemplated by this Agreement.
SECTION 4.24 CONTINUING VALIDITY AND ENFORCEABILITY OF GUARANTY.
The Guaranty executed and delivered by Guarantor at the time of this Agreement
is and shall remain in full force and effect.
ARTICLE V
AFFIRMATIVE COVENANTS
From the Effective Date of this Agreement and thereafter until the
Termination Date, and until the Note and other liabilities of Borrower
hereunder are paid in full and all other obligations and liabilities under the
Loan Documents are performed and paid in full, Borrower agrees that it will:
SECTION 5.1 FINANCIAL STATEMENTS AND RECORDS. Borrower shall
furnish to Bank:
(a) promptly after the sending or filing thereof, copies of all
reports which Guarantor sends to any of its public security holders, and copies
of all Forms 10-K, 10-Q and 8-K, Schedules 13E-4 (including all exhibits filed
therewith) and registration statements, and any other filings or statements
that Guarantor files with the Securities and Exchange Commission or any
national securities exchange;
(b) within one hundred twenty (120) days after the end of each
fiscal year, a copy of Borrower's audited financial statements (describing
assets, liabilities, and results of operations for Borrower), audited by
independent certified public accountants of nationally recognized standing
selected by Borrower and reasonably satisfactory to Bank, prepared in
conformity with GAAP;
(c) as soon as available, but in any event within forty-five (45)
days after the end of each fiscal quarter, a copy of the quarterly unaudited
financial statements of Borrower prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the period reflected
therein;
(d) as soon as available, but in any event within thirty (30) days
after the end of each month a monthly aging of accounts receivable certified by
the chief executive officer or the chief financial officer of Borrower
reflecting accounts receivable according to payor mix in the following
categories: 0-30 days; 31-60 days; 61-90 days; 91 days and over of Borrower's
accounts receivable;
(e) as soon as available, but in any event within forty-five (45)
days after the end of a fiscal quarter, a compliance certificate, in form
acceptable to Bank, setting forth the calculations
<PAGE> 32
of all financial covenants and certifying as to the accuracy of all
calculations and Borrower's compliance with all financial covenants; and
(f) Borrower shall provide to Bank, within 14 Business Days after
request, such other information respecting Guarantor's or Borrower's business,
financial condition or prospects as Bank may, from time to time, reasonably
request.
(g) Guarantor and Borrower authorize Bank to communicate directly
with their independent certified public accountants, with notice to Borrower
and Guarantor, and authorize those accountants to disclose to Bank any and all
financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of Guarantor and Borrower.
(h) Borrower and Guarantor shall permit access by Bank to the
books and records and other property of Borrower and Guarantor during normal
business hours and upon reasonable notice and permit Bank to make copies of
said books and records.
SECTION 5.2 MAINTENANCE OF, EXISTENCE AND CONDUCT OF BUSINESS.
Guarantor and Borrower shall:
(a) do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises;
Guarantor and Borrower shall notify Bank immediately if there is a change in
Guarantor or Borrower's corporate structure;
(b) continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder,
(c) at all times maintain, preserve and protect all of its
trademarks and trade names, and preserve all the remainder of its property in
use or useful in the conduct of its business and keep the same in good repair,
working order and condition (taking into consideration ordinary wear and tear)
and from time to time make or cause to be made, all needful and proper repairs,
renewals and replacements, betterments and improvements thereto consistent with
industry practices, so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; and
(d) transact business and invoice all accounts in such names as
Borrower may from time use in conducting its businesses.
SECTION 5.3 PAYMENT OF OBLIGATIONS.
(a) Borrower shall (i) pay and discharge or cause to be paid and
discharged all its Indebtedness, including, without limitation, all the
Obligations, as and when due and payable, subject to the restrictions set forth
in this Agreement, and (ii) pay and discharge or cause to be
<PAGE> 33
paid and discharged promptly all (x) Charges imposed upon it, its income and
profits, or any of its property (real, personal or mixed), and (y) lawful
claims for labor, materials, supplies and services or otherwise before any
thereof shall become in default.
(b) Borrower may in good faith contest, by proper legal actions or
proceedings, the validity or amount of any contested Indebtedness, Charges or
claims, provided that at the time of commencement of any such action or
proceeding, and during the pendency thereof (i) no Default or Event of Default
shall have occurred; (ii) adequate reserves with respect thereto are maintained
on the books of Borrower, in accordance with GAAP; (iii) such contest operates
to suspend collection of the contested Charges or claims and is maintained and
prosecuted with diligence;(iv) Borrower shall promptly pay or discharge such
contested Charges and all additional charges, interest, penalties and expenses,
if any, and shall deliver to Bank evidence acceptable to Bank of such
compliance, payment or discharge, if such contest is terminated or discontinued
adversely to Borrower; and (v) Bank has not advised Borrower in writing that
Bank reasonably believes that nonpayment or non-discharge thereof would have a
Material Adverse Effect.
(c) Notwithstanding anything to the contrary contained in Section
5.3(b) above, Borrower shall have the right to pay the Charges or claims
described in Section 5.3(a)(ii) and in good faith contest by proper legal
actions or proceedings, the validity or amount of such Charges or claims.
SECTION 5.4. FINANCIAL COVENANTS. Borrower agrees as follows:
(a) Borrowers shall maintain at all times, such maintenance to be
evidenced at the end of any fiscal quarter of Borrower;
(i) a ratio of current assets to current liabilities of
no less than 1.5 to 1.0,
(ii) a Tangible Net Worth of not less than $8,750,000.00
plus (x) the total net proceeds from the IPO less
$6,300,000.00 plus (y) 70% of the cumulative net
income of Borrower for all quarters ending after June
30, 1997 in which net income for such quarter was
positive, and (z) 100% of the proceeds to Borrower of
any future public equity offering by Borrower, net of
any related fees, commissions, expenses and other
costs.
(iii) a ratio of Total Debt to Tangible Net Worth no
greater than 0.5 to 1.0.
(iv) an Interest Coverage ratio of no less than 4.0 to
1.0, such ratio to be determined at the end of each
fiscal quarter based on such fiscal quarter and the
three immediately preceding fiscal quarters.
<PAGE> 34
SECTION 5.5. FEES. Borrower shall pay to Bank, on demand, any and
all fees, costs or expenses arising out of or in connection with the forwarding
to Borrower or any other Person on behalf of Borrower by Bank of proceeds of
the Advances.
SECTION 5.6. BOOKS AND RECORDS. Borrower shall keep adequate
records and books of account with respect to its business activities, in which
proper entries, reflecting all of their financial transactions, are made in
accordance with GAAP and on a basis consistent with the Financials referred to
in Section 4 hereof.
SECTION 5.7. LITIGATION. Borrower shall notify Bank in writing,
promptly upon learning thereof, of any litigation commenced against Guarantor
and/or Borrower, and of the institution against either of them of any suit or
administrative proceeding that could be expected to have a Material Adverse
Effect.
SECTION 5.8. INSURANCE. Schedule 5.7 lists all insurance of any
nature maintained by Borrower as well as a summary of the terms of such
insurance. Borrower shall maintain insurance coverages, without limitation,
fire, theft, burglary, public liability, property damage, product liability,
workers' compensation, and insurance on all property and assets, all in amounts
customary for the industry and under policies issued by insurers reasonably
satisfactory to Bank. Borrower shall pay all insurance premiums payable by it.
SECTION 5.9. COMPLIANCE WITH LAW. Borrower shall comply with all
federal, state and local laws and regulations applicable to it, including,
without limitation, ERISA, those regarding the collection, payment and deposit
of employees, income, unemployment and Social Security Taxes and those relating
to environmental matters where the failure to comply could be expected to have
a Material Adverse Effect.
SECTION 5.10. AGREEMENTS. Guarantor and Borrower shall perform,
within all required time periods (after giving effect to any applicable grace
periods), all of their obligations and enforce all of their rights under each
agreement to which they are a party, including, without limitation, any leases
to which any such company is a party, where the failure to perform and enforce
would have a Material Adverse Effect. Guarantor and Borrower shall not
terminate or modify, in any manner adverse to any such company any provision of
any agreement to which it is a party which termination or modification could
have a Material Adverse Effect.
SECTION 5.11. SUPPLEMENTAL DISCLOSURE. From time to time as may be
necessary (in the event that such information is not otherwise delivered by
Borrower to Bank pursuant to this Agreement), so long as there are obligations
outstanding hereunder, Borrower will supplement or amend each Schedule with
respect to any matter hereafter arising which, if existing or occurring at the
date of this Agreement, would have been required to be set forth or described
in such Schedule or which is necessary to correct any information in such
Schedule which has been rendered inaccurate thereby.
<PAGE> 35
SECTION 5.12. EMPLOYEE PLANS. Borrower shall fulfill its
obligations under the minimum funding standards of ERISA and the Code, with
respect to each Plan, and Borrower shall not take any action that would result
in the termination of a Plan by the PBGC.
SECTION 5.13. SEC FILINGS; CERTAIN OTHER NOTICES. Guarantor and
Borrower shall furnish to Bank (i) promptly after the filing thereof with the
Securities and Exchange Commission, a copy of each report, notice or other
filing, if any, by Borrower and Guarantor with the Securities and Exchange
Commission, and (ii) a copy of each written communication received by Borrower
and/or Guarantor from or delivered by Borrower to the Securities and Exchange
Commission.
SECTION 5.14. COMPLIANCE WITH LEASES; ADDITIONAL MORTGAGES.
Borrower shall comply with all of their obligations under all leases for, or
hereafter entered into by it with respect to, real property.
SECTION 5.15. GUARANTOR FUNDING. In the event Borrower receives
notice from Bank that there are insufficient funds in Borrower's account to (i)
make required principal and interest payments due under the Loans, or (ii) pay
checks presented for payment, Guarantor shall immediately advance on the date
of said notice, sufficient funds to Bank to remedy each and every shortage or
reduce the Revolving Credit Facility to the Maximum Revolving Credit Facility
Loan Amount. Funds advanced by Guarantor to Borrower shall be considered a
contribution of capital to Borrower.
SECTION 5.16. DEPOSIT ACCOUNTS. Borrower shall maintain all of its
deposit accounts with Bank. Borrower and Guarantor shall direct their account
debtors to make their payments to deposit accounts with Bank, and shall deposit
the proceeds of all of their accounts receivables and all funds advanced in
connection with the Agreement in accordance with this Agreement. Commencing
with or on the Effective Date, Borrower and Guarantor will immediately, upon
receipt, deposit all monies, checks, notes, drafts and all other payments which
come into the possession or under the control of Borrower (or any of its
shareholders, directors, officers, employees, agents or those Persons acting
for or in concert with Borrower), (a) to Bank or (b) in the account designated
by Bank.
ARTICLE VI
NEGATIVE COVENANTS
Guarantor and Borrower covenant and agree that, without the Bank's
prior written consent, from and after the date hereof and until the Termination
Date:
SECTION 6.1. MERGERS, ETC. Borrower shall not directly or
indirectly, by operation of law or otherwise, merge with, consolidate with, or
otherwise combine with, any Person nor form any Subsidiary.
<PAGE> 36
SECTION 6.2. INVESTMENTS; LOANS AND ADVANCES. Except for Permitted
Investments and as otherwise permitted by Section 6.3 or 6.4 hereof, Guarantor
and Borrower shall not make any investment in, or make or accrue loans or
advances of money to any Person, through the direct or indirect holding of
securities or otherwise; nor shall Guarantor and Borrower make loans to each
other except (a) to the extent that the loans will not cause debt other than
the Obligations to exceed $1,000,000.00, and (b) in connection with loans to
shareholders or employees which shall not exceed the sum of $100,000.00 in the
aggregate.
SECTION 6.3. INDEBTEDNESS. Except as otherwise expressly permitted
by this Agreement, neither Guarantor nor Borrower shall create, incur, assume
or permit to exist any Debt, whether recourse or nonrecourse, and whether
superior or junior, resulting from borrowings, loans, advances or the granting
of credit, whether secured or unsecured, except (a) Indebtedness secured by
Liens permitted under Section 6.9 hereof, (b) trade credit or other contractual
obligations incurred to acquire goods, supplies, services, including, without
limitation, obligations incurred to employees for compensation for services
rendered in the ordinary course of business, or merchandise on terms similar to
those granted to purchasers in similar lines of business as Borrower as of the
date hereof and incurred in the ordinary and normal course of business, (d)
lease payment obligations under leases which Borrower is not prohibited from
entering into under the Loan Documents, (e) all deferred taxes, (f) all
unfunded, pension fund and other employee benefit plan obligations and
liabilities but only to the extent they are permitted to remain unfunded under
applicable law, and (g) indebtedness existing on the date hereof listed on
Schedule 6.3 hereof or consented to by Bank. Notwithstanding the above,
Borrower shall not incur any additional Debt subsequent to the Closing Date,
other than (i) the Obligations and (ii) Debt not to exceed $1,000,000.
SECTION 6.4. EMPLOYEE LOANS. Borrower shall not make or accrue any
loans or other advances of money to any employee of Borrower in excess at any
time of $100,000 in the aggregate for all such loans.
SECTION 6.5. CAPITAL STRUCTURE. Borrower shall not issue or agree
to issue any of their respective authorized but not outstanding shares of Stock
(including treasury shares), except to Guarantor.
SECTION 6.6. MAINTENANCE OF BUSINESS. Borrower shall not engage in
any business other than the business currently engaged in by Borrower or a
business incidental thereto or reasonably related thereto.
SECTION 6.7. TRANSACTIONS WITH AFFILIATES.
(a) Neither Guarantor nor Borrower shall enter into or be a party
to any transaction with any Affiliate of Borrower or Guarantor, except as
otherwise provided herein or in the ordinary course of and pursuant to the
reasonable requirements of Guarantor's, Borrower's or Affiliate's business and
upon fair and reasonable terms that are fully disclosed to Bank and are
<PAGE> 37
no less favorable to Borrower than would obtain in a comparable arm's length
transaction with a Person not an Affiliate of Borrower.
SECTION 6.8. GUARANTIES. Guarantor shall not, and shall not permit
Borrower, to make, issue, or become liable on any guaranty, except (a)
guaranties in favor of Bank, (b) endorsements of instruments for deposit, and
(c) other guaranties of Debt, incurred in the ordinary course of business, not
exceeding $1,000,000 at any time in the aggregate for Borrower and Guarantor
collectively.
SECTION 6.9. LIENS. Borrower shall not create or permit any Lien
on any of its properties or assets except:
(a) presently existing or hereinafter created Liens which have
been disclosed to Bank on Schedule 6.9; and
(b) Permitted Liens.
SECTION 6.10. SALES OF ASSETS. Borrower shall not sell, transfer,
convey or otherwise dispose of any assets or properties or engage in any
sale-leaseback or similar transaction involving any of such assets; provided,
however, that the foregoing shall not prohibit:
(a) the sale of surplus or obsolete equipment and fixtures;
(b) transfers resulting from any casualty or condemnation of
assets or properties; and
(c) sales in the ordinary course of business not to exceed $250,000.00
in any 12 month period.
SECTION 6.11. CANCELLATION OF INDEBTEDNESS. Borrowers shall not
cancel any claim or debt owing to it, except for reasonable consideration or in
the ordinary course of business.
SECTION 6.12. HEDGING TRANSACTIONS. Borrower shall not engage in
any speculative transactions involving commodity options or futures contracts,
including, without limitation, any speculative interest rate hedging or similar
transaction.
SECTION 6.13. RESTRICTED PAYMENTS. Borrowers shall not make any
Restricted Payments during the existence of the Loans without the consent of
the Bank.
SECTION 6.14. GUARANTOR'S OWNERSHIP OF BORROWER. Guarantor shall
not sell, transfer, convey or assign any of its interest in Borrower, without
prior written consent of Bank.
<PAGE> 38
ARTICLE VII
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
The following events shall constitute Events of Default hereunder and
under the Loans, individually and collectively, and under all other Loan
Documents:
SECTION 7.1 PAYMENT. Default in the payment of principal on the
Note when due, or default in the payment of any interest on the Note or any
expense or fee hereunder or under any of the other Loan Documents, which
default shall continue for a period of five (5) days following written notice
thereof to Borrower from Bank;
SECTION 7.2 OTHER INDEBTEDNESS. Any other Indebtedness of
Borrower is not paid at maturity or becomes due and payable prior to its
expressed maturity by reason of any default by Borrower in the performance or
observance of any Obligation or condition thereunder which default shall
continue for a period of thirty (30) days following written notice thereof to
Borrower from Bank;
SECTION 7.3 OTHER DEFAULT. Any default of any other obligation of
Borrower under the terms of any note or notes, mortgage, indenture, loan
agreement or security document of Borrower, including, without limitation, any
of the Loan Documents, which default shall continue for a period of thirty (30)
days following written notice thereof to Borrower from Bank, it being expressly
understood and agreed that a default under any note, mortgage, indenture, loan
agreement or security document of Borrower, including, without limitation, any
of the Loan Documents, shall constitute a default under all other notes,
mortgages, indentures, loan agreements and security documents held by Bank,
including, without limitation, the Loan Documents;
SECTION 7.4 INSOLVENCY. Borrower becomes insolvent or admits in
writing its inability to pay its debts as they mature or applies for, consents
to, or acquiesces in the appointment of a trustee or receiver for Borrower, or
any property of Borrower or, in the absence of such application, consent or
acquiescence, a trustee or receiver is appointed for Borrower, or for a
substantial part of any property of either Borrower and is not discharged
within thirty (30) days; or any bankruptcy, reorganization, debt arrangement,
or other proceeding under any bankruptcy or insolvency law, or any dissolution
or liquidation proceeding is instituted by or against Borrower and if
instituted against Borrower, it is consented to or acquiesced in by Borrower,
or remains for thirty (30) days undismissed; or any warrant of attachment is
issued against any substantial portion of the property of Borrower which is not
released within thirty (30) days of service;
SECTION 7.5 ERISA. The PBGC applies to a United States District
Court for the appointment of a trustee to administer any Plan adopted,
established or maintained by Borrower, or for a decree adjudicating that any
such Plan must be terminated; a trustee is appointed pursuant to ERISA to
administer any such Plan; any action is taken to terminate any such Plan or any
such Plan is permitted or caused to be terminated if, at the time such action
is taken or such termination of such Plan occurs, the Plan's "vested
liabilities," as defined in Section 3 (25) of ERISA, exceed the then value of
its assets at the time of such termination;
<PAGE> 39
SECTION 7.6 AGREEMENTS. Default in the performance of any of
Borrower's covenants and/or agreements set forth in this Agreement and/or any
of the other Loan Documents (and not constituting an Event of Default under any
of the preceding subsections of this Section 8, which default shall continue
for a period of thirty (30) days after written notice thereof to Borrower from
Bank;
SECTION 7.7 REPRESENTATION OR WARRANTY. Any representation or
warranty made by Borrower is untrue in any material respect, or any schedule,
statement, report, notice or writing furnished by Borrower to Bank is untrue in
any material respect on the date as of which the facts set forth are stated or
certified which default shall continue for a period of thirty (30) days after
written notice thereof to Borrower from Bank.
Upon the occurrence of any Event of Default, Bank, in addition to all
of the remedies conferred upon Bank under law, in equity or under any of the
Loan Documents, may declare the Agreement and the Loans to be terminated and
the Note to be due and payable, whereupon the Revolving Credit Facility and the
Non-Revolving LC Facility shall immediately terminate, and the Notes shall
become immediately due and payable, without notice of any kind, except that if
an event described in Section 7.4 occurs, the Revolving Credit Facility shall
immediately terminate, and the Notes shall become immediately due and payable
without declaration or notice of any kind.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 BANK'S RELIANCE, ETC. Neither Bank nor any of its
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it or them under or in connection with any of the
Loan Documents except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, Bank: (i)
may treat the payee of any Note as the holder thereof until Bank receives
written notice of the assignment or transfer thereof signed by such payee and
in form satisfactory to Bank; (ii) may consult with legal counsel (including
counsel for Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations made in or in connection with any of the Loan Documents; (iv)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of any of the Loan
Documents on the part of Borrower or to inspect the property (including the
books and records) of Borrower; (v) shall not be responsible to any Bank for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of any of the Loan Documents or any other instruments or document
furnished pursuant
<PAGE> 40
hereto; and (vi) shall incur no liability under or in respect of any of the
Loan Documents by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, cable or telex) believed by it
to be genuine and signed by the proper party or parties.
SECTION 8.2 FINANCIAL TERMS. Unless otherwise defined or the
context otherwise requires, all financial and accounting terms shall be defined
under GAAP.
SECTION 8.3 DELAY. No delay on the part of Bank in the exercise
of any power or right shall operate as a waiver thereof, nor shall any single
or partial exercise of any power or right preclude other or further exercise
thereof, or the exercise of any other power or right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.4 NOTICES. All notices, statements, requests and
demands given to or made under any party hereto in accordance with the
provisions of this Agreement shall be deemed to have been given or made when
deposited in the mail, postage prepaid, registered or certified mail return
receipt requested addressed:
If to Bank:
Hibernia National Bank
313 Carondelet Street, Suite 1300
New Orleans, LA 70130
Attention: Byron Kives or Bruce Ross
with a copy to
Chaffe, McCall, Phillips, Toler & Sarpy, L.L.P.
1100 Poydras Street, Suite 2300
New Orleans, LA 70163-2300
Attention: Kathleen S. Plemer, Esq.
If to Borrower:
Universal Fabricators Incorporated
P.O. Box 11308
New Iberia, LA 70562
Attention: Pete Roman, Chief Financial Officer
If to Guarantor:
UNIFAB International, Inc.
5007 Port Road
New Iberia, LA 70562
Attention: Dailey J. Berard
<PAGE> 41
with a copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre
201 St. Charles Ave.
New Orleans, Louisiana 70170-5100
Attention: Carl C. Hanemann, Esq.
SECTION 8.5 EXPENSES. Whether or not Advances are made, Borrower
agrees to reimburse Bank upon demand, for all expenses (including reasonable
attorneys' fees and legal expenses incurred by Bank) incurred by Bank in the
preparation, negotiation and /or execution of the Loan Documents, and in
enforcing the obligations of Borrower hereunder or under any of the other Loan
Documents, and to pay, and save Bank harmless from all liability for, any stamp
or other taxes which may be payable with respect to the execution or delivery
of this Agreement, the execution, delivery or issuance of the Notes, and/or the
execution, delivery and recordation of the other Loan Documents, which
obligations of Borrower shall survive any termination of this Agreement.
SECTION 8.6 SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 8.7 COUNTERPARTS. This Agreement may be executed in an
many counterparts as may be deemed necessary or convenient, and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original but all such counterparts shall
constitute but one and the same instrument.
SECTION 8.8 LAW. The Loan Documents, and each of them, shall be
contracts made under and governed by the laws of the State of Louisiana.
SECTION 8.9 SUCCESSORS. This Agreement shall be binding upon
Borrower, Bank, and their respective successors and assigns, and shall inure to
the benefit of Borrower, Bank and their successors and assigns. Borrower shall
not assign its rights, obligations or duties hereunder or under any of the Loan
Documents without the prior written consent of Bank. Bank shall give Borrower
written notice of any assignment of its interests hereunder to any other
Person, upon which assignment Borrower shall perform all of its respective
obligations under the Loan Documents in favor of Bank' assignee(s) as though
such assignee(s) were originally a party or parties to this Agreement.
SECTION 8.10 AMENDMENTS. No amendment or waiver of any provision
of this Agreement or consent to any departure therefrom by Borrower or Bank
shall be effective unless the same shall be in writing and signed by Borrower
or Bank, and, in the case of a waiver or
<PAGE> 42
consent, such waiver or consent shall be effective only in the specific
instance and or the specific purpose for which given.
SECTION 8.11 EXECUTION IN COUNTERPARTS. This Credit Agreement may
be executed in any number of counterparts with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 8.12 ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties and supersedes any and all prior
agreements with respect to the transactions contemplated hereby.
SECTION 8.13 CONFLICTS. This Agreement is in addition to and
supplements the provisions of the other Loan Documents. To the extent that the
provisions of this Agreement are in conflict with, and not merely in addition
to, the provisions of the other Loan Documents, the provisions of this
Agreements shall govern.
IN WITNESS WHEREOF, the parties hereto and intervenors herein have
caused this Agreement to be executed by their respective officers thereunto
duly authorized effective as of the date first written above.
BORROWER:
UNIVERSAL FABRICATORS INCORPORATED
By:
-------------------------------
ITS:
------------------------------
GUARANTOR:
UNIFAB INTERNATIONAL, INC.
By:
-------------------------------
ITS:
------------------------------
BANK:
HIBERNIA NATIONAL BANK
By:
-------------------------------
ITS:
------------------------------
<PAGE> 43
EXHIBIT A
STANDARD FORM OF APPLICATION FOR
STANDBY LETTER OF CREDIT
Intentionally omitted.
<PAGE> 44
REVOLVING PROMISSORY NOTE
EXHIBIT B
<TABLE>
<S> <C>
BORROWER: LENDER:
UNIVERSAL FABRICATORS INCORPORATED Hibernia National Bank
(TIN: 72-1382998) (TIN: 72-0210640)
5007 Port Road 313 Carondelet Street
New Iberia, Louisiana 70562 New Orleans, Louisiana 70130
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Principal Amount: Maturity Date of Note: Date of Note:
U.S. $20,000,000.00 August 31, 2000 September __, 1997
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PROMISE TO PAY. UNIVERSAL FABRICATORS INCORPORATED, a Delaware corporation
("Borrower") promises to pay to the order of Hibernia National Bank ("Lender"),
in lawful money of the United States of America the sum of Twenty Million and
No/100 Dollars (U.S. $20,000,000.00) or such other or lesser amounts as may be
reflected from time to time on the books and records of Lender as evidencing
the aggregate unpaid principal balance of loan advances made to Borrower on a
revolving line of credit basis as provided below, together with simple interest
assessed on a variable rate basis at the rate per annum equal to the Index
provided below, as the Index under this Note may be adjusted from time to time,
one or more times, with interest being assessed on the unpaid principal balance
of this Note as outstanding from time to time, commencing on September __, 1997
and continuing until this Note is paid in full, or until default under this
Note with interest thereafter being subject to the default interest rate
provisions set forth herein.
LINE OF CREDIT. This Note is issued by Borrower pursuant to the Credit
Agreement dated September __, 1997 between Borrower and Lender (the "Credit
Agreement") and evidences a revolving line of credit "master note." Advances
under this Note may be requested either orally or in writing by Borrower or by
an authorized person. Lender may, but need not, require that all oral requests
be confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address
shown above written notice of revocation of their authority: Pete Roman.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's deposit accounts with Lender. The unpaid principal balance owing
on this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; or (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those authorized by Lender.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on August 31, 2000 ("Maturity
Date"). In addition, Borrower will pay interest on all funds advanced
("Advances") from the date of disbursement by Lender at a floating rate until
paid, at either (i) the Prime Rate, adjusted daily ("Prime Rate"), or (ii) the
LIBO Rate plus two percent (2%) per annum ("Libor Rate"), or some combination
thereof as chosen in accordance with and subject to the terms set forth in the
Credit Agreement. Accrued interest under Prime Rate Advances will be due and
payable quarterly in arrears on the last day of each March, June, September and
December commencing September 30, 1997. Accrued interest under the LIBO Rate
Advances will be due and payable at the end of each interest period (one, two
or three months, as selected by Borrower). Interest after the Maturity Date,
for any reason whatsoever, shall be increased to the Default Rate and shall be
payable on demand. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, times the outstanding principal balance, times the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to any unpaid collection costs and late charges, then to
unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is either (i)
the prime rate of interest of Chase Manhattan Bank, N.A.,in New York, New York
("Prime Rate") or (ii) Libor ("LIBOR"), (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Borrower understands that Lender
may make loans based on other rates as well. The interest rate will change
upon a change in
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the Index Rate in effect on the date of a change. Under no circumstances will
the interest rate on this Note be more than the maximum rate allowed by
applicable law.
PREPAYMENT. Borrower may prepay this Note in full at any time by paying the
then unpaid principal balance of this Note, plus accrued simple interest
through date of prepayment. If Borrower prepays this Note in full, or if
Lender accelerates payment, Borrower understands that, unless otherwise
required by law, any prepaid fees or charges will not be subject to rebate and
will be earned by Lender at the time this Note is signed.
DEFAULT. The following actions and/or inactions shall constitute events of
default under this Note: the occurrence of an event of default under the Credit
Agreement.
LENDER'S RIGHTS UPON DEFAULT. Should any one or more Events of Default as set
forth in the Credit Agreement occur or exist, Lender shall have the right, at
its sole option, to declare formally this Note to be in default and to
accelerate the maturity and insist upon immediate payment in full of the unpaid
principal balance then outstanding under this Note, plus accrued interest,
together with reasonable attorneys' fees, costs, expenses and other fees and
charges as provided herein. Lender shall have the further right, again at its
sole option, to declare formal default and to accelerate the maturity and to
insist upon immediate payment in full of each and every other loan, extension
of credit, debt, liability and/or obligation of every nature and kind that
Borrower may then owe to Lender, whether direct or indirect or by way of
assignment, and whether absolute or contingent, liquidated or unliquidated,
voluntary or involuntary, determined or undetermined, secured or unsecured,
whether Borrower is obligated alone or with others on a "solidary" or "joint
and several" basis, as a principal obligor or otherwise, all without further
notice or demand, unless Lender shall otherwise elect.
INTEREST AFTER DEFAULT. If Lender declares this Note to be in default, Lender
has the right to prospectively adjust and fix the simple interest rate under
the Note until this Note is paid in full, to a default interest rate of three
percent (3%) in excess of the LIBO Rate or the Prime Rate in effect on the date
an Event of Default occurs ("Default Rate").
ATTORNEYS' FEES. If Lender refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay Lender's
reasonable attorneys' fees in an amount not exceeding 25.000% of the unpaid
debt then owing under this Note.
NSF CHECK CHARGES. In the event that Borrower makes any payment under this
Note by check and Borrower's check is returned to Lender unpaid due to
nonsufficient funds in my deposit account, Borrower agrees to pay Lender an
additional NSF check charge equal to $20.00.
DEPOSIT ACCOUNTS. As security for repayment of this Note and all renewals and
extensions, as well as to secure any and all other loans, notes, indebtedness
and obligations that Borrower may now and in the future owe to Lender or incur
in Lender's favor, whether direct or indirect, absolute or contingent, due or
to become due, of any nature and kind whatsoever (with the exception of any
indebtedness under a consumer credit card account), Borrower is granting Lender
a continuing security interest in any and all funds that Borrower may now and
in the future have on deposit with Lender or in certificates of deposit or
other deposit accounts as to which Borrower is an account holder (with the
exception of IRA, pension, and other tax-deferred deposits). Borrower further
agrees that Lender may at any time following an Event of Default apply any
funds that Borrower may have on deposit with Lender or in certificates of
deposit or other deposit accounts as to which Borrower is an account holder
against the unpaid balance of this Note and any and all other present and
future indebtedness and obligations that Borrower (or any of them) may then owe
to Lender, in principal, interest, fees, costs, expenses, and attorneys' fees.
GOVERNING LAW. Borrower agrees that this Note and the loan evidenced hereby
shall be governed under the laws of the State of Louisiana. Specifically, this
business or commercial Note is subject to La. R.S. 9:3509 et seq.
WAIVERS. Borrower and each guarantor of this Note hereby waive demand,
presentment for payment, protest, notice of protest and notice of nonpayment,
and all pleas of division and discussion, and severally agree that their
obligations and liabilities to Lender hereunder shall be on a "solidary" or
"joint and several" basis. Borrower and each guarantor further severally agree
that discharge or release of any party who is or may be liable to Lender for
the indebtedness represented hereby, or the release of any collateral directly
or indirectly securing repayment hereof, shall not have the effect of releasing
any other party or parties, who shall remain liable to Lender, or of releasing
any other collateral that is not expressly released by Lender. Borrower and
each guarantor additionally agree that Lender's acceptance of payment other
than in accordance with the terms of this Note, or Lender's subsequent
agreement to extend or modify such repayment terms, or Lender's failure or
delay in exercising any rights or remedies granted to Lender, shall likewise
not have the effect of releasing Borrower or any other party or parties from
their respective obligations to Lender, or of releasing any collateral that
directly or indirectly secures repayment hereof. In addition, any failure or
delay on the part of Lender to exercise any of the rights and remedies granted
to Lender shall not have the effect of waiving any of Lender's rights and
remedies. Any partial exercise of
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any rights and/or remedies granted to Lender shall furthermore not be construed
as a waiver of any other rights and remedies; it being Borrower's intent and
agreement that Lender's rights and remedies shall be cumulative in nature.
Borrower and each guarantor further agree that, should any default event occur
or exist under this Note, any waiver or forbearance on the part of Lender to
pursue the rights and remedies available to Lender, shall be binding upon
Lender only to the extent that Lender specifically agrees to any such waiver or
forbearance in writing. A waiver or forbearance on the part of Lender as to
one default event shall not be construed as a waiver or forbearance as to any
other default.
SUCCESSORS AND ASSIGNS LIABLE. Borrower's and each guarantor's obligations and
agreements under this Note shall be binding upon Borrower's and each
guarantor's respective successors, heirs, legatees, devisees, administrators,
executors and assigns. The rights and remedies granted to Lender under this
Note shall inure to the benefit of Lender's successors and assigns, as well as
to any subsequent holder or holders of this Note.
CAPTION HEADINGS. Caption headings of the sections of this Note are for
convenience purposes only and are not to be used to interpret or to define
their provisions. In this Note, whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note and
the balance of this Note shall be interpreted as if the deleted provision never
existed.
CREDIT AGREEMENT. In the event of any conflict between the terms and
provisions of this Note and the Credit Agreement, the terms of the Credit
Agreement shall control. All terms defined in the Credit Agreement shall have
the same meaning as if defined in full herein.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. LENDER AND
BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER.
BORROWER:
UNIVERSAL FABRICATORS INCORPORATED
By:
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EXHIBIT 10.10
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Agreement") made and entered into on
this _____ day of September, 1997, by UNIFAB INTERNATIONAL, INC., a Louisiana
corporation ("Guarantor") in favor of HIBERNIA NATIONAL BANK ("Lender"),
guaranteeing the Obligations (as hereinafter defined) of UNIVERSAL FABRICATORS
INCORPORATED, a Delaware corporation ("Borrower"),
W I T N E S S E T H:
FOR VALUE RECEIVED, and in consideration of and for credit and
financial accommodations extended, to be extended, or continued to or for the
account of the above named Borrower, the undersigned Guarantor, whether one or
more, hereby jointly, severally and solidarily, agrees as follows:
SECTION 1. GUARANTY OF BORROWER'S OBLIGATIONS. The Guarantor
hereby absolutely and unconditionally does hereby agree to guarantee the prompt
and punctual payment of all of the indebtedness, including principal, interest,
attorney's fees and other amounts, of the Borrower to Lender incurred by the
Borrower pursuant to that certain Credit Agreement between Borrower and Lender
of even date herewith, as same may hereafter be amended, renewed, extended or
replaced ("Credit Agreement") or pursuant to the provisions of any of Loan
Documents as defined therein or pursuant to any and all promissory notes
executed or to be executed by Borrower in favor of Lender in connection with
the Credit Agreement (such indebtedness referred to herein as the
"Obligations"). Partial repayments of the Obligations (including proceeds
received from realization upon any collateral for the Obligations) shall not
reduce the amount guaranteed hereunder unless and until the amount of the
Obligations is less than the maximum amount guaranteed hereunder.
SECTION 2. JOINT, SEVERAL AND SOLIDARY LIABILITY. Guarantor
further agrees that its obligations and liabilities for the prompt and punctual
payment, performance and satisfaction or purchase of Borrower's Obligations,
shall be on a "joint and several" and "solidary" basis with Borrower to the
same degree and extent as if Guarantor had been and/or will be a co-borrower,
co-principal obligor and/or co-maker of all of Borrower's Obligations.
SECTION 3. DURATION. This Agreement and Guarantor's obligations
and liabilities hereunder shall remain in full force and effect until such time
as all of Borrower's Obligations shall be paid, performed and/or satisfied in
full, in principal, interest, costs and attorney's fees.
SECTION 4. DEFAULT BY BORROWER. Should an Event of Default (as
defined in the Credit Agreement or the Note given of even date in connection
with the Credit Agreement) occur, Guarantor unconditionally and absolutely
agrees to pay in full the then unpaid amount of all of Borrower's Obligations
guaranteed hereunder. Such payment or payments shall be made immediately
following demand by Lender at Lender's offices indicated above. Guarantor
hereby waives notice of acceptance of this Agreement and of any Obligations to
which it applies or may apply. Guarantor further waives presentment and demand
for payment of Borrower's Obligations, notice of dishonor and of nonpayment,
notice of intention to accelerate, notice of acceleration, protest and notice
of protest, collection or institution of any suit or other action by Lender in
collection thereof, including any notice of default in payment thereof or other
notice to, or demand for payment thereof on any party. Guarantor additionally
waives any and all rights and pleas of division and discussion as provided
under Louisiana law, as well as, to the degree applicable, any similar rights
as may be provided under the laws of any other state.
SECTION 5. GUARANTOR'S SUBORDINATION OF RIGHTS. In the event
that Guarantor should for any reason (A) advance or lend monies to Borrower,
whether or not such funds are used by Borrower to make payment(s) under
Borrower's Obligations, and/or (B) make any payment(s) to Lender or others for
and on behalf of Borrower under Borrower's Obligations, and/or (C) make any
payment to Lender in total or partial
<PAGE> 2
satisfaction of Guarantor's obligations and liabilities under this Agreement,
Guarantor hereby agrees that any and all rights that Guarantor may have or
acquire to collect from or to be reimbursed by Borrower (or from or by any
other guarantor, endorser or surety of Borrower's Obligations), whether
Guarantor's rights of collection or reimbursement arise by way of subrogation
to the rights of Lender or otherwise, shall in all respects, whether or not
Borrower is presently or subsequently becomes insolvent, be subordinate,
inferior and junior to the rights of Lender to collect and enforce payment,
performance and satisfaction of Borrower's then remaining Obligations, until
such time as Borrower's Obligations are fully paid and satisfied. In the event
of Borrower's insolvency or consequent liquidation of Borrower's assets,
through bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment of
claims of both Lender and Guarantor shall be paid to Lender and shall be first
applied by Lender to Borrower's then remaining Obligations. Guarantor hereby
assigns to Lender all claims which it may have or acquire against Borrower for
full payment of Borrower's Obligations guaranteed under this Agreement, until
such time as all Borrower's Obligations have been satisfied in full. If
Guarantor is, or at any time may be, an "insider" of Borrower (or of any other
guarantor, surety or endorser of Borrower's Obligations) within the context of
Section 101(30) of the Bankruptcy Code (11 U.S.C. 101(30)), Guarantor shall
have no rights of, and unconditionally agrees not to seek or obtain, collection
or reimbursement from Borrower (or from any other guarantor, surety or endorser
of Borrower's Obligations), whether by subrogation of Lender's rights or
otherwise until the thirteenth (13th) month anniversary date following the full
and final payment and satisfaction of Borrower's Obligations.
SECTION 6. COVENANTS RELATING TO THE OBLIGATIONS. Guarantor
further agrees that Lender may, at its sole option, at any time, and from time
to time, without the consent of or notice to Guarantor, or any one of them, or
to any other party, and without incurring any responsibility to Guarantor or to
any other party, and without impairing or releasing the obligations of
Guarantor under this Agreement:
A. Discharge or release any party (including, but not limited to,
Borrower or any co-guarantor under this Agreement) who is or
may be liable to Lender for any of Borrower's Obligations;
B. Sell, exchange, release, surrender, realize upon or otherwise
deal with, in any manner and in any order, any collateral
directly or indirectly securing repayment of any of Borrower's
Obligations;
C. Change the manner, place or terms of payment, or change or
extend the time of payment of or renew, as often and for such
periods as Lender may determine, or alter, any of Borrower's
Obligations;
D. Settle or compromise any of Borrower's Obligations;
E. Subordinate and/or agree to subordinate the payment of all or
any part of Borrower's Obligations or Lender's security rights
in and/or to any collateral directly or indirectly securing
any such Obligations, to the payment and/or security rights of
any other present and/or future creditors of Borrower;
F. Apply any sums paid to any of Borrower's Obligations, with
such payments being applied in such priority or with such
preferences as Lender may determine in its sole discretion,
regardless of what Obligations of Borrower remain unpaid;
G. Take or accept any other security or guaranty for any or all
of Borrower's Obligations; and/or
H. Enter into, deliver, modify, amend or waive compliance with,
any instrument or arrangement evidencing, securing or
otherwise affecting, all or any part of Borrower's
Obligations.
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In addition, no course of dealing between Lender and Borrower (or any
other guarantor, surety or endorser of Borrower's Obligations), nor any failure
or delay on the part of Lender to exercise any of Lender's rights and remedies,
or any other agreement or agreements by and between Lender and Borrower (or any
other guarantor, surety or endorser) shall have the effect of impairing or
releasing Guarantor's obligations and liabilities to Lender or of waiving any
of Lender's rights and remedies. Any partial exercise of any rights and
remedies granted to Lender shall furthermore not constitute a waiver of any of
Lender's other rights and remedies, it being Guarantor's intent and agreement
that Lender's rights and remedies shall be cumulative in nature. Guarantor
further agrees that, should Borrower default under any of Borrower's
Obligations, any waiver or forbearance on the part of Lender to pursue the
rights and remedies available to Lender shall be binding upon Lender only to
the extent that Lender specifically agrees to such waiver or forbearance in
writing. A waiver or forbearance on the part of Lender as to one event of
default shall not constitute a waiver or forbearance as to any other default.
SECTION 7. NO RELEASE OF GUARANTOR.
A. Subject to the provisions of subsection B below, Guarantor's
obligations and liabilities under this Agreement shall not be
released, impaired, reduced or otherwise affected by, and
shall continue in full force and effect, notwithstanding the
occurrence of any event, including without limitation any one
or more of the following events:
(i) Death, insolvency, bankruptcy, arrangement,
adjustment, composition, liquidation, disability,
dissolution or lack of authority (whether corporate,
partnership or trust) of Borrower (or any person
acting on Borrower's behalf), or any other guarantor,
surety or endorser of any of Borrower's Obligations;
(ii) Partial payment or payments of any amount due and/or
outstanding under any of Borrower's Obligations;
(iii) Any payment by Borrower or any other party to Lender
on behalf of Borrower is held to constitute a
preferential transfer or a fraudulent conveyance
under any applicable law, or for any reason, Lender
is required to refund such payment or pay such amount
to Borrower or to any other person;
(iv) Any dissolution of Borrower or any sale, lease or
transfer of all or any part of Borrower's assets;
and/or
(v) Any failure of Lender to notify Guarantor of the
acceptance of this Agreement or of the making of
loans or other extensions of credit in reliance on
this Agreement or the failure of Borrower to make any
payment due by Borrower to Lender.
C. This Agreement and Guarantor's obligations and liabilities
hereunder shall continue to be effective, and/or shall
automatically and retroactively be reinstated if a release or
discharge has occurred, as the case may be, if at any time any
payment or part thereof to Lender with respect to any of
Borrower's Obligations is rescinded or must otherwise be
restored by Lender pursuant to any insolvency, bankruptcy,
reorganization, receivership, or any other debt relief granted
to Borrower or to any other party. In the event that Lender
must rescind or restore any payment received by Lender in
satisfaction of Borrower's Obligations, any prior release or
discharge from the terms of this Agreement given to Guarantor
shall be without effect, and this Agreement and Guarantor's
obligations and liabilities hereunder shall automatically be
renewed or reinstated and shall remain in full force and
effect to the same degree and extent as if such a release or
discharge had never been granted.
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SECTION 8. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants that the representations and warranties made in writing
by the Borrower on behalf of the Guarantor pursuant to the Credit Agreement are
true and correct, to the best of Guarantor's actual knowledge.
SECTION 9. COVENANTS CONTAINED IN CREDIT AGREEMENT. During the
term of this Guaranty Agreement, the Guarantor will at all times comply with
the affirmative and negative covenants imposed on the Guarantor pursuant to the
Credit Agreement.
SECTION 10. ENFORCEMENT OF GUARANTOR'S OBLIGATIONS AND
LIABILITIES. Guarantor agrees that following the occurrence of an Event of
Default, should Lender deem it necessary to file an appropriate collection
action to enforce Guarantor's obligations and liabilities under this Agreement,
Lender may commence such a civil action against Guarantor without the necessity
of first (i) attempting to collect Borrower's Obligations from Borrower or from
any other guarantor, surety or endorser, whether through filing of suit or
otherwise, (ii) attempting to exercise against any collateral directly or
indirectly securing repayment of any of Borrower's Obligations, whether through
the filing of an appropriate foreclosure action or otherwise, or (iii)
including Borrower or any other guarantor, surety or endorser of any of
Borrower's Obligations as an additional party defendant in such a collection
action against Guarantor. If there is more than one guarantor under this
Agreement, the Guarantor additionally agrees that Lender may file an
appropriate collection and/or enforcement action against any one or more of
them, without impairing the rights of Lender against any other guarantor under
this Agreement. In the event the Lender should ever reasonably deem it
necessary to refer this Agreement to an attorney-at-law for the purpose of
enforcing Guarantor's obligations and liabilities hereunder, or of protecting
or preserving Lender's rights hereunder, Guarantor agrees to reimburse Lender
for the reasonable fees of such an attorney. Guarantor additionally agrees
that Lender shall not be liable for failure to use diligence in the collection
of any of Borrower's Obligations or any collateral security therefor, or in
creating or preserving the liability of any person liable on any such
Obligations, or in creating, perfecting or preserving any security for any such
Obligations.
SECTION 11. ADDITIONAL DOCUMENTS. Upon the reasonable request of
Lender, Guarantor will, at any time, and from time to time, duly execute and
deliver to Lender any and all such further instruments and documents, and
supply such additional information, as may be necessary or advisable in the
opinion of Lender, to further evidence or perfect this Agreement.
SECTION 12. TRANSFER OF OBLIGATIONS. This Agreement is for the
benefit of Lender and for such other person or persons as may from time to time
become or be the holders of any of Borrower's Obligations hereby guaranteed and
this Agreement shall be transferrable and negotiable, with the same force and
effect and to the same extent as Borrower's Obligations may be transferrable,
it being understood that, upon the transfer or assignment by Lender of any of
Borrower's Obligations hereby guaranteed, the legal holder of such Obligations
shall have all of the rights granted to Lender under this Agreement.
Guarantor hereby recognizes and agrees that Lender may, from time to
time, one or more times, transfer all or any portion of Borrower's Obligations
to one or more third parties. Such transfers may include, but are not limited
to, sales of a participation interest in such Obligations in favor of one or
more third party lenders. Guarantor specifically agrees and consents to all
such transfers and assignments and Guarantor further waives any subsequent
notice of and right to consent to any such transfers and assignments as may be
provided under applicable Louisiana law. Guarantor additionally agrees that
the purchaser of a participation interest in Borrower's Obligations will be
considered as the absolute owner of a percentage interest of such Obligations
and that such a purchaser will have all of the rights granted to the purchaser
under any participation agreement governing the sale of such a participation
interest. Guarantor further waives any right of offset that Guarantor may have
against Lender and/or any purchaser of such a participation interest in
Borrower's Obligations and Guarantor unconditionally agrees that either Lender
or such a purchaser may enforce Guarantor's obligations and liabilities under
this Agreement, irrespective of the failure or insolvency of Lender or any such
purchaser.
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SECTION 13. RIGHT OF OFFSET. As security for the repayment of
Guarantor's obligations and liabilities under this Agreement, Guarantor hereby
grants Lender, as well as its successors and assigns, a continuing security
interest in any and all funds that Guarantor may now or hereafter have on
deposit with or in the possession or control of Lender and its successors or
assigns (with the exception of funds deposited in IRA, pension or other
tax-deferred deposit accounts), and agrees that Lender, as well as its
successors and assigns, shall have the right to apply, at any time and from
time to time, following the occurrence of an Event of Default under the Credit
Agreement, any or all of such funds towards repayment of any of Borrower's
Obligations subject to this Agreement.
SECTION 14. CONSTRUCTION. The provisions of this Agreement shall
be in addition to and cumulative of, and not in substitution, novation or
discharge of, any and all prior or contemporaneous guaranty or other agreements
by Guarantor (or any one or more of them), in favor of Lender or assigned to
Lender by others, all of which shall be construed as complementing each other.
Nothing herein contained shall prevent Lender from enforcing any and all such
other guaranties or agreements in accordance with their respective terms.
SECTION 15. AMENDMENT. No amendment, modification, consent or
waiver of any provision of this Agreement, and no consent to any departure by
Guarantor therefrom, shall be effective unless the same shall be in writing
signed by a duly authorized officer of Lender, and then shall be effective only
to the specific instance and for the specific purpose for which given.
SECTION 16. SUCCESSORS AND ASSIGNS BOUND. Guarantor's
obligations and liabilities under this Agreement shall be binding upon
Guarantor's successors, heirs, legatees, devisees, administrators, executors
and assigns. The rights and remedies granted to Lender under this Agreement
shall also inure to the benefit of Lender's successors and assigns, as well as
to any and all subsequent holder or holders of any of Borrower's Obligations
subject to this Agreement.
SECTION 17. CAPTION HEADINGS. Caption headings of the sections
of this Agreement are for convenience purposes only and are not to be used to
interpret or to define their provisions. In this Agreement, whenever the
context so requires, the singular includes the plural and the plural also
includes the singular.
SECTION 18. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the substantive laws of the State of Louisiana,
without reference to the conflicts of laws principles thereof.
SECTION 19. SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable, this
Agreement shall be construed and enforceable as if the illegal, invalid or
unenforceable provision had never comprised a part of it, and the remaining
provisions of this Agreement shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom.
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<PAGE> 6
IN WITNESS WHEREOF, Guarantor has executed this Agreement in favor of
Lender on the day, month and year first written above.
GUARANTOR:
UNIFAB INTERNATIONAL, INC.
BY:
-------------------------
----------------------
ITS:
------------------------
ACCEPTED:
LENDER:
HIBERNIA NATIONAL BANK
By:
-------------------------------------------
Byron Kives, Assistant Vice-President
Date: September ___, 1997
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
and Operating Data" and "Experts" and to the use of our report dated April 17,
1997 (except Note 6, as to which the date is June 19, 1997, and Note 7, as to
which the date is August 28, 1997) with respect to the financial statements of
Universal Fabricators Incorporated, and our report dated July 17, 1997 (except
for Notes 2 and 3, as to which the date is August 28, 1997), with respect to the
balance sheet of UNIFAB International, Inc., in Amendment No. 3 to the
Registration Statement (Form S-1) and related Prospectus of UNIFAB
International, Inc. for the registration of 3,237,250 shares of its common
stock.
ERNST & YOUNG LLP
New Orleans, Louisiana
September 16, 1997
