<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1997.
REGISTRATION NO. 333-39695
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GULF ISLAND FABRICATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
LOUISIANA 3441 72-1147390
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
583 THOMPSON ROAD
HOUMA, LOUISIANA 70363
(504) 872-2100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KERRY J. CHAUVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GULF ISLAND FABRICATION, INC.
583 THOMPSON ROAD
HOUMA, LOUISIANA 70363
(504) 872-2100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CARL C. HANEMANN THOMAS P. MASON
JONES, WALKER, WAECHTER, ANDREWS & KURTH L.L.P.
POITEVENT, 4200 TEXAS COMMERCE TOWER
CARRERE & DENEGRE, L.L.P. 600 TRAVIS, SUITE 4200
201 ST. CHARLES AVENUE HOUSTON, TEXAS 77002
NEW ORLEANS, LOUISIANA 70170 (713) 220-4200
(504) 582-8000
---------------
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 NOVEMBER 13, 1997
2,000,000 SHARES
GULF ISLAND FABRICATION, INC.
COMMON STOCK
[Logo of Gulf Island Fabrication, Inc. appears here]
All of the shares of common stock, no par value per share (the "Common
Stock"), of Gulf Island Fabrication, Inc. ("Gulf Island" or the "Company")
offered hereby (the "Offering") are being sold by certain shareholders of the
Company (the "Selling Shareholders"). The Company will not receive any proceeds
from the sale of Common Stock by the Selling Shareholders. See "Principal and
Selling Shareholders."
The Common Stock is traded on the Nasdaq National Market under the symbol
"GIFI." On November 12, 1997, the last reported sales price of the Common Stock
on the Nasdaq National Market was $29.75. See "Price Range of Common Stock and
Dividend Policy."
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.
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<TABLE>
<CAPTION>
PROCEEDS TO
UNDERWRITING SELLING
PRICE TO PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
- --------------------------------------------------------------------------------
Total(3).......................... $ $ $
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</TABLE>
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(1) The Company has agreed 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 $ .
(3) The Selling Shareholders have granted to the several Underwriters an option
for 30 days to purchase up to an additional 300,000 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 and Proceeds to Selling Shareholders 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.
RAYMOND JAMES & ASSOCIATES, INC.
JOHNSON RICE & COMPANY L.L.C.
The date of this Prospectus is , 1997.
<PAGE>
[PHOTO(S) APPEAR HERE] FOUR LEG DECK FABRICATED BY
THE COMPANY (4200 TONS).
750 FOOT TALL JACKET FABRICATED [PHOTO(S) APPEAR HERE]
BY THE COMPANY IN
TRANSIT THROUGH THE HOUMA
NAVIGATION CANAL
[PHOTO(S) APPEARS HERE]
ARTIST'S RENDITION OF THE SEA STAR(R) TENSION LEG PLATFORM BEING
FABRICATED BY THE COMPANY. THE SEA STAR(R) WAS DESIGNED BY
ATLANTIA CORPORATION AND WILL BE INSTALLED IN 1,700-1,800 FEET OF WATER.
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."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
<PAGE>
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. Unless otherwise indicated, the information in this
Prospectus assumes that the Underwriters' over-allotment option will not be
exercised. Certain technical terms are defined in the "Glossary of Certain
Technical Terms" appearing immediately before the Index to Financial
Statements. As used herein, unless the context requires otherwise, the
"Company" refers to Gulf Island Fabrication, Inc., its predecessor and
subsidiaries, including Dolphin Services, Inc. and related companies ("Dolphin
Services") which were acquired by the Company in January 1997. All references
to the number of outstanding shares of Common Stock of the Company and per
share amounts have been adjusted for a two-for-one stock split effectuated as a
stock dividend that became effective on October 28, 1997.
THE COMPANY
Gulf Island Fabrication, Inc. is a leading fabricator of offshore drilling
and production platforms and other specialized structures used in the
development and production of offshore oil and gas reserves. Structures and
equipment fabricated by the Company include jackets and deck sections of fixed
production platforms, hull and deck sections of floating production platforms
(such as tension leg platforms), piles, wellhead protectors, subsea templates
and various production, compressor and utility modules. The Company believes it
is one of only three domestic companies capable of fabricating fixed offshore
production platforms, including jackets, for installation in water depths
greater than 300 feet. The Company's focus on controlling costs and providing
high quality, reliable products and services has enabled it to be profitable
for each year since 1988.
Demand for the Company's products and services is primarily a function of the
level of offshore oil and gas activity in the Gulf of Mexico and, to a lesser
extent, offshore areas in West Africa and Latin America. Over the past five
years, improvements in seismic and drilling technology, production techniques
and oil and gas prices have resulted in an increased number of acreage blocks
leased by oil companies in the Gulf of Mexico, more intensive drilling activity
in shallow water areas, and increased exploration of deepwater areas of the
Gulf of Mexico. The number of 5,000 acre blocks leased by oil companies in the
Gulf of Mexico from the Mineral Management Service (the "MMS") has increased
from 204 in 1992 to 1,808 in 1997, a number of which are pending final MMS
approval. The number of active drilling rigs in the Gulf of Mexico has
increased from less than 60 in May 1992 to approximately 170 at the end of
October 1997.
The Company believes that the number of blocks leased and the number of
active drilling rigs are leading indicators of demand for the Company's
products, with fabrication activity trailing leasing and drilling activity by
one to three years. As a result, demand for the Company's products has improved
during the last two years. Revenue in 1996 increased 24% to $79.0 million,
earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased 172% to $9.3 million and net income increased 360% to $7.3 million,
in each case as compared to 1995. For the nine months ended September 30, 1997,
which includes the consolidated results of operations of Dolphin Services,
revenue increased 68.2% to $101.6 million, while EBITDA increased 157% to $17.1
million, and net income increased 80.4% to $9.4 million, in each case as
compared to the corresponding nine-month period in 1996. See "Selected
Financial and Operating Data--Footnote 7" for a further explanation of EBITDA.
The Company's backlog at December 31, 1996 was $87.1 million as compared to
$22.0 million at the end of 1995. At September 30, 1997, the Company's backlog
was $92.8 million.
The Company was founded in 1985 by a group of investors, including the
Selling Shareholders, and began operations at its main fabrication yard on the
Houma Navigation Canal in southern Louisiana, approximately 30 miles from the
Gulf of Mexico. On January 2, 1997, the Company acquired Dolphin Services, a
company that performs offshore and inshore fabrication and construction
services (the "Dolphin Acquisition"). The Company completed the initial public
offering of its Common Stock in April 1997 (the "Initial Public Offering"). The
Company's facilities are located on 597 acres, of which 250 acres are currently
developed for fabrication
3
<PAGE>
activities with 347 acres available for expansion. These facilities allow the
Company to build jackets for fixed production platforms for use in water depths
up to 800 feet and deck sections for fixed or floating production platforms for
use in unlimited water depths. In addition, the Company is able to build
certain hull sections of tension leg platforms, typically for use in water
depths greater than 1,000 feet.
GROWTH STRATEGY
The Company's growth strategy is to capitalize on the positive trends and
opportunities in the offshore fabrication and construction industry. Key
elements of this strategy are to:
. INCREASE PRODUCTION CAPACITY. In order to capitalize on the increased demand
for its fabrication services, the Company is taking actions to increase the
production capacity of its fabrication yards by (i) purchasing additional
equipment, (ii) expanding and upgrading its existing buildings and equipment
and (iii) increasing the size and capability of its workforce. In 1996, the
Company spent approximately $5.8 million to purchase equipment and modify its
fabrication yards in order to increase capacity and improve productivity. The
Company has spent $12.8 million through September 30, 1997, and anticipates
spending an additional $19.0 million through the remainder of 1997 and 1998,
for additional capital improvements to its fabrication yards. During 1997,
the Company increased its workforce by 524 employees to 1,050 at September
28, 1997, including approximately 350 employees added as a result of the
Dolphin Acquisition, and has recently expanded programs to attract additional
workers.
. MAINTAIN A LOW COST STRUCTURE. The Company believes it is a low-cost
fabricator of offshore structures due to its state-of-the-art production
techniques, skilled and motivated workforce, efficient management and low
overhead costs. The Company plans to continue to emphasize cost savings
through, among other things, the addition of labor-saving equipment, while
providing high quality products and reliable services to its customers.
. ACQUIRE RELATED BUSINESSES. Dolphin Services, which the Company acquired for
approximately $5.9 million, generated $26.8 million in revenue, $2.6 million
in EBITDA and $1.4 million in net income for the year ended December 31,
1996. See "Selected Financial and Operating Data--Footnote 7" for a further
explanation of EBITDA. The Dolphin Acquisition significantly increased the
Company's revenue, cash flow and number of employees and broadened the
Company's product and service offerings. Management believes that there are
additional opportunities to acquire companies that have related or
complementary products or services to those currently provided by the
Company. The Company is free of debt, and management believes that its
capital structure will enable it to pursue such opportunities as they arise.
. PURSUE ADDITIONAL INTERNATIONAL OPPORTUNITIES. There are significant
opportunities to supply platforms outside of the Gulf of Mexico. From January
1, 1992 through December 31, 1996, approximately 25% of the Company's revenue
was derived from the fabrication of structures installed outside of the Gulf
of Mexico, including offshore West Africa and Latin America. Many of the
Company's customers who operate in the Gulf of Mexico also have extensive
operations in international areas. Management believes that its established
relationships with such customers, combined with its certification as an ISO
9002 fabricator, will continue to facilitate the Company's development of its
international presence. The Company believes that some companies will
continue to utilize U.S. fabricators to build platforms for use in foreign
markets despite additional transportation costs because of the higher quality
and lower costs available from U.S. fabricators. In the future, the Company
may pursue joint venture relationships or other cooperative arrangements in
order to increase its participation in such projects.
The Company is incorporated under the laws of the State of Louisiana and its
principal executive offices are located at 583 Thompson Road, Houma, Louisiana
70363, its telephone number is (504) 872-2100, and its mailing address is P.O.
Box 310, Houma, Louisiana 70361-0310.
4
<PAGE>
RECENT DEVELOPMENTS
The Company has recently entered into an agreement to acquire Southport,
Inc., a corporation headquartered in Harvey, Louisiana ("Southport") which
specializes in the fabrication of living quarters for offshore platforms, for
$6 million in cash, payable at the closing of the acquisition, plus contingency
payments of up to an additional $5 million payable out of Southport's net
income over a four-year period ending December 31, 2001. The Company
anticipates that substantially all of the initial and deferred portions of the
acquisition price will be paid with available working capital. Completion of
the transaction is subject to various conditions including the satisfactory
completion of due diligence by the Company, and no assurance can be given that
the acquisition will be successfully completed.
Southport's revenue and net income were $17.8 million and $0.6 million,
respectively, for the year ended December 31, 1996, and $14.4 million and $1.1
million, respectively, for the nine months ended September 30, 1997. Due to a
$1.1 million net operating loss carry forward, Southport is expected to incur a
very low effective tax rate for 1997. Southport had approximately 180 employees
at September 30, 1997.
THE OFFERING
Common Stock offered by Selling
Shareholders........................ 2,000,000 shares
Common Stock to be outstanding
after the Offering.................. 11,600,000 shares(1)
Use of proceeds..................... The Company will not receive any of the
proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal
and Selling Shareholders."
Nasdaq National Market symbol....... GIFI
- --------
(1) Excludes 392,000 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."
5
<PAGE>
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 December 31, 1996 are derived
from the audited financial statements of the Company. The following table also
sets forth unaudited historical financial and operating data as of September
30, 1996 and 1997 and for each of the nine-month periods then ended and
unaudited pro forma financial information as of and for the year ended December
31, 1996 that gives effect to significant events that occurred subsequent to
December 31, 1996, including the Dolphin Acquisition and the termination of the
Company's S Corporation status, as further explained in the notes thereto. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and notes thereto included elsewhere in this Prospectus.
All references to the number of outstanding shares of Common Stock and per
share data have been adjusted for a two-for-one stock split that became
effective October 28, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------
PRO
FORMA
1994 1995 1996 1996(1) 1996(2) 1997
------- ------- ------- -------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue............... $60,984 $63,779 $79,004 $103,007 $ 60,376 $ 101,556
Cost of revenue....... 57,519 60,034 68,673 88,853 53,275 83,282
------- ------- ------- -------- -------- ---------
Gross profit.......... 3,465 3,745 10,331 14,154 7,101 18,274
General and
administrative
expense.............. 1,567 1,730 2,161 3,803 1,567 3,262
Non-recurring
compensation
charge(3)............ -- -- 500 500 -- --
------- ------- ------- -------- -------- ---------
Operating income...... 1,898 2,015 7,670 9,851 5,534 15,012
Net interest expense.. 328 430 384 899 297 212
------- ------- ------- -------- -------- ---------
Income before income
taxes................ 1,570 1,585 7,286 8,952 5,237 14,800
Provision for income
taxes................ -- -- -- -- -- 4,210
Cumulative deferred
tax provision........ -- -- -- -- -- 1,144
------- ------- ------- -------- -------- ---------
Net income............ $ 1,570 $ 1,585 $ 7,286 $ 8,952 $ 5,237 $ 9,446
======= ======= ======= ======== ======== =========
UNAUDITED PRO FORMA DA-
TA:
Income before income
taxes................ $ 7,286 $ 8,952 $ 5,237 $ 14,800
Pro forma provision
for income taxes(4).. 2,934 3,553(5) 1,990 5,589
------- -------- -------- ---------
Pro forma net income.. $ 4,352 $ 5,399 $ 3,247 $ 9,211
======= ======== ======== =========
Pro forma net income
per share............ $ 0.55 $ 0.69 $ 0.41 $ 0.89
======= ======== ======== =========
Pro forma weighted
average common
shares(6)............ 7,854 7,854 7,854 10,370
OTHER FINANCIAL DATA:
Depreciation and
amortization......... $ 1,370 $ 1,382 $ 1,586 $ 2,013 $ 1,128 $ 2,104
Capital expenditures.. $ 676 $ 992 $ 5,838 $ 6,722 $ 5,481 $ 12,787
EBITDA(7)............. $ 3,268 $ 3,397 $ 9,256 $ 11,864 $ 6,662 $ 17,116
EBITDA margin(8)...... 5.4% 5.3% 11.7% 11.5% 11.0% 16.9%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF SEPTEMBER 30,
---------------------------- ---------------------
PRO
HISTORICAL FORMA(1) 1996(2) 1997
------------ ----------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital, exclud-
ing current maturities
of long-term debt....... $ 11,532 $ 14,637 $ 8,092 $ 16,887
Property, plant and
equipment, net.......... 17,735 21,292 17,833 31,533
Total assets............. 35,909 46,026 36,048 66,854
Debt, including current
maturities.............. 6,187(9) 25,803(9) 4,417 --
Shareholders' equity..... 23,498 9,240 21,926 47,630
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Direct labor hours worked(10).. 1,037 920 1,073 817 1,615
Backlog(11)
In direct labor hours......... 400 427 1,038 1,037 1,363
In dollars.................... $20,740 $22,003 $87,093 $66,490 $92,847
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
GULF OF MEXICO INDUSTRY DATA:
Total blocks leased(12)........ 560 835 1,508 1,808
Deep water blocks leased(13)... 94 326 888 1,261
Drilling rigs under
contract(14).................. 129 133 148 167
Offshore platforms
installed(15)................. 123 80 109 N/A
</TABLE>
- --------
(1) Gives effect to the Dolphin Acquisition as if consummated at the end of
the period presented for balance sheet data and as of the beginning of the
period presented for all other data, and should be read in conjunction
with the unaudited pro forma financial statements of the Company and the
notes thereto included elsewhere in this Prospectus.
(2) The summary financial and operating data for the nine months ended
September 30, 1996 does not give effect to Dolphin Acquisition and,
accordingly, the summary financial and operating data for the nine months
ended September 30, 1996 and 1997 is not comparable.
(3) In December 1996, the Company's principal shareholders sold an aggregate
of 98,000 shares of Common Stock to the Company's executive officers at a
total purchase price of $350,000. The Company was required to recognize a
non-cash expense equal to the difference between the aggregate purchase
price for such shares (adjusted for certain distributions with respect to
such shares that were paid in 1997 before completion of the Initial Public
Offering) and the estimated value of such shares at the time of the
Initial Public Offering.
(4) Includes pro forma effect for the application of federal and state income
taxes to the Company as if it were a C Corporation for tax purposes. Prior
to the Initial Public Offering, the Company elected to terminate its S
Corporation status. As a result, the Company became subject to corporate
level income taxation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Pro Forma Results of
Operations; Tax Adjustments," notes 1 and 2 to the Company's audited
financial statements and note 3 to the Company's financial statements for
the nine months ended September 30, 1997 included elsewhere in this
Prospectus.
7
<PAGE>
(5) Includes approximately $619,000 in federal and state income taxes, net of
acquisition adjustments, accrued in 1996 by Dolphin Services, which
operated as a C Corporation until January 1, 1997, at which time its
shareholders elected to be taxed as an S Corporation.
(6) Calculated as weighted average common shares, increased to reflect
sufficient additional shares required to be sold to pay the pro forma
distribution payable to the shareholders in excess of historical net
income for 1996 (854,000 shares). The number of such additional shares is
based on the Initial Public Offering price of $7.50 per share, less
offering expenses.
(7) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus
depreciation and amortization. EBITDA should not be considered as an
alternative to net income or any other measure of operating performance in
accordance with generally accepted accounting principles. EBITDA is widely
used by financial analysts as a measure of financial performance. The
Company's measurement of EBITDA may not be comparable to similarly titled
measures reported by other companies.
(8) EBITDA margin is calculated by dividing EBITDA by revenue.
(9) Historical and pro forma information includes $530,000 of current
maturities of debt. In addition, pro forma information includes
approximately $13.2 million of debt incurred (as of December 31, 1996) to
fund a distribution to the Company's shareholders prior to the completion
of the Initial Public Offering and $206,000 of current maturities of debt
of Dolphin Services. See "Prior S Corporation Status" and "Certain
Transactions."
(10) Direct labor hours are hours worked by employees directly involved in the
production of the Company's products. Data for the nine months ended
September 30, 1997 excludes direct labor hours attributable to salaried
employees of Dolphin Services.
(11) The Company's backlog is based on management's estimate of the number of
direct labor hours required to complete, and the remaining amounts to be
invoiced with respect to, those projects on which a customer has
authorized the Company to begin work or purchase materials. Backlog at
September 30, 1997 included approximately 100,000 direct labor hours and
$5.2 million attributable to portions of orders expected to be completed
after September 30, 1998. See "Risk Factors--Backlog" and "Business--
Backlog."
(12) Represents the number of 5,000 acre tracts leased by the MMS to oil and
gas companies in the Gulf of Mexico. Data obtained from the MMS. Data for
the nine months ended September 30, 1997 include leases subject to final
approval of the MMS.
(13) Represents the number of 5,000 acre tracts located in water depths greater
than 200 meters leased by MMS to oil and gas companies in the Gulf of
Mexico. Data obtained from the MMS.
(14) Represents the average number of drilling rigs under contract in the Gulf
of Mexico for the period presented. Data obtained from Oceandrill Data
Services.
(15) Represents the number of fixed development drilling and production
platforms installed in the Gulf of Mexico in the period presented. Data
obtained from Offshore Data Services.
8
<PAGE>
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 who operate in the Gulf
of Mexico. These capital expenditures are influenced by prevailing oil and
natural gas prices, exploration and production companies' expectations about
future 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.
Although the trend of oil and natural gas prices over the past year has been
generally favorable, over the past several years, 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. In addition, because of high demand for various services
related to oil and gas drilling and development (for example, drilling rigs
and offshore marine transportation services), the cost of such services has
increased and this has had and may continue to have the effect of curtailing
the amount available in the capital expenditure budgets of oil and gas
companies for the Company's fabrication services. A significant or prolonged
reduction in oil or natural gas prices in the future or continued elevated
drilling and development costs 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.
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 labor force. The demand for such workers is high, and the supply is
extremely limited. While the Company believes that its wage rates are
competitive and that 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 events occurred, 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.
BACKLOG
The Company's backlog is based on management's estimate of the direct labor
hours required to complete, and the remaining amounts to be invoiced 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. All 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. In particular, approximately 88% and 62% of the
Company's backlog at December 31, 1996 and September 30, 1997, respectively,
were attributable to three projects. In 1996, two of the three projects were
for the same customer. A 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.
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
9
<PAGE>
operations. The failure of such structures during and after installation can
result in similar injuries and damages. In addition, certain activities
engaged in by employees of Dolphin Services that are not engaged in by the
Company's other employees, including piping interconnect and other service
activities conducted on offshore platforms and activities performed on the
spud barges owned by Dolphin Services, 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 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. The ownership and operation of the vessels acquired in the Dolphin
Acquisition can give rise to large and varied liability risks, such as risks
of collisions with other vessels or structures, sinkings, fires and other
marine casualties, which can result in significant claims for damages against
both the Company and third parties for, among other things, personal injury,
death, property damage, pollution and loss of business. Litigation arising
from any such occurrences may result in the Company being named as a defendant
in lawsuits asserting large claims. 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 any such insurance will be sufficient or
effective under all circumstances or against all claims or hazards to which
the Company may be subject. 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 reasonable. See "Business--Insurance" and "--Legal
Proceedings."
To the extent the Company's future operations involve international
expansion, those operations would be subject to a number of risks inherent in
business operations in foreign countries, including political, social and
economic instability, potential seizure or nationalization of assets, currency
restrictions and exchange rate fluctuations, 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, a substantial number
of the Company's projects are performed on a fixed-price basis, although some
projects are performed on an alliance/partnering or cost-plus 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, the Company is responsible for all cost overruns. Under typical
alliance/partnering arrangements, the Company and the customer agree in
advance to a target price that includes specified levels of labor and material
costs and profit margins. If the project is completed at less cost than that
targeted in the contract, the contract price is reduced by a portion of the
savings. If the cost to completion is greater than target costs, the contract
price is increased, but generally to the target price plus the actual
incremental cost of materials and direct labor. Accordingly, under
alliance/partnering arrangements, the Company has some protection against cost
overruns but must share a portion of any cost savings with the customer. Under
cost-plus arrangements, the Company receives a specified fee in excess of its
direct labor and material cost and so 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 because of 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.
10
<PAGE>
PERCENTAGE-OF-COMPLETION ACCOUNTING
Most of the Company's revenue is recognized on a percentage-of-completion
basis based on the ratio of direct labor hours worked to the total estimated
direct labor hours required for completion. Accordingly, contract price and
cost estimates 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."
SEASONALITY
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 number of direct labor hours worked
generally declines in the winter months due to an increase in rainy and cold
conditions and a decrease in daylight hours. In addition, the Company's
customers often schedule the completion of their projects during the summer
months in order to take advantage of the milder weather during such months for
the installation of their platforms. As a result, a disproportionate amount of
the Company's net income and, to a lesser extent, revenue and gross profit,
has historically been earned during the second and third quarters of the year,
and the Company has occasionally incurred losses during the fourth and first
quarters of its fiscal year. For example, the portion of net income earned
during the second and third quarters amounted to 103%, 81% and 61% of the
Company's total net income for fiscal 1994, 1995 and 1996, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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 38% (2 customers), 40% (2 customers) and 35% (3 customers) of revenue for
fiscal 1994, 1995 and 1996, respectively. In addition, at September 30, 1997,
62% of the Company's backlog was attributable to three projects. In 1996, two
of the three projects were for the same customer. Because the level of
fabrication that the Company may provide to any particular customer depends,
among other things, on the size of that customer's capital expenditure budget
devoted to platform construction plans in a particular year and the Company's
ability to meet the customer's delivery schedule, customers that 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 a significant
customer for any reason, including a sustained decline in that customer's
capital expenditure budget or competitive factors, can result in a substantial
loss of revenue and could have a material adverse effect on the Company's
operating performance.
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 and, while customers may
consider, among other things, the availability and capabilities of equipment,
the reputation, experience and safety record of the contractor, 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. 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 as well as those designed for use
in the Gulf of Mexico. See "Business--Competition."
11
<PAGE>
INTEGRATION AND AVAILABILITY OF ACQUISITIONS
A part of the Company's growth strategy is to acquire companies that have
related or complementary products or services to those currently provided by
the Company. To the extent the Company's success is contingent on making
further acquisitions, there can be no assurance 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.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to and affected by
various types of governmental regulation, including numerous federal, state
and local environmental protection laws and regulations, compliance with which
is becoming increasingly complex, stringent and expensive. These laws may
provide for "strict liability" for damages to natural resources or threats to
public health and safety, rendering a party liable for the environmental
damage without regard to its negligence or fault. Sanctions for noncompliance
may include revocation of permits, corrective action orders, administrative or
civil penalties and criminal prosecution. Certain environmental laws provide
for strict, joint and several liability for remediation of spills and other
releases of hazardous substances. In addition, companies may be subject to
claims alleging personal injury or property damage as a result of alleged
exposure to 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. In addition, the Company depends on the
demand for its products from the oil and gas industry and could be affected by
changes in 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 products. 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."
The Houma Navigation Canal provides the only means of access for the
Company's products from the Company's facilities to open waters. Federal law
authorizes maintenance of the canal by the United States Corps of Engineers at
federal expense. The canal requires annual dredging to maintain its water
depth and, while federal funding for this dredging has been provided for over
30 years, there is no assurance that Congressional appropriations sufficient
for adequate dredging and other maintenance of the canal will be continued
indefinitely. If sufficient funding were not appropriated for that purpose,
the Houma Navigation Canal could become impassable by barges required to
transport many of the Company's products, with the result that the Company's
operations and financial position could be materially and adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on, among other things, the continued active
participation of Kerry J. Chauvin, President and Chief Executive Officer, 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."
CONCENTRATION OF COMMON STOCK OWNERSHIP
Upon completion of the Offering, the Company's directors and executive
officers and certain of their affiliates will beneficially own approximately
39% (37% if the over-allotment option is exercised in full) of the outstanding
shares of Common Stock. Accordingly, these shareholders will have the ability
to influence the election of the Company's directors and the outcome of most
other matters submitted to a vote of the Company's shareholders, which may
have the effect of delaying or preventing a change of control of the Company.
See "Principal and Selling Shareholders."
12
<PAGE>
SHARES ELIGIBLE FOR FUTURE RESALE; REGISTRATION RIGHTS
Upon completion of the Offering, the Company will have outstanding
11,600,000 shares of Common Stock (excluding 392,000 shares issuable upon the
exercise of outstanding options). All of the 4,600,000 shares of Common Stock
offered in the Initial Public Offering and the 2,000,000 shares offered hereby
(2,300,000 shares if the over-allotment option is exercised in full) will be
eligible for sale in the public market without restriction upon completion of
the Offering. Shareholders who own the 5,000,000 remaining shares (4,700,000
shares if the over-allotment option is exercised in full) of Common Stock may
sell such shares pursuant to the provisions of Rule 144 under the Securities
Act or otherwise. In addition, each of the Selling Shareholders has been
granted certain demand and "piggy-back" registration rights by the Company
with respect to all of the shares of Common Stock owned by him. 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 "Certain Transactions."
POSSIBLE VOLATILITY OF MARKET PRICE; DILUTION
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 public offering price of the shares of Common Stock offered in the
Offering. 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.
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. In addition, the
agreement governing the Bank Credit Facility (as hereinafter defined) limits
the Company's ability to pay dividends on its Common Stock. See "Price Range
of Common Stock and Dividend Policy."
UNCERTAINTY OF FORWARD-LOOKING INFORMATION
Certain of the statements set forth under "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this Prospectus, such as statements
relating to increasing production capacity, acquiring related businesses and
market opportunities, are forward-looking and are based upon the Company's
current belief as to the outcome and timing of such future events. Many risks
and uncertainties can affect the outcome and timing of such events, including
many factors beyond the control of the Company. These factors include, but are
not limited to, the matters described in "Risk Factors." Should one or more of
these risks or uncertainties occur, or should underlying assumptions prove
incorrect, the Company's actual results and plans could differ materially from
those expressed in the forward-looking statements.
13
<PAGE>
PRIOR S CORPORATION STATUS
Prior to the Initial Public Offering, the Company operated as an S
Corporation for federal and state income tax purposes. As a result, the
Company paid no federal or state income tax, and the entire earnings of the
Company were subject to tax directly at the shareholder level. Immediately
prior to the Initial Public Offering, the Company's shareholders made an
election terminating the Company's S Corporation status, and the Company is
currently subject to corporate level income taxation. The Company recorded a
one-time deferred tax liability in the amount of $1.1 million in the second
quarter of 1997. See the Company's financial statements and notes thereto
included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Prior to the Initial Public Offering, the Company made cash distributions to
its shareholders in order to provide a cash return to them as well as to fund
their federal and state income tax liability that resulted from the Company's
prior status as an S Corporation. These distributions totaled $433,671 and
$2.7 million in the years ended December 31, 1995 and 1996, respectively, and
$16.6 million through the April 4, 1997 termination of S Corporation Status.
See "Certain Transactions."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the Nasdaq National Market under the symbol
"GIFI." The following table sets forth the high and low sales prices per share
of the Common Stock, as reported by the Nasdaq National Market, for each
fiscal quarter since trading in the Common Stock began on April 4, 1997
(adjusted to give retroactive effect for the two-for-one stock split effective
October 28, 1997).
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year 1997
Second Quarter (commencing April 4, 1997)................... $13.31 $ 7.88
Third Quarter............................................... 25.50 12.50
Fourth Quarter (through November 12, 1997).................. 39.50 23.75
</TABLE>
On November 12, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $29.75 per share. At October 31, 1997, the
Company had approximately 230 holders of its Common Stock, including record
holders and individual participants in security position listings.
The Company currently 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. In addition, the agreements
governing the Bank Credit Facility (as hereinafter defined) limit the
Company's ability to pay dividends on its Common Stock. See "Risk Factors--
Dividends."
14
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at September 30, 1997. The table set forth below should be read in
conjunction with the Company's financial statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
Short-term debt................................................. $ --
=======
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, no par value per share; 20,000,000 shares autho-
rized; 11,600,000 shares issued and outstanding(1)........... 4,133
Additional paid-in capital.................................... 34,865
Retained earnings............................................. 8,632
-------
Total shareholders' equity.................................. 47,630
-------
Total capitalization............................................ $47,630
=======
</TABLE>
- --------
(1) Excludes 392,000 shares issuable upon exercise of outstanding options.
See "Management--Compensation Pursuant to Plans--Long-Term Incentive
Plan."
15
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial and operating
data as of the dates and for the periods indicated. The historical financial
data for each year in the five-year period ended December 31, 1996 are derived
from the audited financial statements of the Company. The selected financial
data for the nine-month periods ended September 30, 1996 and 1997 are derived
from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and results of operations for these periods. The operating results for the
nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for any future periods. The table also sets forth
unaudited pro forma financial information as of and for the year ended
December 31, 1996 that gives effect to significant events that occurred
subsequent to December 31, 1996, including the Dolphin Acquisition and the
termination of the Company's S Corporation status, as further explained in the
notes thereto. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ -------------------
PRO FORMA
1992 1993 1994 1995 1996 1996(1) 1996(2) 1997
------- ------- ------- ------- ------- --------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $51,462 $65,435 $60,984 $63,779 $79,004 $103,007 $ 60,376 $ 101,556
Cost of revenue........ 45,457 60,599 57,519 60,034 68,673 88, 853 53,275 83,282
------- ------- ------- ------- ------- -------- -------- ---------
Gross profit........... 6,005 4,836 3,465 3,745 10,331 14,154 7,101 18,274
General and administra-
tive expense.......... 1,566 1,585 1,567 1,730 2,161 3,803 1,567 3,262
Non-recurring
compensation
charge(3)............. -- -- -- -- 500 500 -- --
------- ------- ------- ------- ------- -------- -------- ---------
Operating income....... 4,439 3,251 1,898 2,015 7,670 9,851 5,534 15,012
Net interest expense... 208 70 328 430 384 899 297 212
------- ------- ------- ------- ------- -------- -------- ---------
Income before income
taxes................. 4,231 3,181 1,570 1,585 7,286 8,952 5,237 14,800
Provision for income
taxes................. -- -- -- -- -- -- -- 4,210
Cumulative deferred tax
provision............. -- -- -- -- -- -- -- 1,144
------- ------- ------- ------- ------- -------- -------- ---------
Net income............. $ 4,231 $ 3,181 $ 1,570 $ 1,585 $ 7,286 $ 8,952 $ 5,237 $ 9,446
======= ======= ======= ======= ======= ======== ======== =========
UNAUDITED PRO FORMA DA-
TA:
Income before income
taxes................. $ 7,286 $ 8,952 $ 5,237 $ 14,800
Pro forma provision for
income taxes(4)....... 2,934 3,553(5) 1,990 5,589
------- -------- -------- ---------
Pro forma net income... $ 4,352 $ 5,399 $ 3,247 $ 9,211
======= ======== ======== =========
Pro forma net income
per share............. $ 0.55 $ 0 .69 $ 0.41 $ 0.89
======= ======== ======== =========
Pro forma weighted
average common
shares(6)............. 7,854 7,854 7,854 10,370
OTHER FINANCIAL DATA:
Depreciation and amor-
tization.............. $ 1,351 $ 1,415 $ 1,370 $ 1,382 $ 1,586 $ 2,013 $ 1,128 $ 2,104
Capital expenditures... $ 445 $ 367 $ 676 $ 992 $ 5,838 $ 6,722 $ 5,481 $ 12,787
EBITDA(7).............. $ 5,790 $ 4,666 $ 3,268 $ 3,397 $ 9,256 $ 11,864 $ 6,662 $ 17,116
EBITDA margin(8)....... 11.3% 7.1% 5.4% 5.3% 11.7% 11.5% 11.0% 16.9%
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ -------------------
PRO FORMA
1992 1993 1994 1995 1996 1996(1) 1996(2) 1997
------- ------- ------- ------- ------- --------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital,
excluding current
maturities of long-
term debt............. $ 3,593 $ 8,217 $ 7,437 $10,048 $11,532 $ 14,637 $ 8,092 $ 16,887
Property, plant and
equipment, net........ 15,550 14,567 13,873 13,483 17,735 21,292 17,833 31,533
Total assets........... 24,678 29,225 25,665 30,414 35,909 46,026 36,048 66,854
Debt, including current
maturities(9)......... 425 2,424 4,477 5,545 6,187 25,803 4,417 --
Shareholders' equity... 19,136 20,782 17,251 18,403 23,498 9,240 21,926 47,630
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
Year Ended December 31, SEPTEMBER 30,
--------------------------------------- -----------------
1992 1993 1994 1995 1996 1996(2) 1997
------- ------- ------- ------- ------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Direct labor hours
worked(10)............ 878 981 1,037 920 1,073 817 1,615
Backlog(11)
In direct labor hours.. 457 404 400 427 1,038 1,037 1,363
In dollars............. $27,472 $20,832 $20,740 $22,003 $87,093 $ 66,490 $ 92,847
</TABLE>
- --------
(1) Gives effect to the Dolphin Acquisition as if consummated at the end of
the period presented for balance sheet data and as of the beginning of the
period presented for all other data, and should be read in conjunction
with the unaudited pro forma financial statements of the Company and the
notes thereto included elsewhere in this Prospectus.
(2) The selected financial and operating data for the nine months ended
September 30, 1996 does not give effect to the Dolphin Acquisition and,
accordingly, the selected financial and operating data for the nine months
ended September 30, 1996 and 1997 is not comparable.
(3) In December 1996, the Company's principal shareholders sold an aggregate
of 98,000 shares of Common Stock to the Company's executive officers at a
total purchase price of $350,000. The Company was required to recognize a
non-cash expense equal to the difference between the aggregate purchase
price for such shares (adjusted for certain distributions with respect to
such shares that were paid in 1997 before completion of the Initial Public
Offering) and the estimated value of such shares at the time of the
Initial Public Offering.
(4) Includes pro forma effect for the application of federal and state income
taxes to the Company as if it were a C Corporation for tax purposes. Prior
to the Initial Public Offering, the Company elected to terminate its S
Corporation status. As a result, the Company became subject to corporate
level income taxation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Pro Forma Results of
Operations; Tax Adjustments," notes 1 and 2 to the Company's audited
financial statements and note 3 to the Company's financial statements for
the nine months ended September 30, 1997 included elsewhere in this
Prospectus.
(5) Includes approximately $619,000 in federal and state income taxes, net of
acquisition adjustments, accrued in 1996 by Dolphin Services, which
operated as a C Corporation until January 1, 1997, at which time its
shareholders elected to be taxed as an S Corporation.
(6) Calculated as weighted average common shares, increased to reflect
sufficient additional shares required to be sold to pay the pro forma
distribution payable to the shareholders in excess of historical net
income for 1996 (854,000 shares). The number of such additional shares is
based on the Initial Public Offering price of $7.50 per share, less
offering expenses.
(7) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus
depreciation and amortization. EBITDA should not be considered as an
alternative to net income or any other measure of operating performance in
accordance with generally accepted accounting principles. EBITDA is widely
used by financial analysts as a measure of financial performance. The
Company's measurement of EBITDA may not be comparable to similarly titled
measures reported by other companies.
(8) EBITDA margin is calculated by dividing EBITDA by revenue.
(9) Historical information for 1992, 1993, 1994, 1995 and 1996 includes
$421,000, $324,000, $477,000, $434,000, and $530,000, respectively, of
current maturities of debt. Pro forma information includes $530,000 in
current maturities of debt, approximately $13.2 million of debt incurred
(as of December 31, 1996) to fund a distribution to the Company's existing
shareholders prior to the completion of the Initial Public Offering and
$206,000 of current maturities of debt of Dolphin Services. See "Prior S
Corporation Status" and "Certain Transactions."
(10) Direct labor hours are hours worked by employees directly involved in the
production of the Company's products. Data for the nine months ended
September 30, 1997 excludes direct labor hours attributable to salaried
employees of Dolphin Services.
(11) The Company's backlog is based on management's estimate of the number of
direct labor hours required to complete, and the remaining amounts to be
invoiced with respect to, those projects on which a customer has
authorized the Company to begin work or purchase materials. Backlog at
September 30, 1997 included approximately 100,000 direct labor hours and
$5.2 million attributable to portions of orders expected to be completed
after September 30, 1998. See "Risk Factors--Backlog" and "Business--
Backlog."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations are affected primarily by (i) the level
of oil and gas exploration and development activity maintained by oil and gas
companies in the Gulf of Mexico, and to a lesser extent, West Africa and Latin
America, (ii) the Company's ability to win contracts through competitive
bidding or alliance/partnering arrangements 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 five years, favorable trends in
these factors have led to increased activity levels in the Gulf of Mexico.
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. Drilling
activity has increased in and around existing fields in shallow water (less
than 300 feet) where technology has allowed for the identification of smaller,
previously overlooked oil and gas deposits. Technological improvements have
also led to larger discoveries of oil and gas in subsalt geological formations
(which generally are located in 300 to 800 feet of water) and in deep water
(800 to 6,000 feet) areas of the Gulf of Mexico. Increased activity in water
depths greater than 300 feet, where larger structures requiring more steel
tonnage are needed, has placed increased demand on the available capacity of
the major platform fabricators serving the Gulf of Mexico with a resulting
improvement in pricing levels for their services. Although the physical
limitations of the Houma Navigation Canal prevent the transporting of jackets
for use in water depths greater than 800 feet, the increased activity in the
deepwater areas of the Gulf of Mexico has also benefitted the Company's
pricing levels as the Company is able to fabricate deck sections for
installation on platforms used in any water depths and sections of floating
platforms, which are generally better suited than fixed platforms for deep
water projects. In addition, to the extent the Company's competitors are
involved in deepwater projects, these projects occupy a portion of the
resources that the Company's competitors could apply to projects designed for
shallower waters, resulting in less industry capacity for such projects.
Demand for the Company's products and services is primarily a function of
the level of offshore oil and gas activity in the Gulf of Mexico and, to a
lesser extent, offshore areas in West Africa and Latin America. Over the past
five years, improvements in seismic and drilling technology, production
techniques and oil and gas prices have resulted in an increased number of
acreage blocks leased by oil companies in the Gulf of Mexico, more intensive
drilling activity in shallow water areas, and increased exploration of
deepwater areas of the Gulf of Mexico. The number of 5,000 acre blocks leased
by oil companies in the Gulf of Mexico from the MMS has increased from 204 in
1992 to 1,808 in 1997, a number of which are pending MMS approval. The number
of active drilling rigs in the Gulf of Mexico has increased from less than 60
in May 1992 to approximately 170 at the end of October 1997.
The Company believes the number of blocks leased and the number of active
drilling rigs are leading indicators of demand for the Company's products,
with fabrication activity trailing leasing and drilling activity by one to
three years. As a result, demand for the Company's products has improved
during the last two years. Revenue in 1996 increased 24% to $79.0 million,
EBITDA increased 172% to $9.3 million and net income increased 360% to $7.3
million, in each case as compared to 1995. For the nine months ended September
30, 1997, which includes the consolidated results of operations of Dolphin
Services, revenue increased 68.2% to $101.6 million, while EBITDA increased
157% to $17.1 million and net income increased 80.4% to $9.4 million, in each
case compared to the corresponding nine-month period in 1996. See "Selected
Financial and Operating Data--Footnote 7" for a further explanation of EBITDA.
The Company's backlog at December 31, 1996 was $87.1 million as compared to
$22.0 million at the end of 1995. At September 30, 1997, the Company's backlog
was $92.8 million.
Most of the Company's contracts are awarded on a fixed-price or
alliance/partnering basis although some contracts are bid on a cost-plus
basis. Under fixed-price contracts, the Company receives the price fixed in
the
18
<PAGE>
contract, subject to adjustment only for change orders placed by the customer.
As a result, the Company retains all cost savings but is also responsible for
all cost over-runs. Under typical alliance/partnering arrangements, the
Company and the customer agree in advance to a target price that includes
specified levels of labor and materials costs and profit margins. If the
project is completed at a lower cost than that targeted in the contract, the
contract price is reduced by a portion of the savings. If the cost to
completion is greater than target costs, the contract price is increased, but
generally to the target price plus the actual cost of incremental materials
and direct labor. Accordingly, under alliance/partnering arrangements, the
Company has some protection from cost overruns but also must share a portion
of any cost savings with the customer. Under cost-plus arrangements, the
Company receives a specified fee in excess of its direct labor and materials
cost and so is protected against cost overruns but does not benefit directly
from cost savings. Because the Company generally prices materials as pass-
through items on its contracts, the cost and productivity of the Company's
labor force are key factors affecting the Company's operating profits.
Consequently, it is essential that the Company control the cost and
productivity of the direct labor hours worked on the Company's projects. See
"Business--Customers and Contracting."
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. Through its
recruiting efforts, the Company was able to add approximately 80 production
employees to its workforce in 1996. As part of an effort to increase and
improve its workforce, the Company recently hired a full-time recruiter
responsible for coordinating all aspects of the Company's recruiting efforts,
instituted and enhanced several recruitment incentive programs for its current
employees and expanded its training facility. 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, the Company
has increased the average hourly wages of its employees and, in some
circumstances, has subcontracted work to others on a fixed-price basis and, in
1994 and 1995, engaged contract labor. During 1997, the Company increased its
work force by 524 to 1,050 employees at September 28, 1997, including
approximately 350 employees added in the Dolphin Acquisition. Because the
Company has succeeded in increasing its production workforce through the
Dolphin Acquisition and recruiting efforts, the Company does not anticipate
the need to engage a material amount of contract labor in the foreseeable
future.
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. In addition, the Company's
customers often schedule the completion of their projects during the summer
months in order to take advantage of the milder weather during such months for
the installation of their platforms. As a result, a disproportionate amount of
the Company's net income and, to a lesser extent, revenue and gross profit,
has historically been earned during the second and third quarters of the year,
and the Company has occasionally incurred losses during the first and fourth
quarters of its fiscal year. Because of this seasonality, full year results
are not likely to be a direct multiple of any particular quarter or
combination of quarters. The table below indicates for each quarter of the
Company's last three fiscal years the percentage of the annual revenue, gross
profit and net income, and the number of direct labor hours worked.
<TABLE>
<CAPTION>
1994 1995 1996
---------------------- ----------------------- ----------------------
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................. 23% 27% 31% 19% 22% 26% 30% 22% 25% 27% 24% 24%
Gross profit............ 24% 39% 36% 1% 7% 25% 40% 28% 13% 26% 30% 31%
Net income (loss)....... 27% 54% 49% (30%) (12%) 26% 55% 31% 11% 27% 34% 28%
Direct labor hours (in
000's)................. 258 291 298 190 219 256 245 200 249 304 264 256
</TABLE>
Most of the Company's revenue is recognized on a percentage-of-completion
basis based on the ratio of direct labor hours worked to the total estimated
direct labor hours required for completion. Accordingly, contract price and
cost estimates 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.
19
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Nine Months Ended September 30, 1997 and 1996
On January 2, 1997, the Company acquired all the outstanding stock of
Dolphin Services, Inc. and its two affiliated corporations
(collectively,"Dolphin Services"). As used hereinafter, unless the context
requires otherwise, the term "Company" refers to the Company and Dolphin
Services on a consolidated basis and the term "Dolphin Services" refers to
Dolphin Services only. The income statement data, balance sheet data and
operating data set forth under "Selected Financial and Operating Data" and
discussed in this section presents the consolidated results of operations of
the Company and Dolphin Services for the nine months ended September 30, 1997,
compared to the results of operations of the Company for the nine months ended
September 30, 1996, without giving effect to the Dolphin Acquisition.
The Company's revenue for the nine months ended September 30, 1997 was
$101.6 million, an increase of 68.2% compared to $60.4 million in revenue for
the nine months ended September 30, 1996. Revenue increased as a result of the
Dolphin Acquisition and high activity levels in the oil industry during 1997
which caused increased demand and, thus, upward pressure on the pricing of the
Company's goods and services. In addition, the on-going labor recruiting and
retention efforts at the Company generated an increase in the volume of direct
labor hours applied to contracts for the nine months ended September 30, 1997,
compared to the same period in 1996. The increased volume and strong pricing
enabled the Company to produce a gross profit of $18.3 million (18.0% of
revenue) for the nine months ended September 30, 1997, compared to the $7.1
million (11.8% of revenue) of gross profit for the nine months ended September
30, 1996.
The Company's general and administrative expense was $3.3 million (3.2% of
revenue) for the nine months ended September 30, 1997, compared to $1.6
million (2.6% of revenue) for the nine months ended September 30, 1996. This
increase of $1.7 million for the nine-month period was caused by (i)
additional general and administrative costs associated with Dolphin Services,
(ii) greater accrual of performance-based employee incentives which resulted
from increased profits for the nine months ended September 30, 1997, and (iii)
additional costs associated with increased production levels and the reporting
requirements of a public company for 1997.
The Company's interest expense decreased to $0.2 million for the nine months
of 1997 compared to $ 0.3 million for the nine months of 1996. As a result of
the use of the net proceeds from the Company's Initial Public Offering and a
greater net cash provided by operations, the weighted average borrowings for
the nine months ended September 30, 1997 was lower in comparison to the
corresponding nine months of 1996.
The Company converted to C Corporation status on April 4, 1997. Pro forma
provision for income taxes and pro forma net income give effect to federal and
state income taxes as if all entities presented had been taxed as C
Corporations during all the periods presented of both 1996 and 1997. Pro forma
net income excludes a non-recurring charge of $1.1 million to record the
cumulative deferred income tax provision upon the election on April 4, 1997 to
convert from S Corporation status to C Corporation status.
Comparison of the Years Ended December 31, 1996 and 1995
During the year ended December 31, 1996, the Company generated revenue of
$79.0 million, an increase of 24% compared to the $63.8 million generated in
1995. This increase was caused by a 16.6% increase in production volume (1.1
million direct labor hours worked in 1996 versus 0.9 million in 1995) and an
increase of 6.2% in the Company's average selling rate. The Company's average
selling rate is computed by dividing revenue for any period by the number of
direct labor hours worked in such period. As a result of stronger demand for
fabricated structures in the oil and gas industry, the Company was able to
increase the number of direct labor hours worked by hiring additional
employees and increase its average selling rate by raising the prices charged
to its customers. The 6.2% increase in average selling rate is not fully
indicative of the prices charged by the Company on all of its projects since
it includes work performed and projects completed in the early part of 1996
for contracts awarded during 1995 as well as work performed and projects
completed in late 1996 for projects awarded during the improving market
conditions of early 1996.
20
<PAGE>
Cost of revenue was $68.7 million in 1996 compared to $60.0 million in 1995.
Cost of revenue consists of costs associated with the fabrication process,
including direct costs (such as direct labor hours and raw materials)
allocated to specific projects and indirect costs (such as supervisory labor,
utilities, welding supplies and equipment costs) that are associated with
production but are not directly related to a specific project. These costs
depend upon the volume of fabrication activity and decreased from 94.1% of
revenue in 1995 to 86.9% of revenue in 1996, primarily as a result of the
increase in pricing discussed above and a decrease in the cost of revenue that
resulted primarily from (i) productivity increases caused by labor saving
equipment and production incentives, (ii) a reduction in equipment rental
costs which was partially offset by increased depreciation expense which
resulted from equipment purchases and (iii) an increase in the amount of scrap
steel sold.
General and administrative expense was $2.2 million in 1996 compared to $1.7
million in 1995, remaining a constant 2.7% of revenue for each period.
Interest expense decreased slightly to $0.4 million in 1996 as the weighted
average of the Company's borrowings decreased.
Comparison of the Years Ended December 31, 1995 and 1994
During the year ended December 31, 1995, the Company generated revenue of
$63.8 million, an increase of 4.6% compared to $61.0 million generated in
1994. This increase resulted from an increase in total labor hours worked
(including contract labor hours) and a greater average selling rate for the
Company's direct labor hours. Cost of revenue was $60.0 million for 1995 as
compared to $57.5 million in 1994 (94% of revenue for both years). Materials
and indirect costs remained relatively constant in 1995 as compared to 1994.
An increase in contract labor costs in 1995 was offset by a reduction in
direct labor costs.
General and administrative expense was $1.7 million (2.7% of revenue) in
1995 compared to $1.6 million (2.6% of revenue) in 1994. This increase was
primarily due to increased legal and other professional fees.
Interest expense increased to $0.4 million in 1995 from $0.3 million in 1994
due to increases in the amount of borrowings under the Company's Bank Credit
Facility (as hereinafter defined) and a higher interest rate charged on such
borrowings.
PRO FORMA RESULTS OF OPERATIONS; TAX ADJUSTMENTS
On January 2, 1997, the Company completed the Dolphin Acquisition. On a pro
forma basis, giving effect to the Dolphin Acquisition as if completed on
January 1, 1996, the Company's revenue for the year ended December 31, 1996,
would have been $103.0 million (giving effect to the pro forma elimination of
sales from Dolphin Services to Gulf Island in 1996). Pro forma cost of revenue
would have been $88.9 million (86.2% of pro forma revenue for the year ended
December 31, 1996), and general and administrative expense would have been
$3.8 million (3.7% of pro forma revenue). Pro forma interest expense would
have been $0.9 million due to the increased level of indebtedness resulting
from the debt incurred to finance the Dolphin Acquisition. Pro forma income
before taxes would have been $9.0 million. Because Dolphin Services was a C
Corporation for income tax purposes, it incurred income tax expense of $0.6
million in 1996. On January 1, 1997, the former shareholders of Dolphin
Services elected to be taxed as an S Corporation. Immediately prior to the
Initial Public Offering, the Company terminated its S Corporation status. This
termination did not result in any material adverse tax consequences to the
Company.
From April 1989 until April 4, 1997, the Company operated as an S
Corporation for federal and state income tax purposes. As a result, the
Company paid no federal or state income tax, and the entire earnings of the
Company were subject to tax directly at the shareholder level. Immediately
prior to the Initial Public Offering, the Company's shareholders elected to
terminate the Company's S Corporation status. As a result, the Company
recorded a one-time deferred tax liability in the amount of approximately $1.1
million in the second quarter of 1997. If the Company had been a C Corporation
during 1996, income tax expense would have been $2.9 million. As a result, net
income would have decreased from $7.3 million ($0.93 per share) to $4.4
million ($0.55 per share). On a pro forma basis, giving effect to the Dolphin
Acquisition as if it were completed on January 1, 1996
21
<PAGE>
and assuming the Company had operated as a C Corporation for the year ended
December 31, 1996, the provision for income taxes and net income would have
been $3.6 million and $5.4 million ($0.69 per share), respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed the Initial Public Offering on April 9, 1997 in which
it sold 4.6 million shares of common stock for net proceeds of $31.3 million
after underwriting discounts and other costs of $3.2 million. Of the net
proceeds, the Company used $31.1 million to repay all of the indebtedness
outstanding under the Company's Bank Credit Facility (as hereinafter defined).
The balance of the proceeds was used by the Company as additional working
capital.
Historically, the Company has funded its business activities through funds
generated from operations and borrowings under its Bank Credit Facility. Net
cash provided by operations was $13.8 million for the nine months ended
September 30, 1997, primarily attributable to cash received from customers
related to increased sales. Net cash used in investing activities for the nine
months ended September 30, 1997 was $18.3 million, related to the $5.9 million
purchase of Dolphin Services and $12.8 million of capital expenditures. The
Company's capital expenditures were for improvements to its production
facilities and for equipment designed to increase the capacity of its
facilities and the productivity of its labor force. During the nine months
ended September 30, 1997, the Company purchased four new Manitowoc cranes and
a used American crane, expanded its fabrication shop, installed construction
skidways, and acquired various other fabrication equipment and facilities.
Net cash provided by financing activities of $7.9 million for the nine
months ended September 30, 1997 represented the net proceeds of $31.3 million
of the Initial Public Offering offset by $16.6 million of dividends paid to
shareholders in connection with the termination of the Company's S Corporation
status prior to the Initial Public Offering, and $6.8 million net payments of
notes payable under the Bank Credit Facility.
The Company's bank credit facility (the "Bank Credit Facility") currently
provides for a revolving line of credit (the "Revolver") of up to $20.0
million which bears interest equal to, at the Company's option, the prime
lending rate established by Citibank, N.A. or LIBOR plus 1 1/2%. The Bank
Credit Facility matures December 31, 1999 and is secured by a mortgage on the
Company's real estate, equipment and fixtures, and by the stock of Dolphin
Services. As additional security, the Company has caused Dolphin Services to
guarantee the Company's obligations under the Bank Credit Facility. At
September 30, 1997, there were no borrowings outstanding under the Bank Credit
Facility.
Capital expenditures for the remaining three months of 1997 are estimated to
be approximately $4.9 million, including the purchase of one new Manitowoc
Model 888 crawler crane, expansion of the main yard fabrication shop,
expansion of the west yard fabrication area and various other fabrication
equipment purchases and facility expansions. Management believes that its
available funds, cash generated by operating activities and funds available
under the Bank Credit Facility will be sufficient to fund these capital
expenditures and its working capital needs. However, the Company may expand
its operations through acquisitions in the future, which may require
additional equity or debt financing.
If the acquisition of Southport is successfully completed, the purchase
price will consist of $6 million payable at the closing of the acquisition
plus 50% of Southport's net after-tax income (up to an aggregate maximum of $5
million) over the four years ending December 31, 2001. In addition, the
Company may acquire the real property on which the Southport facilities are
located for an additional $1 million. The Company anticipates that its working
capital will be sufficient to fund substantially all of such expenditures,
with any excess to be funded by borrowings under the Revolver.
22
<PAGE>
BUSINESS
GENERAL
The Company is a leading fabricator of offshore drilling and production
platforms and other specialized structures used in the development and
production of offshore oil and gas reserves. Structures and equipment
fabricated by the Company include jackets and deck sections of fixed
production platforms, hull and deck sections of floating production platforms
(such as tension leg platforms), piles, wellhead protectors, subsea templates
and various production, compressor and utility modules. The Company believes
it is one of only three domestic companies capable of fabricating fixed
offshore production platforms, including jackets, for installation in water
depths greater than 300 feet. The Company's focus on controlling costs and
providing high quality, reliable products and services has enabled it to be
profitable for each year since 1988.
Demand for the Company's products and services is primarily a function of
the level of offshore oil and gas activity in the Gulf of Mexico and, to a
lesser extent, offshore areas in West Africa and Latin America. Over the past
five years, improvements in seismic and drilling technology, production
techniques and oil and gas prices have resulted in an increased number of
acreage blocks leased by oil companies in the Gulf of Mexico, more intensive
drilling activity in shallow water areas, and increased exploration of
deepwater areas of the Gulf of Mexico. The number of 5,000 acre blocks leased
by oil companies in the Gulf of Mexico from the MMS has increased from 204 in
1992 to 1,808 in 1997, a number of which are pending final MMS approval. The
number of active drilling rigs in the Gulf of Mexico has increased from less
than 60 in May 1992 to approximately 170 at the end of October 1997.
The Company believes the number of blocks leased and the number of active
drilling rigs are leading indicators of demand for the Company's products,
with fabrication activity trailing leasing and drilling activity by one to
three years. As a result, demand for the Company's products has improved
during the last two years. Revenue in 1996 increased 24% to $79.0 million,
EBITDA increased 172% to $9.3 million and net income increased 360% to $7.3
million, in each case as compared to 1995. For the nine months ended September
30, 1997, which includes the consolidated results of operations of Dolphin
Services, revenue increased 68.2% to $101.6 million, while EBITDA increased
157% to $17.1 million and net income increased 80.4% to $9.4 million, in each
case compared to the corresponding nine-month period in 1996. See "Selected
Financial and Operating Data--Footnote 7" for a further explanation of EBITDA.
The Company's backlog at December 31, 1996 was $87.1 million as compared to
$22.0 million at the end of 1995. At September 30, 1997, the Company's backlog
was $92.8 million.
The Company's predecessor, then named Gulf Island Fabrication, Inc. ("old
Gulf Island") was founded in 1985 by a group of investors including the
Selling Shareholders, and shortly thereafter acquired the assets of Delta
Fabrication, a division of Delta Services Industries, Inc. The acquired assets
included what is now the Company's main fabrication yard on the east bank of
the Houma Navigation Canal in southern Louisiana, approximately 30 miles from
the Gulf of Mexico.
In 1989, the Selling Shareholders incorporated the Company (then named GIFI,
Inc.) under the laws of Louisiana and caused GIFI, Inc. to purchase certain
property and equipment from Park Corporation. In this transaction, GIFI, Inc.
acquired approximately 437 acres on the west bank of the Houma Navigation
Canal directly across the canal from the fabrication yard then owned by the
old Gulf Island, of which 130 acres were developed as a fabrication yard.
GIFI, Inc. leased this facility to the old Gulf Island until 1990, when the
old Gulf Island was merged into GIFI, Inc. and GIFI, Inc. changed its name to
Gulf Island Fabrication, Inc. The facilities owned by the Company consist of
two yards directly across the Houma Navigation Canal from each other. The
combined facilities are located on a total of 597 acres, of which 250 acres
are currently developed for fabrication activities with 347 acres available
for expansion. These facilities allow the Company to build jackets for fixed
production platforms for use in water depths up to 800 feet and deck sections
for fixed or floating production platforms for use in unlimited water depths.
In addition, the Company is able to build certain hull sections of tension leg
platforms, typically for use in water depths greater than 1,000 feet.
23
<PAGE>
ACQUISITION OF DOLPHIN SERVICES, INC
On January 2, 1997, the Company acquired all the outstanding stock of
Dolphin Services and two related companies for approximately $5.9 million. The
two related companies were subsequently merged into Dolphin Services which is
now a wholly-owned subsidiary of the Company. Dolphin Services performs
offshore and inshore fabrication and other construction services for the oil
and gas industry in the Gulf of Mexico and generated $26.8 million in revenue,
$2.6 million in EBITDA and $1.4 million in net income for the year ended
December 31, 1996. See "Selected Financial and Operating Data--Footnote 7" for
a further explanation of EBITDA. Dolphin Services' facility is located a
quarter of a mile from the Company's main yard.
The Dolphin Acquisition provided an entrance for the Company into new market
segments, in particular offshore interconnect piping hook-up, inshore marine
construction and steel warehousing and sales, which allows the Company to
provide a more integrated array of services to its customers. Management
believes that the Dolphin Acquisition allows for more efficient use of both
companies' facilities, equipment and personnel.
GROWTH STRATEGY
The Company's growth strategy is to capitalize on the positive trends and
opportunities in the offshore fabrication and construction industry. Key
elements of this strategy are to:
. INCREASE PRODUCTION CAPACITY. In order to capitalize on the increased demand
for its fabrication services, the Company is taking actions to increase the
production capacity of its fabrication yards by (i) purchasing additional
equipment, (ii) expanding and upgrading its existing buildings and equipment
and (iii) increasing the size and capability of its workforce. In 1996, the
Company spent approximately $5.8 million to purchase equipment and modify
its fabrication yards in order to increase capacity and improve
productivity. The Company has spent $12.8 million through September 30,
1997, and anticipates spending an additional $19.0 million through the
remainder of 1997 and 1998, for additional capital improvements to its
fabrication yards. During 1997, the Company increased its workforce by 524
employees to 1,050 at September 28, 1997, including approximately 350
employees added as a result of the Dolphin Acquisition, and has recently
expanded programs to attract additional workers.
. MAINTAIN A LOW COST STRUCTURE. The Company believes it is a low-cost
fabricator of offshore structures due to its state-of-the-art production
techniques, skilled and motivated workforce, efficient management and low
overhead costs. The Company plans to continue to emphasize cost savings
through, among other things, the addition of labor-saving equipment, while
providing high quality products and reliable services to its customers.
. ACQUIRE RELATED BUSINESSES. Dolphin Services, which the Company acquired for
approximately $5.9 million, generated $26.8 million in revenue, $2.6 million
in EBITDA and $1.4 million in net income for the year ended December 31,
1996. See "Selected Financial and Operating Data--Footnote 7" for a further
explanation of EBITDA. The Dolphin Acquisition significantly increased the
Company's revenue, cash flow and number of employees and broadened the
Company's product and service offerings. Management believes that there are
additional opportunities to acquire companies that have related or
complementary products or services to those currently provided by the
Company. The Company is free of debt, and management believes that its
capital structure will enable it to pursue such opportunities as they arise.
. PURSUE ADDITIONAL INTERNATIONAL OPPORTUNITIES. There are significant
opportunities to supply platforms outside of the Gulf of Mexico. From
January 1, 1992 through December 31, 1996, approximately 25% of the
Company's revenue was derived from the fabrication of structures installed
outside of the Gulf of Mexico, including offshore West Africa and Latin
America. Many of the Company's customers who operate in the Gulf of Mexico
also have extensive operations in international areas. Management believes
that its established relationships with such customers, combined with its
certification as an ISO 9002 fabricator, will continue to facilitate the
Company's development of its international presence. The Company believes
that
24
<PAGE>
some companies will continue to utilize U.S. fabricators to build platforms
for use in foreign markets despite additional transportation costs because
of the higher quality and lower costs available from U.S. fabricators. In
the future, the Company may pursue joint venture relationships or other
cooperative arrangements in order to increase its participation in such
projects.
RECENT DEVELOPMENTS
The Company has recently entered into an agreement to acquire Southport, a
corporation headquartered in Harvey, Louisiana which specializes in the
fabrication of living quarters for offshore platforms, for $6 million in cash,
payable at the closing of the acquisition, plus contingency payments of up to
an additional $5 million payable out of Southport's net income over a four-
year period ending December 31, 2001. The Company anticipates that
substantially all of the initial and deferred portions of the acquisition
price will be paid with available working capital. Completion of the
transaction is subject to various conditions including the satisfactory
completion of due diligence by the Company, and no assurance can be given that
the acquisition will be successfully completed.
Southport's revenue and net income were $17.8 million and $0.6 million,
respectively, for the year ended December 31, 1996, and $14.4 million and $1.1
million, respectively, for the nine months ended September 30, 1997. Due to a
$1.1 million net operating loss carry forward, Southport is expected to incur
a very low effective tax rate for 1997. Southport had approximately 180
employees at September 30, 1997.
DESCRIPTION OF OPERATIONS
The Company's primary activity is the fabrication of offshore drilling and
production platforms, including jackets and deck sections of fixed production
platforms, hull and deck sections of floating production platforms (such as
tension leg platforms), piles, wellhead protectors, subsea templates and
various production, compressor and utility modules. The Company also has the
ability to produce and repair pressure vessels used in the oil and gas
industry, refurbish existing platforms and fabricate various other types of
steel structures.
The Company uses the latest welding and fabrication technology available,
and all of the Company's products are manufactured in accordance with industry
standards and specifications, including those published by the American
Petroleum Institute, the American Welding Society and the American Society of
Mechanical Engineers. The Company has also been certified as an ISO 9002
fabricator for its quality assurance programs. This certification is based on
a review of the Company's programs and procedures designed to maintain and
enhance quality production and is subject to annual review and
recertification. This certification is often a criterion for prequalification
of contractors, especially by potential international customers. Dolphin
Services is currently in the process of applying for ISO 9002 certification.
Fabrication of Offshore Platforms. The Company fabricates structural
components of fixed platforms for use in the offshore development and
production of oil and gas. A fixed platform is the traditional type of
platform used for the offshore development and production of oil and gas,
although recently there has been an increase in the use of floating production
platforms and tension leg platforms as a result of increased drilling and
production activities in deeper waters. Most fixed platforms built today can
accommodate both drilling and production operations. These combination
platforms are large and generally 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 efficient.
The most common type of fixed platform consists of a jacket (a tubular
steel, braced structure extending from the mudline on the seabed to a point
above the water surface) which is supported on tubular pilings driven deep
into the seabed and supports the deck structure located above the level of
storm waves. The deck structure,
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extending above the surface of the water and attached to the top end of the
jacket, is designed to accommodate multiple functions, including drilling,
production, separating, gathering, piping, compression, well support and crew
quartering. Platforms can be joined by bridges to form complexes of platforms
for very large developments or to improve safety by dividing functions among
specialized platforms. Jacket-type platforms are generally the most viable
solution for water depths of 1,000 feet or less. Although there is no height
limit to the size of the jackets that can be fabricated at the Company's
facilities, the dimensions of the Houma Navigation Canal prevent the
transportation to the Gulf of Mexico of most jackets designed for water depths
exceeding 800 feet. However, the Company can also build decks, piles and other
structures for installation in any water depth. Often, customers split
projects among fabricators, contracting with different companies for the
fabrication of the jacket, deck sections and piles for the same platform.
Therefore, the Company is able, through the construction of decks and piles,
to participate in the construction of platforms requiring jackets that are
larger than those the Company can transport through the Houma Navigation
Canal.
Most of the steel used in the Company's operations arrives at the Company's
fabrication yards as steel plate. The plate is cut and rolled into tubular
sections at rolling mills in the fabrication yards. The tubular sections
(which vary in diameter, up to 12 feet) are welded together in long straight
tubes to become legs or into shorter tubes to become part of the network of
bracing that supports the legs. Various cuts and welds in the fabrication
process are made by computer-controlled equipment that operates from data
developed during the design of the structure. The Company's ability to
fabricate and assemble the large tubular sections needed for jackets built for
use in water depths over 300 feet distinguish the Company from all but two of
its domestic competitors.
Jackets are built on skidways (which are long parallel rails along which the
jacket will slide when it is transferred to a barge for towing out to sea) and
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
complete, large crawler cranes pick up an entire side and "roll up" the
section, which is then joined to another uprighted section. When a jacket is
complete and ready for launch, it is pulled along the skidway onto a launch
barge, which is gradually deballasted to compensate for the weight of the
structure as more of it moves aboard the barge. Using ocean-going tugs, the
barge and jacket are transported to the offshore installation site.
Decks are built either as single structures or in sections and are installed
on location by marine construction contractors. The composition and quantity
of petroleum in the well stream generally determine the makeup of the
production deck on a processing platform. Typical deck equipment includes
crude oil pumps, gas and oil separators and gas compressors. Unlike large
jackets, which are transported in a horizontal position, decks are transported
upright, and their largest dimensions are above the width restrictions of the
Houma Navigation Canal. Therefore, the only limitation on the Company's
ability to fabricate decks is the weight capacity of the barges that transport
the decks from the Company's yard to the installation site. Barges currently
exist that have the weight capacity and other characteristics required to
transport even the largest of the decks currently installed in the Gulf of
Mexico, and management believes that currently there are no decks installed in
the Gulf of Mexico that could not have been constructed at the Company's
facilities. While larger deck structures to be built in the future could
exceed the capacities of currently existing barges, management does not
believe that this will materially affect its share of the market for deck
construction.
The Company can also fabricate sections of, and structures used in
connection with, tension leg platforms ("TLPs"). TLPs consist of a deck that
sits atop one or more column-shaped hulls, which are positioned on site with
vertical tendons running from the hulls to the seabed. The tendons hold the
hulls partially submerged and are highly tensioned using the buoyancy of the
hulls. This system develops a restoring force against wave, wind and current
actions in proportion to the lateral displacement of the vessel. Wells for a
TLP are often pre-drilled through a subsea template. Long, flexible production
risers, which carry the petroleum to the deck of the TLP, are supported in
tension by mechanical tensioner machines on the platform's deck and are
directly subject to wave, wind and current forces. TLPs can be used in any
water depths and are generally better suited than fixed platforms for water
depths greater than 1,000 feet.
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The size of a TLP depends on a number of factors, including the intended
scope of production of the platform, the length of the production risers
connected to the platform, the size of the deck to be installed on the
platform and the water depth for which the platform is designed. The Company
can fabricate deck sections for use with TLPs of any size. The constraints of
the Houma Navigation Canal, however, limit the Company's ability to deliver
certain hulls for use with TLPs, depending on the size and weight of the hull
sections. For example, the hulls that are used to support the four currently
operational TLPs in the Gulf of Mexico were too large to transport through the
Houma Navigation Canal. All of these hull sections were fabricated by overseas
shipbuilding companies.
The Company is currently constructing the deck section and floating hull of
a TLP designed for installation in 1,700-1,800 feet of water. The Company has
also entered into a letter of intent to construct a similar hull to be
installed in 3,200 feet of water. The Company should be able to compete for
further TLP projects of this size, including the fabrication of hull sections.
To the Company's knowledge, these are the first two TLPs of this size to be
constructed entirely in the United States. No assurance can be given as to
whether the use of such structures in the Gulf of Mexico will increase.
The Company has fabricated subsea templates for use in connection with TLPs,
which are structures that are installed on the seabed before development
drilling begins. As exploration and drilling move into the deep water of the
Gulf of Mexico, the Company believes that there will be increased
opportunities to fabricate subsea templates, as well as decks and other
structures, for use in connection with TLPs.
The Company also fabricates piles and other rolled goods, templates, bridges
for connecting offshore platforms, wellhead protectors, various production,
compressor and utility modules and other structures used in offshore oil and
gas production and development activities. All of the Company's products are
installed by marine construction contractors.
The Dolphin Acquisition has enabled the Company to provide several services
previously not available from the Company, including piping interconnect
services on offshore platforms, inshore steel and wood structure construction,
and steel warehousing and sales. Piping interconnect services involve sending
employee crews to offshore platforms that have been installed in the Gulf of
Mexico in order to perform welding and other activities required to connect
production equipment, service modules and other equipment to a platform prior
to its becoming operational. Through Dolphin Services, the Company also
contracts with oil and gas companies that have platforms and other structures
located in the inland lakes and bays throughout the Southeast for various on-
site construction and maintenance activities. At its existing facility, a
quarter of a mile from the Company's main yard, Dolphin Services can fabricate
jackets up to 100 feet tall along with decks and other steel structures.
Dolphin Services has also been active in the refurbishment of existing
platforms. 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, maintenance work and
modification. Gulf Island has provided such refurbishment services in the
past, but in recent years has been more active in the construction of new
platforms. Management believes that the Dolphin Acquisition allows for more
efficient use of both companies' facilities, equipment and personnel.
FACILITIES AND EQUIPMENT
Facilities. The Company's corporate headquarters and main fabrication yard
are located on the east bank of the Houma Navigation Canal at Houma,
Louisiana, approximately 30 miles from the Gulf of Mexico. That facility
includes approximately 140 acres with approximately 100 acres developed for
fabrication, one 13,200 square foot building that houses administrative staff,
approximately 150,000 square feet of covered fabrication area (including
40,000 square feet that is currently under construction) and over 18,000
square feet of warehouse storage area. The main yard also has approximately
2,800 linear feet of water frontage, of which 1,500 feet is steel bulkhead
which permits outloading of heavy structures.
The Company's west yard is located across the Houma Navigation Canal from
the main yard and includes 437 acres, with 130 acres developed for fabrication
and over 300 acres of unimproved land, which could be used
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for expansion. The west yard, which has approximately 65,000 square feet of
covered fabrication area and 2,500 square feet of warehouse storage area,
spans 6,750 linear feet of the Houma Navigation Canal, of which 2,350 feet is
steel bulkhead.
In connection with the Dolphin Acquisition, the Company acquired a 20-acre
site located approximately a quarter of a mile from the Company's main yard on
a channel adjacent to the Houma Navigation Canal. The facility, which
continues to be used by Dolphin Services, includes a 7,000 square foot
building that houses administrative staff, approximately 14,000 square feet of
covered fabrication area, 1,500 square feet of warehouse storage area and a
10,000-square foot blasting and coating facility.
Equipment. The Company's main yard houses its Bertsch Model 34 and Model 20
plate bending rolls, a Frye Wheelabrator grit blast system, a hydraulic plate
shear, a hydraulic press brake and various other equipment needed to build
offshore structures and fabricate steel components. The Company's west yard
has a Bertsch Model 38 plate bending roll, a computerized Vernon brace coping
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 18 crawler cranes, which range in tonnage capacity from 150 to
300 tons and service both of the Company's yards. The Company owns eight such
crawler cranes and rents the remaining 10 cranes on a monthly basis. The
Company recently purchased and installed a plasma-arc cutting system that cuts
steel up to one inch thick at a rate of two hundred inches per minute. The
Company performs routine maintenance on all of its equipment.
The Company's plate bending rolls allow it to roll and weld into tubular
pipe sections approximately 50,000 tons of plate per year. By having such
capacity at its fabrication facility, the Company is able to coordinate all
aspects of platform construction, which can reduce the risk of cost overruns,
delays in project completion and labor costs. In addition, these facilities
often allow the Company to participate as subcontractors on projects awarded
to other contractors. 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.
For use in connection with its inshore construction activities Dolphin
Services owns two spud barges. Dolphin Services also leases five barges for
use with inshore construction activities. Each barge is equipped with a crane
with a lifting capacity of 80 to 100 tons. Dolphin Services also owns two
Manitowoc 4100 cranes with lifting capacities of 200 to 230 tons and four
smaller cranes with lifting capacities ranging from 60 to 100 tons.
MATERIALS
The principal materials used by the Company in its fabrication business,
standard steel shapes, steel plate, 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.
SAFETY AND QUALITY ASSURANCE
Management is concerned with the safety and health of the Company's
employees and maintains a stringent safety assurance program to reduce the
possibility of costly accidents. The Company's safety department establishes
guidelines to ensure compliance with all applicable state and federal safety
regulations and provides training and safety education through orientations
for new employees and subcontractors, weekly crew safety meetings and first
aid and CPR training. The Company also employs two in-house medical personnel.
The Company has a comprehensive drug program and conducts periodic employee
health screenings. A safety committee, whose members consist of management
representatives and peer elected field representatives, meet monthly to
discuss safety concerns and suggestions that could prevent future accidents.
The Company also rewards its supervisory employees with safety bonuses based
on the amount that the Company saves under its self-insured workers'
compensation program compared to the existing rates of the Louisiana Worker's
Compensation Corporation. The Company believes that its safety program and
commitment to quality are vital to attracting and retaining customers and
employees.
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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 have been instituted 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.
The Company has also been certified as an ISO 9002 fabricator. ISO 9002 is
an internationally recognized verification system for quality management
overseen by the International Standard Organization based in Geneva,
Switzerland. The certification is based on a review of the Company's programs
and procedures designed to maintain and enhance quality production and is
subject to annual review and recertification. Dolphin Services is currently
applying for ISO 9002 certification.
CUSTOMERS AND CONTRACTING
The Company's customers are primarily major and independent oil and gas
companies. Over the past five years, sales of structures used in the Gulf of
Mexico by oil and gas companies accounted for approximately 77% of the
Company's revenue. The balance of its revenue was derived from the fabrication
of structures installed outside the Gulf of Mexico, including offshore West
Africa and Latin America.
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 38% (Anadarko Petroleum and British Gas), 40% (Texaco and British Gas) and
35% (Shell Offshore, Global Industries and Coastal Offshore), of revenue for
fiscal 1994, 1995 and 1996, respectively. In addition, at September 30, 1997,
62% of the Company's backlog was attributable to three projects. Because the
level of fabrication that the Company may provide to any particular customer
depends, among other things, on the size of that customer's capital
expenditure budget devoted to platform construction plans in a particular year
and the Company's ability to meet the customer's delivery schedule, customers
that account for a significant portion of revenue in one fiscal year may
represent an immaterial portion of revenue in subsequent years.
Most of the Company's projects are awarded on a fixed-price or
alliance/partnering 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. Generally, the Company's contracts
and projects are subject to termination at any time prior to completion at the
option of the customer. Upon termination, however, the customer is generally
required to pay the Company for work performed and materials purchased through
the date of termination and, in some instances, termination fees.
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, the Company retains all cost savings but is also responsible for
all cost overruns. Under typical alliance/partnering arrangements, the Company
and the customer agree in advance to a target price that includes specified
levels of labor and material costs and profit margins. If the project is
completed at less cost than those targeted in the contract, the contract price
is reduced by a portion of the savings. If the cost to completion is greater
than those targeted in the contract, the contract price is increased, but
generally to the target price plus the actual incremental cost of materials
and direct labor costs. Accordingly, under alliance/partnering arrangements,
the Company has some protection from cost overruns but also shares a portion
of any cost savings with the customer. Under cost-plus arrangements, the
Company receives a specified fee in excess of its direct labor and material
cost and so is protected against cost overruns but does not benefit directly
from cost savings. Because the Company generally prices materials as pass-
through items on its
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contracts, the cost and productivity of the Company's labor force are the
primary factors affecting the Company's operating costs. Consequently, it is
essential that the Company control the cost and productivity of the direct
labor hours worked on the Company's projects. As an aid to achieving this
control, the Company places a single project manager in charge of the
production operations related to each project and gives significant discretion
to the project manager, with oversight by the Company's Vice President for
Operations. As an incentive to control man-hours, the Company gives production
bonuses to its supervisory employees if the actual hours worked on a contract
are less than the estimated hours used to formulate a bid for the project.
Although no assurance can be given that the Company will realize profits on
its current or future contracts, the Company believes that its single project
manager and incentive policies reduce the likelihood of significant cost
overruns.
SEASONALITY
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 number of direct labor hours worked
generally declines in the winter months due to an increase in rainy and cold
conditions and a decrease in daylight hours. In addition, the Company's
customers often schedule the completion of their projects during the summer
months in order to take advantage of the milder weather during such months for
the installation of their platforms. As a result, a disproportionate portion
of the Company's income has historically been earned during the second and
third quarters of the year, and the Company has occasionally incurred losses
during the first and fourth quarters of its fiscal year. For example, the
portion of net income earned during the second and third quarters amounted to
103%, 81% and 61% of the Company's total net income for fiscal 1994, 1995 and
1996, respectively. Because of this seasonality, full year results are not
likely to be a direct multiple of any particular quarter or combination of
quarters. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
The offshore platform fabrication industry is highly competitive and
influenced by events largely outside of the control of offshore platform
fabrication companies. Although oil and natural gas prices have generally
increased since late 1994, as a result of the substantial declines in oil and
gas prices in 1992, 1993 and parts of 1994, many oil and gas companies
significantly decreased their expenditures for development projects in the
Gulf of Mexico during those years. During that period, there was consolidation
in the industry as a number of marine construction companies combined with
other companies or ceased operations altogether. The remaining 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. The Company's marketing staff contacts
oil and gas companies believed to have fabrication projects scheduled to allow
the Company an opportunity 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 currently has two primary competitors, Aker Gulf Marine and J.
Ray McDermott, S.A., for the fabrication of platform jackets to be installed
in the Gulf of Mexico in water depths greater than 300 feet. In addition to
these two companies, the Company primarily competes with five other
fabricators for platform jackets for intermediate water depths from 150 feet
to 300 feet. A number of other companies compete for projects designed for
shallower waters. Certain of the Company's competitors have greater financial
and other resources than the Company. At least one of the Company's
competitors also has fabrication yards located throughout the world, can offer
a customer engineering, design and installation services in addition to
fabrication services and has deep water access that enables it to build and
transport jackets for use in water depths greater than 800 feet.
The Company believes that certain barriers exist that prevent new companies
from competing with the Company for platforms designed for use in water depths
greater than 300 feet, including the substantial investment required to
establish an adequate facility, the difficulty of locating a facility adjacent
to an adequate
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waterway due to environmental and wetland regulations, and the limited
availability of experienced supervisory and management personnel. Although new
companies can enter the market for small structures more easily, management
believes these factors will likely prevent an increase in domestic competition
for larger structures, especially jackets.
The Company believes that its competitive pricing, expertise in fabricating
offshore marine structures and its certification as an ISO 9002 fabricator
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. In addition, 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 not be able to remain competitive with foreign contractors for
projects designed for use in international waters as well as those designed
for use in the Gulf of Mexico.
BACKLOG
As of September 30, 1997, the Company's backlog was $92.8 million, $87.6
million of which management expects to be performed by September 30, 1998. Of
the $92.8 million backlog at September 30, 1997, approximately 62% was
attributable to three projects.
The Company's backlog is based on management's estimate of the direct labor
hours required to complete, and the remaining amounts to be invoiced 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, management's estimates
are based on incomplete engineering and design specifications. As engineering
and design plans are finalized or changes to existing plans are made,
management's estimate of the direct labor hours required to complete and price
at completion for such projects is likely to change. In addition, all projects
currently included in the Company's backlog are subject to termination at the
option of the customer, although the customer in that 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.
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 platforms located on the outer
continental shelf to meet stringent engineering and construction
specifications. Violations of these regulations and related laws 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 regulations affecting the fabrication of platforms for
delivery to the outer continental shelf of the United States. In addition, the
Company depends on the demand for its services from the oil and gas industry
and, therefore, can be affected by changes in 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. To the extent
laws 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 of the Gulf of Mexico 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 regulations.
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The Houma Navigation Canal provides the only means of access for the
Company's products from the Company's facilities to open waters. The Houma
Navigation Canal is considered to be a navigable waterway of the United States
and, as such, is protected by federal law from unauthorized obstructions that
would hinder water-borne traffic. Federal law also authorizes federal
maintenance of the canal by the United States Corps of Engineers. The canal
requires annual dredging to maintain its water depth and, while federal
funding for this dredging has been provided for over 30 years, no assurance
that Congressional appropriations sufficient for adequate dredging and other
maintenance of the canal will be continued indefinitely. If sufficient funding
were not appropriated for that purpose, the Houma Navigation Canal could
become impassable by barges required to transport many of the Company's
products, with the result that the Company's operations and financial position
could be materially and adversely affected.
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent foreign, 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 the 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, administrative or
civil penalties and criminal prosecution. Certain environmental laws provide
for strict, joint and several liability for remediation of spills and other
releases of hazardous substances, as well as damage to natural resources. In
addition, the Company may be subject to claims alleging personal injury or
property damage as a result of alleged exposure to 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 foreign, 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 may require the acquisition of permits or other authorizations for
certain activities and compliance with various standards or procedural
requirements. The Company believes that its facilities are in substantial
compliance with current regulatory standards.
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 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 material permits, licenses and certificates necessary to the conduct of
its existing business.
The Company's compliance with these laws and regulations has entailed
certain additional expenses and changes in operating procedures. For the years
ended 1994, 1995 and 1996, the Company incurred approximately $100,000 in
expenditures for such compliance. The Company anticipates approximately
$100,000 will be incurred for such expenditures in 1997. The Company believes
that 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, or stricter or different interpretations of existing laws
and regulations, may require additional expenditures by the Company, which
expenditures may be material.
Certain activities engaged in by employees of Dolphin Services that are not
engaged in by the Company's other employees, including piping interconnect and
other service activities conducted on offshore platforms and
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activities performed on the spud barges owned by Dolphin Services, are covered
by the 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 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. The Company's ownership and operation of
vessels can give rise to large and varied liability risks, such as risks of
collisions with other vessels or structures, sinkings, fires and other marine
casualties, which can result in significant claims for damages against both
the Company and third parties for, among other things, personal injury, death,
property damage, pollution and loss of business.
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. All policies are subject to
deductibles and other coverage limitations. The Company also maintains a
builder's risk policy for its construction projects and general liability
insurance. The Company is self-insured for workers' compensation liability
except for losses in excess of $300,000 per occurrence for Louisiana workers'
compensation and for U.S. longshoreman and harbor workers' coverage. The
Company also maintains maritime employer's liability insurance. 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 one of four defendants in a lawsuit (AGIP Petroleum Co. Inc.
v. Gulf Island Fabrication, Inc., McDermott Incorporated, Snamprogetti USA,
Inc. and Petro-Marine Engineering of Texas, Inc., Civil Action No. H-94-3382,
United States Federal District Court for the Southern District of Texas) in
which AGIP Petroleum Co. Inc. (the "Plaintiff") claims that the Company
improperly installed certain attachments to a jacket that it had fabricated
for the Plaintiff. The decision was made, without the Company's participation,
to remove the attachments prior to placing the jacket in its intended location
in the Gulf of Mexico and modified the offshore installation plan. The
installation was unsuccessful and the jacket, after retrieval, required repair
and refurbishment. The Plaintiff, which has recovered most of its out-of-
pocket losses from its own insurer, seeks to recover the remainder of its
claimed out-of-pocket losses (approximately $1 million) and approximately $63
million for economic losses which it alleges resulted from the delay in oil
and gas production that was caused by these events and punitive damages. Co-
defendants with the Company include the installation contractor, the firm that
acted as the Plaintiff's agent in supervising the fabrication and installation
of the jacket and the design engineer that provided engineering services
related to the design and installation of the jacket. The Company has received
certain favorable rulings from the Court, particularly the Court's ruling that
the Company is not liable for economic losses with respect to certain of the
Plaintiff's principal causes of action; however, the Plaintiff could appeal
these rulings in the future. The Company believes that it has meritorious
defenses to the remaining claims of the Plaintiff. In addition, the Company
has asserted that it is entitled to coverage as an additional insured under
the Plaintiff's builders risk insurance policy relating to this project,
although the insurer is contesting coverage. The Company is vigorously
contesting the Plaintiff's claims. Based on the Company's analysis of the
Plaintiff's claims, the Company's defenses thereto and the Court's rulings
received to date, the Company believes that its liability for such claims, if
any, will not be material to its financial position. In view of the
uncertainties inherent in litigation, however, no assurance can be given as to
the ultimate outcome of such claims.
33
<PAGE>
The Company is a party to various other routine legal proceedings primarily
involving commercial claims, workers' compensation claims, and claims for
personal injury under the General Maritime Laws of the United 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
The Company's workforce varies based on the level of ongoing fabrication
activity at any particular time. During 1996, the number of Company employees
ranged from approximately 420 to more than 520. Although the seasonality of
the Company's operations may cause a decline in Company output during the
winter months, the Company generally does not lay off employees during those
months but reduces the number of hours worked per day by many employees to
coincide with the reduction in daylight hours during that period. See "--
Seasonality."
As of September 28, 1997, the Company had approximately 1,050 employees,
approximately 350 of which were added in the Dolphin Acquisition. 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 labor force. 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 occurred, 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.
As part of an effort to increase and improve its workforce, the Company
employs a full-time recruiter responsible for coordinating all aspects of the
Company's recruiting efforts, instituted and enhanced several incentive
programs for its current employees and expanded its training facility. The
Company has facilities to train its employees on productivity and safety
matters. The Company is committed to training its employees and offers
advancement through in-house training programs.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of November 1, 1997, certain information
with respect to the Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alden J. Laborde........ 81 Chairman of the Board of Directors
Kerry J. Chauvin........ 50 President, Chief Executive Officer and Director
William A. Downey....... 51 Vice President--Operations
Murphy A. Bourke........ 51 Vice President--Marketing
Joseph P. Gallagher,
III.................... 47 Vice President--Finance, Chief Financial Officer, Treasurer
and Secretary
Gregory J. Cotter....... 49 Director
Thomas E. Fairley....... 49 Director
Hugh J. Kelly........... 72 Director
John P. "Jack" Laborde.. 48 Director
Huey J. Wilson.......... 69 Director
</TABLE>
Alden J. "Doc" Laborde has served as Chairman of the Board of the Company
since 1986 and as a director since 1985. He also served as the Company's Chief
Executive Officer from 1986 to January 1990. Mr. Laborde founded ODECO, Inc.,
an offshore drilling contractor ("ODECO"), and served as its Chairman of the
Board and Chief Executive Officer from 1953 to 1977. In 1954, Mr. Laborde
founded Tidewater Inc. ("Tidewater"), a supplier of offshore marine
transportation and other services, and served as a director of Tidewater from
1978 to 1986 and as director emeritus from 1986 to September 1993. Mr. Laborde
graduated from the United States Naval Academy with a degree in engineering
and served in World War II as a combat officer. Mr. Laborde is the father of
John P. "Jack" Laborde.
Kerry J. Chauvin has served as the Company's President and as a director
since the Company's inception and has served as Chief Executive Officer since
January 1990. Mr. Chauvin also served as the Company's Chief Operating Officer
from January 1989 to January 1990. He has over 20 years of experience in the
fabrication industry including serving from 1979 to 1984 as President of Delta
Fabrication, the assets of which were purchased by the Company in 1985, and as
Executive Vice President, General Manager and Manager of Engineering with
Delta Fabrication from 1977 to 1979. From 1973 to 1977, he was employed by
Delta Shipyard as Manager of New Construction and as a Project Manager. Mr.
Chauvin holds both an M.B.A. degree and a B.S. degree in Mechanical
Engineering from Louisiana State University.
William A. Downey has been Vice President--Operations of the Company since
1985. From 1980 to 1984, Mr. Downey served as the Vice President of
Engineering of Delta Fabrication. With over 20 years of experience in the
fabrication industry, he has served in various capacities with Avondale
Industries, Inc., including Senior Project Manager and Senior Cost & Design
Analyst, and has also been employed by Sanderson Enterprises, Inc. and Mission
Drilling & Exploration Corp. Mr. Downey received his B.S. degree in Industrial
Technology from Southeastern Louisiana University in 1971.
Murphy A. Bourke has been Vice President--Marketing since the Company began
operations in 1985. Mr. Bourke also served as Vice President Marketing for
Delta Fabrication from 1979 to 1984 and as the General Sales Manager of
Louisiana State Liquor Distributors, Inc., a beverage distributor, from 1972
to 1979. He holds a B.A. degree in marketing from Southeastern Louisiana
University.
Joseph P. "Duke" Gallagher, III was elected Vice President--Finance and
Chief Financial Officer of the Company in January 1997. Mr. Gallagher has been
the Company's Controller since 1985, the Treasurer since 1986 and Secretary
since January 1993. Mr. Gallagher also served as Secretary from 1986 to 1990.
From 1981 to 1985, he was employed as the Controller of TBW Industries,
Incorporated, a manufacturer of machinery and
35
<PAGE>
pressure vessels, and from 1979 to 1981 as the Assistant Controller of Brock
Exploration Corporation, a publicly traded oil and gas exploration company.
Mr. Gallagher, a Certified Public Accountant, also worked as a Senior Auditor
for the accounting firm A.A. Harmon & Co., CPA's Inc. He received a B.S.
degree in Production Management in 1973 from the University of Southwestern
Louisiana.
Gregory J. Cotter has been a director of the Company since 1985 and has
served as a non-compensated financial advisor to the Company since its
formation. Mr. Cotter has also been President, Chief Operating and Financial
Officer and a director of Huey Wilson Interests, Inc. since January 1989. Mr.
Cotter also served in that capacity from 1985 through 1986. During 1987 and
1988, Mr. Cotter was President, Chief Operating Officer and a director of
Great American Corporation, then a publicly traded multibank holding company.
Since October 1989, Mr. Cotter has served as President, Chief Financial
Officer and a director of Wilson Jewelers, Inc. From 1977 to 1985, Mr. Cotter
was Senior Vice President and Chief Financial Officer of H. J. Wilson, Co.,
Inc., then a publicly traded jewelry and retail merchandising chain. Mr.
Cotter received his B.S. degree in Chemical Engineering in 1970 and his M.B.A.
in 1972, both from Tulane University.
Thomas E. Fairley has served as a director of the Company since January 1997
and is the Chief Executive Officer and President of Trico Marine Services,
Inc. ("Trico"), a publicly traded marine vessel operator. He has served in
that capacity since October 1993 and as President of Trico Marine Operators,
the predecessor of Trico, since 1980. From 1978 to 1980, Mr. Fairley served as
Vice President of Trans Marine International, an offshore marine service
company and wholly-owned subsidiary of GATX Leasing Corporation. From 1975 to
1978, Mr. Fairley served as General Manager of International Logistics, Inc.,
a company engaged in the offshore marine industry. Prior to 1975, Mr. Fairley
held various positions with Petrol Marine Company, an offshore marine service
company.
Hugh J. Kelly has served as a director of the Company since January 1997,
and has been an oil and gas consultant since 1989. From 1977 to 1989, Mr.
Kelly served as the Chief Executive Officer of ODECO. Mr. Kelly is a director
of Tidewater, Hibernia Corporation (regional bank holding company), Chieftain
International, Inc. (oil and gas exploration and development concern) and
Central Louisiana Electric Co. (electric utility company).
John P. "Jack" Laborde has served as a director of the Company since January
1997. Mr. Laborde is the Chief Executive Officer of All Aboard Development
Corporation, an independent oil and gas exploration and production company. He
has served in that capacity since April 1996 and as a Vice President since
April 1992. Mr. Laborde served as a consultant to the Company from April 1996
to December 1996. From April 1992 to March 1996, Mr. Laborde served as the
International Marketing Manager of the Company. From 1978 to 1992, Mr. Laborde
served in various capacities, including Vice President--International
Operations and Marketing Manager, for ODECO. Mr. Laborde received his B.S. in
Civil Engineering in 1971 and his M.B.A. in 1973, both from Tulane University.
Jack Laborde is the son of Alden J. Laborde.
Huey J. Wilson, one of the Company's founding shareholders, was elected
director in January 1997. Mr. Wilson founded H.J. Wilson, Co., Inc.
("Wilson's"), a jewelry and retail merchandising chain that grew to become the
largest publicly traded company headquartered in Baton Rouge, Louisiana. He
was Chairman of the Board and Chief Executive Officer of Wilson's from 1957 to
1985, when it was sold to Service Merchandise Company. Until June 1993, Mr.
Wilson served as Chairman of the Board since 1982, Chief Executive Officer
since 1983, and a director since 1973 of Great American Corporation, a then
publicly traded multibank holding company. Currently, Mr. Wilson is the
Chairman of the Board and Chief Executive Officer of Huey Wilson Interests,
Inc., a financial and business management company he founded in 1985, and
Chairman of the Board and Chief Executive Officer of Wilson Jewelers, Inc., a
jewelry store chain he established in 1989.
The Company's Articles of Incorporation ("Articles") and By-laws provide 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. Fairley and Kelly, will expire in 1998. The terms of the Class II
directors, Messrs. Cotter and Jack Laborde, will expire in 1999,
36
<PAGE>
and the terms of the Class III directors, Messrs. Chauvin, Wilson and Alden
Laborde, 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 Anti-Takeover and Other Provisions of the Articles and By-
laws."
DIRECTOR COMPENSATION
As Chairman of the Board, Alden J. Laborde receives an annual fee of
$100,000. Each non-employee director other than Mr. Alden Laborde 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.
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. Cotter, Fairley and Jack Laborde.
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. Alden
Laborde, Wilson and Kelly.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to its Chief Executive
Officer and each of its most highly compensated executive officers for the
year ended December 31, 1996. No other employee of the Company earned more
than $100,000 in 1996.
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ANNUAL COMPENSATION COMPENSATION(2)
--------------------------- ---- -----------------------------------
SALARY BONUS(1)
--------- ----------
<S> <C> <C> <C> <C>
Kerry J. Chauvin, President and Chief
Executive Officer.................... 1996 $ 199,370 $ 162,783 $ 8,796
William A. Downey, Vice President--Op-
erations............................. 1996 124,400 81,392 14,403
Murphy A. Bourke, Vice President--Mar-
keting............................... 1996 120,417 81,392 7,320
Joseph P. Gallagher, III, Vice
President--Finance and Chief
Financial Officer.................... 1996 80,860 27,131 4,670
</TABLE>
- --------
(1) For fiscal 1996, the Board of Directors voted to pay bonuses to the
Company's executive officers based on a percentage of the Company's income
before taxes, adjusted for the bonuses and a non-recurring compensation
charge (the "Profit Participation Amount"). In 1996, Messrs. Chauvin,
Downey, Bourke and Gallagher were paid bonuses equal to 2%, 1%, 1% and
1/3%, respectively, of the Profit Participation Amount. The Compensation
Committee presently intends to pay 1997 bonuses to these executive
officers that will be similarly calculated, except that it has been
recommended that Mr. Gallagher's bonus be 2/3% of the Profit Participation
Amount in 1997.
(2) Includes (i) matching and profit-sharing contributions of $7,810, $7,152,
$6,910 and $4,358 to the Company's 401(k) plan on behalf of Messrs.
Chauvin, Downey, Bourke and Gallagher, respectively, (ii) premium payments
in the amount of $410, $410, $410 and $312 for Messrs. Chauvin, Downey,
Bourke and Gallagher, respectively, under a long-term disability insurance
plan, which premium payments are attributable to benefits in excess of
those provided generally for other employees and (iii) personal use of a
company vehicle in the amount of $576 and $6,841 for Messrs. Chauvin and
Downey, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to January 31, 1997, the Board of Directors had no compensation
committee, and Mr. Chauvin participated in deliberations of the Company's
Board of Directors concerning executive officer compensation.
37
<PAGE>
COMPENSATION PURSUANT TO PLANS
Retirement Plan. In 1988, the Company implemented the Gulf Island
Fabrication, Inc. Qualified Retirement Plan (the "Retirement Plan"), which has
both a profit sharing and a 401(k) savings plan feature. The Retirement Plan
permits each employee (other than non-resident alien employees and employees
covered by collective bargaining agreements, of which the Company has none) to
become a participant in the Retirement Plan on the first day of each month (an
entry date) following the latest of the employee's completion of three months
of employment or the attainment of age 18.
The Company makes an annual contribution, if any, to the profit sharing
feature in an amount determined by the Board of Directors. Subject to certain
limitations required by law, the Company's contribution is allocated to each
participant in the proportion that the total compensation paid by the Company
to such participant during the plan year bears to the aggregate compensation
paid by the Company to all participants during the plan year.
Under the savings plan feature of the Retirement Plan, each active
participant may elect, subject to certain limitations required by law, to
defer, on a pre-tax basis, payment of up to 15% of his or her compensation and
have this amount credited to the participant's Plan account. The Company
contributes to the account of each participant a matching contribution equal
to 50% of such participant's contributions that are not in excess of 6% of
compensation. The savings plan feature also provides for additional Company
contributions, if any, at the discretion of the Board. Subject to certain
limitations required by law, the Company's discretionary match is allocated to
each participant in the proportion that the total matching contribution paid
by the Company to such participant during the plan year bears to the aggregate
matching contribution paid by the Company to all participants during the plan
year.
In accordance with the employee's instructions, all funds in a participant's
account are invested in one or more of the four investment alternatives of
Invesco Trust Company, the Plan's trustee, which are designated by the plan
administrator.
Employee contributions to the savings plan feature and earnings thereon are
100% vested at all times. Contributions by the Company, and earnings thereon,
vest based on the participant's years of service with the Company, vesting 20%
after two years of service and increasing in 20% increments with each
additional year of service, thus becoming 100% vested following six years of
service. All contributions vest, regardless of years of service, upon
termination of employment by reason of death or disability, attainment of age
65 or the termination or discontinuance of the Retirement Plan. After
termination of employment, an employee is entitled to receive a lump-sum
distribution of his or her entire vested interest in the Retirement Plan.
During the 1996 plan year, the Company made contributions of $125,000 to the
profit sharing feature, contributions of $292,000 to the match feature, and
contributions of $125,000 to the discretionary match feature of the Retirement
Plan. For amounts credited to the accounts of Messrs. Chauvin, Downey, Bourke
and Gallagher, see "--Executive Compensation."
Long-Term Incentive Plan. In February 1997, the Company adopted and its
shareholders 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"). 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, stock awards or any combination
thereof (the "Incentives") to Eligible Employees. The Compensation Committee
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, in a
combination of cash and Common Stock, or through a broker-assisted exercise
arrangement approved by the Compensation Committee.
A total of 1,000,000 shares of Common Stock are available for issuance under
the 1997 Plan. Incentives with respect to no more than 400,000 shares of
Common Stock may be granted to any single Eligible Employee
38
<PAGE>
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.
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) a reorganization, merger or consolidation of the Company in which the
Company is not the surviving entity, (ii) the sale of all or substantially all
of the assets of the Company, (iii) a liquidation or dissolution of the
Company, (iv) a person or group of persons, other than Messrs. Alden Laborde
or Wilson or any employee benefit plan of the Company, becoming the beneficial
owner of 30% or more of the Company's voting stock or (v) the replacement of a
majority of the Board in a contested election (a "Significant Transaction").
The 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 been entitled
in connection with the Significant Transaction if the options had been
exercised.
As of the date of this Prospectus, options to purchase 392,000 shares of
Common Stock have been granted under the 1997 Plan to employees of the
Company, including options to purchase 96,000, 45,000, 40,000, and 32,000
shares to Messrs. Chauvin, Downey, Bourke and Gallagher, respectively. All of
the options granted to the Company's executive officers as of the date of this
Prospectus under the 1997 Plan have a ten-year term, an exercise price equal
to the price per share of which shares of Common Stock were sold in the
Initial Public Offering, as adjusted to give effect to the stock split, and
will become fully exercisable five years from the date of grant.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
In accordance with Louisiana law, the Company's Articles (described further
below) contain provisions eliminating the personal liability of 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 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 a director or officer receives an improper personal benefit. 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.
The Company believes that these 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 or officers protected by
these provisions may not demonstrate the same level of diligence or care that
they would otherwise demonstrate.
The Company's By-laws require the Company to indemnify its officers and
directors 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 officers or directors, subject to certain conditions and
limitations. The By-law provisions that govern such indemnification are
included as an exhibit to the Company's Registration Statement, of which this
Prospectus forms a part.
39
<PAGE>
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 executive officer that are in excess of the coverage provided by
any 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 Company's 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.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of November 1, 1997, and as adjusted to
give effect to the Offering, certain information regarding beneficial
ownership of the Common Stock by (i) each shareholder known by the Company to
be the beneficial owner of more than 5% of the outstanding Common Stock, (ii)
each Selling Shareholder, (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 NUMBER OF SHARES
BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED BEFORE AFTER
NAME OF BENEFICIAL OWNER PRIOR TO OFFERING TO BE SOLD AFTER OFFERING OFFERING OFFERING
- ------------------------ ------------------ ---------------- ------------------ -------- --------
<S> <C> <C> <C> <C> <C>
Alden J.
Laborde(/1/)(/2/)...... 2,832,382 1,000,000 1,832,382 24% 16%
Huey J. Wilson(/1/)..... 3,451,000 1,000,000 2,451,000 30% 21%
Kerry J. Chauvin........ 65,600(3) -- 65,600(3) * *
William A. Downey....... 29,000 -- 29,000 * *
Murphy A. Bourke........ 22,200 -- 22,200 * *
Thomas E. Fairley....... 10,000 -- 10,000
Hugh J. Kelly........... 4,000 -- 4,000
Gregory J. Cotter....... 3,000 -- 3,000
Joseph P. Gallagher,
III.................... 40,000 -- 40,000 * *
John P. "Jack" Laborde.. 86,400(4) -- 86,400(4) * *
All directors and
executive officers as a
group (10 persons)..... 6,543,582 2,000,000 4,543,582 56% 39%
</TABLE>
- --------
* Less than one percent.
(1) Includes 100,000 shares that each of the Selling Shareholders may
contribute to the WSW 1997 Exchange Fund prior to the Offering but the
transfer of which may not occur until after the Offering. Investors in
such fund consist of individuals like the Selling Shareholders who
contribute highly appreciated capital stock on a tax-free basis as a means
of asset diversification and estate planning. With respect to Mr. Wilson's
ownership, this number includes 100,000 shares held by a foundation of
which Mr. Wilson is a trustee and as to which he disclaims beneficial
ownership. The address of Alden J. Laborde is 210 Baronne Street, Suite
822, New Orleans, Louisiana 70112. The address of Huey J. Wilson is 3636
S. Sherwood Forest Boulevard, Suite 650, Baton Rouge, Louisiana 70816.
(2) Includes approximately 182 shares with respect to which Mr. Laborde's wife
shares voting control and as to which he disclaims beneficial ownership.
(3) Includes 1,600 shares owned by Mr. Chauvin's spouse and one of his
children, as to which Mr. Chauvin disclaims beneficial ownership.
(4) Includes 50,800 shares owned by Mr. Laborde's spouse and children, as to
which Mr. Laborde disclaims beneficial ownership.
41
<PAGE>
CERTAIN TRANSACTIONS
Between January 1, 1997 and April 4, 1997, the Company distributed $16.6
million to certain of its shareholders, which amount represented undistributed
earnings of the Company through the date of the termination of the Company's S
Corporation status, on which such shareholders incurred federal and state
income taxes. Directors and executive officers of the Company who are also
shareholders received, in the aggregate, approximately $15.3 million as a
result of this distribution.
In connection with the Initial Public Offering, the Company entered into
registration rights agreements (the "Registration Rights Agreements") with
Messrs. Alden Laborde and Wilson, pursuant to which Messrs. Alden Laborde and
Wilson have limited rights to require the Company to register shares of Common
Stock owned by them under the Securities Act. This Offering is being made
pursuant to the Registration Rights Agreements. If this Offering is completed,
each of Messrs. Alden Laborde and Wilson will be entitled to one additional
demand registration under the Registration Rights Agreements. If either of
Messrs. Laborde or Wilson makes such a demand, the other is entitled to
include his shares in such registration.
If the Company proposes to register any Common Stock under the Securities
Act in connection with a public offering, each of Messrs. Laborde and Wilson
may require the Company to include all or a portion of the shares of Common
Stock held by such shareholder. The Company has agreed to pay all the expenses
of registration under the Registration Rights Agreements, other than
underwriting discounts and commissions. See "Risk Factors--Shares Eligible for
Future Resale; Registration Rights."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, no par value per share, and 5,000,000 shares of preferred stock,
no par value per share, issuable in series (the "Preferred Stock"). On October
6, 1997, the Company declared a two-for-one stock split, effectuated as a
stock dividend on October 28, 1997. Subsequent to the stock split, and as of
October 31, 1997, 11,600,000 shares of Common Stock were outstanding and held
of record by approximately 230 persons, and no shares of Preferred Stock were
outstanding. The Company's Common Stock is listed for trading on the Nasdaq
National market. The following description of the capital stock of the Company
is qualified in its entirety by reference to the Company's Articles and By-
laws, copies of which are incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share of Common
Stock held of record on all matters on which shareholders are entitled to
vote; 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. In addition, the Company's Bank Credit
Facility contains provisions that limit the Company from paying dividends to
holders of its Common Stock. See "Risk Factors--Dividends" and "Price Range of
Common Stock and Dividend Policy." 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.
42
<PAGE>
PREFERRED STOCK
The Company's Board of Directors has the authority, without approval of the
stockholders, 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 stockholder
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 stockholder 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
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 ANTI-TAKEOVER AND OTHER PROVISIONS OF THE ARTICLES AND BY-LAWS
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 with each class to be as nearly equal in number of
directors as possible, serving three-year staggered terms. See "Management--
Executive Officers and Directors."
Advance Notice of Intention to Nominate a Director. The Articles and By-laws
permit a stockholder to nominate a person for election as a director only if
written notice of such stockholder'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 stockholder must be received on the
10th day after notice of the meeting was given. This provision also requires
that the stockholder's notice set forth, among other things, a description of
all arrangements or understandings between the nominee and the stockholder
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 (the "Exchange Act"),
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.
43
<PAGE>
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.
Shareholder Action by Unanimous Consent. Under Louisiana law, unless a
corporation's articles of incorporation specify otherwise, shareholders may
only act at a duly called meeting or by unanimous written consent. The
Company's Articles do not contain a provision permitting action by a consent
signed by less than all shareholders; therefore, the Company's shareholders
can only act at a duly called meeting or by unanimous written consent.
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. 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 by the affirmative vote of two-thirds of the directors, provided the
shareholders shall have the right, at any special meeting called for that
purpose prior to such action by the Board, to fill the vacancy.
Adoption and Amendment of By-laws. The Articles provide that the By-laws may
be (i) adopted only by a majority vote of the Board of Directors and (ii)
amended or repealed by either a two-thirds vote of the Board of Directors or
the holders of at least 80% of the total voting power present or represented
at any shareholders' meeting. Any provisions amended or repealed by the
stockholders 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.
Under Louisiana law, unless a corporation's articles of incorporation specify
otherwise, a corporation's articles of incorporation may be amended by the
affirmative vote of the holders of two-thirds of the voting power present at a
meeting of the shareholders. The Company's Articles require the affirmative
vote of not less than 80% of the total voting power of the Company to amend,
alter or repeal certain provisions of the Company's Articles with respect to
(i) the classification, filling of vacancies and removal of the Board of
Directors, (ii) amendments to the By-laws, (iii) the application of certain
anti-takeover provisions of the Louisiana law by which the Company has elected
not to be governed, (iv) changes to shareholder vote requirements, (v)
limitation of liability of directors and (vi) requirements for special
meetings called by shareholders. 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.
The provisions of the Company's Articles and By-laws summarized in the
preceding paragraphs may have anti-takeover effects and may delay, defer or
prevent a tender offer or takeover attempt that a shareholder might consider
in such shareholder'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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Selling Shareholders and the Underwriters named below (the "Underwriting
Agreement"), the Selling Shareholders have collectively agreed to sell to each
of such Underwriters named below, and each of such Underwriters, for whom
Morgan Keegan & Company, Inc., Raymond James & Associates, Inc. and Johnson
Rice & Company L.L.C. are acting as representatives (the "Representatives"),
has severally agreed to purchase from the Company, 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. ..................................
Raymond James & Associates, Inc. ...............................
Johnson Rice & Company L.L.C. ..................................
---------
Total......................................................... 2,000,000
=========
</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.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions, "passive" market making and purchases to cover
syndicate short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Company and the Selling Shareholders in the Offering. The Underwriters also
may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the shares of Common Stock sold
in the Offering for their account may be reclaimed by the syndicate if such
shares of Common Stock are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the
price that might otherwise prevail in the open market; and these activities,
if commenced, may be discontinued at any time. These transactions may be
effected on the Nasdaq National Market in the over-the-counter market or
otherwise.
As permitted by Rule 103 under the Exchange Act, certain Underwriters (and
selling group members, if any) that are market makers ("passive market
makers") in the Common Stock may make bids for or purchases of the Common
Stock in the Nasdaq National Market until such time, if any, when a
stabilizing bid for such securities has been made. Rule 103 generally provides
that (i) a passive market maker's net daily purchases of the Common Stock may
not exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months (or any 60 consecutive days ending within
the 10 days) immediately preceding the filing date of the registration
statement of which this Prospectus forms a part, (ii) a passive market maker
may not effect transactions or display bids for the Common Stock at a price
that exceeds the highest independent bid for the Common Stock by persons who
are not passive market makers and (iii) bids made by passive market makers
must be identified as such.
The Selling Shareholders have granted the Underwriters an option exercisable
for 30 days after the date of this Prospectus to purchase up to an aggregate
of 300,000 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 2,000,000 shares of Common Stock offered hereby.
45
<PAGE>
The Selling Shareholders, who will beneficially own an aggregate of
4,283,382 (3,983,382 if the over-allotment option is exercised in full) shares
of Common Stock after the Offering, 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 the 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.
Certain of the Underwriters have from time to time provided investment
banking and financial advisory services to the Company, and such firms may in
the future provide similar services to the Company, for which they have
received or are expected to receive customary fees.
In accordance with the Registration Rights Agreements with the Selling
Shareholders, the Company has agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
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 the Company as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996, and the
combined financial statements of Dolphin Services as of and for the year ended
December 31, 1996 included in this Prospectus have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of the
Exchange Act, and in accordance therewith files periodic reports and other
information with the Securities and Exchange Commission (the "Commission").
The Company has also filed with the 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. Such periodic reports and 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. The
Company's Common Stock is traded on the Nasdaq National Market. Reports, proxy
statements and other information may also be inspected at the offices of the
National Association of Securities Dealers, at 1735 K Street, N.W.,
Washington, D.C. 20006.
46
<PAGE>
GLOSSARY OF CERTAIN TECHNICAL TERMS
blasting and coating Building and equipment used to clean steel
facility: products and prepare them for coating with
marine paints and other coatings.
compliant tower: A fixed platform designed for certain deep
water drilling and production.
coping machine: A computerized machine that cuts ends of
tubular pipe sections to allow for changes in
weld bevel angles and fits onto other tubular
pipe sections.
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 Floating structure that supports offshore oil
platform: and gas production equipment (tension leg, semi
submersible, SPAR).
grit blast system: System of preparing steel for coating by using
steel grit rather than sand as a blasting
medium.
hydraulic plate shear: Machine that cuts steel by a mechanical system
similar to scissors.
inshore: Inside coastlines, typically in bays, lakes and
marshy areas.
ISO 9002: International Standards of Operations 9002--
Defines quality management system of procedures
and goals for certified companies.
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.
plasma-arc cutting system: Steel cutting system that uses a ionized gas
cutting rather than oxy-fuel system.
platform: A structure from which offshore oil and gas
development drilling and production are
conducted.
47
<PAGE>
spud barge: Construction barge rigged with vertical tubular
or square lengths of steel pipes that are
lowered to anchor the vessel.
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 floating hull and
deck anchored by vertical tensioned cables or
pipes connected to pilings driven into the
seabed. A tension leg platform is typically
used in water depths exceeding 1,000 feet.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Combined Financial Statements (unaudited):
Pro Forma Combined Balance Sheet as of December 31, 1996................ F-3
Pro Forma Combined Statement of Income for the year ended December 31,
1996................................................................... F-5
Notes to Pro Forma Combined Balance Sheet............................... F-6
Notes to Pro Forma Combined Statement of Income......................... F-7
Gulf Island Fabrication, Inc. Financial Statements:
Report of Independent Accountants....................................... F-8
Balance Sheet as of December 31, 1995 and 1996.......................... F-9
Statement of Income for the years ended December 31, 1994, 1995 and
1996................................................................... F-10
Statement of Changes in Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996....................................... F-11
Statement of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................... F-12
Notes to the Financial Statements....................................... F-13
Gulf Island Fabrication, Inc. Interim Consolidated Financial Statements
(unaudited):
Consolidated Balance Sheet as of September 30, 1997..................... F-19
Consolidated Statement of Income for the nine months ended September 30,
1996 and 1997.......................................................... F-20
Consolidated Statement of Changes in Shareholders' Equity for the nine
months ended September 30, 1997........................................ F-21
Consolidated Statement of Cash Flows for the nine months ended September
30, 1996 and 1997...................................................... F-22
Notes to Consolidated Financial Statements.............................. F-23
Dolphin Services, Inc. Combined Financial Statements:
Report of Independent Accountants....................................... F-26
Combined Balance Sheet as of December 31, 1996.......................... F-27
Combined Statement of Income and Retained Earnings for the year ended
December 31, 1996...................................................... F-28
Combined Statement of Cash Flows for the year ended December 31, 1996... F-29
Notes to the Combined Financial Statements.............................. F-30
</TABLE>
F-1
<PAGE>
GULF ISLAND FABRICATION, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined financial statements reflect
termination of Gulf Island Fabrication, Inc.'s (the "Company") status as an S
Corporation, assuming that such termination occurred on December 31, 1996. The
pro forma financial statements also reflect the acquisition by the Company of
Dolphin Services, Inc., Dolphin Steel Sales, Inc. and Dolphin Sales and
Rentals, Inc. (collectively, "Dolphin Services"), using the purchase method of
accounting. The pro forma combined balance sheet combines the Company's pro
forma balance sheet, as adjusted for the termination of the status as an S
Corporation, and the historical statement of Dolphin Services, assuming the
acquisition occurred on December 31, 1996. The pro forma combined statement of
income combines the historical statements of the Company and Dolphin Services
assuming the acquisition had occurred on January 1, 1996 and further reflects
a pro forma provision for income taxes that would have been recorded had the
Company operated as a C Corporation during the year ended December 31, 1996.
The unaudited pro forma combined financial statements do not purport to
present the actual financial condition or results of operations of the Company
as if the termination of the Company's S Corporation status and the
acquisition of Dolphin Services had occurred on the dates specified. The
unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements of the Company and
Dolphin Services included elsewhere in this document.
F-2
<PAGE>
GULF ISLAND FABRICATION, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR DOLPHIN PRO FORMA
GULF ISLAND CONVERSION FROM COMBINED BALANCE
FABRICATION SUBCHAPTER S PRO HISTORICAL PRO FORMA SHEET, AS
INC. CORPORATION TO FORMA BALANCE ACQUISITION ADJUSTED
HISTORICAL C CORPORATION BALANCE SHEET ADJUSTMENTS FOR DOLPHIN
ASSETS BALANCE SHEET (NOTE 1) SHEET (NOTE 2) (NOTE 2) ACQUISITION
------ ------------- --------------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash.................. $ 1,357 $-- $ 1,357 $ 83 $ -- $ 1,440
Contracts receivable,
net.................. 11,674 -- 11,674 4,513 -- 16,187
Contract retainage.... 1,806 -- 1,806 193 -- 1,999
Other receivables..... -- -- -- 616 -- 616
Costs and estimated
earnings in excess of
billings on
uncompleted
contracts............ 1,306 -- 1,306 55 -- 1,361
Prepaid expenses...... 500 -- 500 53 -- 553
Inventory............. 1,113 -- 1,113 767 26(a) 1,906
------- --- ------- ------ ---- -------
Total current
assets............. 17,756 -- 17,756 6,280 26 24,062
Property, plant and
equipment, net 17,735 -- 17,735 3,172 385(a) 21,292
Other assets.......... 418 -- 418 254 -- 672
------- --- ------- ------ ---- -------
$35,909 $-- $35,909 $9,706 $411 $46,026
======= === ======= ====== ==== =======
</TABLE>
See accompanying notes to pro forma financial statements.
F-3
<PAGE>
GULF ISLAND FABRICATION, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR DOLPHIN PRO FORMA
GULF ISLAND CONVERSION FROM COMBINED BALANCE
FABRICATION SUBCHAPTER S PRO HISTORICAL PRO FORMA SHEET, AS
INC. CORPORATION TO FORMA BALANCE ACQUISITION ADJUSTED
LIABILITIES AND HISTORICAL C CORPORATION BALANCE SHEET ADJUSTMENTS FOR DOLPHIN
SHAREHOLDERS' EQUITY BALANCE SHEET (NOTE 1) SHEET (NOTE 2) (NOTE 2) ACQUISITION
-------------------- ------------- --------------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable...... $ 1,081 $ -- $ 1,081 $1,455 $ -- $ 2,536
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............ 2,204 -- 2,204 488 -- 2,692
Accrued employee
costs................ 1,903 -- 1,903 562 -- 2,465
Accrued expenses...... 1,036 -- 1,036 151 -- 1,187
Other liabilities..... -- -- -- 92 -- 92
Current portion of
notes payable........ 530 -- 530 206 -- 736
Income taxes payable.. -- -- -- 453 -- 453
Notes payable--
distribution to
shareholders......... -- 13,158 (b) 13,158 -- -- 13,158
------- -------- ------- ------ ------ -------
Total current
liabilities........ 6,754 13,158 19,912 3,407 -- 23,319
Deferred income taxes... -- 1,100 (a) 1,100 301 157 (a) 1,558
Notes payable, less
current portion........ 5,657 -- 5,657 366 5,886 (b) 11,909
------- -------- ------- ------ ------ -------
Total liabilities... 12,411 14,258 26,669 4,074 6,043 36,786
------- -------- ------- ------ ------ -------
Shareholders' equity:
Gulf Island
Fabrication, Inc.--
Common stock......... 1,000 -- 1,000 -- -- 1,000
Dolphin entities--
Common stock -- -- -- 479 (479)(c) --
Dolphin treasury
stock, at cost....... -- -- -- (303) 303 (c) --
Additional paid-in
capital.............. 6,670 -- 6,670 -- -- 6,670
Retained earnings..... 15,828 (14,258)(b) 1,570 5,456 (5,456)(c) 1,570
------- -------- ------- ------ ------ -------
Total shareholders'
equity............... 23,498 (14,258) 9,240 5,632 (5,632) 9,240
------- -------- ------- ------ ------ -------
Total liabilities
and shareholders'
equity............. $35,909 $ -- $35,909 $9,706 $ 411 $46,026
======= ======== ======= ====== ====== =======
</TABLE>
See accompanying notes to pro forma financial statements.
F-4
<PAGE>
GULF ISLAND FABRICATION, INC.
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
GULF ISLAND -------------------------
FABRICATION INC. DOLPHIN COMBINED ACQUISITION
HISTORICAL HISTORICAL ADJUSTMENTS
STATEMENT OF INCOME STATEMENT OF INCOME (NOTE 1) COMBINED
------------------- ------------------- ----------- --------
<S> <C> <C> <C> <C>
Revenue................. $79,004 $26,802 $(2,799)(d) $103,007
Cost of revenue......... 68,673 22,950 (2,770)(b)(d) 88,853
------- ------- ------- --------
Gross profit............ 10,331 3,852 (29) 14,154
General and
administrative
expense................ 2,161 1,642 -- 3,803
Non-recurring
compensation charge.... 500 -- -- 500
------- ------- ------- --------
Operating income........ 7,670 2,210 (29) 9,851
Net interest expense.... 384 4 511 (a) 899
Income before income
taxes.................. 7,286 2,206 (540) 8,952
------- ------- ------- --------
Provision for income
taxes.................. -- (822) 203 (c) (619)
------- ------- ------- --------
Net income.............. $ 7,286 $ 1,384 $ (337) $ 8,333
======= ======= ======= ========
Additional pro forma
data (Note 2):
Net income reported
above................ $ 7,286 $ 8,333
Pro forma provision
for income taxes
related to operations
as S Corporation..... (2,934) (2,934)
------- --------
Pro forma net income.. $ 4,352 $ 5,399
======= ========
Pro forma per share data
(Note 3):
Pro forma net income
per share (using
7,854,000 shares).... $ .69
========
</TABLE>
See accompanying notes to pro forma financial statements.
F-5
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
NOTE 1
The Company has operated as an S Corporation since 1989. Shortly before
closing of the contemplated public offering, the Company's shareholders will
elect to terminate the Company's status as an S Corporation and the Company
will thereafter be subject to federal and state income taxation as a C
Corporation. In connection with the S Corporation termination, the Company
will distribute to its shareholders previously undistributed S Corporation tax
basis earnings.
Pro forma adjustments to record the assumed S Corporation termination and
distribution of previously undistributed earnings reflect:
(a) Net deferred income tax liability at December 31, 1996 resulting from
change to a C Corporation from an S Corporation is comprised of the
following:
<TABLE>
<S> <C>
Differences between book and tax base of property and
equipment................................................. $1,420,000
Accrual for workers' compensation.......................... (150,000)
Accrual for health insurance............................... (159,000)
Other differences.......................................... (11,000)
----------
$1,100,000
==========
</TABLE>
The deferred tax liability that will be recorded as a charge to income in
the second quarter of 1997 will be calculated based on the book and tax
differences on the date of termination of S Corporation status.
(b) Accrual of dividend to shareholders of undistributed S Corporation
tax basis earnings at December 31, 1996. The pro forma balance sheet does
not give effect to distributions that may be paid for S Corporation
earnings subsequent to December 31, 1996. The remaining retained earnings
of the Company at December 31, 1996 of $1,570,000 represent primarily C
Corporation earnings prior to the Company becoming an S Corporation in
1989.
NOTE 2
Effective January 2, 1997, the Company acquired all of the outstanding
shares of Dolphin Services, Inc., Dolphin Steel Sales, Inc. and Dolphin Sales
and Rentals, Inc. for a cash purchase price of $5,886,083, (the "Dolphin
Acquisition") including $55,000 of direct expenses, which exceeds the book
value of assets acquired and liabilities acquired by $255,000. The purchase
price was allocated to acquired assets and liabilities based on estimated fair
values.
Pro forma adjustments to record the Dolphin Acquisition under the purchase
method of accounting reflect:
(a) Allocation of purchase price based on estimated fair values of assets
acquired and liabilities assumed.
(b) Borrowings under Company's line of credit to acquire shares of
Dolphin Services.
(c) Elimination of shareholders' equity accounts of Dolphin Services.
F-6
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
NOTE 1
Pro forma adjustments to record the Dolphin Acquisition reflect:
(a) Interest charges on additional borrowings of $5,886,083 at an
estimated average interest rate of 8.69%.
(b) Additional depreciation of property, plant and equipment using the
straight-line method over estimated useful lives of 3 to 5 years for
machinery and equipment and 30 years for buildings.
(c) Tax benefit related to interest and additional depreciation charges.
(d) Elimination of intercompany sales between the Company and Dolphin
Services.
NOTE 2
Additional pro forma data includes a pro forma adjustment to reflect the
provision for income taxes assuming the Company had operated as a C
Corporation.
NOTE 3
Pro forma net income per share is calculated by dividing the pro forma net
income ($5,399,000) by the weighted average shares outstanding (7,000,000),
which gives retroactive effect to the stock splits authorized on February 14,
1997 and October 6, 1997, and increased to reflect sufficient additional
shares to pay the distributions to shareholders in excess of 1996 historical
net income (854,000 shares). All such additional shares are based on an
assumed offering price of $7.50 per share, net of offering expenses. The pro
forma net income per share does not give effect to distributions that may be
paid from earnings generated subsequent to December 31, 1996.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Gulf Island Fabrication, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Gulf Island Fabrication,
Inc. (the "Company") at December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New Orleans, Louisiana
January 23, 1997, except for the
third paragraph of Note 1 and the
second paragraph of Note 9 which
are as of February 13, 1997,
the third paragraph of Note 9
which is as of February 14, 1997 and
the fourth paragraph of Note 9
which is as of October 28, 1997.
F-8
<PAGE>
GULF ISLAND FABRICATION, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
PRO FORMA
-----------
1996 (NOTE
2)
ASSETS 1995 1996 (UNAUDITED)
------ ----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash..................................... $ 2,083,809 $ 1,357,232 $ 1,357,232
Contracts receivable, net................ 10,877,491 11,673,883 11,673,883
Contract retainage....................... 2,064,565 1,806,211 1,806,211
Costs and estimated earnings in excess of
billings on uncompleted contracts....... 505,096 1,306,341 1,306,341
Prepaid expenses......................... 541,722 499,782 499,782
Inventory................................ 440,645 1,112,913 1,112,913
----------- ----------- -----------
Total current assets................... 16,513,328 17,756,362 17,756,362
Property, plant and equipment, net......... 13,482,529 17,734,642 17,734,642
Other assets............................... 417,760 417,760 417,760
----------- ----------- -----------
$30,413,617 $35,908,764 $35,908,764
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable......................... $ 2,162,127 $ 1,080,567 $ 1,080,567
Billings in excess of costs and estimated
earnings on uncompleted contracts....... 2,509,877 2,204,482 2,204,482
Accrued employee costs................... 1,267,013 1,903,114 1,903,114
Accrued expenses......................... 526,553 1,036,305 1,036,305
Current portion of notes payable......... 433,502 529,752 529,752
Notes payable--distribution to
shareholders............................ -- -- 13,158,000
----------- ----------- -----------
Total current liabilities.............. 6,899,072 6,754,220 19,912,220
Deferred income taxes...................... -- -- 1,100,000
Notes payable, less current portion........ 5,111,900 5,657,142 5,657,142
----------- ----------- -----------
Total liabilities...................... 12,010,972 12,411,362 26,669,362
----------- ----------- -----------
Commitments and contingent liabilities
(Note 10)
Shareholders' equity (Note 9):
Common stock, no par value, 20,000,000
shares authorized, 7,000,000 shares issued
and outstanding........................... 1,000,000 1,000,000 1,000,000
Additional paid-in capital................. 6,170,000 6,670,000 6,670,000
Retained earnings.......................... 11,232,645 15,827,402 1,569,402
----------- ----------- -----------
Total shareholders' equity............. 18,402,645 23,497,402 9,239,402
----------- ----------- -----------
$30,413,617 $35,908,764 $35,908,764
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
GULF ISLAND FABRICATION, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue.................................... $60,983,704 $63,778,740 $79,004,536
Cost of revenue............................ 57,519,192 60,033,442 68,672,909
----------- ----------- -----------
Gross profit............................... 3,464,512 3,745,298 10,331,627
General and administrative expense......... 1,567,097 1,730,059 2,161,348
Non-recurring compensation charge.......... -- -- 500,000
----------- ----------- -----------
Operating income........................... 1,897,415 2,015,239 7,670,279
Net interest expense....................... 327,780 429,981 383,814
----------- ----------- -----------
Net income................................. $ 1,569,635 $ 1,585,258 $ 7,286,465
=========== =========== ===========
Unaudited pro forma data (Note 2):
Net income, reported above............... $ 1,569,635 $ 1,585,258 $ 7,286,465
Pro forma provision for income taxes
related to operations as S Corporation.. 594,000 602,000 2,934,000
----------- ----------- -----------
Pro forma net income..................... $ 975,635 $ 983,258 $ 4,352,465
=========== =========== ===========
Unaudited pro forma per share data (Note
2):
Pro forma net income per share (using
7,854,000 shares)....................... $ .55
===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
GULF ISLAND FABRICATION, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES EARNINGS TOTAL
--------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 7,000,000 $1,000,000 $6,170,000 $13,612,089 $20,782,089
Dividends paid.......... -- -- -- (5,100,666) (5,100,666)
Net income.............. -- -- -- 1,569,635 1,569,635
--------- ---------- ---------- ----------- -----------
Balance at December 31,
1994................... 7,000,000 1,000,000 6,170,000 10,081,058 17,251,058
Dividends paid.......... -- -- -- (433,671) (433,671)
Net income.............. -- -- -- 1,585,258 1,585,258
--------- ---------- ---------- ----------- -----------
Balance at December 31,
1995................... 7,000,000 1,000,000 6,170,000 11,232,645 18,402,645
Dividends paid.......... -- -- -- (2,691,708) (2,691,708)
Non-recurring
compensation charge
(Note 9)............... -- -- 500,000 -- 500,000
Net income.............. -- -- -- 7,286,465 7,286,465
--------- ---------- ---------- ----------- -----------
Balance at December 31,
1996................... 7,000,000 $1,000,000 $6,670,000 $15,827,402 $23,497,402
========= ========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
GULF ISLAND FABRICATION, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers......... $62,702,694 $60,262,661 $78,208,144
Cash paid to suppliers and
employees........................... (59,069,196) (57,491,434) (70,631,705)
Interest paid........................ (228,018) (447,364) (414,963)
----------- ----------- -----------
Net cash provided by operating
activities........................ 3,405,480 2,323,863 7,161,476
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures, net............ (675,571) (991,714) (5,837,837)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable............................. 20,877,844 21,595,186 24,353,157
Principal payments on notes payable.. (18,825,455) (20,526,383) (23,711,665)
Dividends paid....................... (5,100,666) (433,671) (2,691,708)
----------- ----------- -----------
Net cash provided by (used in)
financing activities.............. (3,048,277) 635,132 (2,050,216)
----------- ----------- -----------
Net increase (decrease) in cash........ (318,368) 1,967,281 (726,577)
Cash at beginning of year.............. 434,896 116,528 2,083,809
----------- ----------- -----------
Cash at end of year.................... $ 116,528 $ 2,083,809 $ 1,357,232
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net
cash provided by operating activities:
Net income........................... $ 1,569,635 $ 1,585,258 $ 7,286,465
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 1,369,767 1,381,935 1,585,723
Non-recurring non-cash compensation
charge.............................. -- -- 500,000
(Increase) decrease in contracts
receivable.......................... 1,937,978 (3,516,079) (796,391)
(Increase) decrease in contract
retainage........................... (506,962) (1,302,499) 258,354
(Increase) decrease in costs and
estimated earnings in excess of
billings on uncompleted contracts... 1,125,284 1,572,933 (801,245)
(Increase) decrease in prepaid
expenses and other assets........... (9,629) 74,495 (630,328)
Increase (decrease) in accounts
payable............................. (1,077,013) 933,458 (1,081,560)
Increase (decrease) in accrued
expenses and employee costs......... (847,702) 422,885 1,145,853
Increase (decrease) in billings in
excess of costs and estimated
earnings on uncompleted contracts... (155,878) 1,171,477 (305,395)
----------- ----------- -----------
Net cash provided by operating
activities........................ $ 3,405,480 $ 2,323,863 $ 7,161,476
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Gulf Island Fabrication, Inc. (the "Company"), located in Houma, Louisiana,
is engaged in the fabrication and refurbishment of offshore oil and gas
platforms for oil and gas industry companies. The Company's principal markets
are concentrated in the offshore regions of the coast of the Gulf of Mexico.
On January 2, 1997, the Company acquired all outstanding shares of Dolphin
Services, Inc., Dolphin Steel Sales Inc. and Dolphin Sales and Rentals Inc.
(collectively, "Dolphin Services") for $5,886,083. Dolphin Services performs
fabrication, sandblasting, painting and construction for offshore oil and gas
platforms in inland and offshore regions of the coast of the Gulf of Mexico.
(See Note 3.)
On February 13, 1997, the Board of Directors approved the filing of an
initial registration statement on Form S-1 with the Securities and Exchange
commission to register and sell 4,000,000 shares of common stock. Shortly
before the closing of the offering, the Company's current shareholders will
elect to terminate its status as an S Corporation and will become subject to
federal and state income taxes thereafter. (See Note 2.)
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 reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Inventory
Inventory consists of materials and production supplies and is stated at the
lower of cost or market determined on the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line basis over the
estimated useful lives of the assets, which range from 3 to 25 years. Ordinary
maintenance and repairs which do not extend the physical or economic lives of
the plant or equipment are charged to expense as incurred.
Revenue Recognition
Revenue from fixed-price and cost-plus construction contracts is recognized
on the percentage-of-completion method, computed by the efforts-expended
method which measures percentage of labor hours incurred to date as compared
to estimated total labor hours for each contract.
Contract costs include all direct material, labor and subcontract costs and
those indirect costs related to contract performance, such as indirect labor,
supplies and tools. Also included in contract costs are a portion of those
indirect contract costs related to plant capacity, such as depreciation,
insurance and repairs and maintenance. These indirect costs are allocated to
jobs based on actual direct labor hours incurred. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined.
F-13
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
The asset caption entitled "costs and estimated earnings in excess of
billings on uncompleted contracts," represents revenue recognized in excess of
the amounts billed. The liability caption entitled "billings in excess of
costs and estimated earnings on uncompleted contracts," represents billings in
excess of revenue recognized.
Income Taxes
The Company's shareholders have elected to have the Company taxed as an S
Corporation for federal and state income tax purposes whereby shareholders are
liable for individual federal and state income taxes on their allocated
portions of the Company's taxable income. Accordingly, the historical
financial statements do not include any provision for income taxes.
Shortly before the closing of the public offering, the Company's
shareholders will elect to terminate the Company's status as an S Corporation,
and the Company will become subject to federal and state income taxes. This
will result in the establishment of a net deferred tax liability calculated at
applicable federal and state income tax rates. (See Note 2.)
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments at December 31,
1996, including cash, contracts receivable, and notes payable, closely
approximates fair value.
Basis for Cash Flows
For purposes of the statement of cash flows, the Company includes cash on
hand and cash in banks.
NOTE 2--TERMINATION OF S CORPORATION STATUS (UNAUDITED)
Shortly before the closing of the offering (Note 1), the Company's
shareholders will elect to terminate the Company's status as an S Corporation
and the Company will become subject to federal and state income taxes. Prior
to its termination as an S Corporation, the Company intends to declare a
distribution to its current shareholders representing substantially all of the
Company's remaining undistributed S Corporation earnings through such date.
The pro forma balance sheet of the Company as of December 31, 1996 reflects
a deferred income tax liability of $1,100,000 resulting from the assumed
termination of the S Corporation status and an accrual of $13,158,000 for
distribution of S Corporation undistributed tax basis earnings at that date.
The pro forma balance sheet does not give effect to distributions that might
be paid from S Corporation earnings generated subsequent to December 31, 1996.
The amount of the Company's retained earnings that is not reclassified
represents primarily the C Corporation earnings prior to the Company's
election of subchapter S Corporation status in 1989.
Pro forma net income per share consists of the Company's historical income
as an S Corporation, adjusted for income taxes that would have been recorded
had the Company operated as a C Corporation. This amount is divided by the
weighted average shares of common stock outstanding after giving effect to the
stock splits described in Note 9 (7,000,000 shares), and increased to reflect
sufficient additional shares to pay the distributions to shareholders in
excess of 1996 historical net income (854,000 shares). All such additional
shares are based on an assumed offering price of $7.50 per share, net of
offering expenses. The pro forma net income per share does not give effect to
distributions that may be paid from earnings generated subsequent to December
31, 1996.
NOTE 3--ACQUISITION OF DOLPHIN SERVICES
On January 2, 1997, the Company acquired all outstanding shares of Dolphin
Services, Inc., Dolphin Steel Sales Inc., and Dolphin Sales and Rentals Inc.
for $5,886,083 (the "Dolphin Acquisition"), which includes
F-14
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
$55,000 of direct acquisition costs. The purchase price exceeded book value of
the assets and liabilities acquired by $255,000. The acquisition was financed
by borrowings under the Company's line of credit and will be accounted for
under the purchase method of accounting subsequent to January 2, 1997.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Dolphin Services as if
the acquisition had occurred on January 1, 1996. Pro forma adjustments include
(1) elimination of intercompany sales between the Company and Dolphin
Services, (2) adjustments for the increase in interest expense on acquisition
debt, (3) additional depreciation on property, plant and equipment and (4)
related tax effects. The effects of termination of the S corporation status
(Note 2) are excluded.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Revenue................................................. $ 103,007,964
Net income.............................................. 8,332,880
Net income per share.................................... 1.19
</TABLE>
NOTE 4--CONTRACTS RECEIVABLE
Amounts due on contracts as of December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Completed contracts................................ $ 763,617 $ 2,993,275
Contracts in progress:
Current.......................................... 10,118,194 8,684,928
Retainage due within one year.................... 2,064,565 1,806,211
Less: Allowance for doubtful accounts.............. (4,320) (4,320)
----------- ------------
$12,942,056 $ 13,480,094
=========== ============
The portion of the retainage due in excess of one year is not significant.
NOTE 5--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to uncompleted contracts as of December 31, is as
follows:
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Costs incurred on uncompleted contracts............ $31,469,005 $ 23,419,376
Estimated profit earned to date.................... 3,981,149 2,296,505
----------- ------------
35,450,154 25,715,881
Less: Billings to date............................. (37,454,935) (26,614,022)
----------- ------------
$(2,004,781) $ (898,141)
=========== ============
The above amounts are included in the accompanying
balance sheet under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts............... $ 505,096 $ 1,306,341
Billings in excess of costs and estimated
earnings on uncompleted contracts............... (2,509,877) (2,204,482)
----------- ------------
$(2,004,781) $ (898,141)
=========== ============
</TABLE>
F-15
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Land................................................. $ 2,123,447 $ 2,123,447
Buildings............................................ 5,143,537 5,159,744
Machinery and equipment.............................. 7,332,982 10,813,566
Improvements......................................... 7,100,252 9,385,147
Furniture and fixtures............................... 397,773 425,991
Transportation equipment............................. 403,879 404,286
Construction in progress............................. 152,742 127,651
----------- ------------
22,654,612 28,439,832
Less: Accumulated depreciation....................... (9,172,083) (10,705,190)
----------- ------------
$13,482,529 $ 17,734,642
=========== ============
</TABLE>
The Company leases certain equipment used in the normal course of its
operations under month-to-month lease agreements cancelable only by the
Company. During 1994, 1995 and 1996, the Company expensed $2,800,000,
$3,000,000 and $2,801,000, respectively, related to these leases.
NOTE 7--LINES OF CREDIT AND NOTES PAYABLE
Lines of credit consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revolving credit agreement with two banks aggregating
$12,000,000 available through December 31, 1998.
Interest at prime rate or LIBOR plus 2% (9% and 8.25% at
December 31, 1995 and 1996), payable quarterly. A fee on
unused commitment of three-eighths of one percent per
annum is payable quarterly.............................. $5,100,000 $3,800,000
Non-revolving line of credit with two banks aggregating
$10,000,000. Principal payable quarterly commencing June
30, 1997; interest at prime rate or LIBOR plus 2% (8.25%
at December 31, 1996) payable quarterly................. -- 2,000,000
Other notes payable...................................... 445,402 386,894
---------- ----------
5,545,402 6,186,894
Less current portion..................................... 433,502 529,752
---------- ----------
$5,111,900 $5,657,142
========== ==========
</TABLE>
On January 2, 1997, the amount available under the non-revolving line of
credit was increased to $15,000,000, and amounts outstanding at June 30, 1997
will automatically convert to a term loan due June 30, 2004. All other
provisions remain the same. The revolving credit agreement and the non-
revolving line of credit are secured by substantially all of the fixed assets
of the Company. The Company is required to maintain certain balance sheet and
cash flow ratios, and there are certain dividend restrictions.
F-16
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Aggregate maturities of long-term debt in the fiscal years subsequent to
1996 are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 529,752
1998........................................................... 4,085,714
1999........................................................... 285,714
2000........................................................... 285,714
2001........................................................... 285,714
Thereafter..................................................... 714,286
----------
$6,186,894
==========
</TABLE>
NOTE 8--RETIREMENT PLAN
The Company has a defined contribution plan (the Plan) for all employees
that is qualified under Section 401(k) of the Internal Revenue Code.
Contributions to the Plan by the Company are based on the participants'
contributions, with an additional year end discretionary contribution
determined by the Board of Directors. For the years ended December 31, 1994
and 1995, the Company contributed $347,900 and $239,200. In 1996, the Company
contributed $542,000, including a discretionary contribution of $250,000. No
discretionary contributions were made in 1994 or 1995. The Company pays
expenses associated with the administration of the Plan.
NOTE 9--SHAREHOLDERS' EQUITY
On December 1, 1996, the Company's principal shareholders sold 98,000 (1.4%)
of their existing shares to officers and management employees at $3.57 per
share. The per share price on that date was based on an independent appraisal
that valued the Company as a privately held business. As a result of the
Initial Public Offering, the Company has determined that it should record a
non-recurring, non-cash compensation charge of $500,000 for the year ended
December 31, 1996 related to the 98,000 shares. This charge was based on the
difference between the net offering price the Company expects to receive in
the public offering and the net cash price recipients of the 98,000 shares
expect to have paid. The net cash price to recipients of $1.78 per share
represents the $3.57 per share price charged by the shareholders, less $1.88
per share of tax-free dividends that the recipients expect to receive as a
result of the shareholder distributions described in Note 2, increased by the
recipient's share of taxable income for the year of $.09 per share. The
compensation charge resulted in a corresponding increase to additional paid-in
capital.
On February 13, 1997, the Board of Directors adopted a long-term incentive
compensation plan under which options for 1,000,000 shares of common stock may
be granted to officers and key employees. The exercise price for options may
not be less than the fair market value of the common stock on the date of
grant. Options for 213,000 shares were granted.
On February 14, 1997, the shareholders enacted the following:
(a) Authorized the issuance of 2.5 shares of no par value common stock
for each of the then outstanding 2,000,000 shares.
(b) Authorized 5,000,000 shares of no par value preferred stock. There
are no preferred shares issued or outstanding.
F-17
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(c) Increased the authorized common shares from 10,000,000 shares to
20,000,000 shares.
On October 6, 1997, the Company declared a two-for-one stock split,
effectuated as a stock dividend on October 28, 1997. All share and per share
data included in the financial statements have been restated to reflect the
stock split.
NOTE 10--COMMITMENTS AND CONTINGENT LIABILITIES
The Company has a commitment to purchase two cranes in 1997 for $4,303,000.
The Company is one of four defendants in a lawsuit in which the plaintiff
claims that the Company improperly installed certain attachments to a jacket
that it had fabricated for the plaintiff. The plaintiff, which has recovered
most of its out-of-pocket losses from its own insurer, seeks to recover the
remainder of its claimed out-of-pocket losses (approximately $1 million) and
approximately $63 million for punitive damages and for economic losses which
it alleges resulted from the delay in oil and gas production that was caused
by these events. Management is vigorously defending its case and, after
consultation with legal counsel, does not expect that the ultimate resolution
of this matter will have a material adverse effect on the financial position
or results of operations of the Company.
The Company is subject to other claims through the normal conduct of its
business. While the outcome of such claims cannot be determined, management
does not expect that resolution of these matters will have a material adverse
effect on the financial position or results of operations of the Company.
NOTE 11--SALES TO MAJOR CUSTOMERS
The Company's customer base is primarily concentrated in the oil and gas
industry. The Company is not dependent on any one customer, and the revenue
earned from each customer varies from year to year based on the contracts
awarded. Sales to customers comprising 10% or more of the Company's total
revenue are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Customer A............................ $ 8,008,840 $ -- $ --
Customer B............................ 15,018,718 12,035,534 --
Customer C............................ -- 13,230,05 --
Customer D............................ -- -- 8,195,638
Customer E............................ -- -- 9,378,628
Customer F............................ -- -- 10,118,798
</TABLE>
F-18
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
ASSETS
------
<S> <C>
Current assets:
Cash.......................................................... $ 4,774
Contracts receivable, net..................................... 23,777
Contract retainage............................................ 1,209
Costs and estimated earnings in excess of billings on
uncompleted contracts........................................ 3,333
Prepaid expenses.............................................. 579
Inventory..................................................... 1,221
-------
Total current assets........................................ 34,893
Property, plant and equipment, net.............................. 31,533
Other assets.................................................... 428
-------
$66,854
=======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accounts payable.............................................. $ 5,499
Billings in excess of costs and estimated earnings on
uncompleted contracts........................................ 5,635
Accrued employee costs........................................ 3,072
Accrued expenses.............................................. 2,359
Income taxes payable.......................................... 1,441
-------
Total current liabilities................................... 18,006
Deferred income taxes........................................... 1,218
-------
Total liabilities........................................... 19,224
-------
Contingencies (Note 5)
Shareholders' equity (Note 1):
Preferred stock, no par value, 5,000,000 shares authorized, no
shares issued and outstanding................................ --
Common stock, no par value, 20,000,000 shares authorized,
11,600,000 shares issued and outstanding..................... 4,133
Additional paid-in capital.................................... 34,865
Retained earnings............................................. 8,632
-------
Total shareholders' equity.................................. 47,630
-------
$66,854
=======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
F-19
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1997
---------- -----------
<S> <C> <C>
Revenue................................................. $ 60,376 $ 101,556
Cost of revenue......................................... 53,275 83,282
---------- -----------
Gross profit............................................ 7,101 18,274
General and administrative expense...................... 1,567 3,262
---------- -----------
Operating income........................................ 5,534 15,012
Interest expense, net................................... 297 212
---------- -----------
Income before income taxes.............................. 5,237 14,800
Provision for income taxes.............................. -- 4,210
Cumulative deferred tax provision....................... -- 1,144
---------- -----------
Net income.............................................. $ 5,237 $ 9,446
========== ===========
Pro forma data (Note 3):
Income before income taxes............................ $ 5,237 $ 14,800
Provision for income taxes............................ -- 4,210
Pro forma provision for income taxes related to
operations as S Corporation.......................... 1,990 1,379
---------- -----------
Pro forma net income.................................. $ 3,247 $ 9,211
========== ===========
Pro forma per share data (Notes 4 and 6):
Pro forma net income per share........................ $ 0.41 $ 0.89
========== ===========
Pro forma weighted average common shares.............. 7,854,000 10,370,000
========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
F-20
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997... 7,000,000 $1,000 $ 6,670 $ 15,827 $ 23,497
Net proceeds from issuance of
common stock................ 4,600,000 3,133 28,195 -- 31,328
Dividends paid............... -- -- -- (16,641) (16,641)
Net income................... -- -- -- 9,446 9,446
---------- ------ ------- -------- --------
Balance at September 30,
1997........................ 11,600,000 $4,133 $34,865 $ 8,632 $ 47,630
========== ====== ======= ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
F-21
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............................. $ 59,048 $ 96,009
Cash paid to suppliers and employees..................... (50,804) (81,971)
Interest paid............................................ (298) (212)
-------- --------
Net cash provided by operating activities.............. 7,946 13,826
-------- --------
Cash flows from investing activities:
Capital expenditures, net................................ (5,481) (12,787)
Payment for purchase of Dolphin Services, net of cash
acquired (Note 2)....................................... -- (5,803)
Proceeds from cash surrender value policy................ -- 253
-------- --------
Net cash used in investing activities.................. (5,481) (18,337)
-------- --------
Cash flows from financing activities:
Proceeds from initial public offering.................... -- 31,328
Proceeds from issuance of notes payable.................. 15,898 41,900
Principal payments on notes payable...................... (17,028) (48,659)
Dividends paid........................................... (1,707) (16,641)
-------- --------
Net cash provided by (used in) financing activities.... (2,837) 7,928
-------- --------
Net increase (decrease) in cash............................ (372) 3,417
Cash at beginning of period................................ 2,084 1,357
-------- --------
Cash at end of period...................................... $ 1,712 $ 4,774
======== ========
Reconciliation of net income to net cash provided by oper-
ating activities:
Net income............................................... $ 5,237 $ 9,446
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................. 1,128 2,104
Increase in accounts receivable.......................... (999) (7,307)
Decrease in retainage.................................... 436 790
Increase in costs and estimated earnings in excess of
billings on uncompleted contracts....................... (458) (1,972)
(Increase) Decrease in other current assets.............. (635) 967
Increase in accounts payable and accrued expenses........ 3,546 4,649
Increase in income taxes payable......................... -- 988
Increase in deferred income taxes........................ -- 1,218
Increase (Decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts............. (309) 2,943
-------- --------
Net cash provided by operating activities................ $ 7,946 $ 13,826
======== ========
</TABLE>
See Accompanying Notes to Financial Statements (Unaudited)
F-22
<PAGE>
GULF ISLAND FABRICATION, INC.
SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING PRINCIPLES
The consolidated financial statements include the accounts of Gulf Island
Fabrication, Inc. and its wholly-owned subsidiaries (the "Company"). The
Company, located in Houma, Louisiana, is engaged in the fabrication and
refurbishment of offshore oil and gas platforms for oil and gas industry
companies. The Company's principal markets are concentrated in the offshore
regions of the Gulf of Mexico.
On January 2, 1997, the Company acquired all outstanding shares of Dolphin
Services, Inc., Dolphin Steel Sales, Inc. and Dolphin Sales and Rentals, Inc.
for $5.9 million. The acquired corporations perform fabrication, sandblasting,
painting and construction for offshore oil and gas platforms in inland and
offshore regions of the coast of the Gulf of Mexico. On April 30, 1997,
Dolphin Steel Sales, Inc. and Dolphin Sales and Rentals, Inc. merged into
Dolphin Services, Inc., referred to hereinafter collectively as "Dolphin
Services" (See Note 2.)
On February 13, 1997, the Board of Directors approved the filing of an
initial registration statement on Form S-1 with the Securities and Exchange
Commission to register and sell 4.6 million shares of common stock. Shortly
before closing of the offering on April 9, 1997, the Company's current
shareholders elected to terminate its status as an S Corporation, and the
Company has become subject to federal and state income taxes. (See Note 3.)
On April 3, 1997, the Securities and Exchange Commission declared the
Company's Registration Statement on Form S-1 (Registration No. 333-21863)
effective. On April 9, 1997, the Company sold 4.6 million common shares
pursuant to the registration statements, increasing the total shares
outstanding to 11.6 million. The Company received net proceeds from the sale
of $31.3 million.
The information presented as of September 30, 1997 and for the nine month
periods ended September 30, 1996 and 1997, is unaudited. In the opinion of the
Company's management, the accompanying unaudited financial statements contain
all adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for the fair presentation of the Company's financial
position as of September 30, 1997 and the results of its operations and its
cash flows for the nine month periods ended September 30, 1996 and 1997. The
results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
In the opinion of management, the financial statements included herein 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.
NOTE 2--ACQUISITION OF DOLPHIN SERVICES
On January 2, 1997, the Company acquired all outstanding shares of Dolphin
Services for $5.9 million, which was financed by borrowings under the
Company's line of credit. The Company acquired assets with a fair value of
$9.6 million and assumed liabilities of $3.8 million. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the
operations of Dolphins Services are included in the Company's operations from
January 2, 1997. Assuming the acquisition of Dolphin Services had occurred on
January 1, 1996, pro forma revenue and pro forma net income for the nine
months ended September 30, 1996 would have been $77.4 million and $4.3
million, respectively, including a pro forma provision for income taxes
assuming the Company had operated as a C Corporation. Pro forma net income per
share for the nine months ended September 30, 1996 would have been $.54, based
on pro forma weighted average common shares outstanding of 7,854,000.
F-23
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--TERMINATION OF S CORPORATION STATUS
On April 4, 1997, the Company's shareholders elected to terminate the
Company's status as an S Corporation, and the Company became subject to
federal and state income taxes. In conjunction with the termination of S
Corporation status, the Company paid a distribution of $14 million to its
current shareholders representing substantially all of the Company's remaining
undistributed S Corporation earnings through April 4, 1997. The S Corporation
earnings for the period April 1, 1997 to April 4, 1997 were an immaterial part
of the total distribution.
The balance sheet of the Company as of September 30, 1997 reflects a
deferred income tax liability of $1,218,000, which includes $1,144,000 of
deferred income tax liability resulting from the termination of the S
Corporation status. The amount of the Company's retained earnings represents
primarily the C Corporation earnings prior to the Company's election of S
Corporation status in 1989 and earnings after April 4, 1997.
The pro forma income statement presentation reflects an additional provision
for income taxes as if the Company had been subject to federal and state
income taxes since January 1, 1996 using an assumed effective tax rate of
approximately 38%.
NOTE 4--PRO FORMA PER SHARE DATA
Pro forma per share data for the nine month periods ended September 30, 1996
and 1997 consist of the Company's historical income, adjusted to reflect
income taxes as if the Company had operated as a C Corporation for the nine
month periods ended September 30, 1996 and 1997. This calculation excludes the
charge of $1,144,000 related to cumulative deferred income taxes resulting
from conversion to a C Corporation on April 4, 1997. The weighted average
share calculations include the assumed issuance of additional shares
sufficient to pay the distributions made to shareholders in connection with
the Company's initial public offering in 1997, to the extent such
distributions exceeded net income for the year ended December 31, 1996.
The Company used proceeds received from its public offering to repay all
outstanding debt at the time of the offering. Accordingly, the Company has
calculated a pro forma supplemental net income per share of $.83 for the nine
months ended September 30, 1997. The amount is calculated by (a) dividing the
pro forma supplemental net income, increased by the interest expense, net of
tax, on the debt extinguished, by (b) average shares outstanding, as increased
to reflect the assumed issuance of sufficient additional shares to retire the
debt calculated based on the date of issue of the debt. All such additional
shares are assumed to be issued at the offering price of $7.50 per share, net
of offering expenses.
NOTE 5--CONTINGENCIES
The Company is one of four defendants in a lawsuit in which the plaintiff
claims that the Company improperly installed certain attachments to a jacket
that it had fabricated for the plaintiff. The plaintiff, which has recovered
most of its out-of-pocket losses from its insurer, seeks to recover the
remainder of its claimed out-of-pocket losses (approximately $1 million) and
approximately $63 million for punitive damages and for economic losses which
it alleges resulted from the delay in oil and gas production that was caused
by these events. The Company is vigorously contesting the plaintiff's claims
and, based on the Company's analysis of those claims, the Company's defenses
thereto, and the Court's rulings received to date, the Company believes that
its liability for such claims, if any, will not be material to its financial
position. In view of the uncertainties inherent in litigation, however, no
assurance can be given as to the ultimate outcome of such claims.
The Company is subject to claims arising through the normal conduct of its
business. While the ultimate outcome of such claims cannot be determined,
management does not expect that these matters will have a material adverse
effect on the financial position or results of operations of the Company.
F-24
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--STOCK SPLIT
On October 6, 1997, the Company's Board of Directors authorized a two-for-
one stock split effected in the form of a stock dividend to be distributed on
October 28, 1997 to shareholders of record on October 21, 1997. All share and
per share data included in the financial statements have been restated to
reflect the stock split.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Dolphin Services, Inc., Dolphin Sales and Rentals, Inc.
and Dolphin Steel Sales, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the financial position of Dolphin Services,
Inc., Dolphin Sales and Rentals, Inc. and Dolphin Steel Sales, Inc. (the
"Companies") at December 31, 1996, and the results of their operations and
their cash flows for the year in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Companies' management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New Orleans, Louisiana
January 23, 1997
F-26
<PAGE>
DOLPHIN SERVICES, INC., DOLPHIN SALES AND RENTALS, INC.
AND DOLPHIN STEEL SALES, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash............................................................. $ 82,842
Contracts receivable, net of allowance for doubtful accounts of
$65,856......................................................... 4,659,266
Contract retainage............................................... 193,045
Other receivables................................................ 137,387
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... 55,493
Inventory........................................................ 766,624
Prepaid expenses and other current assets........................ 385,290
----------
Total current assets........................................... 6,279,947
Property and equipment, net........................................ 3,171,823
Other assets....................................................... 254,282
----------
Total assets................................................... $9,706,052
==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accounts payable................................................. $1,455,096
Billings in excess of costs and estimated earnings on uncompleted
contracts....................................................... 488,357
Accrued expenses................................................. 151,044
Accrued employee costs........................................... 561,608
Income taxes payable............................................. 453,490
Other liabilities................................................ 92,074
Current portion of notes payable................................... 205,959
----------
Total current liabilities...................................... 3,407,628
Notes payable, less current portion................................ 366,181
Deferred taxes..................................................... 301,160
----------
Total liabilities.............................................. 4,074,969
----------
Commitments and contingent liabilities (Note 8)
Shareholders' equity:
Dolphin Services, Inc.--
Common stock, no par value, 200,000 shares authorized, 132,288
shares issued and 111,898 outstanding (20,390 held in
treasury)....................................................... 476,971
Dolphin Sales and Rentals, Inc.--
Common stock, no par value, 10,000 shares authorized, 1,000
shares issued and outstanding................................... 1,000
Dolphin Steel Sales, Inc.--
Common stock, no par value, 10,000 shares authorized, 1,000
shares issued and outstanding................................... 1,000
Retained earnings................................................ 5,455,961
Treasury stock, at cost.......................................... (303,849)
----------
Total shareholders' equity..................................... 5,631,083
----------
$9,706,052
==========
</TABLE>
See accompanying notes to the financial statements.
F-27
<PAGE>
DOLPHIN SERVICES, INC., DOLPHIN SALES AND RENTALS, INC.
AND DOLPHIN STEEL SALES, INC.
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenue............................................................ $26,801,965
Cost of revenue.................................................... 22,949,869
-----------
Gross profit....................................................... 3,852,096
General and administrative expense................................. 1,641,519
-----------
Operating income................................................... 2,210,577
Interest expense................................................... 4,656
-----------
Income before income taxes......................................... 2,205,921
Provision for income taxes......................................... 822,127
-----------
Net income......................................................... 1,383,794
Retained earnings, beginning of year............................... 4,072,167
-----------
Retained earnings, end of year..................................... $ 5,455,961
===========
</TABLE>
See accompanying notes to the financial statements.
F-28
<PAGE>
DOLPHIN SERVICES, INC., DOLPHIN SALES AND RENTALS, INC.
AND DOLPHIN STEEL SALES, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Cash received from customers................................... $ 25,574,686
Cash paid to suppliers and employees........................... (24,002,725)
Interest paid.................................................. (4,656)
------------
Net cash provided by operating activities.................... 1,567,305
------------
Cash flows from investing activities:
Capital expenditures, net...................................... (883,844)
Proceeds from sale of assets................................... 17,700
------------
Net cash used in investing activities........................ (866,144)
------------
Cash flows from financing activities:
Proceeds from issuance of notes payable........................ 950,158
Principal payments on notes payable............................ (1,465,905)
Proceeds from issuance of common stock......................... 46,969
Purchase of treasury stock..................................... (271,451)
------------
Net cash used in financing activities........................ (740,229)
------------
Net decrease in cash............................................. (39,068)
Cash at beginning of year........................................ 121,910
------------
Cash at end of year.............................................. $ 82,842
============
Supplemental Cash Flow Information:
Net income....................................................... $ 1,383,794
Adjustments to reconcile net income to net cash provided by oper-
ating activities:
Depreciation................................................... 427,459
Increase in contracts receivable............................... (1,788,344)
Decrease in contract retainage................................. 412,069
Loss on sale of assets......................................... 3,599
Increase in other receivables.................................. (137,387)
Increase in costs and estimated earnings in excess of billings
on uncompleted contracts...................................... (55,493)
Increase in inventory.......................................... (11,850)
Decrease in prepaid expenses and other current assets.......... 123,684
Decrease in other assets....................................... 202,371
Increase in accounts payable................................... 462,579
Decrease in billings in excess of costs and estimated earnings
on uncompleted contracts...................................... (41,926)
Increase in accrued expenses................................... 104,032
Increase in accrued employee costs............................. 7,830
Increase in income taxes payable............................... 406,077
Increase in other liabilities.................................. 8,317
Increase in deferred taxes..................................... 60,494
------------
Net cash provided by operating activities.................... $ 1,567,305
============
</TABLE>
See accompanying notes to the financial statements.
F-29
<PAGE>
DOLPHIN SERVICES, INC., DOLPHIN SALES AND RENTALS, INC.
AND DOLPHIN STEEL SALES, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Companies and Principles of Combination
The financial statements of Dolphin Services, Inc., Dolphin Sales and
Rentals, Inc., and Dolphin Steel Sales, Inc. (the "Companies") are combined,
as each company is substantially owned by identical shareholders. Intercompany
accounts and transactions are eliminated in the combination.
Dolphin Services, Inc. ("Services"), located in Houma, Louisiana, performs
offshore and inshore fabrication and other construction services for the oil
and gas industry. Services' principal markets are concentrated on the inland
and offshore regions of the coast of the Gulf of Mexico. Dolphin Sales and
Rentals, Inc. owns the land and building leased by Services. There is no other
activity for this Company. Dolphin Steel Sales, Inc. sells steel plates to
Services and third parties.
For the year ended December 31, 1996, the Companies were owned by various
management personnel and other investors. Effective January 2, 1997, all
outstanding shares of common stock were sold to Gulf Island Fabrication, Inc.
("Gulf Island").
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 reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventory
Inventory consists of materials and production supplies not held for resale,
valued at $356,775, and steel inventory held for resale, valued at $409,849.
All inventory is stated at the lower of cost or market determined on the
first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation of assets is
computed by the straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is computed by the
straight-line method over the shorter of the useful life of the asset or the
life of the lease. Useful lives range from 30 years for buildings; 10 to 20
years for machinery and equipment; 5 years for furniture and fixtures; 3 to 5
years for vehicles; 10 years for leasehold improvements and 5 years for other
equipment. As the Companies have not had any construction projects of
significant duration, no interest costs have been capitalized; however,
certain labor and other direct construction costs have been capitalized as
part of the assets.
Assets retired or otherwise disposed of are removed from the accounts along
with any related depreciation and amortization, and the resultant gain or loss
is reflected in income. Maintenance and repairs are charged to expense as
incurred.
Revenue Recognition
Revenue from fixed-price and time and materials construction contracts is
recognized on the percentage-of-completion method based on the ratio of costs
incurred to total estimated costs at completion.
F-30
<PAGE>
DOLPHIN SERVICES, INC., DOLPHIN SALES AND RENTALS, INC.
AND DOLPHIN STEEL SALES, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies and tools. Also included in contract costs are a portion of those
indirect contract costs related to plant capacity, such as depreciation,
insurance and repairs and maintenance. These indirect costs are allocated to
jobs based on actual direct labor hours incurred. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined.
The asset caption entitled "costs and estimated earnings in excess of
billings on uncompleted contracts" represents revenue recognized in excess of
amounts billed. The liability caption "billings in excess of cost and
estimated earnings on uncompleted contracts" represents amounts billed in
excess of revenue recognized.
Income Taxes
The Companies provide for taxes on the basis of items included in the
determination of income for financial reporting purposes regardless of the
period when such items are reported for tax purposes. Accordingly, the
Companies record deferred tax liabilities and assets for future tax
consequences of events that have been recognized in different periods for
financial and tax purposes.
Immediately prior to the sale of the outstanding stock of the Companies to
Gulf Island on January 2, 1997, the Companies' shareholders elected to change
the Companies' statuses from C Corporations to S Corporations for federal and
state income tax purposes, which is consistent with the S Corporation status
under which Gulf Island has operated. Accordingly, the shareholders will
become liable for all future individual federal and state income taxes on the
allocated portions of the Companies' taxable income.
Fair Value of Financial Instruments
The carrying amount of the Companies' financial instruments at December 31,
1996 including cash, contracts receivable, and notes payable, closely
approximates fair value.
Basis for Cash Flows
For purposes of the combined statement of cash flows, the Companies include
cash on hand and cash in banks.
NOTE 2--CONTRACTS RECEIVABLE
Amounts due on contracts as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
Completed contracts............................................ $2,957,585
Contracts in progress:
Current...................................................... 1,767,537
Retainage due within one year................................ 193,045
Less: Allowance for doubtful accounts........................ (65,856)
----------
$4,852,311
==========
</TABLE>
F-31
<PAGE>
DOLPHIN SERVICES, INC., DOLPHIN SALES AND RENTALS, INC.
AND DOLPHIN STEEL SALES, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to uncompleted contracts as of December 31, 1996 is
as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts.......................... $ 2,616,465
Estimated profit earned to date.................................. 166,708
-----------
$ 2,783,173
Less: Billings to date......................................... (3,216,037)
-----------
$ (432,864)
===========
The above amounts are included in the accompanying balance sheet
under the following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... $ 55,493
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... (488,357)
-----------
$ (432,864)
===========
</TABLE>
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Land............................................................... $ 332,216
Buildings and leasehold improvements............................... 1,197,895
Furniture and fixtures............................................. 46,751
Machinery and equipment............................................ 4,536,423
Automotive equipment............................................... 662,049
Other.............................................................. 123,551
-----------
6,898,885
Less: Accumulated depreciation and amortization.................... (3,727,062)
-----------
$ 3,171,823
===========
</TABLE>
Depreciation expense for 1996 totalled $427,459.
NOTE 5--NOTES PAYABLE AND LINE OF CREDIT
Notes payable and line of credit consist of the following at December 31,
1996:
<TABLE>
<S> <C>
Note payable to bank, interest at 8%; monthly principal installments
of $9,047 plus interest through April 30, 2001; secured by a 4100
Series Manitowoc crane.............................................. $474,834
Notes payable to bank, interest at a prime rate plus 1% (9.25% at
December 31, 1996); monthly principal installments of $4,500 plus
interest through April 30, 1997; secured by accounts receivable and
inventory........................................................... 22,306
Revolving credit agreement with a bank, aggregating $1,500,000
through April 1997. Interest at a prime rate (8.25% at December 31,
1996), payable monthly; secured by and limited to certain qualifying
accounts receivable................................................. 75,000
--------
Total notes payable................................................ 572,140
Less current portion................................................. 205,959
--------
Long-term notes payable.............................................. $366,181
========
</TABLE>
F-32
<PAGE>
DOLPHIN SERVICES, INC., DOLPHIN SALES AND RENTALS, INC.
AND DOLPHIN STEEL SALES, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of long-term notes payable and line of credit for years
subsequent to 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $205,959
1998.............................................................. 108,564
1999.............................................................. 108,564
2000.............................................................. 108,564
2001.............................................................. 40,489
--------
$572,140
========
</TABLE>
In connection with the purchase of the companies on January 2, 1997, Gulf
Island paid all outstanding debt of the Companies in full.
NOTE 6--INCOME TAXES
The components of the provision for income taxes for the year ended December
31, 1996 follow:
<TABLE>
<S> <C>
Current tax expense:
Federal........................................................ $685,880
State.......................................................... 75,753
--------
Total current tax expense........................................ 761,633
Deferred tax expense............................................. 60,494
--------
Total provision for income taxes................................. $822,127
========
</TABLE>
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Companies' assets and
liabilities. The Companies' temporary differences primarily relate to
differences in depreciation for book and tax purposes and different methods
for recognizing bad debts. The provision for income taxes is greater than the
amount of income tax determined by applying the applicable federal rate to
pre-tax income due to state income taxes.
NOTE 7--RETIREMENT PLAN
Services has a qualified 401(k) profit sharing plan (the Plan) for
employees. The Plan provides for a 50% match by Services for employee
contributions of up to 6% of gross pay. Such employer contributions vest over
a period of 6 years and totaled $73,852 in 1996. Services pays expenses
associated with the administration of the Plan which totalled $5,214 in 1996.
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES
From time to time, the Companies are parties to various legal proceedings
arising in the ordinary course of business. The Companies are not currently
party to any material litigation and is not aware of any litigation threatened
against it that could have a material adverse effect on the financial
statements or results of operations.
NOTE 9--SALES TO MAJOR CUSTOMERS
Services' customer base is primarily concentrated in the oil and gas
industry. Services is not dependent on any one customer, and the revenue
earned from each customer varies from year to year based on the contracts
awarded. Sales to customers comprising 10% or more of the Companies' total
revenue in 1996 are summarized as follows:
<TABLE>
<S> <C>
Customer A...................................................... $4,469,607
Customer B...................................................... 2,794,040
</TABLE>
F-33
<PAGE>
[PHOTO(S) APPEAR HERE--SEE DESCRIPTION BELOW]
AERIAL VIEW OF THE COMPANY'S FACILITIES AND SURROUNDING AREAS
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 INFOR-
MATION 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 OF-
FERED 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....................................................... 3
Risk Factors............................................................. 9
Uncertainty of Forward-Looking Information............................... 13
Prior S Corporation Status............................................... 14
Price Range of Common Stock and Dividend Policy.......................... 14
Capitalization........................................................... 15
Selected Financial and Operating Data.................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 23
Management............................................................... 35
Principal and Selling Shareholders....................................... 41
Certain Transactions..................................................... 42
Description of Capital Stock............................................. 42
Underwriting............................................................. 45
Legal Matters............................................................ 46
Experts.................................................................. 46
Available Information.................................................... 46
Glossary of Certain Technical Terms...................................... 47
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO OF GULF ISLAND FABRICATION, INC. APPEARS HERE]
GULF ISLAND FABRICATION, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
JOHNSON RICE & COMPANY L.L.C.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
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.......................................... $ 23,175
NASD filing fee............................................... 8,148
Printing expenses............................................. 100,000
Legal fees and expenses....................................... 65,000
Accounting fees and expenses.................................. 86,000
Blue Sky fees and expenses (including counsel fees)........... 5,000
Transfer agent fees and expenses.............................. 37,000
Miscellaneous expenses........................................ 10,000
---------
Total expenses.............................................. $295,023
========
</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
II-1
<PAGE>
connection with any claim involving a director or executive officer by reason
of his position as director or 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.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement with respect to Dolphin Services, Inc. dated as
of November 27, 1996.*
2.2 Stock Purchase Agreement with respect to Dolphin Steel Sales, Inc.,
dated as of November 27, 1996.*
2.3 Stock Purchase Agreement with respect to Dolphin Sales & Rentals, Inc.,
dated as of November 27, 1996.*
3.1 Amended and Restated 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 Amended and
Restated 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 Registration Rights Agreement between the Company and Alden J. Laborde.*
10.3 Registration Rights Agreement between the Company and Huey J. Wilson.*
10.4 Fifth Amended and Restated Revolving Credit and Term Loan Agreement
among the Company and First National Bank of Commerce and Whitney
National Bank, dated as of October 24, 1996 (the "Bank Credit
Facility").*
10.5 First Amendment to the Company's Bank Credit Facility, dated as of
January 2, 1997.*
10.6 Second Amendment to the Company's Bank Credit Facility, dated as of
March 18, 1997.*
10.7 The Company's Long-Term Incentive Plan.*
10.8 Form of Stock Option Agreement under the Company's Long-Term Incentive
Plan.*
10.9 Form of Reimbursement Agreement.*
10.10 Stock Purchase Agreements between the Company and shareholders of
Southport, Inc., dated November 12, 1997.
21.1 Subsidiaries of the Company.*
23.1 Consent of Price Waterhouse, LLP.
23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P.
(included in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Page to the Registration
Statement).**
27.1 Financial Data Schedule.**
</TABLE>
(B) FINANCIAL STATEMENTS SCHEDULE.
Schedule II
- --------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 filed with the Commission on February 14, 1997 (Registration Number
333-21863).
** Previously filed.
II-2
<PAGE>
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement
(Registration No. 333-39695) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houma, State of Louisiana, on
November 13, 1997.
GULF ISLAND FABRICATION, INC.
/s/ Kerry J. Chauvin
By: _________________________________
Kerry J. Chauvin President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement (Registration No. 333-39695) has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
* Chairman of the Board November 13, 1997
- -------------------------------
Alden J. Laborde
/s/ Kerry J. Chauvin President, Chief
- ------------------------------- Executive Officer November 13, 1997
Kerry J. Chauvin and Director
(Principal Executive
Officer)
* Vice President-- November 13, 1997
- ------------------------------- Finance, Chief
Joseph P. Gallagher, III Financial Officer,
Secretary and
Treasurer (Principal
Financial and
Accounting Officer)
* Director November 13, 1997
- -------------------------------
Gregory J. Cotter
* Director November 13, 1997
- -------------------------------
Thomas E. Fairley
Director November , 1997
- -------------------------------
Hugh J. Kelly
* Director November 13, 1997
- -------------------------------
John P. Laborde
Director November , 1997
- -------------------------------
Huey J. Wilson
/s/ Kerry J. Chauvin
*By: ____________________________
Kerry J. Chauvin
Attorney-in-Fact
II-4
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------
ADDITIONS DEDUCTIONS
------------------- ------------
BALANCE
BALANCE AT CHARGED TO CHARGED AT END
BEGINNING COSTS AND TO ORDER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (WRITE-OFFS) PERIOD
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1994
Allowance for doubtful
accounts............... $4,290 $-- $-- $-- $4,290
Year Ended December 31,
1995
Allowance for doubtful
accounts............... 4,290 30 -- -- 4,320
Year Ended December 31,
1996
Allowance for doubtful
accounts............... 4,320 -- -- -- 4,320
</TABLE>
S-1
<PAGE>
EXHIBIT 1.1
GULF ISLAND FABRICATION, INC.
(A LOUISIANA CORPORATION)
COMMON STOCK
UNDERWRITING AGREEMENT
DATED: NOVEMBER , 1997
<PAGE>
GULF ISLAND FABRICATION, INC.
UNDERWRITING AGREEMENT
November, 1997
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
JOHNSON RICE & COMPANY L.L.C.
As Representatives of the Several
Underwriters Named in Schedule A hereto
c/o Morgan Keegan & Company, Inc.
50 Front Street
Memphis, Tennessee 38103
Dear Sirs:
The selling shareholders named in Schedule B (the "Selling Shareholders")
of Gulf Island Fabrication, Inc., a Louisiana corporation (the "Company"),
propose to issue and sell to the underwriters named in Schedule A (collectively,
the "Underwriters") an aggregate of 2,000,000 shares of Common Stock, no par
value per share (the "Common Stock"), of the Company (the "Firm Shares"). The
Firm Shares are to be sold to each Underwriter, acting severally and not
jointly, in such amounts as are set forth in Schedule A opposite the name of
such Underwriter.
The Selling Shareholders also grant to the Underwriters the option
described in Section 3 to purchase, on the same terms as the Firm Shares, up to
300,000 additional shares of Common Stock (the "Option Shares") solely to cover
over-allotments. The Firm Shares, together with all or any part of the Option
Shares, are collectively herein called the "Shares."
Section 1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333- ) with
respect to the Shares, including a preliminary form of prospectus, has been
prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the applicable
rules and regulations (the "1933 Act Regulations") of the Securities and
Exchange Commission (the "Commission"), and has been filed with the
Commission; and such amendments to such registration statement as may have
been required prior to the date hereof have been filed with the Commission,
and such amendments have been similarly prepared. Copies of such
registration statement and amendment or amendments and of each related
preliminary prospectus, and the exhibits, financial statements and
schedules, as amended and revised, have been delivered to you. The Company
has prepared in the same
<PAGE>
manner, and proposes so to file with the Commission, one of the following:
(i) prior to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, (ii) if the
Company does not rely on Rule 434 of the 1933 Act, a final prospectus in
accordance with Rules 430A and 424(b) of the 1933 Act Regulations or (iii)
if the Company relies on Rule 434 of the 1933 Act, a term sheet relating to
the Shares that shall identify the preliminary prospectus that it
supplements containing such information as is required or permitted by
Rules 434, 430A and 424(b) of the 1933 Act. The Company also may file a
related registration statement with the Commission pursuant to Rule 462(b)
of the 1933 Act for the purpose of registering certain additional shares of
Common Stock, which registration statement will be effective upon filing
with the Commission. As filed, such amendment, any registration statement
filed pursuant to Rule 462(b) of the 1933 Act and any term sheet and form
of final prospectus, or such final prospectus, shall include all Rule 430A
Information (as defined below) and, except to the extent that you shall
agree in writing to a modification, shall be in all respects in the form
furnished to you prior to the date and time that this Agreement was
executed and delivered by the parties hereto, or, to the extent not
completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest preliminary prospectus) as the Company shall have previously advised
you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration
statement becomes effective and, in the event any post-effective amendment
thereto becomes effective prior to the Closing Time (as hereinafter
defined), shall also mean such registration statement as so amended;
provided, however, that such term shall also include all Rule 430A
Information contained in any Prospectus and any Term Sheet (as hereinafter
defined) and deemed to be included in such registration statement at the
time such registration statement becomes effective as provided by Rule 430A
of the 1933 Act Regulations. The term "Preliminary Prospectus" shall mean
any preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time
it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean (a) if the Company relies
on Rule 434 of the 1933 Act Regulations, the Term Sheet relating to the
Shares that is first filed pursuant to Rule 424(b)(7) of the 1933 Act
Regulations, together with the Preliminary Prospectus identified therein
that such Term Sheet supplements or (b) if the Company does not rely on
Rule 434 of the 1933 Act Regulations, the prospectus relating to the Shares
in the form in which it is first filed with the Commission pursuant to Rule
424(b) of the 1933 Act Regulations or, if no filing pursuant to Rule 424(b)
of the 1933 Act Regulations is required, shall mean the form of final
prospectus included in the Registration Statement at the time such
Registration Statement becomes effective. The term "Rule 430A Information"
means information with respect to the Shares and the offering thereof
permitted pursuant to Rule 430A of the 1933 Act Regulations to be omitted
from the Registration Statement when it becomes effective. The term "462(b)
Registration Statement" means any registration statement filed with the
Commission pursuant to Rule 462(b) under the 1933 Act (including the
Registration Statement and any Preliminary Prospectus or Prospectus
2
<PAGE>
incorporated therein at the time such registration statement becomes
effective). The term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 of the 1933 Act Regulations. Any reference to the
"date" of a Prospectus that includes a Term Sheet shall mean the date of
such Term Sheet.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and no proceedings for that
purpose have been instituted or threatened by the Commission or the state
securities or blue sky authority of any jurisdiction, and each Preliminary
Prospectus and any amendment or supplement thereto, at the time of filing
thereof, conformed in all material respects to the requirements of the 1933
Act and the 1933 Act Regulations, and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter expressly
for use in the Registration Statement or any 462(b) Registration Statement.
(c) When the Registration Statement and any 462(b) Registration
Statement shall become effective, when any Term Sheet that is part of the
Prospectus is filed with the Commission pursuant to Rule 434, when any
Prospectus is first filed pursuant to Rule 424(b) of the 1933 Act
Regulations, when any amendment to the Registration Statement or any 462(b)
Registration Statement becomes effective, and when any supplement to the
Prospectus or any Term Sheet is filed with the Commission and at the
Closing Time and Date of Delivery (as hereinafter defined), (i) the
Registration Statement, the 462(b) Registration Statement, the Prospectus,
the Term Sheet and any amendments thereof and supplements thereto will
conform in all material respects with the applicable requirements of the
1933 Act and the 1933 Act Regulations, and (ii) neither the Registration
Statement, the 462(b) Registration Statement, the Prospectus, any Term
Sheet nor any amendment or supplement thereto will contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter expressly for use in the Registration Statement or any 462(b)
Registration Statement.
(d) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of Louisiana
with all requisite corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each of the
jurisdictions in which the ownership or leasing of its properties or the
nature or conduct of its
3
<PAGE>
business as described in the Registration Statement and the Prospectus
requires such qualification, except where the failure to do so would not
have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and
the Subsidiaries (as hereinafter defined) taken as a whole.
(e) All of the Company's subsidiaries are named on an exhibit to
the Registration Statement (each a "Subsidiary" and collectively the
"Subsidiaries"). Each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
state of its incorporation with all requisite corporate power and authority
to own, lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus. Each such
entity is duly qualified to do business and is in good standing as a
foreign corporation in each other jurisdiction in which the ownership or
leasing of its properties or the nature or conduct of its business as
described in the Registration Statement and the Prospectus conducted
requires such qualification, except where the failure to do so would not
have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of such
Subsidiaries.
(f) The Company has full corporate right, power and authority to
enter into this Agreement and to perform its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company, enforceable
in accordance with its terms, except to the extent that enforceability may
be limited by bankruptcy, insolvency, moratorium, reorganization or other
laws of general applicability relating to or affecting creditors' rights,
or by general principles of equity whether considered at law or at equity
and except to the extent enforcement of the indemnification provisions set
forth in Section 6 of this Agreement may be limited by federal or state
securities laws or the public policy underlying such laws.
(g) Each consent, approval, authorization, order, license,
certificate, permit, registration, designation or filing by or with any
governmental agency or body necessary for the execution, delivery and
performance of this Agreement by the Company has been made or obtained and
is in full force and effect, except as may be required under applicable
state securities laws.
(h) The execution, delivery and performance of this Agreement by
the Company will not conflict with or result in a breach or violation of
any of the terms and provisions of, or (with or without the giving of
notice or the passage of time or both) constitute a default under the
charter or bylaws of the Company or the Subsidiaries, respectively, or
under any indenture, mortgage, deed of trust, loan agreement, note, lease
or other agreement or instrument to which the Company or the Subsidiaries,
respectively, is a party or to which the Company or the Subsidiaries,
respectively, any of their respective properties or other assets is
subject; or any applicable statute, judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to any of
the foregoing or any of their respective
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properties; or result in the creation or imposition of any lien, charge,
claim or encumbrance upon any property or asset of the Company or the
Subsidiaries, respectively.
(i) No preemptive rights of shareholders exist with respect to any
of the Shares which have not been satisfied or waived. No person or entity
holds a right to require or participate in the registration under the 1933
Act of the Shares pursuant to the Registration Statement which has not been
satisfied or waived; and, except as set forth in the Prospectus, no person
holds a right to require registration under the 1933 Act of any shares of
Common Stock of the Company at any other time which has not been satisfied
or waived.
(j) The Company's authorized, issued and outstanding capital stock
is as disclosed in the Prospectus. All of the issued shares of capital
stock of the Company, including the Shares, have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Company's capital stock contained in the Prospectus.
(k) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned directly or indirectly through another
Subsidiary by the Company free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever. Other than the
Subsidiaries, the Company does not own, directly or indirectly, any capital
stock or other equity securities of any other corporation or any ownership
interest in any partnership, joint venture or other association.
(l) Except as disclosed in the Prospectus, there are no outstanding
(i) securities or obligations of the Company or any of its Subsidiaries
convertible into or exchangeable for any capital stock of the Company or
any such Subsidiary, (ii) warrants, rights or options to subscribe for or
purchase from the Company or any such Subsidiary any such capital stock or
any such convertible or exchangeable securities or obligations, or (iii)
obligations of the Company or any such Subsidiary to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligation, or any such warrants, rights or options.
(m) The Company and the Subsidiaries have good and marketable title
to all real property, if any, and good title to all personal property owned
by them, in each case free and clear of all liens, security interests,
pledges, charges, encumbrances, mortgages and defects, except such as are
disclosed in the Prospectus or such as do not materially and adversely
affect the value of such property and do not interfere with the use made or
proposed to be made of such property by the Company and the Subsidiaries;
and any real property and buildings held under lease by the Company or any
Subsidiary are held under valid, existing and enforceable leases, with such
exceptions as are disclosed in the Prospectus or are not material and do
not interfere with the use made or proposed to be made of such property and
buildings by the Company or such Subsidiary.
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(n) The financial statements of the Company and its consolidated
Subsidiaries included in the Registration Statement and Prospectus present
fairly the financial position of the Company and its consolidated
Subsidiaries as of the dates indicated and the results of operations and
cash flows for the Company and its consolidated Subsidiaries for the
periods specified, all in conformity with generally accepted accounting
principles applied on a consistent basis. The financial statements of
Dolphin Services, Inc., Dolphin Sales and Rentals, Inc. and Dolphin Steel
Sales, Inc. (collectively, "Dolphin Services") included in the Registration
Statement and Prospectus present fairly the financial position of Dolphin
Services as of the dates indicated and the results of operations and cash
flows for Dolphin Services for the periods specified, all in conformity
with generally accepted accounting principles applied on a consistent
basis. The financial statement schedules included in the Registration
Statement and the historical financial amounts in the Prospectus under the
captions "Prospectus Summary -- Summary Financial and Operating Data",
"Capitalization" and "Selected Financial and Operating Data" fairly present
the information shown therein and have been compiled on a basis consistent
with the historical financial statements included in the Registration
Statement and the Prospectus. The unaudited pro forma financial information
(including the related notes) included in the Prospectus or any Preliminary
Prospectus complies as to form in all material respects to the applicable
accounting requirements of the 1933 Act and the 1933 Act Regulations, and
management of the Company believes that the assumptions underlying the pro
forma adjustments are reasonable. Such pro forma adjustments have been
properly applied to the historical amounts in the compilation of the
information and such information fairly presents with respect to the
Company and the Subsidiaries, the financial position, results of operations
and other information purported to be shown therein at the respective dates
and for the respective periods specified.
(o) Price Waterhouse LLP, who have examined and are reporting upon
the audited financial statements and schedules of the Company and Dolphin
Services included in the Registration Statement, are, and were during the
periods covered by their reports included in the Registration Statement and
the Prospectus, independent public accountants within the meaning of the
1933 Act and the 1933 Act Regulations.
(p) Ernst & Young LLP, who have examined the unaudited financial
statements of the Company included in the Registration Statement, are
independent accountants within the meaning of the 1933 Act and the 1933 Act
Regulations.
(q) None of the Company or the Subsidiaries has sustained, since
December 31, 1996, any material loss or interference with its business from
fire, explosion, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or arbitrators' or
court or governmental action, order or decree; and, since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, and except as otherwise stated in the Registration
Statement and Prospectus, there has not been (i) any material change in the
capital stock, long-term debt, obligations under capital leases or short-
term borrowings of the Company, or the Subsidiaries, or (ii) any material
adverse change, or
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any development which could reasonably be seen as involving a prospective
material adverse change, in or affecting the business, prospects,
properties, assets, results of operations or condition (financial or other)
of the Company, or the Subsidiaries.
(r) Neither the Company nor its Subsidiaries is in violation of its
respective charter, or by-laws, and no default exists, and no event has
occurred, nor state of facts exists, which, with notice or after the lapse
of time to cure or both, would constitute a default in the due performance
and observance of any obligation, agreement, term, covenant, consideration
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, note, lease or other agreement or instrument to which any such
entity is a party or to which any such entity or any of its properties is
subject. None of the Company or its Subsidiaries is in violation of, or in
default with respect to, any statute, rule, regulation, order, judgment or
decree, except as may be properly described in the Prospectus or such as in
the aggregate do not now have and will not in the future have a material
adverse effect on the financial position, results of operations or business
of each such entity, respectively.
(s) There is not pending or threatened any action, suit,
proceeding, inquiry or investigation against the Company, the Subsidiaries
or any of their respective officers and directors or to which the
properties, assets or rights of any such entity are subject, before or
brought by any court or governmental agency or body or board of arbitrators
that is required to be described in the Registration Statement or the
Prospectus but is not described as required.
(t) The descriptions in the Registration Statement and the
Prospectus of the contracts, leases and other legal documents therein
described present fairly the information required to be shown, and there
are no contracts, leases, or other documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(u) The Company owns, possesses or has obtained all material
permits, licenses, franchises, certificates, consents, orders, approvals
and other authorizations of governmental or regulatory authorities or other
entities as are necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as presently conducted,
or as contemplated in the Prospectus to be conducted, and the Company has
not received any notice of proceedings relating to revocation or
modification of any such licenses, permits, franchises, certificates,
consents, orders, approvals or authorizations.
(v) The Company owns or possesses adequate license or other rights
to use all patents, trademarks, service marks, trade names, copyrights,
software and design licenses, trade secrets, manufacturing processes, other
intangible property rights and know-how (collectively "Intangibles")
necessary to entitle the Company to conduct its business as described in
the Prospectus, and the Company has not received notice of infringement of
or conflict with (and knows of no such infringement of or conflict with)
asserted rights of others with respect to any Intangibles which could
materially and adversely affect the business,
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prospects, properties, assets, results of operations or condition
(financial or otherwise) of the Company.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences; and, none of the Company,
the Subsidiaries, or any employee or agent thereof, has made any payment of
funds of the Company or the Subsidiaries, or received or retained any funds
and no funds of the Company or the Subsidiaries have been set aside to be
used for any payment, in each case in violation of any law, rule or
regulation.
(x) Each of the Company and the Subsidiaries has filed on a timely
basis all necessary federal, state, local and foreign income and franchise
tax returns required to be filed through the date hereof and have paid all
taxes shown as due thereon; and no tax deficiency has been asserted against
any such entity, nor does any such entity know of any tax deficiency which
is likely to be asserted against any such entity which if determined
adversely to any such entity, could materially adversely affect the
business, prospects, properties, assets, results of operations or condition
(financial or otherwise) of any such entity, respectively. All tax
liabilities are adequately provided for on the respective books of such
entities.
(y) The Company and its Subsidiaries maintain insurance (issued by
insurers of recognized financial responsibility) of the types and in the
amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in
similar businesses, including, but not limited to, insurance covering real
and personal property owned or leased by the Company and its Subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect.
(z) Each of the Company, the Subsidiaries, and their officers,
directors or affiliates has not taken and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected
to, cause or result in or constitute the stabilization or manipulation of
any security of the Company or to facilitate the sale or resale of the
Shares.
(aa) The Company is not, will not become as a result of the
transactions contemplated hereby, or will not conduct its respective
businesses in a manner in which the Company would become, "an investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
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<PAGE>
Section 2. Representations and Warranties of the Selling Shareholders.
Each of the Selling Shareholders represents and warrants to, and agrees with,
each of the several Underwriters and the Company that:
(a) The Selling Shareholder has full right, power and authority to
enter into this Agreement, the Power of Attorney (as hereinafter defined)
and the Custody Agreement (as hereinafter defined) and to sell, assign,
transfer and deliver to the Underwriters the Shares to be sold by the
Selling Shareholder hereunder; and the execution and delivery of this
Agreement, the Power of Attorney and the Custody Agreement have been duly
authorized by all necessary action of the Selling Shareholder.
(b) The Selling Shareholder has duly executed and delivered this
Agreement, the Power of Attorney and the Custody Agreement, and each
constitutes the valid and binding agreement of the Selling Shareholder
enforceable against the Selling Shareholder in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(c) No consent, approval, authorization, order or declaration of or
from, or registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the Shares to be
sold by the Selling Shareholder or the consummation of the transactions
contemplated by this Agreement, the Power of Attorney or the Custody
Agreement, except the registration of such Shares under the 1933 Act
(which, if the Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided in this Agreement) and such
as may be required under state securities or blue sky laws in connection
with the offer, sale and distribution of such Shares by the Underwriters.
(d) The sale of the Shares to be sold by such Selling Shareholder
and the performance of this Agreement, the Power of Attorney and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with, or (with or without the giving
of notice or the passage of time or both) result in a breach or violation
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Selling Shareholder is a party or to
which any of its properties or assets is subject, nor will such action
conflict with or violate any provision of the charter or bylaws or other
governing instruments of the Selling Shareholder, if any, or any statute,
rule or regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the Selling
Shareholder or any of the Selling Shareholder's properties or assets.
(e) The Selling Shareholder has, and at the Closing Time (as
defined in Section 3 hereof) or, at the Date of Delivery, as the case may
be, the Selling Shareholder will have, good and valid title to the Shares
to be sold by the Selling Shareholder hereunder, free and
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<PAGE>
clear of all liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever; and, upon delivery of such Shares against payment
therefor as provided herein, good and valid title to such Shares, free and
clear of all liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever, will pass to the several Underwriters.
(f) The Selling Shareholder has not (i) taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares or (ii) since the filing of
the Registration Statement (A) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of, the Shares or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(g) When any Preliminary Prospectus was filed with the Commission
it (i) contained all statements required to be stated therein in accordance
with, and complied in all material respects with the requirements of, the
1933 Act and the rules and regulations of the Commission thereunder, and
(ii) did not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto or any
462(b) Registration Statement or any amendment thereto was or is declared
effective and at the Closing Time or the Date of Delivery, as the case may
be, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the 1933 Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When
the Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment
or supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or supplement
to the Prospectus was or is declared effective), and at the Closing Time or
the Date of Delivery, as the case may be, the Prospectus, as amended or
supplemented at any such time, (i) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the 1933 Act and
the rules and regulations of the Commission thereunder and (ii) did not or
will not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (g) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement,
any 462(b) Registration Statement or any amendment thereto or the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through you specifically for use therein.
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<PAGE>
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Internal Revenue Code of 1986, as amended, with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Time (as
hereinafter defined) a properly completed and executed United States Treasury
Department form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
Each of the Selling Shareholders represents and warrants that certificates
in negotiable form representing all of the Shares to be sold by such Selling
Shareholder hereunder have been placed in custody under a custody agreement (the
"Custody Agreement"), in the form heretofore furnished to and approved by you,
duly executed and delivered by such Selling Shareholder to American Stock
Transfer and Trust Company, as custodian (the "Custodian"), and that such
Selling Shareholder has duly executed and delivered a Power of Attorney (the
"Power of Attorney"), in the form heretofore furnished to and approved by you,
appointing Kerry J. Chauvin and Joseph P. Gallagher, III as such Selling
Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to
execute and deliver this Agreement on behalf of such Selling Shareholder, to
determine the purchase price to be paid by the Underwriters to the Selling
Shareholders as provided in Section 3 hereof, to authorize the delivery of the
Shares to be sold by such Selling Shareholder hereunder and otherwise to act on
behalf of such Selling Shareholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement.
Each of the Selling Shareholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Shareholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the Attorneys-in-
Fact by the Power of Attorney, are irrevocable. Each of the Selling
Shareholders specifically agrees that the obligations of the Selling
Shareholders hereunder shall not be terminated by operation of law, whether by
the death or incapacity of any individual Selling Shareholder or, in the case of
an estate or trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by the
occurrence of any other event.
Section 3. Sale and Delivery of the Shares to the Underwriters;
Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the
Selling Shareholders agree to sell to each of the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Selling
Shareholders, at the Closing Time (as defined below), the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule A (the
proportion which each Underwriter's share of the total number of the Firm
Shares bears to the total number of Firm Shares is hereinafter referred to
as such Underwriter's "underwriting obligation proportion"), at a purchase
price of $ per share.
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(b) In addition, on the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth,
the Selling Shareholders hereby grant an option to the Underwriters to
purchase, severally and not jointly, up to an additional 300,000 Option
Shares at the same purchase price as shall be applicable to the Firm
Shares. The option hereby granted will expire if not exercised within the
thirty (30) day period after the date of the Prospectus by giving written
notice to the Selling Shareholders. The option granted hereby may be
exercised in whole or in part (but not more than once) by you, as
representatives of the Underwriters, only for the purpose of covering over-
allotments that may be made in connection with the offering and
distribution of the Firm Shares. The notice of exercise shall set forth the
number of Option Shares as to which the several Underwriters are exercising
the option, and the time and date of payment therefor and of issuance and
delivery thereof. Such time and date of payment, issuance and delivery (the
"Date of Delivery") shall be determined by you but shall not be later than
three full business days after the exercise of such option, nor in any
event prior to the Closing Time. If the option is exercised as to all or
any portion of the Option Shares, the Option Shares as to which the option
is exercised shall be purchased by the Underwriters, severally and not
jointly, in their respective underwriting obligation proportions.
(c) Payment of the purchase price for and delivery of certificates
in definitive form representing the Firm Shares shall be made at the
offices of Morgan Keegan & Company, Inc., 50 Front Street, Memphis,
Tennessee 38103 or at such other place as shall be agreed upon by the
Selling Shareholders and you, at 10:00 a.m., either (i) on the third full
business day after the execution of this Agreement, or (ii) at such other
time not more than ten full business days thereafter as you and the Company
shall determine (unless, in either case, postponed pursuant to the term
hereof), (such date and time of payment and delivery being herein called
the "Closing Time"). In addition, in the event that any or all of the
Option Shares are purchased by the Underwriters, payment of the purchase
price for and delivery of certificates in definitive form representing the
Option Shares shall be made at the offices of Morgan Keegan & Company, Inc.
in the manner set forth above, or at such other place as the Selling
Shareholders and you shall determine, on the Date of Delivery as specified
in the notice from you to the Selling Shareholders. Payment for the Firm
Shares and the Option Shares shall be made to the Selling Shareholders by
wire transfer in same-day funds to the accounts designated to the
Underwriters in writing by the Selling Shareholders against delivery to you
for the respective accounts of the Underwriters of the Shares to be
purchased by them.
(d) The certificates representing the Shares to be purchased by the
Underwriters shall be in such denominations and registered in such names as
you may request in writing at least two full business days before the
Closing Time or the Date of Delivery, as the case may be. The certificates
representing the Shares will be made available at the offices of Morgan
Keegan & Company, Inc. or at such other place as Morgan Keegan & Company,
Inc. may
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<PAGE>
designate for examination and packaging not later than 10:00 a.m. at least
one full business day prior to the Closing Time or the Date of Delivery, as
the case may be.
(e) After the Registration Statement becomes effective, you intend
to offer the Shares to the public as set forth in the Prospectus, but after
the public offering of such Shares you may in your discretion vary the
public offering price.
Section 4. Certain Covenants of the Company. The Company covenants and
agrees with each Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (if not yet effective at the date and time
that this Agreement is executed and delivered by the parties hereto). If
the Company elects to rely upon Rule 430A of the 1933 Act Regulations or
the filing of the Prospectus is otherwise required under Rule 424(b) of the
1933 Act Regulations, the Company will comply with the requirements of Rule
430A and will file the Prospectus, properly completed, pursuant to the
applicable provisions of Rule 424(b), or a Term Sheet pursuant to and in
accordance with Rule 434, within the time period prescribed. If the Company
elects to rely upon Rule 462(b), the Company shall file a 462(b)
Registration Statement with the Commission in compliance with Rule 462(b)
by 10:00 p.m., Washington, D.C. time on the date of this Agreement, and the
Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee. The Company will notify you
immediately, and confirm the notice in writing, (i) when the Registration
Statement, 462(b) Registration Statement or any post-effective amendment to
the Registration Statement, shall have become effective, or any supplement
to the Prospectus or any amended Prospectus shall have been filed, (ii) of
the receipt of any comments from the Commission, (iii) of any request by
the Commission to amend the Registration Statement or 462(b) Registration
Statement or amend or supplement the Prospectus or for additional
information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any 462(b)
Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus or the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the institution or
threatening of any proceeding for any such purposes. The Company will use
every reasonable effort to prevent the issuance of any such stop order or
of any order preventing or suspending such use and, if any such order is
issued, to obtain the withdrawal thereof at the earliest possible moment.
(b) The Company will not at any time file or make any amendment to
the Registration Statement, or any amendment or supplement (i) to the
Prospectus, if the Company has not elected to rely upon Rule 430A, (ii) if
the Company has elected to rely upon Rule 430A, to either the Prospectus
included in the Registration Statement at the time it becomes effective or
to the Prospectus filed in accordance with Rule 424(b) or any Term Sheet
filed in accordance with Rule 434, or (iii) if the Company has elected to
rely upon Rule 462(b), to any 462(b) Registration Statement in any case if
you shall not have previously been advised and
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<PAGE>
furnished a copy thereof a reasonable time prior to the proposed filing, or
if you or counsel for the Underwriters shall object to such amendment or
supplement.
(c) The Company has furnished or will furnish to you, at its
expense, as soon as available, four copies of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all exhibits
and documents filed therewith and signed copies of all consents and
certificates of experts, as you may reasonably request, and has furnished
or will furnish to each Underwriter, one conformed copy of the Registration
Statement as originally filed and of each amendment thereto.
(d) The Company will deliver to each Underwriter, at the Company's
expense, from time to time, as many copies of each Preliminary Prospectus
as such Underwriter may reasonably request, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act. The
Company will deliver to each Underwriter, at the Company's expense, as soon
as the Registration Statement shall have become effective and thereafter
from time to time as requested during the period when the Prospectus is
required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as supplemented or amended) as each Underwriter may reasonably
request. The Company will comply to the best of its ability with the 1933
Act and the 1933 Act Regulations so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and in the
Prospectus. If the delivery of a prospectus is required at any time prior
to the expiration of nine months after the time of issue of the Prospectus
or any Term Sheet in connection with the offering or sale of the Shares and
if at such time any events shall have occurred as a result of which the
Prospectus or any Term Sheet as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made when such Prospectus or any Term
Sheet is delivered, not misleading, or, if for any reason it shall be
necessary during such same period to amend or supplement the Prospectus or
any Term Sheet in order to comply with the 1933 Act or the rules and
regulations thereunder, the Company will notify you and upon your request
prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request
of an amended Prospectus or any Term Sheet or a supplement to the
Prospectus or any Term Sheet or an amendment or supplement to any such
incorporated document which will correct such statement or omission or
effect such compliance, and in case any Underwriter is required to deliver
a prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus or any Term Sheet,
upon your request but at the expense of such Underwriter, the Company will
prepare and deliver to such Underwriter as many copies as you may request
of an amended or supplemented Prospectus or any Term Sheet complying with
Section 10(a)(3) of the 1933 Act.
(e) The Company will use its best efforts to qualify the Shares for
offering and sale under the applicable securities laws of such states and
other jurisdictions as you may
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designate and to maintain such qualifications in effect for as long as may
be necessary to complete the distribution of the Shares; provided, however,
that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to make any undertakings in
respect of doing business in any jurisdiction in which it is not otherwise
so subject. The Company will file such statements and reports as may be
required by the laws of each jurisdiction in which the Shares have been
qualified as above provided.
(f) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the end of
the fiscal quarter first occurring after the first anniversary of the
"effective date of the Registration Statement" (as defined in Rule 158(c)
of the 1933 Act Regulations), an earnings statement (in reasonable detail
but which need not be audited) complying with the provisions of Section
11(a) of the 1933 Act and Rule 158 thereunder.
(g) During a period of five years after the date hereof, the
Company will furnish to you: (i) concurrently with furnishing to its
securityholders, copies of any statements of operations of the Company for
each of the first three quarters furnished to the Company's
securityholders; (ii) concurrently with furnishing to its securityholders,
a balance sheet of the Company as of the end of such fiscal year, together
with statements of operations, of cash flows and of securityholders' equity
of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent public accountants; (iii) as
soon as they are available, copies of all reports (financial or otherwise)
mailed to securityholders; (iv) as soon as they are available, copies of
all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of
Securities Dealers, Inc. (the "NASD"); (v) every material press release in
respect of the Company or its affairs which is released by the Company; and
(vi) any additional information of a public nature concerning the Company
or its business that you may reasonably request. During such five-year
period, the foregoing financial statements shall be on a consolidated basis
to the extent that the accounts of the Company are consolidated with any
subsidiaries, and shall be accompanied by similar financial statements for
any significant subsidiary that is not so consolidated.
(h) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, the
Company will not, without the prior written consent of Morgan Keegan &
Company, Inc., offer, pledge, issue, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, or announce any offer,
pledge, sale, grant of any option to purchase or other disposition of,
directly or indirectly, any shares of Common Stock or securities
convertible into, exercisable for or exchangeable for shares of Common
Stock, except as provided in Section 3 of this Agreement, pursuant to the
Company's Long-Term Incentive Plan or in connection with acquisitions of
businesses or assets by the Company.
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(i) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which
may be the same entity as the transfer agent) for its Common Stock.
(j) The Company will cause the Shares to be listed, subject to
notice of issuance, on the Nasdaq Stock Market and will use commercially
reasonable best efforts to maintain the listing of the Shares on the Nasdaq
Stock Market.
(k) The Company is familiar with the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, and has in the
past conducted its affairs, and will in the future conduct its affairs, in
such a manner so as to ensure that the Company was not and will not be an
"investment company" or an entity "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) The Company will not, and will use its best efforts to cause
its officers, directors and affiliates not to, (i) take, directly or
indirectly prior to termination of the underwriting syndicate contemplated
by this Agreement, any action designed to stabilize or manipulate the price
of any security of the Company, or which may cause or result in, or which
might in the future reasonably be expected to cause or result in, the
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of any of the Shares, (ii) sell, bid for,
purchase or pay anyone any compensation for soliciting purchases of the
Shares or (iii) pay or agree to pay to any person any compensation for
soliciting any order to purchase any other securities of the Company.
(m) If at any time during the 30-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus) and after
written notice from you advising the Company to the effect set forth above,
the Company agrees to consult with you concerning the substance and
dissemination of a press release or other public statement responding to or
commenting on such rumor, publication or event.
Section 5. Covenants of the Selling Shareholders. Each of the Selling
Shareholders covenants and agrees with each of the Underwriters:
(a) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, the
Selling Shareholder will not, without the prior written consent of Morgan
Keegan & Company, Inc., offer, pledge, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, (or announce any
offer, pledge, sale, grant of an option to purchase or other disposition,
directly or indirectly) any shares of Common Stock or securities
convertible into, exercisable or exchangeable for, shares of Common Stock,
except as provided in Section 3 of this Agreement.
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(b) The Selling Shareholder will not (i) take, directly or
indirectly, prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to cause or to result
in, or that might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Shares, (ii) sell, bid for, purchase or
pay anyone any compensation for soliciting purchases of, the Shares or
(iii) pay to or agree to pay any person any compensation for soliciting
another to purchase any other securities of the Company.
Section 6. Payment of Expenses. The Company will pay and bear all costs,
fees and expenses incident to the performance of its and the Selling
Shareholders' obligations under this Agreement (excluding fees and expenses of
counsel for the Underwriters, except as specifically set forth below), including
(a) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits), as originally filed and as
amended, the Preliminary Prospectuses, the Prospectus and any Term Sheet and any
amendments or supplements thereto, and the cost of furnishing copies thereof to
the Underwriters, (b) the preparation, printing and distribution of this
Agreement, the certificates representing the Shares, the memoranda relating to
compliance with state securities laws ("Blue Sky Memoranda") and any instruments
relating to any of the foregoing, (c) the issuance and delivery of the Shares to
the Underwriters, including any transfer taxes payable upon the sale of the
Shares to the Underwriters (other than transfer taxes on resales by the
Underwriters), (d) the fees and disbursements of the Company's and the Selling
Shareholders' counsel and accountants, (e) the qualification of the Shares under
the applicable state securities laws in accordance with the terms of this
Agreement, including filing fees and fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation of
the Blue Sky Memoranda, (f) all costs, fees and expenses in connection with the
notification to the Nasdaq Stock Market of the proposed issuance of the Shares,
(g) filing fees relating to the review of the offering by the NASD, (h) the
transfer agent's and registrar's fees and all miscellaneous expenses referred to
in Part II of the Registration Statement, (i) costs related to travel and
lodging incurred by the Selling Shareholders, the Company and its
representatives relating to meetings with and presentations to prospective
purchasers of the Shares reasonably determined by the Underwriters to be
necessary or desirable to effect the sale of the Shares to the public, and (j)
all other costs and expenses incident to the performance of the Selling
Shareholders' and the Company's obligations hereunder (including costs incurred
in closing the purchase of the Option Shares, if any) that are not otherwise
specifically provided for in this section. The Company, upon your request, will
provide funds in advance for filing fees in connection with "blue sky"
qualifications.
If the sale of the Shares provided for herein is not consummated because
any condition to the obligations of the Underwriters set forth in Section 7
hereof is not satisfied, because of any termination pursuant to Section 10
hereof or because of any refusal, inability or failure on the part of the
Company or the Selling Shareholders to perform any agreement herein or comply
with any provision hereof other than by reason of default by any of the
Underwriters, the Company will reimburse the Underwriters severally on demand
for all reasonable out-of-pocket expenses, including
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fees and disbursements of Underwriters' counsel, reasonably incurred by the
Underwriters in reviewing the Registration Statement and the Prospectus, and in
investigating and making preparations for the marketing of the Shares.
Section 7. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for (i) the Firm Shares that they have
respectively agreed to purchase pursuant to this Agreement (and any Option
Shares as to which the option granted in Section 3 has been exercised and the
Date of Delivery determined by you is the same as the Closing Time) at the
Closing Time and (ii) the Option Shares at the Date of Delivery of the Option
Shares, are subject to the accuracy of the representations and warranties of the
Company and the Selling Shareholders contained herein as of the Closing Time or
the Date of Delivery, as the case may be, and to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in certificates of any officer of the Company and the Selling
Shareholders delivered pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholders of their obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 p.m. on the date of this Agreement or, with your consent,
at a later time and date not later, however, than 5:30 p.m. on the first
business day following the date hereof, or at such later time or on such
later date as you may agree to in writing; if the Company has elected to
rely upon Rule 462(b), the 462(b) Registration Statement shall have become
effective by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement; and at the Closing Time no stop order suspending the
effectiveness of the Registration Statement or any 462(b) Registration
Statement shall have been issued under the 1933 Act and no proceedings for
that purpose shall have been instituted or shall be pending or, to your
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the satisfaction of counsel
for the Underwriters. If the Company has elected to rely upon Rule 430A, a
Prospectus or a Term Sheet containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received a favorable
opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.,
counsel for the Company, dated as of the Closing Time, together with signed
or reproduced copies of such opinion for each of the other Underwriters, in
form and substance satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Louisiana with the corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the
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Registration Statement and the Prospectus. The Company is qualified
to transact business as a foreign corporation and is in good
standing in each of the jurisdictions in which the ownership or
leasing of the Company's properties or the nature or conduct of its
business requires such qualification, except where the failure to do
so would not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole.
(ii) Each of the Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws
of the state of its incorporation. Each such entity has all
requisite corporate power and authority to own, lease and operate
its properties and conduct its business as described in the
Registration Statement and the Prospectus. Each such entity is duly
qualified to do business and is in good standing as a foreign
corporation in each other jurisdiction in which the ownership or
leasing of its properties or the nature or conduct of its business
requires such qualification, except where the failure to do so would
not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of
the Company and the Subsidiaries taken as a whole.
(iii) The Company has the corporate power and authority to
enter into this Agreement and to perform its obligations hereunder.
This Agreement has been duly authorized, executed and delivered by
the Company and, assuming due authorization, execution and delivery
by the Underwriters, constitutes a valid and binding agreement of
the Company, enforceable in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws affecting creditors' rights
or by general principles of equity whether considered at law or in
equity, except to the extent that enforcement of the indemnification
provisions set forth in Section 8 of this Agreement may be limited
by federal or state securities laws or the public policy underlying
such laws and except that no opinion need be expressed as to the
effect of the first sentence of Section 15 of this Agreement as to
the laws of the State of Tennessee.
(iv) Each consent, approval, authorization, order, license,
certificate, permit, registration, designation or filing by or with
any governmental agency or body necessary for the execution,
delivery and performance of this Agreement has been made or obtained
and
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is in full force and effect, except such as may be necessary under
state securities laws or required by the NASD in connection with the
purchase and distribution of the Shares by the Underwriters, as to
which such counsel need express no opinion.
(v) The execution, delivery and performance of this
Agreement by the Company will not conflict with or result in a
breach or violation of any of the terms and provisions of, or (with
or without the giving notice or the passage of time or both)
constitute a default under, the charter or by-laws of the Company or
the Subsidiaries, respectively, or, to such counsel's knowledge
after due inquiry, under any indenture, mortgage, deed of trust,
loan agreement, note, lease or other agreement or instrument to
which the Company or the Subsidiaries, respectively, is a party or
to which the Company or the Subsidiaries, respectively, any of their
respective properties or other assets, is subject; or, to such
counsel's knowledge, any applicable statute, judgment, decree,
order, rule or regulation of any court or governmental agency or
body; or to such counsel's knowledge, result in the creation or
imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company or the Subsidiaries, respectively.
(vi) The Common Stock conforms in all material respects as to
legal matters to the description thereof contained in the
Registration Statement and the Prospectus under the heading
"Description of Capital Stock."
(vii) To such counsel's knowledge, no preemptive rights of
shareholders exist with respect to any of the Shares which have not
been satisfied or waived. To such counsel's knowledge, no person or
entity holds a right to require or participate in the registration
under the 1933 Act of the Shares pursuant to the Registration
Statement which has not been satisfied or waived and, except as set
forth in the Prospectus, no person holds a right to require
registration under the 1933 Act of any shares of Common Stock of the
Company at any other time which has not been satisfied or waived.
The form of certificates evidencing the Shares complies with all
applicable requirements of Louisiana law.
(viii) The Company has an authorized capitalization as set
forth in the Prospectus under the caption "Capitalization." All of
the issued shares of capital stock of the Company, including the
Shares, have been duly authorized and validly issued, are fully paid
and nonassessable. None of the issued shares of capital stock of the
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Company has been issued or is owned or held in violation of any
preemptive rights of shareholders.
(ix) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and, to such counsel's knowledge after due
inquiry, are owned directly, or indirectly through another
Subsidiary, by the Company free and clear of all liens, security
interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature
whatsoever except security interests disclosed in the Prospectus.
To such counsel's knowledge after due inquiry, other than the
Subsidiaries, the Company does not own, directly or indirectly, any
capital stock or other equity securities of any other corporation or
any ownership interest in any partnership, joint venture or other
association.
(x) Except as disclosed in the Prospectus, to such counsel's
knowledge after due inquiry, there are no outstanding (i) securities
or obligations of the Company or any of its Subsidiaries convertible
into or exchangeable for any capital stock of the Company or any
such Subsidiary, (ii) warrants, rights or options to subscribe for
or purchase from the Company or any such Subsidiary any such capital
stock or any such convertible or exchangeable securities or
obligations, or (iii) obligations of the Company or any such
Subsidiary to issue any shares of capital stock, any such
convertible or exchangeable securities or obligation, or any such
warrants, rights or options.
(xi) Neither the Company nor its Subsidiaries is in violation
of their respective charter or by-laws, and, to such counsel's
knowledge after due inquiry, no material default exists, and no
event has occurred nor state of facts exist which, with notice or
after the lapse of time to cure or both, would constitute a material
default in the due performance and observance of any obligation,
agreement, term, covenant, or condition contained in any indenture,
mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which any such entity is a party or to
which any such entity or any of its properties is subject.
(xii) To such counsel's knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation
against the Company, the Subsidiaries or any of their respective
officers and directors or to which the properties, assets or rights
of any such entity
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are subject, before or brought by any court or governmental agency
or body or board of arbitrators, that is required to be described in
the Registration Statement or the Prospectus but is not described as
required.
(xiii) The descriptions in the Registration Statement and the
Prospectus of the contracts, leases and other legal documents
therein described present fairly the information required to be
shown and there are no contracts, leases or other documents known to
such counsel of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement which are not described or filed as
required.
(xiv) The Common Stock has been approved for trading on the
Nasdaq Stock Market .
(xv) The Registration Statement and any 462(b) Registration
Statement have become effective under the 1933 Act and, to the
knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any 462(b)
Registration Statement has been issued and no proceeding for that
purpose has been instituted or is pending or contemplated under the
1933 Act. Other than financial statements and other financial and
operating data and schedules contained therein, as to which counsel
need express no opinion, the Registration Statement, any 462(b)
Registration Statement, all Preliminary Prospectuses, the Prospectus
and any amendment or supplement thereto, appear on their face to
conform as to form in all material respects with the requirements of
the 1933 Act and the rules and regulations thereunder.
(xvi) The Company is not, or solely as a result of the
consummation of the transactions contemplated hereby will not
become, an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company
Act of 1940, as amended.
(xvii) The descriptions in the Prospectus of statutes,
regulations, legal or governmental proceedings are accurate and
present fairly a summary of the information required to be shown
under the 1933 Act and the 1933 Act Regulations. The information in
the Prospectus under the caption "Shares Available for Future Sale"
to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel, is correct and
presents fairly the information required
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to be disclosed therein under the 1933 Act and the 1933 Act
Regulations.
Such counsel also shall state that they have no reason to believe
that the Registration Statement, any 462(b) Registration Statement or
any further amendment thereto made prior to the Closing Time or the Date
of Delivery, as the case may be, on its effective date and as of the
Closing Time or the Date of Delivery, as the case may be, contained or
contains any untrue statement of a material fact or omitted or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, or
any amendment or supplement thereto made prior to the Closing Time or
the Date of Delivery, as the case may be, as of its issue date and as of
the Closing Time or the Date of Delivery, as the case may be, contained
or contains any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (provided that such counsel need express no belief regarding
the financial statements and related schedules and other financial data
contained in the Registration Statement, any 462(b) Registration
Statement, any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).
(c) You shall have received an opinion, dated such Time of Delivery,
of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel
for the Selling Shareholders, in form and substance satisfactory to you and
your counsel, to the effect that:
(i) The Power of Attorney and the Custody Agreement have been
duly executed and delivered by each Selling Shareholder,
and each is enforceable against each Selling Shareholder
in accordance with its terms subject, as to enforcement,
to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to
general equitable principles.
(ii) This Agreement has been duly executed and delivered by or
on behalf of each Selling Shareholder; the sale of the
Shares to be sold by each Selling Shareholder at such Time
of Delivery and the performance of this Agreement, the
Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein
contemplated will not conflict with or (with or without
the giving of notice or the passage of time or both)
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which each Selling
Shareholder is a party or to which any of its properties
or assets is subject, nor will such
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action conflict with or violate any statute, rule or
regulation or any order, judgment or decree of any court
or governmental agency or body having jurisdiction over
such Selling Shareholder or any of such Selling
Shareholder's properties or assets.
(iii) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with,
any court or governmental agency or body is required for
the issue and sale of the Shares being sold by such
Selling Shareholder or the consummation of the
transactions contemplated by this Agreement, the Power of
Attorney or the Custody Agreement, except the registration
of such Shares under the Act and such as may be required
under state securities or blue sky laws in connection with
the offer, sale and distribution of such Shares by the
Underwriters.
(iv) Such Selling Shareholder has, and immediately prior to
such Closing Time such Selling Shareholder will have, good
and valid title to the Shares to be sold by such Selling
Shareholder hereunder, free and clear of all liens,
security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities
or claims of any nature whatsoever; and, upon delivery of
such Shares against payment therefor as provided herein,
good and valid title to such Shares, free and clear of all
liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities
or claims of any nature whatsoever, will pass to the
several Underwriters.
In rendering the opinions set forth in Sections 7(b) and (c), such
counsel may rely on the following:
(A) as to matters involving the application of laws other
than the laws of the United States and jurisdictions in which
they are admitted, to the extent such counsel deems proper and to
the extent specified in such opinion, upon an opinion or opinions
(in form and substance reasonably satisfactory to Underwriters'
counsel) of other counsel familiar with the applicable laws, and
(B) as to matters of fact, to the extent they deem proper,
on certificates of responsible officers of the Company and
certificates or other written statements of officers or
departments of various jurisdictions having custody of documents
respecting the existence or good standing of the Company,
provided that copies of all such opinions, statements or
certificates shall be delivered to Underwriters'
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counsel. The opinion of counsel for the Company shall state that
the opinion of any other counsel, or certificate or written
statement, on which such counsel is relying is in form
satisfactory to such counsel and their belief that you and they
are justified in relying thereon.
(d) At the Closing Time, you shall have received a favorable opinion
from Andrews & Kurth L.L.P., counsel for the Underwriters, dated as of the
Closing Time, with respect to the incorporation of the Company, the
issuance and sale of the Shares, the Registration Statement, the Prospectus
and other related matters as the Underwriters may reasonably require, and
the Company shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass on such
matters.
(e) At the Closing Time, (i) the Registration Statement, any 462(b)
Registration Statement, and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations; the Company shall have complied in all material respects with
Rule 430A (if it shall have elected to rely thereon) and neither the
Registration Statement, any 462(b) Registration Statement, nor the
Prospectus, as they may then be amended or supplemented, shall contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) there shall not have been, since the respective dates
as of which information is given in the Registration Statement, any
material adverse change in the business, prospects, properties, assets,
results of operations or condition (financial or otherwise) of the Company,
whether or not arising in the ordinary course of business, (iii) no action,
suit or proceeding at law or in equity shall be pending or, to the best of
Company's knowledge, threatened against the Company that would be required
to be set forth in the Prospectus other than as set forth therein and no
proceedings shall be pending or, to the best knowledge of the Company,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding could materially adversely affect the business,
prospects, assets, results of operations or condition (financial or
otherwise) of the Company, other than as set forth in the Prospectus, (iv)
the Company shall have complied with all agreements and satisfied all
conditions on their part to be performed or satisfied pursuant to this
Agreement at or prior to the Closing Time, and (v) the representations and
warranties of the Company set forth in Section 1 shall be accurate as
though expressly made at and as of the Closing Time. At the Closing Time,
you shall have received a certificate executed by the President and Chief
Financial Officer of the Company dated as of the Closing Time, to such
effect and with respect to the following additional matters: (A) the
Registration Statement has become effective under the 1933 Act and no stop
order suspending the effectiveness of the Registration Statement or
preventing or suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the
best of their knowledge, threatened under the 1933 Act; and (B) they have
reviewed the Registration Statement and the Prospectus and, when the
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Registration Statement and any 462(b) Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement, any 462(b) Registration Statement
and the Prospectus and any amendments or supplements thereto contained all
statements and information required to be included therein or necessary to
make the statements therein not misleading and neither the Registration
Statement, any 462(b) Registration Statement, nor the Prospectus nor any
amendment or supplement thereto included any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus that has
not been so set forth. The representations and warranties of the Selling
Shareholders set forth herein shall be accurate as though expressly made at
and as of the Closing Time. At the closing time, you shall have received a
certificate executed on behalf of the Selling Shareholders to such effect.
(f) You shall have received from Price Waterhouse LLP letters dated,
respectively, the date hereof (or, if the Registration Statement has been
declared effective prior to the execution and delivery of this Agreement,
dated such effective date and the date of this Agreement) and the Closing
Time and the Date of Delivery, in form and substance satisfactory to you, to
the effect set forth in Annex I hereto. In the event that the letters
referred to in this subsection set forth any changes, decreases or increases
in the items specified in paragraph (iii) of Annex I, it shall be a further
condition to the obligations of the Underwriters that (i) such letters shall
be accompanied by a written explanation by the Company as to the
significance thereof, unless the Underwriters deem such explanation
unnecessary, and (ii) such changes, decreases or increases do not, in your
sole judgment, make it impracticable or inadvisable to proceed with the
purchase, sale and delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date of such letter.
(g) You shall have received from Ernst & Young LLP letters dated,
respectively, the date hereof (or, if the Registration Statement has been
declared effective prior to the execution and delivery of this Agreement,
dated such effective date and the date of this Agreement) and the Closing
Time and the Date of Delivery, in form and substance satisfactory to you, to
the effect set forth in Annex II hereto. In the event that the letters
referred to in this subsection set forth any changes, decreases or increases
in the items specified in paragraph (iii) of Annex I, it shall be a further
condition to the obligations of the Underwriters that (i) such letters shall
be accompanied by a written explanation by the Company as to the
significance thereof, unless the Underwriters deem such explanation
unnecessary, and (ii) such changes, decreases or increases do not, in your
sole judgment, make it impracticable or inadvisable to proceed with the
purchase, sale and delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date of such letter.
(h) At the Closing Time, you shall have received from Price Waterhouse
LLP a letter, in form and substance satisfactory to you and dated as of the
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (f) above,
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except that the specified date referred to shall be a date not more than
five days prior to the Closing Time.
(i) At the Closing Time, you shall have received from Ernst & Young
LLP a letter, in form and substance satisfactory to you and dated as of the
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (g) above, except that the specified
date referred to shall be a date not more than five days prior to the
Closing Time.
(j) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
request for the purpose of enabling them to pass upon the sale of the Shares
as contemplated in this Agreement and the matters referred to in Section
7(d) and in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company and the Selling
Shareholders, the performance of any of the covenants of the Company and the
Selling Shareholders, or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company at or prior to the
Closing Time in connection with this Agreement shall be reasonably
satisfactory in form and substance to you and to counsel for the
Underwriters. The Company and the Selling Shareholders will furnish you with
such number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
(k) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(l) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) there has occurred or accelerated any outbreak of
hostilities or other national or international calamity or crisis or change
in economic or political conditions the effect on the financial markets of
the United States is such as to make it, in your judgment, impracticable to
market the Shares or enforce contracts for the sale of the Shares, or (ii)
trading in any securities of the Company has been suspended by the
Commission or by the Nasdaq Stock Market, or if trading generally on the New
York Stock Exchange or in the over-the-counter market has been suspended, or
limitations on prices for trading (other than limitations on hours or
numbers of days of trading) have been fixed, or maximum ranges for prices
for securities have been required, by such exchange or the NASD or by order
of the Commission or any other governmental authority, or (iii) there has
been any downgrading in the rating of any of the Company's debt securities
or preferred stock by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the 1933 Act),
or (iv) a banking moratorium has been declared by federal or New York or
Tennessee authorities, or (v) any federal or state statute, regulation, rule
or order of any court or other governmental authority has been enacted,
published, decreed or otherwise promulgated which in your reasonable opinion
materially adversely affects or will materially adversely affect the
business or operations of the Company, or (vi) any action has been taken by
any federal, state or local
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government or agency in respect of its monetary or fiscal affairs which in
your reasonable opinion has a material adverse effect on the securities
markets in the United States.
(m) Prior to the date of the execution of this Agreement, the Company
shall have furnished to the Representatives a letter substantially in the
form of Exhibit A hereto from each officer and director of the Company
(excluding the Selling Shareholders) and from each person who beneficially
owns five percent or more of the Company's outstanding Common Stock
(excluding the Selling Shareholders), addressed to the Representatives, in
which each such person agrees not to offer, pledge, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, or announce any
offer, pledge, sale, grant of any option to purchase or other disposition
of, directly or indirectly, any shares of Common Stock beneficially owned by
such person or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock for a period of 180 days after the
date of the Prospectus without the prior written consent of Morgan Keegan &
Company, Inc.; provided, however, that the foregoing restrictions shall not
apply to any gift of Common Stock to a donee who agrees in writing for the
benefit of the Underwriters to be bound by the foregoing restrictions with
respect to such shares of Common Stock.
If any of the conditions specified in this Section 7 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
may be terminated by you on notice to the Company and the Selling Shareholders
at any time at or prior to the Closing Time, and such termination shall be
without liability of any party to any other party, except as provided in Section
6. Notwithstanding any such termination, the provisions of Section 8 shall
remain in effect.
The several obligations of the Underwriters to purchase Option Shares
hereunder are subject to the satisfaction on and as of any Date of Delivery for
Option Shares of the conditions set forth in this Section 7, except that, if any
Date of Delivery for Option Shares is other than the Closing Time, the
certificates, opinions and letters referred to in paragraphs (b), (c) and (d)
shall be revised to reflect the sale of Option Shares.
Section 8. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject under the 1933 Act, or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (i) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in (A) any Preliminary
Prospectus, the Registration Statement, any 462(b) Registration Statement or
the Prospectus, or any amendment or supplement thereto, or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the
Shares under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or (ii) arise
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<PAGE>
out of or are based upon the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement, any 462(b) Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in any Preliminary Prospectus, the Registration Statement, any 462(b)
Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by any Underwriter expressly for use therein. The
Company will also indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint and several, to which such
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any breach of any warranty or covenant of the Company contained herein. In
addition to its other obligations under this Section 8(a), the Company
agrees that, as an interim measure during the pendency of any such claim,
action, investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission,
described in this Section 8(a), it will reimburse the Underwriters on a
monthly basis for all reasonable legal and other expenses incurred by the
Underwriters in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability
of the obligations of the Company to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction; provided, however, that
the obligation of the Company to make any such reimbursements shall be
subject to receipt from the Underwriters of an undertaking to return any
such reimbursements to the extent that is determined by a court of competent
jurisdiction or an arbitrator appointed in accordance with Section 8(e) that
such indemnification of the Underwriters by the Company is not permitted.
Any such interim reimbursement payments that are not made to an Underwriter
within 30 days of a request for reimbursement shall bear interest at the
prime rate (or reference rate or other commercial lending rate for borrowers
of the highest credit standing) published from time to time by The Wall
Street Journal (the "Prime Rate") from the date of such request. This
indemnity agreement shall be in addition to any liabilities that the Company
may otherwise have. The Company will not, without the prior written consent
of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened action or claim or related cause of
action or portion of such cause of action in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is
a party to such action or claim), unless such settlement, compromise or
consent includes an unconditional release of such Underwriter from all
liability arising out of such action or claim (or related cause of action or
portion thereof).
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The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the 1933
Act to the same extent as such agreement applies to the Underwriters.
(b) Each Selling Shareholder, severally but not jointly, will
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may
become subject under the 1933 Act, or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) (i) arise out
of or are based upon any breach of any warranty or covenant of such Selling
Shareholder herein contained (other than the warranty set forth in Section
2(g) hereof), (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in (A) any Preliminary
Prospectus, the Registration Statement, any 462(b) Registration Statement or
the Prospectus, or any amendment or supplement thereto, or (B) any
Application, or (iii) arise out of or are based upon the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement,
any 462(b) Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any 462(b) Registration Statement or any amendment
or supplement thereto, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto or any Application was made in reliance upon
and in conformity with written information furnished to the Company by such
Selling Shareholder expressly for use therein, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action. In addition to their other obligations
under this Section 8(b), each Selling Shareholder agrees that, as an interim
measure during the pendency of any such claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section
8(b), such Selling Shareholder will reimburse the Underwriters on a monthly
basis for all reasonable legal and other expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of such Selling
Shareholder's obligation to reimburse the Underwriters for such expenses and
the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction; provided, however, that the obligation
of the Selling Shareholders to make any such reimbursements shall be subject
to receipt from the Underwriters of an undertaking to return any such
reimbursements to the extent that is determined by a court of competent
jurisdiction or an arbitrator appointed in accordance with Section 8(e) that
such indemnification of the Underwriters by the Selling Shareholders is not
permitted. Any such interim reimbursement payments that are not made to an
Underwriter within 30 days of a request for reimbursement shall bear
interest at the prime rate (or reference rate or other commercial lending
rate for borrowers of the highest credit standing) published from time to
time by The Wall Street
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Journal (the "Prime Rate") from the date of such request. This indemnity
agreement shall be in addition to any liabilities that such Selling
Shareholder may otherwise have. Such Selling Shareholder will not, without
the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened action or
claim or related cause of action or portion of such cause of action in
respect of which indemnification may be sought hereunder (whether or not
such Underwriter is a party to such action or claim), unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter from all liability arising out of such action or claim (or
related cause of action or portion thereof).
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the 1933
Act to the same extent as such agreement applies to the Underwriters.
(c) Each Underwriter, severally but not jointly, will indemnify and
hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company and such Selling
Shareholder may become subject, under the 1933 Act, or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any warranty or covenant by
such Underwriter herein contained or any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement, any 462(b) Registration Statement or the Prospectus,
or any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter expressly for use therein; and will reimburse the Company and
each Selling Shareholder for any legal or other expenses reasonably incurred
by the Company and such Selling Shareholder in connection with investigating
or defending any such loss, claim, damage, liability or action. In addition
to its other obligations under this Section 8(c), the Underwriters agree
that, as an interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
this Section 8(c), they will reimburse the Company and each Selling
Shareholder on a monthly basis for all reasonable legal and other expenses
incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability
of their obligation to reimburse the Company and each Selling Shareholder
for such expenses and the possibility that such payments might later be held
to have been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to the Company and each Selling
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Shareholder within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement shall be in addition to any liabilities that the Underwriters may
otherwise have. No Underwriter will, without the prior written consent of
the Company and the Selling Shareholders, settle or compromise or consent to
the entry of judgment in any pending or threatened action or claim or
related cause of action or portion of such cause of action in respect of
which indemnification may be sought hereunder (whether or not the Company or
the Selling Shareholders are parties to such action or claim), unless such
settlement, compromise or consent includes an unconditional release of the
Company and the Selling Shareholders from all liability arising out of such
action or claim (or related cause of action or portion thereof).
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer and director of the Company and each person, if any, who controls
the Company and each Selling Shareholder within the meaning of the 1933 Act
to the same extent as such agreement applies to the Company and the Selling
Shareholder.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party
in writing of the commencement thereof; no indemnification provided for in
subsection (a), (b) or (c) shall be available to any party who shall fail to
give notice as provided in this subsection (d) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice, but the
omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability that it may have to any indemnified
party otherwise than under Section 8. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party (which consent shall not be
unreasonably withheld), be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, except
that if the indemnified party has been advised by counsel in writing that
there are one or more defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party,
then the indemnified party shall have the right to employ separate counsel
and in that event the reasonable fees and expenses of such separate counsel
for the indemnified party shall be paid by the indemnifying party; provided,
however, that if the indemnifying party is the Company or a Selling
Shareholder, the indemnifying party shall only be obligated to pay the
reasonable fees and expenses of a single law firm (and any reasonably
necessary local counsel) employed by all of the indemnified parties. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final
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judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 8(a), (b) and
(c) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned among the indemnifying parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the
National Association of Securities Dealers, Inc. Any such arbitration must
be commenced by service of a written demand for arbitration or a written
notice of intention to arbitrate, therein electing the arbitration tribunal.
In the event the party demanding arbitration does not make such designation
of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 8(a), (b) and (c) hereof and will not
resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses that is created by the provisions of Sections 8(a),
(b) and (c).
(f) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 8 is
for any reason judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the right of appeal) to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the
Company and the Selling Shareholders, on the one hand, and the Underwriters,
on the other hand, shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
incurred by the Company and the Selling Shareholders, and one or more of the
Underwriters, as incurred, in such proportions that (a) the Underwriters are
responsible pro rata for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus bears to
the public offering price (before deducting expenses) appearing thereon, and
(b) the Company and the Selling Shareholders are responsible for the
balance, provided, however, that no person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation; provided, further, that if the allocation
provided above is not permitted by applicable law, the Company and the
Selling Shareholders, on the one hand, and the Underwriters, on the other
hand, shall contribute to the aggregate losses in such proportion as is
appropriate to reflect not only the relative benefits referred to above but
also the relative fault of the Company and the Selling Shareholders, on the
one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company or the Selling Shareholders, on the one hand, or by the
Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 8(f) were determined by pro rata allocation (even
if the Underwriters were treated as one entity for such
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purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8(f). The
amount paid or payable by a party as a result of the losses, claims, damages
or liabilities referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending such action or claim. Notwithstanding the
provisions of this Section 8(f), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. The Underwriters'
obligations in this Section 8(f) to contribute are several in proportion to
their respective underwriting obligations and not joint. For purposes of
this Section 8(f), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company or the Selling Shareholders, within
the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Company or the Selling Shareholders.
Section 9. Representations, Warranties and Agreements to Survive
Delivery. The representations, warranties, indemnities, agreements and other
statements of the Company or its officers and the Selling Shareholders set forth
in or made pursuant to this Agreement (except for the representation and
warranty in Section 2(g) hereof) will remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Company, any
Selling Shareholder or any Underwriter or controlling person, and with respect
to an Underwriter or the Company and the Selling Shareholders will survive
delivery of and payment for the Shares or termination of this Agreement.
Section 10. Effective Date of Agreement and Termination.
(a) This Agreement shall become effective immediately as to
Sections 6 and 8 and, as to all other provisions, (i) if at the time of
execution of this Agreement the Registration Statement has not become
effective, at 9:30 a.m. New York, New York time on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at
the time of execution of this Agreement the Registration Statement has been
declared effective, at 9:30 a.m. New York, New York time on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by
notice to the Company and the Selling Shareholders or by release of any of
the Shares for sale to the public. For the purposes of this Section 10, the
Shares shall be deemed to have been so released upon the release of
publication of any newspaper advertisement relating to the Shares or upon
the release by you of telegrams (i) advising the Underwriters that the
Shares are released for public offering, or (ii) offering the Shares for
sale to securities dealers, whichever may occur first. By giving notice
before the time this Agreement becomes effective, you, as representatives of
the several Underwriters, may prevent this Agreement from becoming
effective, without liability of any party to any other party, except that
the Company shall
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remain obligated to pay costs and expenses to the extent provided in Section
6 hereof and except that the provisions of Section 8 shall remain in effect.
(b) You may terminate this Agreement, by notice to the Company and
the Selling Shareholders, at any time at or prior to the Closing Time (i) in
accordance with the penultimate paragraph of Section 7 of this Agreement, or
(ii) if there has been since the respective dates as of which information is
given in the Registration Statement, any material adverse change, or any
development involving a prospective material adverse change, in or affecting
the business, prospects, management, properties, assets, results of
operations or condition (financial or otherwise) of the Company, whether or
not arising in the ordinary course of business, or (iii) if there has
occurred or accelerated any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political
conditions the effect of which on the financial markets of the United States
is such as to make it, in your judgment, impracticable to market the Shares
or enforce contracts for the sale of the Shares, or (iv) if trading in any
securities of the Company has been suspended by the Commission or by the
Nasdaq Stock Market or if trading generally on the New York Stock Exchange
or in the over-the-counter market has been suspended, or limitations on
prices for trading (other than limitations on hours or numbers of days of
trading) have been fixed, or maximum ranges for prices for securities have
been required, by such exchange or the NASD or by order of the Commission or
any other governmental authority, or (v) if there has been any downgrading
in the rating of any of the Company's debt securities or preferred stock by
any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the 1933 Act), or (vi) if a banking moratorium
has been declared by federal or New York or Tennessee authorities, or (vii)
any federal or state statute, regulation, rule or order of any court or
other governmental authority has been enacted, published, decreed or
otherwise promulgated which in your reasonable opinion materially adversely
affects or will materially adversely affect the business or operations of
the Company, or (viii) any action has been taken by any federal, state or
local government or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the
securities markets in the United States.
(c) If this Agreement is terminated pursuant to this Section 10,
such termination shall be without liability of any party to any other party,
except to the extent provided in Section 6. Notwithstanding any such
termination, the provisions of Section 8 shall remain in effect.
Section 11. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at the Closing Time to purchase the Shares that
it or they are obligated to purchase pursuant to this Agreement (the "Defaulted
Securities"), you shall have the right, within 36 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms set forth in
this Agreement; if, however, you have not completed such arrangements within
such 36-hour period, then:
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(a) If the aggregate number of Firm Shares which are Defaulted
Securities does not exceed 10% of the aggregate number of Firm Shares to be
purchased pursuant to this Agreement, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligation proportions bear to the
underwriting obligations of all non-defaulting Underwriters, and
(b) If the aggregate number of Firm Shares which are Defaulted
Securities exceeds 10% of the aggregate number of Firm Shares to be
purchased pursuant to this Agreement, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination of
this Agreement, either you or the Company or the Selling Shareholders shall have
the right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus that may thereby be made necessary. As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section 11.
Section 12. Default by the Selling Shareholders. If the Selling
Shareholders shall fail at the Closing Time to sell and deliver the aggregate
number of Firm Shares that they are obligated to sell, then this Agreement shall
terminate without any liability on the part of any non-defaulting party, except
to the extent provided in Section 6 and except that the provisions of Section 8
shall remain in effect.
No action taken pursuant to this Section shall relieve the Selling
Shareholders from liability, if any, in respect to such default.
Section 13. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed c/o Morgan Keegan & Company, Inc.,
50 Front Street, Memphis, Tennessee 38103, Attention: Mike Harris (with a copy
sent in the same manner to Andrews & Kurth L.L.P., 4200 Texas Commerce Tower,
Houston, Texas 77002, Attention: Thomas P. Mason); notices to the Company shall
be directed to it at 583 Thompson Road, Houma, Louisiana 70363, Attention: Kerry
J. Chauvin (with a copy of each notice to the Company or to either Selling
Shareholder sent in the same manner to Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P., 201 St. Charles Avenue, New Orleans, Louisiana 70170,
Attention: Carl C. Hanemann); notices to Alden J. Laborde shall be directed to
him at 210 Baronne Street, New Orleans, Louisiana 70112; and notices to Huey J.
Wilson shall be directed to him at Huey Wilson Interests, 3636 S. Sherwood
Forest Blvd., Suite 650, Baton Rouge, Louisiana 70816.
36
<PAGE>
Section 14. Parties. This Agreement is made solely for the benefit of
and is binding upon the Underwriters, the Selling Shareholders and the Company
and, to the extent provided in Section 8, any person controlling the Company and
the Selling Shareholders or any of the Underwriters, the officers and directors
of the Company, and their respective executors, administrators, successors and
assigns. Subject to the provisions of Section 8, no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include any purchaser, as such purchaser, from any of the
several Underwriters of the Shares.
All of the obligations of the Underwriters hereunder are several and not
joint.
Section 15. Governing Law and Time. This Agreement shall be governed by
the laws of the State of Tennessee. Specified time of the day refers to United
States Eastern Time. Time shall be of the essence of this Agreement.
Section 16. Counterparts. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
37
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, and upon the acceptance
hereof by Morgan Keegan & Company, Inc., on behalf of each of the Underwriters,
this instrument will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms. It is
understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in the Master Agreement
Among Underwriters, a copy of which shall be submitted to the Company for
examination, upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
GULF ISLAND FABRICATION, INC.
By:_____________________________
Name: Kerry J. Chauvin
Title: President and Chief Executive Officer
________________________________
Alden J. Laborde
________________________________
Huey J. Wilson
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above:
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
JOHNSON RICE & COMPANY L.L.C.
By: Morgan Keegan & Company, Inc.
By:_____________________________
(Authorized Representative)
On behalf of each of the Underwriters
38
<PAGE>
SCHEDULE A
Number of
Firm Shares
to be Purchased
---------------
Underwriter
- -----------
Morgan Keegan & Company, Inc. ........................
Raymond James & Associates, Inc. .....................
Johnson Rice & Company L.L.C. ........................
---------
TOTAL ................................................ 2,000,000
=========
39
<PAGE>
SCHEDULE B
SELLING SHAREHOLDERS
Number of
Firm Shares
to be Sold
-----------
Name
- ----
Alden J. Laborde. ....................................
Huey J. Wilson. ......................................
-----------
TOTAL ................................................ 2,000,000
===========
40
<PAGE>
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, Price Waterhouse
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent public accountants with respect to the
Company and its consolidated subsidiaries and with respect to Dolphin
Services within the meaning the 1933 Act and the applicable published rules
and regulations thereunder;
(ii) In their opinion, the consolidated financial statements and
schedules audited by them and included in the Prospectus, the Registration
Statement and any 462(b) Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the related published rules and regulations thereunder;
(iii) The financial statements of the Company as of and for the nine-
month period ended September 30, 1996 were reviewed by them in accordance
with the standards established by the American Institute of Certified
Public Accountants and based upon their review they are not aware of any
material modifications that should be made to such financial statements for
them to be in conformity with generally accepted accounting principles, and
such financial statements comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the applicable
rules and regulations thereunder;
(iv) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the latest available interim unaudited consolidated financial
statements of the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus, a reading of the latest
available interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries since
the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) the unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus do not comply in form in all
material respects with the applicable accounting requirements of the
1933 Act and the related published rules and regulations thereunder or
are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration
Statement and the Prospectus;
(B) as of a specified date not more than 5 days prior to the date
of such letter, there were any changes in the capital stock (other
than the issuance of capital
<PAGE>
stock upon exercise of options which were outstanding on the date of
the latest balance sheet included in the Prospectus) or any increase
in inventories or the long-term debt or short-term debt of the Company
and its subsidiaries, or any decreases in net current assets or net
assets or other items specified by the Underwriters, or any increases
in any items specified by the Underwriters, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(C) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (B) there were any decreases in net sales or operating
income or the total or per share amounts of net income or other items
specified by the Underwriters, or any increases in any items specified
by the Underwriters, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Underwriters, except in each
case for increases or decreases which the Prospectus discloses have
occurred or may occur which are described in such letter; and
(v) In addition to the audit referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraph (iv) above, they
have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Underwriters which are derived from the general accounting records of the
Company and its subsidiaries, included in the Registration Statement and
the Prospectus, or which appear in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Underwriters, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
(vi) On the basis of a reading of the unaudited pro forma
consolidated condensed financial statements included in the Registration
Statement and the Prospectus, carrying out certain specified procedures
that would not necessarily reveal matters of significance with respect to
the comments set forth in this paragraph (vi), inquiries of certain
officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters and proving the
arithmetic accuracy of the application of the pro forma adjustments to the
historical amounts in the unaudited pro forma consolidated condensed
financial statements, nothing came to their attention that caused them to
believe that the unaudited pro forma consolidated condensed financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X or that
the pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
References to the Registration Statement and the Prospectus in this
Annex I shall include any amendment or supplement thereto at the date of
such letter.
2
<PAGE>
ANNEX II
Pursuant to Section 7(g) of the Underwriting Agreement, Ernst & Young LLP
shall furnish letters to the Underwriters to the effect that:
(i) They are independent public accountants with respect to the
Company and its consolidated subsidiaries within the meaning the 1933 Act
and the applicable published rules and regulations thereunder;
(ii) The financial statements of the Company as of and for the nine-
month period ended September 30, 1997 were reviewed by them in accordance
with the standards established by the American Institute of Certified
Public Accountants and based upon their review they are not aware of any
material modifications that should be made to such financial statements for
them to be in conformity with generally accepted accounting principles, and
such financial statements comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the applicable
rules and regulations thereunder;
(iii) On the basis of limited procedures, not constituting an audit
in accordance with generally accepted auditing standards, consisting of a
reading of the latest available interim unaudited consolidated financial
statements of the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus, a reading of the latest
available interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries since
the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) the unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus do not comply in form in all
material respects with the applicable accounting requirements of the
1933 Act and the related published rules and regulations thereunder or
are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration
Statement and the Prospectus;
(B) as of a specified date not more than 5 days prior to the date
of such letter, there were any changes in the capital stock (other
than the issuance of capital stock upon exercise of options which were
outstanding on the date of the latest balance sheet included in the
Prospectus) or any increase in inventories or the long-term debt or
short-term debt of the Company and its subsidiaries, or any decreases
in net current assets or net assets or other items specified by the
Underwriters, or any increases in any items specified by the
Underwriters, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each
1
<PAGE>
case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(C) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (B) there were any decreases in net sales or operating
income or the total or per share amounts of net income or other items
specified by the Underwriters, or any increases in any items specified
by the Underwriters, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Underwriters, except in each
case for increases or decreases which the Prospectus discloses have
occurred or may occur which are described in such letter; and
(iv) In addition to the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraph (iii) above,
they have carried out certain specified procedures, not constituting an
audit in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified
by the Underwriters which are derived from the general accounting records
of the Company and its subsidiaries, included in the Registration Statement
and the Prospectus, or which appear in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Underwriters, and
have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its subsidiaries
and have found them to be in agreement.
References to the Registration Statement and the Prospectus in this
Annex II shall include any amendment or supplement thereto at the date of
such letter.
2
<PAGE>
EXHIBIT 5.1
JONES, WALKER,
WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P.
November 13, 1997
Gulf Island Fabrication, Inc.
583 Thompson Road
Houma, Louisiana 70363
Dear Sirs:
We have acted as counsel to Gulf Island Fabrication, Inc. (the
"Company") in connection with the preparation of the registration statement on
Form S-1 (the "Registration Statement") filed by you with the Securities and
Exchange Commission on November 6, 1997 and as amended the date hereof, with
respect to the sale of up to 2,300,000 shares of Company Common Stock, no par
value per share (the "Shares") by certain of the Company's shareholders. In so
acting, we have examined original, or photostatic or certified copies, of such
records of the Company, certificates of officers of the Company and of public
officials, and such other documents as we have deemed relevant. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such documents.
Based upon the foregoing, we are of the opinion that the Shares are duly
authorized, validly issued, fully paid and non-assessable shares of the
Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us under the caption "Legal Matters"
as counsel for the Company. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the general rules and regulations of the
Commission.
Very truly yours,
/s/ Jones, Walker, Waechter,
Poitevent, Carrere & Denegre L.L.P.
JONES, WALKER, WAECHTER,
POITEVENT, CARRERE & DENEGRE, L.L.P.
<PAGE>
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and between
GULF ISLAND FABRICATION, INC.
and
STEPHEN G. BENTON, SR., STEPHEN G. BENTON, JR., GEORGE L. BENTON
FRANK J. BENTON, CHARLES L. BELSOM, JOHN GERRETS,
BUSH BENTON AND LISETTE BENTON
Dated as of November 12, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF SOUTHPORT COMMON STOCK........................ 1
1.1 Purchase and Sale................................................... 1
1.2 Closing............................................................. 1
1.3 Purchase Price...................................................... 1
1.4 Stock Certificates.................................................. 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.................... 4
2.1 Ownership of Southport Common Stock................................ 5
2.2 Authority of Shareholders.......................................... 5
2.3 Agreement Valid and Binding........................................ 5
2.4 No Conflicts....................................................... 5
2.5 Consents........................................................... 6
2.6 Brokers; Other Transaction Expenses................................ 6
2.7 Corporate Organization............................................. 6
2.8 Foreign Qualification.............................................. 7
2.9 Capitalization..................................................... 7
2.10 Financial Condition................................................ 7
2.11 Absence of Changes or Events....................................... 8
2.12 Legal Proceedings.................................................. 8
2.13 Tax Audits and Payment of Taxes.................................... 8
2.14 Benefit Plans...................................................... 10
2.15 Compliance with Applicable Laws; Permits........................... 12
2.16 Certain Contracts.................................................. 13
2.17 Undisclosed Liabilities............................................ 15
2.18 Title to Property.................................................. 16
2.19 Insurance.......................................................... 17
2.20 Intellectual Property.............................................. 17
2.21 Environmental Matters.............................................. 18
2.22 Employee and Labor Matters......................................... 20
2.23 Condition of Assets................................................ 20
2.24 Absence of Changes................................................. 21
2.25 Accounts Receivable and Accounts Payable........................... 22
2.26 Inventory.......................................................... 22
2.27 Books and Records.................................................. 23
2.28 Bank Accounts and Powers of Attorney............................... 23
2.29 Questionable Payments.............................................. 23
2.30 Affiliate Transactions............................................. 23
2.31 Zoning............................................................. 23
2.32 No Misrepresentations or Omissions................................. 23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER...................... 24
3.1 Corporate Organization............................................. 24
3.2 Authority; Execution and Delivery; Enforceability.................. 24
3.3 No Conflicts; Consents............................................. 24
ARTICLE IV COVENANTS......................................................... 25
4.1 Covenants of Seller Relating to Conduct of Southport's Business.... 25
4.2 Access to Information.............................................. 26
4.3 Confidentiality.................................................... 27
4.4 Reasonable Efforts................................................. 27
4.5 Expenses........................................................... 27
4.6 Employees and Employment Agreements................................ 28
4.7 Updating Information............................................... 28
4.8 Schedules; Advice of Changes....................................... 28
4.9 Covenant Not to Compete............................................ 28
4.10 Acquisition Proposals.............................................. 29
4.11 No Inconsistent Arrangements by the Shareholders................... 30
4.12 Exercise of Option by Westport..................................... .31
ARTICLE V CONDITIONS PRECEDENT............................................... 31
5.1 Conditions to Each Party's Obligation To Consummate the Closing.... 31
5.2 Conditions to Obligation of Purchaser.............................. 31
5.3 Conditions to Obligation of Shareholders........................... 32
ARTICLE VI TERMINATION AND AMENDMENT.......................................... 33
6.1 Termination........................................................ 33
6.2 Effect of Termination.............................................. 33
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION...... 33
7.1 Survival of Representations, Warranties and Covenants.............. 33
7.2 Indemnification by the Shareholders................................ 33
7.3 Purchaser's Right of Set-Off; Limitation on Indemnification........ 34
ARTICLE VIII GENERAL PROVISIONS............................................... 36
8.1 Assignment......................................................... 36
8.2 Third Party Beneficiaries.......................................... 36
8.3 Notices............................................................ 36
8.4 Interpretation..................................................... 37
8.5 Counterparts; Signatures........................................... 39
8.6 Entire Agreement................................................... 39
8.7 Governing Law...................................................... 40
8.8 Severability....................................................... 40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.9 Shareholders' Representative....................................... 40
8.10 Waiver............................................................. 40
8.11 Amendment.......................................................... 41
8.12 Successors......................................................... 41
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated as of November 12,
1997, by and among Gulf Island Fabrication, Inc., a Louisiana corporation
("Purchaser"), and Stephen G. Benton, Sr., Stephen G. Benton, Jr., George L.
Benton, Frank J. Benton, Charles L. Belsom, John Gerrets, Bush Benton and
Lisette Benton, the holders of all of the issued and outstanding shares of
common stock (each such person, a "Shareholder" and, collectively, the
"Shareholders") of Southport, Inc., a Louisiana corporation ("Southport"), sets
forth the terms and conditions pursuant to which Purchaser will acquire (the
"Acquisition") from the Shareholders all of the outstanding shares of common
stock of Southport ("Southport Common Stock"), par value $10.00 per share.
In consideration of the premises, mutual covenants and agreements of the
parties signatory hereto (each a "Party" and, collectively, the "Parties") and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF SOUTHPORT COMMON STOCK
1.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing (as defined in Section 1.2), each
Shareholder shall sell, transfer and convey to Purchaser, and Purchaser shall
purchase and acquire from each Shareholder, the number of shares of Southport
Common Stock (the "Shares") set forth opposite such Shareholder's name on
Schedule 1.1 free and clear of all liens, encroachments, easements,
encumbrances, claims, charges or restrictions of any kind whatsoever (each of
the foregoing, whether choate or inchoate, a "Lien" and, collectively, "Liens"),
for the Purchase Price specified in Section 1.3.
1.2 Closing. The closing of the purchase and sale of the Southport Common
Stock ("Closing") shall take place at the offices of Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P., 201 St. Charles Avenue, 51st Floor, New
Orleans, Louisiana, at 10:00 a.m. local time on the third business day following
the satisfaction or waiver of all conditions to the obligations by the Parties
set forth in Article VI hereof, or at such other time and place as Purchaser and
Shareholders' Representative (as defined in Section 8.9) may agree. For
purposes of this Agreement, the "Closing Date" shall mean the date on which the
Closing is completed.
1.3 Purchase Price.
--------------
(a) Upon the terms and subject to the conditions of this Agreement, in
consideration of the sale to Purchaser of the Southport Common Stock, Purchaser
shall pay to Shareholders (i) the sum of $6,000,000, subject to adjustment as
provided in subsection 1.3(b), (the "Initial Purchase Price") of which
$4,500,000 shall be payable in cash at the Closing, and (ii) such additional
cash amounts to which Shareholders shall be entitled by virtue of subsection
1.3(c) hereof (the "Deferred Purchase Price" and, collectively with the Initial
Purchase Price, the "Purchase Price").
<PAGE>
(b) On or before the 60th day after the Closing Date, Purchaser shall
furnish to the Shareholders a balance sheet of Southport as of the Closing Date
(the "Closing Date Balance Sheet"), which shall be prepared by Purchaser in
accordance with generally accepted accounting principles applied on a basis
consistent with that of the Interim Balance Sheet. If total consolidated
shareholders' equity shown on the Closing Date Balance Sheet plus the
Transaction Expenses (as defined in Section 2.6) ("Adjusted Closing Date
Shareholders' Equity") equals or exceeds $1,528,877, there shall be no
adjustment to the Initial Purchase Price and Purchaser shall pay $1,500,000 in
cash to the Shareholders within ten days after the Closing Date Balance Sheet
has been delivered to the Shareholders. If the Adjusted Closing Date
Shareholders' Equity is less than $1,528,877, within ten days of the delivery of
the Closing Date Balance Sheet to the Shareholders, Shareholders may notify
Purchaser of their disagreement with the determination of the Adjusted Closing
Date Shareholders' Equity as shown on the Closing Date Balance Sheet and of the
reasons for such disagreement. If the Shareholders do not so notify Purchaser,
the Adjusted Closing Date Shareholders' Equity shall be as determined by
Purchaser. If the Shareholders do so notify Purchaser and if the Parties have
not resolved any such disagreement within twenty days after the giving of such
notice, Shareholders and Purchaser shall select and submit the determination of
the Adjusted Closing Date Shareholders' Equity to a nationally recognized
accounting firm (the "Arbitrator"). If Purchaser and the Shareholders are
unable to agree upon and select the Arbitrator within ten days after the
expiration of such twenty-day period, the Arbitrator shall be selected in
accordance with the rules of the American Arbitration Association. The Parties
shall cause the Arbitrator to submit its determination of the Adjusted Closing
Date Shareholders' Equity as promptly as reasonably practicable. Such
determination by the Arbitrator shall be binding upon the Parties. If the
Adjusted Closing Date Shareholders' Equity, as determined in accordance with
this subsection 1.3(b), is less than $1,528,877, the Initial Purchase Price
shall be reduced by the amount of the shortfall and, within fifteen days of such
determination, (i) Purchaser shall pay to the Shareholders the excess, if any,
of $1,500,000 over such shortfall or (ii) the Shareholders shall deliver to the
Purchaser any amount by which such shortfall exceeds $1,500,000. Interest at
the Purchaser Borrowing Rate (as hereinafter defined) shall be payable on any
amounts payable under this subsection 1.3 (b) from the Closing Date until paid.
(c) (i) Purchaser shall pay to Shareholders amounts, in cash, equal
to (A) the lesser of (1) one-half of Net After-Tax Income (as hereinafter
defined) for the year ending December 31, 1998 and (2) $1,250,000; (B) the
amount by which the lesser of (1) one-half of Net After-Tax Income for the two
years ending December 31, 1999 and (2) $2,500,000 exceeds the amount payable to
Shareholders pursuant to subsection 1.3(c)(i)(A); (C) the amount by which the
lesser of (1) one-half of Net After-Tax Income for the three years ending
December 31, 2000 and (2) $3,750,000 exceeds the aggregate amount payable to
Shareholders pursuant to subsections 1.3(c)(i)(A) and (B); and (D) the amount by
which the lesser of (1) one-half of Net After-Tax Income for the four years
ending December 31, 2001 and (2) $5,000,000 exceeds the aggregate amounts
payable to Shareholders pursuant to subsections 1.3(c)(i)(A), (B) and (C). Any
payment required to be made by Purchaser to the Shareholders pursuant to
subsection 1.3(c) shall be paid not later than 90 days after the end of the year
to which such payment relates.
2
<PAGE>
(ii) "Net After-Tax Income" shall mean the consolidated net after-tax
income or loss of Southport and the Subsidiary (as hereinafter defined),
prepared in accordance with generally accepted accounting principles by the
independent public accounting firm generally engaged by Purchaser as its
auditor, taking into account intercompany charges and calculated as if Southport
were the common parent corporation of Southport and the Subsidiary and not a
member of the consolidated group of which Purchaser if the common parent,
adjusted to exclude amortization of good will, if any, resulting from the
Acquisition and to exclude interest, if any, payable on debt incurred by
Southport and the Subsidiary or by Purchaser in connection with the Acquisition,
other than interest payable by Southport or the Subsidiary (A) on debt in
existence on the Closing Date, (B) on debt incurred to fund capital expenditures
(including the acquisition of real property pursuant to the Option (as defined
in subsection 2.18(c), if it occurs) of Southport after the Closing Date
(provided, however, that for purposes of calculating Net After-Tax Income, the
interest payable on any debt incurred to acquire real property pursuant to the
Option may not exceed the amount of rent paid by Southport with respect to such
property on the date hereof), or (C) on any other debt incurred to fund
operations of Southport after the Closing Date, whether third-party debt or
intercompany debt; provided, that the interest rate on such intercompany debt
does not exceed the interest rate required to be paid by Purchaser under its
credit agreement with First National Bank of Commerce and Whitney National Bank
or any successor agreement (the "Purchaser Borrowing Rate"); and provided,
further, that sales, general and administrative expenses of Southport and the
Subsidiary ("SG&A") may be included in the calculation of SG&A for any year only
to the extent that it does not exceed the greater of (i) SG&A for the year ended
December 31, 1997, or (ii) such amount as would cause the ratio of SG&A to
revenue of Southport and the Subsidiary for such year to exceed such ratio for
the year ended December 31, 1997.
(iii) The Shareholders acknowledge and agree that, notwithstanding the
provisions of subsections 1.3(b) and 1.3(c), Purchaser may combine clerical,
administrative, financial, insurance and other operations of Southport and the
Subsidiary with those of Purchaser, may cause Southport and the Subsidiary to
incur intercompany charges with respect thereto and may otherwise control the
operations of Southport and the Subsidiary notwithstanding that such actions may
affect the amount of Southport's Net After-Tax Income within the limits set
forth in subsection 1.3(c)(ii).
(iv) (A) At any time after Closing Purchaser may, in lieu of any
payments otherwise required to be made under subsection 1.3(c)(i), pay to the
Shareholders an amount (the "Early Payment Amount") equal to the maximum amount
of such remaining payments, discounted to the present value of such remaining
payments at the time the Early Payment Amount is paid, on the basis of a
discount rate equal to 9%.
(B) Purchaser shall not sell, transfer or otherwise dispose of a
majority of the shares of voting capital stock of Southport or cause or permit
Southport to sell shares of voting capital stock after which sale Purchaser
shall own less than a majority of the outstanding shares of such capital stock
or cause or permit Southport to merge into or with, or consolidate with, or
sell, lease, transfer or otherwise dispose of all or substantially all of its
assets to, or effect a share exchange with, any corporation, partnership or
other business entity or person, or voluntarily
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liquidate or dissolve unless, in connection with any such transaction, Purchaser
shall pay to the Shareholders the Early Payment Amount; provided, however, that
this subsection 1.3(c)(iv)(B) shall not apply to any transaction as a result of
which Purchaser remains the owner, directly or indirectly, of a majority of the
outstanding shares of voting capital stock of Southport.
(C) If the employment of Stephen G. Benton, Jr. under the
Employment Agreement between him and Southport provided for in Section 4.6 is
terminated by Southport for reasons other than Cause, as defined therein, or by
Stephen G. Benton, Jr. for Good Reason, as defined therein, Purchaser shall pay
to the Shareholders the Early Payment Amount within 10 days of the date of such
termination as such date is determined under such Employment Agreement.
(d) Each Shareholder agrees that if, at any time after the Closing
during which he or she is otherwise entitled to receive any payment by the
Purchaser under subsection 1.3, such Shareholder engages in any of the
activities prohibited to any Shareholder by subsection 4.9(a) or 4.9(c), such
Shareholder shall forever forfeit his or her right to receive any such payment
and Purchaser shall be forever relieved from making any such payment to such
Shareholder. The Shareholders and Purchaser acknowledge and agree that this
subsection 1.3(d) sets forth conditions upon the payment of a portion of the
Purchase Price hereunder and does not restrain any Shareholder from engaging in
any activity that is competitive with the business of Southport or in any other
activity.
(e) Purchaser shall pay all payments under this subsection 1.3 by wire
transfer to an account and bank specified in writing (including account and
routing numbers) by Shareholders' Representative on or prior to the date such
payment is due. All such payments shall be allocated among Shareholders as
their interests appear in Schedule 1.1, Shareholders acknowledging and agreeing
that Purchaser shall have no responsibility for payment to any individual
Shareholder beyond its obligation to transfer funds to the account so specified.
The Shareholders, in proportion to their respective interests as shown on
Schedule 1.1, shall pay any amounts due to Purchaser under this subsection 1.3
by wire transfer to an account and bank specified in writing (including account
and routing numbers) by Purchaser on or prior to date such payment is due.
1.4 Stock Certificates. At the Closing, each Shareholder shall deliver to
Purchaser certificates representing the Shares that are duly endorsed or with
duly executed stock powers attached and in proper form for transfer to
Purchaser.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder warrants and represents to Purchaser, as an
inducement to Purchaser, as follows:
2.1 Ownership of Southport Common Stock. The Shareholders as a group
own and have an unqualified right to, and at the Closing shall transfer to
Purchaser, good, valid and marketable title to, all of the Southport Common
Stock, free and clear of all Liens. The Southport Common Stock represents all
equity interests owned by each such Shareholder in Southport.
2.2 Authority of Shareholders. Each Shareholder has full power,
authority and legal capacity to execute, deliver, and perform this Agreement and
all other agreements and documents contemplated by this Agreement to be executed
and delivered by such Shareholder in connection with the transactions
contemplated hereby (all such other agreements and documents are referred to as
the "Related Agreements").
2.3 Agreement Valid and Binding. This Agreement has been, and each
of the Related Agreements will be, duly executed and delivered by each
Shareholder and this Agreement is, and each of the Related Agreements will be,
when duly executed and delivered, the legal, valid and binding obligations of
each Shareholder, enforceable against each Shareholder in accordance with its
terms, except as enforcement thereof may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity. Neither the execution and delivery by such
Shareholder of this Agreement or of any of the Related Agreements to which such
Shareholder is a party, nor the consummation by such Shareholder of the
transactions contemplated hereby or thereby, nor the compliance by such
Shareholder with or fulfillment by such Shareholder of the terms and provisions
hereof or thereof will (i) with or without the giving of notice or lapse of time
or both, conflict with or result in a breach or violation of, or default under,
or permit the acceleration of any obligation under any provision of any
agreement, indenture, mortgage, lien, lease or other instrument or restriction
of any kind to which such Shareholder is a party or by which such Shareholder is
otherwise bound or affected, or (ii) violate any judgment, order, writ,
injunction, decree, statute, rule or regulation applicable to such Shareholder,
except in the case of the preceding clauses, for those conflicts, breaches,
violations, defaults or accelerations that would not, individually or in the
aggregate, have, or be reasonably likely to have, a material adverse effect on
the ability of such Shareholder to perform his or her obligations under this
Agreement or any of the Related Agreements or to consummate the transactions
contemplated by this Agreement or by any of the Related Agreements.
2.4 No Conflicts. The execution and delivery by each Shareholder of
this Agreement does not, and the execution by each Shareholder of the Related
Agreements and the consummation of the Acquisition and the other transactions
contemplated hereby and compliance with the terms hereof and thereof will not,
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any
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obligation or to loss of a material benefit under, or to increased, additional,
accelerated or guaranteed rights or entitlements of any person under, or result
in the creation of any mortgages, liens, security interests, charges, easements,
leases, subleases, covenants, rights of way, options, claims or Liens upon any
assets of Southport or its Subsidiary under any provision of: (i) the articles
or certificate of incorporation or bylaws of Southport or its Subsidiary; (ii)
any mortgage, loan agreement, contract or other agreement to which Southport or
its Subsidiary is a party; or (iii) any judgment, order or decree ("Judgment")
or statute, law (including common law) ordinance, rule or regulation
("Applicable Law") applicable to Southport or its Subsidiary, or any of their
properties or assets except, in the case of clause (iii), for those that, in the
aggregate, would not have a Material Adverse Effect. Except as set forth on
Schedule 2.4, no consent of, or registration, declaration or filing with any
Federal, state, local or foreign government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity") or
any private third party is required to be obtained or made by or with respect to
Southport or its Subsidiary in connection with (A) the execution, delivery and
performance of this Agreement or the consummation of the Acquisition or the
other transactions contemplated hereby or by the Related Agreements or (B) the
conduct by Purchaser after the Closing Date of the business of designing,
manufacturing and marketing living quarters for offshore drilling and production
platforms (the "Business").
2.5 Consents. Except as set forth on Schedule 2.5, no consent,
approval, waiver, order or authorization of, or registration, declaration or
filing with or notice to, any Governmental Entity (as defined in Section 2.4) or
third party is required in connection with the execution and delivery of this
Agreement or any of the Related Agreements by such Shareholder or the
consummation by such Shareholder of the transactions contemplated hereby or
thereby. All consents, approvals, waivers, orders, authorizations,
registrations, declarations, filings and notices ("Consents") set forth in
Schedule 2.5 include a description of the Consent required to be obtained, given
or made.
2.6 Brokers; Other Transaction Expenses. Except as set forth on
Schedule 2.6, (i) no Shareholder and neither Southport nor the Subsidiary has
taken any action that could give rise to any claim against Purchaser, Southport
or the Subsidiary for any broker's, finder's or similar fee in connection with
the transactions contemplated by this Agreement or any Related Agreement, and
(ii) neither Southport nor the Subsidiary has incurred any such broker's or
finder's fee or expense or any legal, accounting or other similar expense in
connection with this Agreement or the transactions contemplated hereby that are
not reflected in the Interim Financial Statements. (All such fees and expenses
of brokers, finders, lawyers and accountants and other similar fees and expenses
incurred by Southport or the Subsidiary in connection with such transactions, to
the extent that they exceed $40,000 and are not reflected in the Interim
Financial Statements, are referred to herein as the "Transaction Expenses").
2.7 Corporate Organization.
(a) Each of Southport and the Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Louisiana (in the case of Southport) and Barbados (in the case of the
Subsidiary) and has the corporate power and authority necessary to
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enable it to own, lease or otherwise hold all of its properties and assets and
to carry on its business as it is now being conducted.
(b) Each of Southport and the Subsidiary possesses all governmental
franchises, licenses, permits, authorizations and approvals necessary to enable
it to own, lease or otherwise hold all of its properties and assets and to carry
on its business as it is now being conducted, except for governmental
franchises, licenses, permits, authorizations and approvals the absence of
which, individually or in the aggregate, would not have or be reasonably likely
to have a material adverse effect on the operations, assets or financial
position of Southport and the Subsidiary, taken as a whole, or on the ability of
Shareholders to perform their obligations under this Agreement or any of the
Related Agreements ("Material Adverse Effect").
2.8 Foreign Qualification. Schedule 2.8 sets forth the states and
other jurisdictions in which Southport and the Subsidiary are qualified to do
business as a foreign corporation and each state and other jurisdiction in which
either corporation is doing business. Each of Southport and its Subsidiary is
duly licensed or qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which its ownership or leasing of property
or the conduct of its business requires such qualification, except for
jurisdictions in which the failure to become so qualified or to be in good
standing would not have a Material Adverse Effect.
2.9 Capitalization.
(a) The authorized capital stock of Southport consists of 30,000
shares of Common Stock, $10 par value per share. As of the date of this
Agreement, there are 10,350 shares of Southport Common Stock issued and
outstanding and no shares of Southport Common Stock held in Southport's
treasury. The Shares held by the Shareholders constitute, in the aggregate, all
of the issued and outstanding shares of Southport Common Stock. All of the
issued and outstanding shares of Southport Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. Southport does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Southport Common
Stock or any other equity security of Southport or any securities representing
the right to purchase or otherwise receive any shares of Southport Common Stock
or any other equity security of Southport.
(b) Southport International, a wholly owned subsidiary of Southport,
is Southport's only direct or indirect subsidiary (the "Subsidiary").
(c) Except for the Subsidiary, Southport does not own, directly or
indirectly, an equity interest in any other business entity. Southport owns
directly all of the issued and outstanding shares of the capital stock of the
Subsidiary, free and clear of all Liens, and all of such shares are duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. The Subsidiary does not have, nor is it bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of
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any character calling for the purchase or issuance of any shares of capital
stock or any other equity security or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of the Subsidiary.
2.10 Financial Condition. Southport has delivered to Purchaser its
audited consolidated balance sheets of Southport and its Subsidiary as of, and
the audited consolidated statements of operations and cash flows of Southport
and its Subsidiary for the fiscal year ended December 31, 1996, together with
the notes thereto and the opinions of Southport's independent auditors
(collectively, the "Year-end Financial Statements"). The Year-end Financial
Statements are true, correct and complete in all material respects, are in
accordance with the books and records of Southport and its Subsidiary, have been
prepared in conformity with generally accepted accounting principles as in
effect from time to time ("GAAP"), consistently applied, and on that basis
fairly present the financial condition, results of operations and cash flows of
Southport and its Subsidiary for the periods presented. Additionally, Southport
has delivered to Purchaser its unaudited monthly financial statements of
Southport and its Subsidiary for the nine months ended September 30, 1997 (the
"Interim Financial Statements" and, collectively with the Year-end Financial
Statements, the "Southport Financial Statements"). Such monthly financial
statements are in accordance with the books and records of Southport and its
Subsidiary, have been prepared in accordance with GAAP consistently applied, and
are true, correct and complete in all material respects except for adjustments
and accruals normally made at year end. Except as set forth in the balance
sheet included in the Interim Financial Statements (the "Interim Balance
Sheet"), Southport and its Subsidiary do not have any liabilities or obligations
of any kind or nature, whether fixed, contingent or otherwise, except for
liabilities and obligations incurred in the ordinary course of the business and
consistent with past practice. Copies of the Southport Financial Statements are
attached hereto as Schedule 2.10.
2.11 Absence of Changes or Events. Except as set forth on Schedule
2.11, since September 30, 1997, there has not occurred any change in the
condition (financial or other) of Southport or its Subsidiary that could have a
Material Adverse Effect on Southport or its Subsidiary, and none of the
Shareholders of Southport has any knowledge of any threat or intention by any
significant customer, supplier, or subcontractor of Southport or its Subsidiary
to modify materially its business relationship with Southport or its Subsidiary.
Since September 30, 1997, Southport and its Subsidiary have been operating in
the ordinary course and in substantially the same manner as previously operated
and all reasonable efforts have been made consistent with past practices to
preserve the relationships of Southport and its Subsidiary with customers,
suppliers and others with whom each deals. Since September 30, 1997, except as
set forth on Schedule 2.11, neither Southport nor its Subsidiary has taken any
action that, if taken after the date of this Agreement, would constitute a
breach of any of the covenants set forth in Article IV.
2.12 Legal Proceedings. Except as set forth on Schedule 2.12,
neither Southport nor its Subsidiary is a party to any, and there are no pending
or, to the knowledge of any Shareholder or Southport, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature ("Proceedings") against any
Shareholder or Southport or its Subsidiary, or challenging the validity or
propriety of the transactions contemplated
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by this Agreement. There is no injunction, order, judgment, decree, or
regulatory restriction imposed upon any Shareholder or Southport or its
Subsidiary or any of their respective assets or properties that has had, or
could reasonably be expected to have a Material Adverse Effect.
2.13 Tax Audits and Payment of Taxes. Except as set forth on
Schedule 2.13 or disclosed or recorded in the Southport Financial Statements:
(a) All federal, state, local and foreign returns (by or on behalf of
Southport and its Subsidiary) and reports of Southport and its Subsidiary
concerning Taxes (as defined in subsection 2.13 (h)) that are required by
Applicable Law to be filed with any taxing authority prior to the Closing Date
("Returns") have been or will be filed when due (including extensions). The
U.S. corporation income tax return (Form 1120) and all foreign and state
corporation franchise and income tax returns for the taxable years of Southport
and its Subsidiary through the taxable year ending on December 31, 1996 were or
will be filed on or before their respective due dates as extended. Neither
Southport nor its Subsidiary has at any time executed or filed with any taxing
authority any agreement extending the period for assessment or collection of any
Taxes to a period extending beyond the Closing Date. Each Shareholder and
Southport have no knowledge of any pending examination, audit, claim, asserted
deficiency or assessment for additional Taxes with respect to any Returns that
are open for examination under applicable statutes of limitation.
(b) All income Tax and state corporation franchise Tax Returns filed
by or on behalf of Southport and its Subsidiary have been prepared in accordance
with Southport's or its Subsidiary's, as applicable, books and records and are
correct and accurate in all material respects, and all Taxes shown on such
Returns have been paid when due. The provision for Taxes of Southport and its
Subsidiary reflected in the Southport Financial Statements for the fiscal year
ending December 31, 1997 is sufficient to provide (i) for all Taxes which, as of
the date of such statements, were due and unpaid, and (ii) for an appropriate
reserve or accrual for other Taxes of Southport and its Subsidiary that are
properly the subject of a reserve or an accrual under GAAP as of the date of
such financial statements.
(c) Southport has never been included in a group of corporations
filing a consolidated federal income tax return other than with its wholly-owned
Subsidiary. As of the Closing Date, neither Southport nor any its Subsidiary
will have any outstanding liabilities under any tax sharing agreement, and will
not be a party to any tax sharing agreement that will then be in effect.
(d) None of the property owned or leased by Southport or its
Subsidiary constitutes tax-exempt bond financed property or tax-exempt leased
property within the meaning of Section 168 of the Internal Revenue Code of 1986
("Code") and none of the property owned by Southport or its Subsidiary is
subject to a lease, safe harbor lease or other arrangement as a result of which
Southport or its Subsidiary is not treated as the owner of the property for
federal income tax purposes.
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(e) Neither Southport nor its Subsidiary is obligated to make, or will
as a result of any event connected with the transactions contemplated in this
Agreement become obligated to make, any "excess parachute payment" as defined in
Section 280G of the Code (without regard to subsection (b)(4) thereof).
(f) Neither Southport nor its Subsidiary is or has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. No Shareholder is a "foreign person" (as that term is defined in
Section 1445 of the Code) and each Shareholder will provide an affidavit to that
effect prior to or at the Closing in the form attached hereto as Schedule
3.8(f).
(g) There are no Liens for Taxes upon any property or assets of
Southport or its Subsidiary, except for Liens for Taxes not yet due and payable
and Liens for Taxes that are being contested in good faith and by appropriate
proceedings.
(h) "Tax" or "Taxes" means any and all taxes, charges, fees, duties,
levies and other assessments, including additions to tax, interest or penalties
related thereto, that may be imposed by any taxing authority upon or against
Southport or its Subsidiary, including without limitation federal, state, local
and foreign income taxes and any tax measured by income, franchise taxes,
alternative or add-on minimum taxes, gross receipts taxes, use, sales, value
added, personal or real property taxes, taxes imposed on capital, excise taxes,
employment and unemployment taxes and withheld taxes and interest or penalties
relating thereto pursuant to wage withholding, withholding pursuant to the
Federal Insurance Contributions Act or withholding with respect to certain
payments made to nonresident persons and payments in lieu of taxes.
2.14 Benefit Plans.
(a) Schedule 2.14 contains a list and brief description of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("Company Pension
Plans")), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA), bonus, incentive, stock option, stock purchase, life insurance
(including any individual life insurance policy as to which Southport or any
ERISA Affiliate (as defined below) is owner, beneficiary, or both of such
policy), health insurance (including any self-insured arrangement or other
health or wellness benefit) or other insurance coverage, deferred compensation
plans or arrangements, excess benefit plans, severance pay, holiday pay,
vacation pay, "cafeteria" or "flexible benefit" plans, fringe benefits,
perquisites, and other employee benefit plans, arrangements, agreements, trusts,
contracts, policies, or commitments, whether written or unwritten, funded or
unfunded (all the foregoing, including the Company Pension Plans, being herein
called "Company Benefit Plans") now or during the five years prior to the
Closing Date maintained, or contributed to, by Southport or by any ERISA
Affiliate for the benefit of any present or former employees, officers,
directors, or other persons. As used herein, "ERISA Affiliate" means the
Subsidiary of Southport and any trade or business (whether or not incorporated)
that is or was during the five years prior to the Closing Date part of the same
controlled group, or under common control
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with, or part of an affiliated service group that includes Southport within the
meaning of Code Sections 414(b), (c), (m) or (o).
(b) Southport has delivered to Purchaser, or by the Closing will have
delivered to Purchaser, to the extent the following items exist, true, complete
and correct copies of: (i) each Company Benefit Plan (or, in the case of any
unwritten Company Benefit Plans, descriptions thereof) and all amendments
thereto; (ii) the three most recent annual reports on Form 5500 (including all
schedules and attachments thereto, and financial statements and accountant's
opinion, if applicable) filed with the Internal Revenue Service ("IRS") with
respect to each Company Benefit Plan, if any such report was required; (iii) the
three most recent actuarial valuations and Pension Benefit Guaranty Corporation
("PBGC") premium reports for each Company Pension Plan that is a defined benefit
plan; (iv) the most recent summary plan description for each Company Benefit
Plan for which such a summary plan description is required; (v) each trust
agreement, group annuity contract or other funding and financing arrangement
relating to any Company Benefit Plan, if any such arrangement was required or
maintained; (vi) the most recent determination letters received from and
applications pending with the IRS with respect to Company Benefit Plans; and
(vii) all prohibited transaction applications made and exemptions received from
the Department of Labor with respect to Company Benefit Plans.
(c) Except as disclosed in Schedule 2.14: (i) each Company Pension
Plan has received a favorable determination letter from the IRS stating that
such Company Pension Plan meets all the requirements of Section 401(a) of the
Code, and that any trust or trusts associated with such Company Pension Plan are
tax exempt under Section 501(a) of the Code; (ii) to the knowledge of each
Shareholder and Southport, there is no reason why the tax-qualified status of
any such Company Pension Plan should be revoked, whether retroactively or
prospectively, by the IRS and, to the knowledge of each Shareholder and
Southport, nothing has occurred since the date of any such determination letter
that could adversely affect any Company Pension Plan's qualification or any
trust's tax exempt status; (iii) all amendments to the Company Pension Plans
that are required to be made through the date hereof and the Closing Date under
Section 401(a) of the Code, and any other Applicable Law, subsequent to the
issuance of each such Company Pension Plan's IRS determination letter have been
made.
(d) Southport does not maintain and has never maintained or
contributed to or been required to contribute to, a multiemployer plan as
defined in Section 3(37) of ERISA and no Shareholder nor Southport has any
liability (contingent or otherwise) relating to the withdrawal or partial
withdrawal from a multiemployer plan. Further, there are no Company Benefit
Plans that promise or provide health, life or other benefits to retirees or
former employees of the Company or any ERISA Affiliate other than as required by
Section 602 of ERISA or Section 4980B of the Code.
(e) All Company Benefit Plans comply (and have been funded and
administered in form and in operation) in all material respects with their terms
and any related documents or agreements and with the requirements of all
statutes, orders or governmental rules and regulations currently in effect and
applicable to such plans or arrangements, including ERISA and the Code; no
Shareholder nor Southport has received any notice from any governmental agency
questioning or
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challenging such compliance; and all contributions, payments, premiums and
reports required by such statutes, orders, and governmental rules and
regulations have been made.
(f) There is no litigation, administrative or arbitration proceeding
or other claim or dispute pending or, to any Shareholder's or Southport's
knowledge, threatened, that involves any Company Benefit Plan that could
reasonably be expected to have a Material Adverse Effect on Southport or any
adverse effect on any employees or directors of Southport or any fiduciary (as
defined in ERISA Section 3(21)) of any Company Benefit Plan, nor, to any
Shareholder's or Southport's knowledge, is there any reasonable basis for any
such claim, suit or proceeding.
(g) To the knowledge of each Shareholder and Southport all
contributions and payments made or accrued with respect to each Company Benefit
Plan are deductible in full for income Tax purposes under the Code; all
contributions, premiums or payments required to be made with respect to each
such Company Benefit Plan for any period ending on or before the Closing Date
have been paid on or before their due date(s) to each such Company Benefit Plan
or, if not yet due, accrued in accordance with past practices of the Company;
and all premiums or other payments due for all periods ending on or before the
Closing Date have been or will be paid with respect to each Company Benefit Plan
that is an "employee welfare benefit plan" except for claims for benefits
submitted in the ordinary course of administration of such "employee welfare
benefit plans."
(h) Neither the consummation of the transactions contemplated by this
Agreement nor the subsequent sale of all or part of Southport's assets will
accelerate or terminate, nor does there exist any basis for the acceleration or
termination of: (i) benefits payable to current or former employees of
Southport or an ERISA Affiliate under any Company Benefit Plan; (ii) a
participant's vesting credits or years of service under any Company Benefit
Plan; or (iii) accruals with respect to any other benefits or amounts reserved
under any such plan or arrangement. Only current and former employees
(excluding "leased employees" as defined in Code Section 414(n)(2)) of Southport
and its ERISA Affiliates participate in, and are entitled to receive benefits
from, the Company Benefit Plans.
(i) With respect to each Company Benefit Plan, to the knowledge of
each Shareholder and Southport, there has not occurred, and no person is
contractually bound to enter into, any nonexempt "prohibited transaction" within
the meaning of Section 4975 of the Code or Section 406 of ERISA.
(j) Southport and its Subsidiary have never had any Company Pension
Plan that is subject to Title IV of ERISA ("Defined Benefit Plan") or an
employee plan maintained in connection with a trust described in Section
501(c)(9) of the Code.
(k) Except as set forth on Schedule 2.14, Southport has not entered
into any agreement or taken any action causing any employee, former employee or
director of Southport or its Subsidiary to become entitled to any bonus,
retirement, severance, job security or similar benefit or any enhanced benefit
solely as a result of the transactions contemplated hereby or the subsequent
sale of all or part of Southport's assets.
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(l) With respect to each Company Benefit Plan that is a "group health
plan" within the meaning of Section 607 of ERISA and that is subject to Section
4980B of the Code, Southport complies in all respects with the continuation
coverage and health insurance portability requirements of the Code and ERISA.
2.15 Compliance with Applicable Laws; Permits. Southport and its
Subsidiary comply in all material respects with all Applicable Laws (including,
without limitation, all Environmental Laws (as defined in Section 2.21) and all
laws, rules and regulations enforced or promulgated by the U.S. Immigration and
Naturalization Service), and Schedule 2.15 identifies, to the knowledge of each
Shareholder and Southport, all violations of any Applicable Laws. Neither
Southport nor its Subsidiary has received any written communication during the
past three years from a Governmental Entity that alleges that Southport or its
Subsidiary does not comply in any material respect with any Applicable Law.
Neither Southport nor its Subsidiary has received any written notice, nor does
Southport or its Subsidiary have knowledge that any investigation or review by
any Governmental Entity with respect to Southport, its Subsidiary, or any asset
thereof is pending or threatened or that any such investigation or review is
contemplated. Except as set forth in Schedule 2.15, Southport and its
Subsidiary has received or been issued, as appropriate, every license, permit,
authorization, consent and approval (collectively, "Permits") required by any
foreign, United States, state or local Governmental Entity for the present or
currently contemplated operation of the Business, except where the failure to
have received or been issued any Permit would not, individually or in the
aggregate, have or be reasonably likely to have, a Material Adverse Effect.
Except as disclosed in Schedule 2.15, all Permits are valid and in full force
and effect, and no Proceeding is pending or, to the knowledge of any Shareholder
or Southport, has been threatened to modify, suspend, revoke or otherwise limit
any Permit, and no administrative or governmental actions have been taken or, to
the knowledge of any Shareholder or Southport threatened in connection with the
expiration or renewal of any Permit.
2.16 Certain Contracts.
(a) Except as set forth in Schedule 2.16, neither Southport nor its
Subsidiary is a party to or bound by any contract, lease, license, indenture,
agreement, commitment or other legally binding arrangement, whether oral or
written (each, a "Contract", and, collectively, "Contracts"), that is:
(i) an employment agreement or employment contract;
(ii) a collective bargaining agreement or other Contract with any
labor organization, union or association;
(iii) a covenant not to compete or other covenant by Southport
or its Subsidiary restricting the operations, development or marketing of
Southport or its Subsidiary;
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(iv) a lease or a sublease, or similar Contract with any person
under which (A) Southport or its Subsidiary is lessee, sublessee or holds
or uses, any vessel, machinery, equipment, vehicle or other tangible
personal property owned by any other person or (B) Southport or its
Subsidiary is a lessor, sublessor, or makes available for use by any
person, any vessel or tangible personal property owned or leased by
Southport or its Subsidiary, that in any such case has an aggregate future
liability or receivable, as the case may be, in excess of $5,000;
(v) a lease, sublease or similar Contract with any person under
which (A) Southport or its Subsidiary is lessee or sublessee of, or holds
or uses, and real property owned by any person or (B) Southport or its
Subsidiary is a lessor or sublessor of, or makes available for use by any
person, any real property owned or leased by Southport or its Subsidiary;
(vi) (A) a continuing Contract for the future purchase of
materials, supplies or equipment, (B) a management, service, agency,
consulting or other similar Contract or (C) an advertising agreement or
arrangement, in any such case that has an aggregate future liability to any
person in excess of $10,000;
(vii) a license, option or other Contract relating in whole or
in part to Intellectual Property (including any license or other contract
under which Southport or its Subsidiary is licensee or licensor of any
Intellectual Property (as defined in Section 2.20));
(viii) a Contract establishing a Lien upon any asset of
Southport or its Subsidiary;
(ix) a confidentiality agreement;
(x) a Contract (including a purchase order) involving payment by
Southport or its Subsidiary of more than $10,000 or extending for a term
more than 180 days from the date of this Agreement (unless terminable
without payment or penalty upon no more than 30 days' notice);
(xi) a Contract (including a sales order) involving the
obligation of Southport or its Subsidiary to perform services for payment
of more than $10,000 or extending for a term more than 30 days from the
date of this Agreement (unless terminable without payment or penalty upon
no more than 30 days' notice);
(xii) a Contract for the sale of any asset of Southport or its
Subsidiary or the grant of any preferential rights to purchase any asset of
Southport or its Subsidiary or requiring the consent of any person to the
transfer thereof;
(xiii) a Contract with any Governmental Entity;
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(xiv) a Contract for any joint venture, partnership or similar
arrangement;
(xv) a Contract with or obligating Southport or its Subsidiary to
any director, officer or affiliate of Southport, its Subsidiary or any
Shareholders;
(xvi) a Contract providing for the services of any sales
representative, franchisee or similar representative;
(xvii) a Contract other than as set forth above to which
Southport or its Subsidiary is a party or by which it or any of its assets
is bound or subject that was not made in the ordinary course of business
involving the payment or receipt over the life of such Contract in excess
of $10,000 by Southport or its Subsidiary.
(b) Except as set forth in Schedule 2.16,
(i) all Contracts listed in Schedule 2.16 are valid, binding and
in full force and effect and are enforceable by Southport or its Subsidiary
in accordance with their respective terms;
(ii) Southport and its Subsidiary has performed all obligations
required to be performed by them to date under the Contracts, and none is
(with or without the lapse of time or the giving of notice, or both) in
breach or default thereunder and, to the knowledge of Southport and each
Shareholder, no other party to any Contract is (with or without the lapse
of time or the giving of notice, or both) in breach or default thereunder;
(iii) neither Southport nor its Subsidiary has received any
notice of the intention of any party to terminate any Contract nor has
Southport or its Subsidiary knowledge of the intention of any party to
terminate any Contract;
(iv) neither Southport nor its Subsidiary is a party to any
Contract for the employment of any person that is not terminable on 30
days' notice or that requires the payment of severance benefits; and
(v) with the exception of Contracts involving an aggregate
obligation on or benefit to the Southport or its Subsidiary of less than
$10,000, all Contracts of Southport or its Subsidiary (including
Southport's long-term sublease of land in Harvey, Louisiana and leases for
equipment, and all Contracts with Customers) are fully assignable by
Southport or its Subsidiary, as applicable, without the consent of the
other parties thereto.
(c) Complete and correct copies of all Contracts listed in Schedule
2.16, together with all modifications and amendments thereto, have been made
available, or by the Closing Date will have been made available, to Purchaser.
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(d) Schedule 2.16 sets forth each Contract with respect to which the
consent of the other party or parties thereto must be obtained by virtue of the
execution and delivery of this Agreement or the consummation of the Merger to
avoid the invalidity of the transfer of such Contract, the termination thereof,
a breach, violation or default thereunder or any other change or modification to
the terms thereof.
2.17 Undisclosed Liabilities. Except as set forth on Schedule 2.17,
neither Southport nor its Subsidiary has any liability whether fixed,
contingent, or otherwise except as (a) is reflected or reserved against on the
Interim Balance Sheet; or (b) has been incurred since September 30, 1997 in the
ordinary course of business consistent with past practice and does not exceed
$15,000 in the aggregate for all such liabilities.
2.18 Title to Property.
(a) Neither Southport nor its Subsidiary owns any real property.
Each of Southport and its Subsidiary has good and valid title to, or a valid
leasehold interest in or license or other right to use, all of the properties
and assets, real and personal, tangible or intangible, that are and have been
used in connection with their businesses, and all other properties and assets
reflected on the Interim Balance Sheet or acquired after such date (excluding
only those properties and assets that have been disposed of in the ordinary
course of business after such date), in each case free and clear of all Liens,
except: (a) such as are set forth on Schedule 2.18; and (b) Liens arising under
original purchase price conditional sales contracts and equipment leases with
third parties entered into in the ordinary course of business and liens for
Taxes that are not due and payable or that may thereafter be paid without
penalty; and (c) other imperfections of title or encumbrances, if any, that do
not, individually or in the aggregate, (i) secure an obligation or claim
(whether direct or contingent) in excess of $5,000 or (ii) materially impair the
continued use and operation of the assets to which they relate in the conduct of
the Business as presently conducted (the liens described in clauses (a), (b) and
(c) above are referred to collectively as "Permitted Liens" and individually as
a "Permitted Lien"). No Shareholder owns either directly or indirectly (except
through such Shareholders' interest in Southport) any property used in the
business of Southport and its Subsidiary.
(b) Schedule 2.18 sets forth a complete and accurate schedule of all
leased property as to which either Southport or its Subsidiary is a lessor or
lessee or sublessor or sublessee, and sets forth for each such property, the
address, the approximate size of the property, the names of the lessor and
lessee, a description of the use of the property, the term of the lease, and the
periodic lease payment. With respect to each lease listed on Schedule 2.18: (i)
such lease is in full force and effect in accordance with its terms; (ii) all
rents and other monetary amounts that have become due and payable thereunder
have been paid; (iii) there exists no default (or an event which, with notice or
lapse of time, or both, would constitute a default) under such lease; and (iv)
the Acquisition will not constitute a default or a cause for termination or
modification of such lease.
(c) Westport Properties, Inc. ("Westport"), all of the capital stock
of which is owned by the Shareholders, holds an option to purchase property
owned by E & H Investments, Inc.
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which property is used by Southport as lessee pursuant to the terms of a lease
identified on Schedule 2.18 (the "Option"). The Option is in full force and
effect in accordance with its terms and there exists no default (or an event
which, with notice or lapse of time, or both, would constitute a default)
thereunder. The Acquisition will not constitute a default or cause for
termination or modification of the Option. Westport owns a title insurance
policy with respect to the property subject to the Option (the "Option Property
Title Insurance"), a copy of which policy is included in Schedule 2.18. The
Shareholders acknowledge that Purchaser may, but will not be obligated to,
exercise the Option.
(d) None of the Shareholders, Southport or its Subsidiary has a legal
obligation, absolute or contingent to any other person to sell or otherwise
dispose of, or to refrain from selling or otherwise disposing of, any
substantial part of its assets except pursuant to this Agreement; or to sell or
dispose of any of its assets except in the ordinary course of business
consistent with past practices.
(e) Southport and its Subsidiary have previously delivered to
Purchaser true, correct and complete copies of the Option and of all leases on
Schedule 2.18, including all amendments thereto, and such leases have not been
further amended or modified.
2.19 Insurance. The material insurance policies maintained by
Southport and its Subsidiary, together with their respective policy limits and
deductibles, are listed on Schedule 2.19. All such policies will be in effect on
the Closing Date. The business of Southport and its Subsidiary has been
conducted in a manner so as to conform in all material respects to all
applicable provisions of such insurance policies. All premiums due, for which
invoices have been received, have been currently paid or provided for and none
of the policies contains retroactive premium adjustment provisions. Neither
Southport nor its Subsidiary is otherwise in default with respect to any such
policy. Neither Southport nor its Subsidiary has failed to give any notice or
present any claim under any such policy in a due and timely manner. There are
no outstanding unpaid claims or matters which could reasonably be anticipated to
become claims under any such policy other than any pending claims or matters
listed on Schedule 2.19. Neither Southport nor its Subsidiary has received
notice of cancellation or non-renewal of any insurance policy or any notice that
coverage has been or may be denied with respect to any outstanding claim by or
against Southport or its Subsidiary (other than routine reservation of rights
notices by insurers in circumstances under which neither Southport nor any
Shareholder has any reason to believe that the insurer reserving its rights will
actually subsequently dispute coverage).
2.20 Intellectual Property. Schedule 2.20 sets forth: (a) all
patents or patent applications owned by Southport or its Subsidiary; (b) all
licenses and other rights granted to Southport or its Subsidiary relating to any
patent or patent application owned by any other person; (c) all trademarks,
service marks, copyrights, software or trade names owned by Southport or its
Subsidiary; and (d) all licenses and other rights granted to Southport or its
Subsidiary to use any such trademark, service mark, copyright, software or trade
name owned by any other person, whether registered or unregistered
(collectively, the "Intellectual Property"). Except as set forth on Schedule
2.20, all of the Intellectual Property listed on Schedule 2.20 pursuant to
clauses (a) and (c) above, if any, has been registered (to the extent capable of
registration), duly issued and is owned by Southport or its
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Subsidiary, and Southport or its Subsidiary has the exclusive rights to use all
such patents, patent applications, trademarks, service marks, copyrights,
software and trade names in its business and operations. Southport or its
Subsidiary owns or is licensed under valid licenses for all patents, patent
applications, copyrights, trademarks, trade names, service marks, software,
know-how, trade secrets and other proprietary rights necessary to conduct their
Business, and the operations of Southport and its Subsidiary, as currently
conducted and as conducted since such entity's incorporation, to the best of
each Shareholder's and Southport's knowledge, do not and have not infringed any
patent, copyright, trademarks, trade name, service mark, software, know-how,
trade secret or other proprietary right of any other person. Neither Southport
nor its Subsidiary is required to pay any royalty, license fee or similar type
of compensation in connection with the conduct of its Business as it is now or
heretofore has been conducted. To the knowledge of any Shareholder and
Southport, there is no person that is infringing any patent, trademark, service
mark, copyright, software or trade name owned or used by Southport or its
Subsidiary.
2.21 Environmental Matters. Except as described in Schedule 2.21:
(a) (i) The activities, operations and business carried out at or on
the Sites or on Navigable Waters by Southport or its Subsidiary, are, and have
been at all times, in compliance with all Environmental Laws; (ii) Hazardous
Substances have not been Released on, at, under or about the Sites or in
Navigable Waters or transported to or from the Sites; and (iii) neither
Southport nor its Subsidiary is required by any Governmental Entity to take any
action to remedy any condition caused by or in any way connected with the
presence, Release, Threat of Release, use, handling, manufacturing, generation,
production, storage, treatment, processing, transportation or disposal of
Hazardous Substances, as such capitalized terms are defined in this Section
2.21.
(b) There are no pending litigation or proceedings or, to the
knowledge of the Shareholders, threatened litigation or proceedings before any
Governmental Entity in which any person alleges the violation of, or any
liability under, any Environmental Law or the Release or Threat of Release of
Hazardous Substances on, at, under or from any of the Sites or in Navigable
Waters, nor has Southport or its Subsidiary: (i) received any notice of or
obtained any actual or constructive knowledge that any third party, Governmental
Entity or any employee or agent thereof, has determined that there exists any
violation of any Environmental Law or the Release or Threat of Release of
Hazardous Substances on, at, under or from the Sites or in Navigable Waters;
(ii) received any notice under the citizen suit provision of any Environmental
Law; or (iii) received any request for inspection or request for information,
notice, demand, administrative inquiry or any formal or informal complaint or
claim with respect to or in connection with any Environmental Law.
(c) No Lien has been imposed on any of the Sites by any Governmental
Entity in connection with Environmental Laws.
(d) Southport and its Subsidiary has received or been issued, as
appropriate, every Permit required by any Governmental Entity for the present or
currently contemplated operation of the Business of Southport and its
Subsidiary, except where the failure to have received or been issued any Permit
would not individually have, or be reasonably likely to have, a Material Adverse
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Effect. Except as disclosed in Schedule 2.21, all Permits are valid in full
force and effect, and no proceeding is pending or, to the knowledge of Southport
of its Subsidiary, has been threatened to modify, suspend, revoke or otherwise
limit any of the Permits, and no administrative or governmental actions have
been taken or, to the knowledge of Southport and its Subsidiary, has been
threatened to modify, suspend, revoke or otherwise limit any of the Permits, and
no administrative or governmental actions have been taken, or to the knowledge
of Southport and its Subsidiary, threatened in connection with the expiration or
renewal of any of the Permits. Except as set forth in Schedule 2.21, the
Business of Southport and its Subsidiary is and at all times has been conducted
in compliance with all Permits and all applicable laws, statutes, ordinances,
orders, rules, regulations and requirements of any Governmental Entity, except
for any non-compliance that would not individually have, or be reasonably likely
to have, a Material Adverse Effect.
(e) No storage tanks presently exist on, at, under or about any Sites
or previously existed on, at, under or about any Sites.
(f) Schedule 2.21 identifies all locations to which Hazardous
Substances have been sent by Southport or its Subsidiary for storage, treatment,
or disposal that are also identified in any publicly available document as a
candidate for cleanup or remediation.
(g) Schedule 2.21 specifies the Sites used for (i) the storage,
maintenance or repair of vehicle or (ii) the storage or distribution of
Hazardous Substances.
For purposes of this Agreement, "Environment" means soil, surface waters,
ground waters, land, stream sediments, surface or subsurface strata, ambient
air, and any environmental medium.
For purposes of this Agreement, "Environmental Laws" means (a) any
Applicable Law or bylaw regulating or referring to the Environment or to Natural
Resource Damages; and (b) any presently or previously enforced Applicable Law or
bylaw of any Governmental Entity that asserts or may assert jurisdiction over
Southport or its Subsidiary or the Sites, or the operations or activities at the
Sites or in Navigable Waters, that regulates or refers to the presence, Release,
Threat of Release, use, handling, manufacturing, generation, production,
storage, treatment, processing, transportation or disposal of any Hazardous
Substances.
For purposes of this Agreement, "Hazardous Substances" means: (a) any
pollutant, toxic substance, contaminant, chemical, hazardous waste, hazardous
material, petroleum product, oil, radioactive material; (b) any substance, gas
material or chemical that is or may be defined as or included in the definition
of "hazardous substances," "toxic substances," "hazardous materials," "hazardous
wastes," or words of similar import under any Environmental Law; (c) radon gas,
asbestos in any form that could or does become friable, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of federal, state or
local safety guidelines, whichever are more stringent; and (d) any other
chemical, material, gas, or substance, the exposure or Release of which is or
may be prohibited, limited or regulated by any Governmental Entity that asserts
or may assert jurisdiction
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over Southport or its Subsidiary, the Sites, or the operations or activities at
the Sites or in Navigable Waters.
For purposes of this Agreement, "Natural Resource Damages" has the meaning
provided in CERCLA (42 U.S.C. 9601 et seq.) and OPA (33 U.S.C. 2701 et seq.).
For purposes of this Agreement, "Navigable Waters" has the meaning provided
under the Clean Water Act and OPA (33 U.S.C. 2701 et seq.).
For purposes of this Agreement, "Release" means any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the Environment.
For purposes of this Agreement, "Sites" mean all locations owned or used by
Southport or its Subsidiary at any time prior to the Closing Date.
For purposes of this Agreement, "Threat of Release" means a substantial
likelihood of a Release that requires action to prevent or mitigate damage to
the Environment that may result from such Release.
2.22 Employee and Labor Matters.
(a) Except as set forth on Schedule 2.22(a): (i) there is not any,
and during the past twelve months there has not been any, labor strike, work
stoppage or lockout pending, or, to the knowledge of any Shareholder or
Southport or its Subsidiary, threatened against Southport or its Subsidiary;
(ii) no employees of Southport are currently represented by a union; (iii) to
the knowledge of any Shareholder or Southport or its Subsidiary, no union
organizational campaign is in progress with respect to the employees of
Southport or its Subsidiary and no question concerning representation exists
respecting such employees; (iv) neither Southport nor its Subsidiary is engaged
in any unfair labor practice or action that could reasonably be expected to
constitute an unfair labor practice; (v) there are not, to the knowledge of any
Shareholder or Southport or its Subsidiary, any unfair labor practice charges or
complaints against Southport or its Subsidiary, threatened or pending before the
National Labor Relations Board; (vi) there are no pending, or to the knowledge
of any Shareholder or Southport or its Subsidiary, threatened union grievances
against Southport or its Subsidiary; (vii) there are not, to the knowledge of
any Shareholder or Southport or its Subsidiary, any pending or threatened
charges against Southport or its Subsidiary or any current employee of Southport
or its Subsidiary before the Equal Employment Opportunity Commission or any
state or local agency responsible for the prevention of unlawful employment
practices or unlawful discrimination practices or discrimination on the basis of
disability; (viii) Southport and its Subsidiary are, to the knowledge of any
Shareholder and Southport and its Subsidiary, in compliance with the regulations
under the Occupational Safety and Health Act (OSHA); and (ix) neither Southport
nor its Subsidiary has received written or oral notice during the past twelve
months of the intent of any Governmental Entity responsible for the enforcement
of labor or employment laws to conduct an investigation of and, to the knowledge
of any Shareholder, Southport and its Subsidiary,
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no such investigation is in progress. Schedule 2.22(a) contains a complete and
accurate list of all labor arbitration and unfair labor practice charges, if
any, between Southport or its Subsidiary and the employees or either of them,
that occurred at any time since January 1, 1994.
(b) Schedule 2.22(b) sets forth the names and salaries (including
previously awarded and projected bonuses and other incentive compensation) of
all salaried employees of Southport and its Subsidiary as of the date hereof.
2.23 Condition of Assets. The machinery and equipment necessary for
the conduct of Southport's business and the business of its Subsidiary, together
with all leased real property and improvements thereon, are in good operating
condition and in a state of reasonable maintenance and repair, ordinary wear and
tear excepted.
2.24 Absence of Changes. Except as set forth on Schedule 2.24, since
September 30, 1997, Southport and its Subsidiary have conducted their respective
businesses only in the ordinary course, consistent with past practice. Without
limiting the generality of the foregoing, neither Southport nor its Subsidiary
has since September 30, 1997:
(a) experienced any Material Adverse Effect in its business,
properties, prospects, assets, liabilities or condition (financial or otherwise)
or its relationships with its principal customers, suppliers or distributors, or
suffered any material casualty loss (whether or not insured);
(b) made any change in its accounts receivable or accounts payable
practices;
(c) incurred or guaranteed any material obligation or liability
(including, without limitation, incurred any indebtedness), except for current
liabilities incurred in the ordinary course of business;
(d) sold, assigned, transferred, mortgaged, pledged, leased, licensed
or otherwise disposed of (other than sales of goods manufactured by Southport in
the ordinary course of business) or subjected to any Lien (except a Permitted
Lien) any material asset;
(e) other than in the ordinary course of business and consistent with
past practice, entered into any employment contract, or any compensation
arrangement or employee benefit plan, or changed or committed to change
(including, without limitation, any change pursuant to any bonus, pension,
profit-sharing or other plan, commitment, policy or arrangement) the
compensation payable or to become payable to any of its officers, directors,
employees or agents, or made any pension, retirement, profit-sharing, bonus or
other employee welfare or benefit payment or contribution;
(f) declared, paid or made, or set aside for payment or making, any
dividend or other distribution in respect of Southport Common Stock, or directly
or indirectly redeemed, purchased or otherwise acquired any of its capital stock
or other securities or subdivided or in any way reclassified or changed any of
the terms or provisions of any shares of its capital stock;
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(g) paid, loaned or advanced any amount to or in respect of, or sold,
transferred or leased any property or assets to, or received any loan or advance
of any amount from, or entered into any transaction, agreement or arrangement
with or for the benefit of any Shareholder or any affiliate, associate or family
member of a Shareholder, or any of the officers or directors of Southport or its
Subsidiary or any affiliate or associate of such officers or directors;
(h) canceled any material debts or claims, or waived any rights of
material value or incurred or guaranteed any material obligation or liability of
any kind, except for current liabilities incurred in the ordinary course of
business;
(i) changed its Tax or financial accounting methods, principles or
practices (including, without limitation, any changes in depreciation or
amortization policies or rates or any changes in any assumptions underlying any
method of calculating reserves);
(j) made any capital expenditure, except capital expenditures in
accordance with the written capital budget previously provided to Purchaser;
(k) entered into, modified, terminated, amended, renewed,
renegotiated, released, disposed of, permitted to lapse or expanded in any
respect, or waived any of its rights under, any material Contract;
(l) disposed of or permitted to lapse any material item of
Intellectual Property;
(m) agreed, whether or not in writing, to take any action, or fail to
take any action, that if taken or not taken after the date of this Agreement
would constitute a breach under this Section 2.24;
(n) received any notice of any pending or threatened condemnation or
expropriation of property owned or used by Southport or its Subsidiary; or
(o) learned any facts that adversely affect the Business or that are
reasonably likely in the future to adversely affect the Business.
2.25 Accounts Receivable and Accounts Payable. Southport's and its
Subsidiary's accounts receivable (and other receivables) and accounts payable
have arisen or will arise, as the case may be, from bona fide transactions and
represent amounts due or payable with respect to actual, arm's length
transactions entered into in the ordinary course of business and consistent with
past practice (including, without limitation, credit practices) and have been
calculated in accordance with GAAP consistently applied. No such account
receivable (or other receivable) has been or will have been assigned or pledged
to any individual, partnership, joint venture, firm, corporation, association,
trust or other entity or any government or political subdivision or any agency,
department or instrumentality thereof. Except for accounts receivable in an
aggregate amount not in excess of any reserve for bad debt therefor expressly
reflected on the Interim Balance Sheet and any reserves after such date on the
books of Southport and its Subsidiary in the ordinary course of
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business consistent with past practices for receivables accrued on the Interim
Balance Sheet, all receivables of Southport and its Subsidiary are or will be
collectible in accordance with their terms. Schedule 2.25 sets forth an itemized
list of all accounts receivable of Southport and its Subsidiary as of October
31, 1997, for any amount in excess of $5,000 together with the aging of such
accounts receivable and a notation of which such accounts receivable are
estimated to be wholly or partially uncollectible.
2.26 Inventory. All inventory of Southport and its Subsidiary reflected on
the Interim Balance Sheet: (i) is merchantable, or is suitable and usable in the
ordinary course of business; (ii) is not obsolete or slow-moving; (iii) is not
held by Southport or its Subsidiary on consignment and is not in the possession
of persons other than Southport or its Subsidiary; and (iv) is maintained on a
FIFO basis and valued at the lower of cost or market in accordance with GAAP
consistently applied.
2.27 Books and Records. The books and records of Southport and its
Subsidiary are complete and correct and accurately reflect in accordance with
GAAP all transactions in which Southport and its Subsidiary have engaged, and
there are no off-balance sheet transactions or matters for which entry has not
been properly made in such books and records.
2.28 Bank Accounts and Powers of Attorney. Schedule 2.28 sets forth a
listing of all persons holding powers of attorney granted by Southport or its
Subsidiary and of all bank accounts and lock boxes in which Southport or its
Subsidiary has deposited funds or property, together with the names of the
persons authorized to sign on or enter them, as the case may be.
2.29 Questionable Payments. Neither Southport nor its Subsidiary nor any
of their directors, officers, agents or employees, nor any other person
associated with or acting on behalf of Southport or its Subsidiary, has directly
or indirectly: (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any person, private or public, regardless
of form, whether in money, property, or services; (i) to obtain favorable
treatment in securing business; (ii) to pay for favorable treatment for business
secured; (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of either Southport or its Subsidiary; or (iv) in
violation of any applicable law (including, without limitation, the Foreign
Corrupt Practices Act); (b) received any bribe, payoff or kickback from any
person regardless of form, whether in money, property or services to award
business; or (c) established or maintained any fund or asset that has not been
recorded in the books and records of either Southport or its Subsidiary.
2.30 Affiliate Transactions. Schedule 2.30 sets forth a list of all
Contracts and transactions between Southport or its Subsidiary, on the one hand,
and any director or officer of any Southport, director or officer of its
Subsidiary, any Shareholder or any affiliate, associate or immediate family
member of any such director, officer or Shareholder, or any entity in which any
such director, officer or Shareholder of any affiliate, associate or immediate
family member of any such director, officer or Shareholder has a direct or
indirect interest, on the other hand.
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2.31 Zoning. The current operation of the businesses of Southport and its
Subsidiary is a permitted use under applicable zoning regulations and there is
no existing or, to the knowledge of Southport and its Subsidiary, pending or
threatened, requirement for any special exception, variance of other conditional
approval to permit such businesses to continue to operate and to expand to any
locations at which other businesses are currently operated.
2.32 No Misrepresentations or Omissions. The warranties, representations
and covenants made in this Agreement by or on behalf of each Shareholder and
Southport do not contain any untrue statement of material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the context in which they were made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser hereby represents and warrants to the Shareholders, as follows:
3.1 Corporate Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Louisiana and has the corporate power and authority and possesses all
governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to own, lease or otherwise hold all of its properties and
assets and to carry on its business as it is now being conducted.
3.2 Authority; Execution and Delivery; Enforceability. Purchaser has
the corporate power and authority to execute and deliver this Agreement and to
consummate the Acquisition and the other transactions contemplated hereby. The
execution and delivery by Purchaser of this Agreement and the consummation by
Purchaser of the Acquisition and the other transactions contemplated hereby have
been duly authorized by all necessary corporate action. Purchaser has duly
executed and delivered this Agreement, and this Agreement constitutes the legal,
valid and binding obligation of Purchaser, enforceable against it in accordance
with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity.
3.3 No Conflicts; Consents. The execution and delivery by Purchaser
of this Agreement do not, and the consummation of the Acquisition and the other
transactions contemplated hereby and compliance with the terms hereof will not
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or to
increased, additional, accelerated or guaranteed rights or entitlements of any
person under, or result in the creation of any Lien upon any of Purchaser's
assets under, any provision of (a) the articles or certificate of incorporation
of Purchaser, or (b) any Judgment or Applicable Law applicable to Purchaser or
its properties or assets. No consent of, or registration, declaration or filing
with, any Governmental Entity is required to be obtained or made by or with
respect to Purchaser in connection with the execution, delivery and performance
of this Agreement or the consummation of the Acquisition or the other
transactions contemplated hereby.
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ARTICLE IV
COVENANTS
4.1 Covenants of Seller Relating to Conduct of Southport's Business.
(a) Except as otherwise expressly permitted by the terms of this
Agreement, from the date hereof to the Closing, the Shareholders shall cause
Southport and its Subsidiary to conduct their respective businesses in the
ordinary course in substantially the same manner as presently conducted and
shall make all reasonable efforts consistent with past practices to preserve
their relationships with customers, suppliers and others with whom they deal.
Except as otherwise expressly permitted by the terms of this Agreement, the
Shareholders shall cause each of Southport and its Subsidiary not to do any of
the following without the prior written consent of Purchaser:
(i) change or amend its articles of incorporation or bylaws;
(ii) authorize for issuance, issue or sell any shares of its
capital stock or other securities, acquire directly or indirectly, by
redemption or otherwise, any such capital stock, reclassify or split-up any
such capital stock, or grant or enter into any options, warrants, calls or
commitments of any kind with respect thereto;
(iii) pay, declare or set aside any dividend or make any other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock;
(iv) adopt or amend any Company Benefit Plan (or any plan that
would be a Company Benefit Plan if adopted) except as required by
Applicable Law;
(v) enter into, adopt, extend, renew or amend any collective
bargaining agreement or other Contract with any labor organization, union
or association, except as required by Applicable Law;
(vi) grant to any director, executive officer or employee any
increase in compensation or benefits, except under existing agreements and
except, in the case of any non-executive employee, other than a
Shareholder, in the ordinary course of business consistent with past
practice;
(vii) permit, allow or suffer any asset of Southport or its
Subsidiary to become subjected to any Lien of any nature other than
Permitted Liens;
(viii) cancel any material indebtedness (individually or in the
aggregate) owed to Southport or its Subsidiary or waive any claims or
rights of substantial value;
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(ix) dismiss or replace its independent auditor or make any
change in any method of accounting or accounting practice or policy other
than those required by GAAP;
(x) acquire any assets that are material, individually or in the
aggregate, to Southport except in the ordinary course of business;
(xi) make any capital commitments that in the aggregate are in
excess of $5,000 and not set forth in the written capital budget of
Southport previously supplied to Purchaser (the "Capital Budget");
(xii) fail to make any capital expenditure required in the
Capital Budget or to conduct ordinary maintenance activities;
(xiii) sell, lease or otherwise dispose of any assets of the
Business that in the aggregate are valued in excess of $5,000, other than
in the ordinary course;
(xiv) terminate (except for cause) or hire any executive officer
of Southport or of its Subsidiary; or
(xv) agree, whether in writing or otherwise, to do any of the
foregoing.
(b) Affirmative Covenants. Until the Closing, the Shareholders shall
cause Southport and its Subsidiary to:
(i) maintain the assets of Southport and its Subsidiary in the
ordinary course of business in good operating order and condition,
reasonable wear and tear excepted;
(ii) maintain in force all insurance policies and cause the assets and
business of Southport and its Subsidiary to continue to be insured against all
risks for which such assets and businesses are currently insured;
(iii) upon any damage, destruction or loss to any asset of
Southport or its Subsidiary, as promptly as possible, provide Purchaser
with written notice thereof and, after consultation with Purchaser, either
(A) apply any and all insurance proceeds received with respect thereto to
the prompt repair, replacement and restoration thereof to the condition of
such asset before such event or, if required, to such other (better)
condition as may be required by Applicable Law or (B) retain any and all
insurance proceeds received with respect thereto; and
(iv) maintain its level and quality of supplies, fuel and spare
parts in the ordinary course in a manner consistent with its practices in
place as of September 30, 1997.
4.2 Access to Information. (a) The Shareholders shall cause Southport
and its Subsidiary to afford Purchaser and its accountants, counsel and other
representatives reasonable
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access during normal business hours during the period prior to the Closing to
all properties, books, contracts, commitments, Tax Returns and records of
Southport and its Subsidiary and, during such period, shall furnish promptly to
Purchaser any information concerning Southport and its Subsidiary that Purchaser
may reasonably request (including, if requested by Purchaser, opinion letters
from legal counsel to Southport and its Subsidiary as to the likely dollar
exposure, if any, of Southport or its Subsidiary to particular personal injury
claims which are currently pending or threatened).
(b) Without limiting paragraph (a) above, but subject to it, Purchaser
shall have the right to perform any environmental, health and safety assessments
of the leased property of Southport and its Subsidiary that Purchaser, in its
sole discretion, deems advisable. Without limiting the foregoing, Purchaser and
its representatives shall have the right to enter the leased real property of
Southport and its Subsidiary to conduct Phase I environmental assessments,
asbestos surveys and similar investigations, studies necessary to develop one or
more scopes of work for Phase II investigations (including sampling of
environmental media, building materials and the work place environment) and
Phase II investigations (including but not limited to, borings, samples of soil
and groundwater and the installation or monitoring wells). Purchaser shall
perform all such environmental, health and safety assessments at its sole
expense. Purchaser and its representatives shall enter the real property only
during business hours, after reasonable notice has been given to Southport.
Purchaser, the Shareholders and Southport agree that they will cooperate with
one another to facilitate the performance of Purchaser's assessments and to
avoid, to the extent reasonably possible, any disruption of Southport's and its
Subsidiary's operations.
4.3 Confidentiality. The terms and conditions of this Agreement are to be
held in strict confidence, and no disclosure shall be made with respect hereto,
publicly or privately, other than as agreed by Purchaser, as necessary by
Purchaser or the Shareholders to their respective advisors in connection with
the performance of the obligations incurred hereunder or as required by
applicable law. No public release or announcement concerning the transactions
contemplated hereby shall be issued by either Party without the prior consent of
the other, except that Purchaser may make such disclosure as is reasonably
appropriate to comply with its obligations under applicable federal securities
laws.
4.4 Reasonable Efforts.
(a) On the terms and subject to the conditions of this Agreement, each
Party shall use its commercially reasonable best efforts to cause the Closing to
occur, including taking all reasonable actions necessary to comply promptly with
all legal requirements that may be imposed on its or any of its affiliates with
respect to the Closing.
(b) Each Party shall use its commercially reasonable best efforts (at
its own expense) to obtain, and to cooperate in obtaining, all consents from
third parties necessary or appropriate to consummate the Acquisition; provided,
however, that the Parties shall not be required to pay or commit to pay any
amount to (or incur any obligation in favor of) any person from whom any such
consent may be required (other than nominal filing or application fees).
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4.5 Expenses. (a) The Shareholders shall and Southport shall not
bear any costs and expenses (except those set forth in Schedule 2.6) incurred by
the Shareholders in connection with this Agreement and the transactions
contemplated hereby, including, the fees of legal counsel, brokers and finders,
and accountants. Purchaser shall bear all costs and expenses incurred by
Purchaser in connection with this Agreement and the transactions contemplated
hereby, including the fees of its legal counsel, brokers and finders, and
accountants.
4.6 Employees and Employment Agreements. The Shareholders shall cause
Southport to enter into employment agreements with each of Stephen G. Benton,
Jr., Charles L. Belsom and Frank J.B. Benton and with such other employees of
Southport and its Subsidiary as Purchasers and Stephen G. Benton, Jr. may
mutually agree. Such agreements shall be substantially in the form attached as
Exhibit 4.6 hereto.
4.7 Updating Information. Until the Closing, the Shareholders shall cause
Southport to provide to Purchaser, as soon as practicable after they are
available, daily, weekly and monthly management books and financial reports of
Southport and the Subsidiary, prepared in accordance with past practice, and all
other documents requested in the document request list previously delivered by
Purchaser to the Shareholders.
4.8 Schedules; Advice of Changes.
(a) The Parties acknowledge that this Agreement is being executed in
advance of the attachment of some or all of the schedules provided for herein.
As promptly as possible after execution of this Agreement, and in no event more
than 10 days from the date hereof, the Shareholders will supply such schedules
whereupon they will be deemed to have been delivered on the date hereof.
(b) The Shareholders shall as promptly as possible advise Purchaser of
any change or event having a Material Adverse Effect on Southport or its
Subsidiary, as applicable, or that any Shareholder believes would or would be
reasonably likely to cause or constitute a material breach of any
representations, warranties or covenants of any Shareholder contained herein.
From time to time prior to the Closing Date (and on the date prior to the
Closing Date), the Shareholders will promptly supplement or amend the schedules
delivered pursuant to subsection 4.8(a) of this Agreement to reflect any matter
that, if existing, occurring or known at the date of this Agreement, would have
been required to be set forth or described in such schedules or that is
necessary to correct any information in such schedules that has been rendered
inaccurate thereby. No supplement or amendment to such schedules shall have any
effect for the purpose of determining satisfaction of the requirements of
Section 5.2(a), with such satisfaction to be determined, unless Purchaser
otherwise consents, based on the schedules in the form delivered on the date
hereof.
4.9 Covenant Not to Compete.
(a) For and in consideration of the benefits derived by the
Shareholders pursuant to this Agreement, each Shareholder, other than those who
enter into employment agreements
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pursuant to Section 4.6, agrees that, with respect to each State of the United
States or other jurisdiction, or specified portions thereof, in which he, she,
or Southport or its Subsidiary regularly: (A) makes contact with customers of
Southport or its Subsidiary; (B) conducts the business of Southport or its
Subsidiary; or (C) supervises the activities of other employees of Southport or
its Subsidiary, in locations identified in Schedule 4.9 attached hereto and
forming a part of this Agreement, and in which Southport or its Subsidiary
engaged in Business on the Closing Date or the Date of Termination
(collectively, the "Subject Areas"), the Shareholder will, for a period of two
years following the Closing Date, restrict his or her activities as follows:
(i) The Shareholder will not, directly or indirectly, for himself or
others, own, manage, operate, control, be employed in an executive, managerial
or supervisory capacity by, or otherwise engage or participate in or allow his
or her skill, knowledge, experience or reputation to be used in connection with,
the ownership, management, operation or control of, any company or other
business enterprise engaged in the Business within any of the Subject Areas,
provided, however, that no provision hereof shall prohibit Stephen G. Benton,
Sr. or George L. Benton from providing consulting services to oil and gas
exploration, production and engineering companies (but not companies engaged in
the construction or fabrication of oil and gas drilling or production platforms
or the components thereof) with respect to the design of living quarters;
(ii) The Shareholder will not call upon any customer of Southport or
its Subsidiary for the purpose of soliciting, diverting or enticing away the
business of such person or entity, or otherwise disrupting any previously
established relationship existing between such person or entity and Southport or
its Subsidiary;
(iii) The Shareholder will not solicit, induce, influence or attempt
to influence any supplier, lessor, licensor, potential acquiree or any other
person who has a business relationship with Southport or its Subsidiary, or who
on the Date of Termination is engaged in discussions or negotiations to enter
into a business relationship with Southport or its Subsidiary, to discontinue or
reduce the extent of such relationship with Southport or its Subsidiary;
(iv) The Shareholder will not make contact with any of the employees
of Southport or its Subsidiary with whom he had contact during the course of his
or her relationship with Southport for the purpose of soliciting such employee
for hire, whether as an employee or independent contractor, or otherwise
disrupting such employee's relationship with Southport or its Subsidiary; and
(v) The Shareholder will not hire, on behalf of himself or any company
engaged in the Business with which the Shareholder is associated, any employee
of Southport or its Subsidiary as an employee or independent contractor, whether
or not such engagement is solicited by the Shareholder.
(b) Each such Shareholder agrees that from time to time he or she
will, upon Southport's request, promptly execute any supplement, amendment,
restatement or other modification of Schedule 4.9 as may be necessary or
appropriate to correctly reflect the jurisdictions
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which, at the time of such modification, should be covered by Schedule 4.9 and
this Section 4.9. All references to Schedule 4.9 in this Agreement shall be
deemed to refer to Schedule 4.9 as so supplemented, amended, restated or
otherwise modified from time to time.
(c) Each such Shareholder will not after the Closing Date retain,
make use of or disclose to any person any customer lists prepared in connection
with or used by Southport and its Subsidiary.
(d) Upon any actual or threatened breach or violation of any of the
provisions of this Section 4.9, Purchaser shall be entitled to injunctive relief
in any court of competent jurisdiction at any location at which the breaching
party is domiciled or engaged in business. Nothing herein, however, shall be
construed as prohibiting Purchaser from pursuing any other remedies of law or at
equity available to it for such breach or violation or threatened breach or
violation. Should a court of competent jurisdiction declare any of the
covenants set forth in Section 4.9 unenforceable due to an unreasonable
geographic restriction or otherwise, the Parties intend for such court to modify
or limit such covenant according to the severability provisions set forth in
Section 8.8.
4.10 Acquisition Proposals. Unless this Agreement is terminated pursuant
to Section 6.1, Southport and the Shareholders shall not, and shall each cause
its respective affiliates, directors, officers, trustees, employees,
shareholders, representatives and agents not to: (a) solicit, initiate,
encourage (including by furnishing any information), discuss, negotiate or
assist in any manner any other proposals, bids or offers from any person (other
than Purchaser or its affiliates) relating to a possible acquisition of any of
the stock, assets of business of Southport or its Subsidiary, in whole or in
part (other than the sale of inventory in the ordinary course and consistent
with past practice) whether by asset purchase, stock purchase, merger or
otherwise and whether such action is taken directly or indirectly; or (b) enter
into or consummate any agreement or understanding with respect to any matter
involving to such an acquisition prospect. If any Shareholders receives any such
proposal, bid or offer or any information with respect thereto, such Shareholder
will notify Purchaser thereof and provide Purchaser with all information such
Shareholder has with respect thereto.
4.11 No Inconsistent Arrangements by the Shareholders. Each of the
Shareholders hereby covenants and agrees that, except as contemplated by this
Agreement, he shall not: (i) transfer (which term shall include, without
limitation, any sale, gift, pledge or other disposition), or consent to any
transfer of, any or all of such Shareholder's Shares, or any interest therein;
(ii) enter into any contract, option or other agreement or understanding with
respect to any transfer of any or all of such Shareholder's Shares or any
interest therein; (iii) grant any proxy, power-of-attorney or other
authorization in or with respect to such Shareholder's Shares, except for any
such grant to other Shareholders in connection with a Southport shareholder
meeting and which exercise of such power is in all respects in compliance with
the terms of this Agreement; or (iv) take any other action that would in any way
restrict, limit or interfere with the performance of its obligations hereunder.
4.12 Exercise of Option by Westport. If the Option has not been assigned
by Westport as contemplated by Section 5.2(h), the Shareholders shall, if so
requested by Purchaser, cause Westport to exercise the Option in accordance with
its terms and shall sell the property subject to the Option
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to Purchaser or its designee on such terms and Purchaser or its designee shall
purchase such property on such terms.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation To Consummate the Closing. The
respective obligation of each Party to consummate the Closing shall be subject
to the satisfaction at or prior to the Closing Time of the following conditions:
(a) Approvals. All regulatory approvals or notifications required to
consummate the transactions contemplated hereby, and to permit Purchaser to
conduct the business of Southport and its Subsidiary as heretofore conducted,
shall have been obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired (all such
approvals and the expiration of all such waiting periods described in this
section being referred to herein as the "Requisite Regulatory Approvals").
(b) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Acquisition of the other transactions contemplated by this Agreement shall be in
effect; provided, however, that neither Party to this Agreement may elect to
terminate this Agreement until such order, injunction or decree is final and
non-appealable, except pursuant to Section 6.1(b). No statute, rule,
regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity that prohibits, restricts or
makes illegal consummation of the Acquisition.
5.2 Conditions to Obligation of Purchaser. The obligation of Purchaser
to effect the Acquisition is also subject to the satisfaction or waiver by
Purchaser at or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties contained in Articles II hereof shall be true and correct in each
case at and as of the Closing Date as though such representations and warranties
were made at and as of such time, except for these representations and
warranties, if any, that are expressly made as of a specified earlier date.
(b) Covenants. The Shareholders shall have performed and complied
with all agreements and conditions on their part required by this Agreement to
be performed or complied with prior to or at the Closing Date.
(c) Officer's Certificate. Purchaser shall have received a
certificate from the Shareholders' Representative, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.2(a) and
5.2(b).
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(d) Opinion of Counsel. Purchaser shall have received an opinion of
counsel for the Shareholders, dated the Closing Date, in customary form and
reasonably satisfactory as to substance to Purchaser.
(e) Consents. All necessary consents to the transactions contemplated
hereby, in form and substance acceptable to Purchaser, shall have been obtained.
(f) Resignations and Releases. The Shareholders shall have caused to
be executed and delivered to Purchaser (i) the resignations of [Steven G.
Benton, Sr. and George L. Benton] as directors and officers of Southport and its
Subsidiary and (ii) releases by each Shareholder of all claims against Southport
and its Subsidiary, in form reasonably satisfactory to Purchaser and its
counsel.
(g) Purchaser's Due Diligence. Purchaser shall have completed its due
diligence investigation of Southport and the Subsidiary and shall be satisfied
with the results thereof.
(h) Assignment of Option. The Option shall have been assigned to
Southport, Purchaser or Purchaser's designee and shall be exercisable by such
assignee in accordance with its terms, which terms shall be satisfactory to
Purchaser.
5.3 Conditions to Obligation of Shareholders. The obligation of the
Shareholders to effect the Acquisition is also subject to the satisfaction or
waiver by the Shareholders at or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and
warranties contained in Article II hereof shall be true and correct in all
material respects in each case at and as of the Closing Date as though such
representations and warranties were made at and as of such time, except for
those representations and warranties, if any, that are expressly made as of a
specified earlier date.
(b) Covenants. Purchaser shall have performed and complied in all
material respects with all agreements and conditions on its part required by
this Agreement to be performed or complied with prior to or at the Closing Date.
(c) Officer's Certificate. Shareholder's Representative shall have
received a certificate of an executive officer of Purchaser, dated the Closing
Date, certifying to the fulfillment of the conditions specified in Sections
5.3(a) and 5.3(b).
(d) Opinion of Counsel. The Shareholders shall have received an
opinion of counsel for Purchaser, dated the Closing Date, in customary form and
reasonably satisfactory as to substance to Shareholders.
(e) Release of Guaranty. Whitney National Bank shall have released
the obligations of Stephen G. Benton, Sr. under the guaranty provided by him of
Southport's obligations under its credit facility with such bank.
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ARTICLE VI
TERMINATION AND AMENDMENT
6.1 Termination. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the Acquisition and the other
transactions contemplated by this Agreement abandoned at any time prior to the
Closing Date:
(a) by mutual consent of the Shareholders and Purchaser in a written
instrument;
(b) by either Purchaser or the Shareholders if the Acquisition shall
not have been consummated on or before January 31, 1998;
(c) by either Purchaser or the Shareholders (provided the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations, warranties, covenants or other agreements set
forth in this Agreement on the part of the other Party that (i) is not cured
within ten days following written notice to the Party in breach, or (ii) cannot
be cured prior to the Closing.
6.2 Effect of Termination. In the event of termination of this Agreement
by either Purchaser or the Shareholders as provided in Section 6.1, this
Agreement shall be void and have no effect except that no Party shall be
relieved or released from any liabilities or damages arising out of its willful
breach of any provision of this Agreement.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
7.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of the Parties shall survive the Closing.
7.2 Indemnification by the Shareholders. Each of the Shareholders, does
hereby agree to indemnify, defend and hold harmless Southport, the Subsidiary,
Purchaser, its stockholders, subsidiaries, affiliates, any director, officer,
employee, or agent of any of them, and their respective heirs, executors,
administrators, successors and assigns (each of the foregoing, an "Indemnified
Party"), from and against any and all losses, claims, demands, damages, awards,
liabilities, suits, penalties, forfeitures, costs or expenses (including
attorneys', consultants and other professional fees and fees and disbursements)
including those incurred in enforcing this Agreement (collectively, "Losses")
incurred by any Indemnified Party arising out of or by virtue of or resulting
from:
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(a) any inaccuracy or breach of any warranty or representation of the
Shareholders contained in any provision of Section 2.1, Section 2.2, Section
2.3, Section 2.4, Section 2.5, Section 2.6, Section 2.7 (a), Section 2.8,
Section 2.9 or Section 2.13 of this Agreement or contained in any certificate or
schedule delivered by or on behalf of Shareholders hereunder, to the extent that
such certificate or schedule relates to any such provision; or
(b) any inaccuracy or breach, of which any Shareholder has knowledge
on the date hereof or on the Closing Date, of any warranty or representation of
the Shareholders contained in any provision of this Agreement (other than those
provisions identified in subsection 7.2(a)) or contained in any certificate or
schedule delivered by or on behalf of Shareholders hereunder, to the extent that
such certificate or schedule relates to any such provision.
7.3 Purchaser's Right of Set-Off; Limitation on Indemnification. Upon
written notice to Shareholders disclosing its justification therefor, Purchaser
may set-off the amount of any Losses against any amounts otherwise payable or
potentially payable and not theretofore paid to Shareholders under subsection
1.3 hereof, which set-off, if any, shall be applied against the Shareholders on
a pro-rata basis. No Shareholder shall have any obligation to pay
indemnification to the Indemnified Parties for breach of any representation or
warranty under this Article VII in excess of the amount payable or potentially
payable and not theretofore paid to such Shareholder under subsection 1.3
hereof.
7.4 Procedures.
(a) In order for an Indemnified Party to be entitled to any
indemnification provided for under this Agreement in respect of, arising out of,
or involving a claim made by any person against the Indemnified Party (a "Third
Party Claim"), such Indemnified Party must notify Shareholder's Representative
in writing of the Third Party Claim (which notice shall identify the
representation or warranty breached or made inaccurate by virtue of such Third
Party Claim) promptly following receipt by such Indemnified Party of written
notice of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent that the Shareholders shall have been actually and materially
prejudiced as a result of such failure. Thereafter, the Indemnified Party shall
deliver to the Shareholders' Representative copies of all notices and documents
(including court papers) received by the Indemnified Party relating to the Third
Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party, the
Shareholders shall be entitled to participate in the defense thereof and, if
they so choose, to assume the defense thereof with counsel selected by them, but
only to the extent that all Shareholders so agree. Should the Shareholders so
elect to assume the defense of a Third Party Claim, Shareholders shall pay all
Losses resulting from such Third Party Claim and all expenses associated with
such defense and such payments shall not reduce the amounts available to the
Indemnified Parties to be off-set against Losses. If the Shareholders assume
such defense, the Indemnified Party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Shareholders; it being understood that the Shareholders
shall control such
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defense. The fees and expenses of counsel employed by the Indemnified Party for
any period during which the Shareholders have not assumed the defense thereof
shall constitute Losses of such Indemnified Party hereunder. If the
Shareholders choose to defend or prosecute a Third Party Claim, all the
Indemnified Parties shall cooperate in the defense or, prosecution thereof.
Such cooperation shall include the retention and (upon Shareholders
Representative's request) the provision to the Shareholders' Representative of
records and information that are reasonably relevant to such Third Party Claim,
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Whether or not the Shareholders assume the defense of a Third Party Claim, the
Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Shareholders' prior
written consent (which consent shall not be unreasonably delayed or withheld).
If the Shareholders assume the defense of a Third Party Claim, the Indemnified
Party shall agree to any settlement, compromise or discharge of a Third Party
Claim that the Shareholders' Representative may recommend and that by its terms
obligates the Shareholders to pay the full amount of the liability in
connection with such Third Party Claim, that releases the Shareholders
completely in connection with such Third Party Claim and that would not
otherwise adversely affect the Indemnified Party. Notwithstanding the
foregoing, the Shareholders shall not be entitled to assume the defense of any
Third Party Claim if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the Indemnified
Party that the Shareholders reasonably determine, after conferring with their
outside counsel, cannot be separated from any related claim for money damages.
If such equitable relief or other relief portion of the Third Party Claim can be
so separated from that for money damages, the Shareholders shall be entitled to
assume the defense of the portion relating to money damages. Should the
Shareholders not elect to assume the defense of a Third Party Claim, Purchaser
may set-off the amount of any Third Party Claim plus the amount of defense costs
reasonably expected to be incurred in connection therewith against any amounts
otherwise payable or potentially payable and not therefore paid to Shareholders
under subsection 1.3 hereof. In the event that such Third Party Claim is
finally disposed of for an amount less than the amount set-off, the balance will
be restored to the amount payable or potentially payable to Shareholders under
subsection 1.3 and, if any portion thereof would pursuant to subsection 1.3 have
been paid to Shareholders at an earlier date but for the set-off, such portion
shall be paid to Shareholders together with interest thereon at the Purchaser
Borrowing Rate from such date to the date actually paid .
(c) In the event any Indemnified Party should have a claim against the
Shareholders under this Agreement that does not involve a Third Party Claim
being asserted against or sought to be collected from such Indemnified Party,
the Indemnified Party shall deliver notice of such claim with reasonable
promptness to Shareholders' Representative. Such notice shall identify the
representation or warranty breached or made inaccurate by virtue of such claim.
The failure by any Indemnified Party so to notify the Shareholders'
Representative shall not relieve any Shareholder from any liability that it may
have to such Indemnified Party under this Agreement, except to the extent that
the Shareholders demonstrate that they have been materially prejudiced by such
failure.
36
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 Assignment. This Agreement and the rights and obligations hereunder
shall be assignable or transferable by Purchaser (including by operation of law
in connection with a merger or sale of substantially all the assets of
Purchaser) without the prior written consent of the Shareholders. This
Agreement, and the rights and obligations of the Shareholders hereunder, shall
not be assignable by any Shareholder without the prior written consent of
Purchaser, except by operation of law upon the Shareholder's death.
8.2 Third Party Beneficiaries. The Parties acknowledge that the rights
and benefits of Purchaser hereunder (including all rights under Article VII)
shall automatically and immediately transfer, without further notice or action,
to any purchaser from Purchaser (or its designee or assignee) of all or
substantially all of the stock or assets of Southport and its Subsidiary
following the consummation of the Acquisition.
8.3 Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
by facsimile or sent, postage prepaid, by registered, certified or express mail
or reputable overnight courier service and shall be deemed given when so
delivered by hand or facsimile, or if mailed, three days after mailing (one
business day in the case of express mail or overnight courier service), as
follows:
(a) if to Purchaser, to:
Gulf Island Fabrication, Inc.
583 Thompson Road
Houma, Louisiana 70363
Telephone: 504-872-2100
Facsimile: 504-876-5414
Attention: Kerry J. Chauvin, President
with a copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
201 St. Charles Avenue, 51st Floor
New Orleans, Louisiana 70170
Telephone: 504-582-8000
Facsimile: 504-582-8012
Attention: Carl C. Hanemann
37
<PAGE>
(b) if to Shareholders, to Shareholders' Representative:
c/o Stephen G. Benton, Jr.
341 Carrollton Avenue
Metairie, Louisiana 70005
Telephone: 504-831-8536
Facsimile: 504-837-0113
with a copy to:
Phelps Dunbar, LLP
30th Floor Texaco Center
400 Poydras Street
New Orleans, Louisiana 70130
Telephone: 504-566-1311
Facsimile: 504-568-9130
Attention: Virginia Boulet
8.4 Interpretation.
(a) The headings contained in this Agreement, in any exhibit or
schedule hereto and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All exhibits and schedules annexed hereto or referred to herein
are hereby incorporated in and made a part of this Agreement as if set forth in
full herein. Any capitalized terms used in any schedule or exhibit but not
otherwise defined therein, shall have the meaning assigned to such term in this
Agreement. When a reference is made in this Agreement to an article or a
section, exhibit or schedule, such reference shall be to an article or section
of, or an exhibit or schedule to, this Agreement unless otherwise indicated.
(b) For all purposes hereof:
"affiliate" of any person means another person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person;
"including" means including, without limitation; and
"person" means any individual, firm, corporation, partnership, limited
liability company, trust, joint venture, Governmental Entity or other
entity.
(c) The following terms are defined in this Agreement in the sections
set forth below:
38
<PAGE>
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acquisition Preamble
affiliate 8.4(b)
Agreement Preamble
Applicable Law 2.4
Arbitrator 1.3(b)
Business 2.4
Capital Budget 4.1(a)
Closing 1.2
Closing Balance Sheet 1.3(b)
Closing Date 1.2
Adjusted Closing Date Shareholders' Equity 1.3(b)
Code 2.13(d)
Company Benefit Plans 2.14(a)
Company Pension Plans 2.14(a)
Consents 2.5
Contract or Contracts 2.16(a)
Deferred Purchase Price 1.3(a)
Defined Benefit Plan 2.14(j)
Early Payment Amount 1.3(c)
Environment 2.21(g)
Environmental Laws 2.21(g)
ERISA 2.14(a)
ERISA Affiliate 2.14(a)
GAAP 2.10
Governmental Entity 2.4
Hazardous Substances 2.21(g)
including 8.4(b)
Indemnified Party 7.2
Initial Purchase Price 1.3(a)
Injunction 5.1(b)
Intellectual Property 2.20
Interim Balance Sheet 2.10
Interim Financial Statements 2.10
IRS 2.14(b)
Judgment 2.4
knowledge 8.4(b)
Lien or Liens 1.1
Losses 7.2
Material Adverse Effect 2.7(b)
Natural Resources Damages 2.21(g)
Navigable Waters 2.21(g)
Net After-Tax Income 1.3(c)
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
Option 2.18(c)
Option Property Title Insurance 2.18(c)
Party or Parties Preamble
PBGC 2.14(b)
Permits 2.15
Permitted Lien or Permitted Liens 2.18(a)
person 8.4(b)
Proceedings 2.12
Purchase Price 1.3(a)
Purchaser Preamble
Purchaser Borrowing Rate 1.3(c)
Related Agreements 2.2
Release 2.21(g)
Requisite Regulatory Approvals 5.1(a)
Returns 2.13(a)
SG&A 1.3(c)
Shares 1.1
Shareholder or Shareholders Preamble
Shareholders' Representative 8.9
Sites 2.21(g)
Southport Preamble
Southport Common Stock Preamble
Southport Financial Statement 2.10
Subject Areas 4.9(a)
Subsidiary 2.9(b)
Tax or Taxes 2.13(h)
Third Party Claim 7.5(a)
Threat of Release 2.21(g)
Transaction Expenses 2.6
Westport 2.18(c)
Year-end Financial Statements 2.10
</TABLE>
8.5 Counterparts; Signatures. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the Parties
and delivered to the other, it being understood that both Parties need not sign
the same counterpart. Telecopied signatures shall be deemed to have the
authenticity and validity of original signatures.
8.6 Entire Agreement. This Agreement (including the documents, schedules,
exhibits and Related Agreements referred to herein) contain the entire agreement
and understanding between the Parties with respect to the subject matter hereof
and supersede all prior agreements and understandings relating to such subject
matter. Neither Party shall be liable or bound to the other in any manner by
any representations, warranties or covenants relating to such subject matter
except as specifically set forth herein.
40
<PAGE>
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Louisiana, without regard to any
applicable conflicts of law principles thereof.
8.8 Severability. Wherever possible, the terms of this Agreement shall be
construed and interpreted so as to be valid and effective under Applicable Law.
If any term or provision of this Agreement, any Related Agreement, any Schedule
attached hereto or the application thereof to any person or circumstance, shall
at any time or to any extent be deemed invalid, illegal and unenforceable in any
respect as written, the Shareholders and Purchaser intend for any court
construing this Agreement to modify or limit such provision temporally,
spatially or otherwise so as to render it valid and enforceable to the fullest
extent allowed by law. Any such provision that is not susceptible of such
reformation shall be ignored so as not to affect any other term or provision
hereof, and the remainder of this Agreement, Related Agreement or Schedule, or
the application of such term or provision to persons or circumstances other than
those that are deemed to be invalid, illegal or unenforceable, shall not be
affected thereby and such term and provision shall be valid and enforced to the
fullest extent permitted by law.
8.9 Shareholders' Representative. The Shareholders hereby irrevocably
appoint Stephen G. Benton, Jr., a Shareholder, to serve as representative of
all of the Shareholders from and after the date of this Agreement (the
"Shareholders' Representative"). EACH SHAREHOLDER HEREBY AUTHORIZES THE
SHAREHOLDERS' REPRESENTATIVE TO ACT AS ATTORNEY-IN-FACT ON BEHALF OF SUCH
SHAREHOLDER WITH RESPECT TO ANY ACT REQUIRED OR PERMITTED TO BE TAKEN BY SUCH
SHAREHOLDER HEREUNDER (INCLUDING, WITHOUT LIMITATION, TO SPECIFY THE MANNER OF
MAKING PAYMENT TO SUCH SHAREHOLDER HEREUNDER OR TO RECEIVE ANY FUNDS TO BE PAID
BY OR ON BEHALF OF BUYER TO SUCH SHAREHOLDERS HEREUNDER). WITH RESPECT TO ANY
DISPUTE THAT MAY ARISE HEREUNDER OR UNDER ANY RELATED AGREEMENT, EACH
SHAREHOLDER AGREES THAT HE OR SHE MAY ACT ONLY THROUGH THE SHAREHOLDERS'
REPRESENTATIVE. Any Party hereto shall be entitled to rely, and shall be fully
protected in relying, upon all actions taken by the Shareholders'
Representative. The Shareholders' Representative may not be changed without the
consent of Purchaser, except as provided in the next sentence. In the event of
the death of the Shareholder' Representative, the Shareholders shall promptly
irrevocably appoint by a majority vote of the Shareholders (based on stock
ownership immediately prior to the Closing) one of the remaining Shareholders
(or beneficial owners of Shareholders that are entities) who is a natural person
to act as the Shareholders' Representative.
8.10 Waiver. Either Party may waive in writing any default by the
other of any representation, warranty, or covenant made for its benefit in this
Agreement, but no such waiver shall be deemed to constitute a waiver of any
other or further breach unless expressly provided for in writing, and no waiver
shall be deemed to have arisen from a course of conduct not involving a written
waiver.
41
<PAGE>
8.11 Amendment. This Agreement may be amended by the Parties hereto at any
time but only by an instrument in writing signed on behalf of each of the
Parties.
8.12 Successors. This Agreement shall be binding upon, and inure to the
benefit of, the Parties and their respective heirs, executors, successors, and
assigns.
IN WITNESS WHEREOF, the Shareholders have executed and Purchaser has caused
this Agreement to be executed by one of its officers thereunto duly authorized
as of the date first above written.
SHAREHOLDERS:
/s/ STEPHEN G. BENTON, SR. /s/ STEPHEN G. BENTON, JR.
- -------------------------- --------------------------
Stephen G. Benton, Sr. Stephen G. Benton, Jr.
/s/ GEORGE L. BENTON /s/ FRANK J. B. BENTON
- -------------------- ----------------------
George L. Benton Frank J. B. Benton
/s/ CHARLES L. BELSOM /s/ JOHN GERRETS
- --------------------- ----------------
Charles L. Belsom John Gerrets
/s/ BUSH BENTON Lisette Katherine Benton
- ---------------
Bush Benton
By: /s/ STEPHEN G. BENTON, JR.
--------------------------
Stephen G. Benton, Jr.
Attorney-in-Fact
GULF ISLAND FABRICATION, INC.
By: /s/ KERRY J. CHAUVIN
--------------------
Kerry J. Chauvin, President
42
<PAGE>
This Exhibit excludes the following schedules and appendices which the
Company will provide to the Commission upon request:
Exhibit 4.6 Employment Agreements with each of Stephen G. Benton, Jr.,
Charles L. Belsom and Frank J. B. Benton.
43
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of Amendment
No. 1 to this Registration Statement on Form S-1 of our report dated January 23,
1997, except for the third paragraph of Note 1 and the second paragraph of
Note 9 which are as of February 13, 1997, the third paragraph of Note 9 which is
as of February 14, 1997, and the fourth paragraph of Note 9 which is as of
October 28, 1997, relating to the financial statements of Gulf Island
Fabrication, Inc., which appears in such Prospectus. We also consent to the
application of such report to the Financial Statements Schedule for the three
years ended December 31, 1996 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report on the aforementioned financial statements
of Gulf Island Fabrication, Inc. The audits referred to in such report also
included this schedule. We also consent to the use, in this prospectus, of our
report dated January 23, 1997 relating to the combined financial statements of
Dolphin Services, Inc., Dolphin Sales and Rentals, Inc. and Dolphin Steel Sales,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
November 13, 1997
