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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22303
GULF ISLAND FABRICATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
72-1147390
LOUISIANA (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
70363
583 THOMPSON ROAD, HOUMA, LOUISIANA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(504) 872-2100
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value per share.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 6, 1998 was approximately $165,816,200.
The number of shares of the Registrant's common stock, no par value per
share, outstanding at March 6, 1998 was 11,623,400.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement prepared for use in
connection with the registrant's 1998 Annual Meeting of Shareholders to be
held April 30, 1998 have been incorporated by reference into Part III of this
Form 10-K.
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GULF ISLAND FABRICATION, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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PAGE
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PART I
Items 1 and 2. Business and Properties............................... 1
Item 3. Legal Proceedings..................................... 10
Item 4. Submission of Matters to a Vote of Security Holders... 11
Item 4A. Executive Officers of the Registrant.................. 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................. 12
Item 6. Selected Financial Data............................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 14
Item 7A. Quantitative and Qualitative Disclosure About Market
Risk................................................. 18
Item 8. Financial Statements and Supplementary Data........... 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 19
PART III
Item 10. Directors and Executive Officers of the Registrant.... 19
Item 11. Executive Compensation................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 19
Item 13. Certain Relationships and Related Transactions........ 19
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports
on Form 8-K.......................................... 19
GLOSSARY OF CERTAIN TECHNICAL TERMS...................................... G1
FINANCIAL STATEMENTS..................................................... F1
SIGNATURES............................................................... S1
EXHIBIT INDEX............................................................ E1
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Certain technical terms are defined in the "Glossary of Certain Technical
Terms" appearing at the end of this Report.
GENERAL
Gulf Island Fabrication, Inc. (together with its subsidiaries, 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 ("TLPs")), 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. The Company
believes that the number of acreage blocks leased by oil and gas companies in
the Gulf of Mexico and the number of active drilling rigs in the Gulf of
Mexico are leading indicators of demand for the Company's products, with
fabricating activity trailing leasing and drilling activity by one to three
years. 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, more intensive drilling activity in
shallow water areas, and increased exploration of deepwater areas of the Gulf
of Mexico. As a result, demand for the Company's products improved.
The Company was founded in 1985 by a group of investors, including Alden J.
"Doc" Laborde and Huey J. Wilson, and began operations at its fabrication yard
on the Houma Navigation Canal in Southern Louisiana, approximately 30 miles
from the Gulf of Mexico. On January 2, 1997, Gulf Island Fabrication, Inc.
acquired Dolphin Services, Inc. and two related companies (collectively,
"Dolphin Services"), which perform offshore and inshore fabrication and
construction services (the "Dolphin Acquisition"), and in April 1997,
completed the initial public offering (the "Initial Public Offering") of its
common stock, no par value per share (the "Common Stock"). The Company's
primary facilities are located on 597 acres, of which 250 are currently
developed for fabrication activities with 347 acres available for future
expansion. These facilities allow the Company to build jackets for
installation in water depth of up to 800 feet and deck sections for fixed or
floating production platforms for use in unlimited water depth. In addition,
the Company is able to build certain hull sections of tension leg platforms,
typically for use in water depth greater than 1,000 feet.
Effective January 1, 1998, the Company acquired all of the outstanding stock
of Southport, Inc. and its wholly owned subsidiary Southport International,
Inc. (collectively, "Southport"). Southport specializes in the fabrication of
living quarters for offshore platforms. The purchase price was $6.0 million
cash, plus contingent payments of up to an additional $5.0 million based on
Southport's net income over a four-year period ending December 31, 2001.
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
TLPs), 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
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industry, refurbish existing platforms and fabricate various other types of
steel structures. With its acquisition of Southport, the Company has also
increased its presence in the market for the fabrication of living quarters
for installation on such platforms.
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. See "-- Safety and Quality
Assurance."
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 TLPs 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 cost effective.
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, 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. The Company can,
however, build decks, piping and equipment modules, living quarters, piles and
other components of platforms for installation in any water depth. Often,
customers split projects among fabricators, contracting with different
companies for the fabrication of the jacket, deck sections, living quarters
and piles for the same platform. Therefore, the Company is able, through the
construction of decks, living quarters 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.
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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, as a result, are not subject to 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, 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 depth and are
generally better suited than fixed platforms for water depth greater than
1,000 feet.
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 TLPs currently
operating 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, however, 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. To the
Company's knowledge, these are the first two TLPs of this size to be
constructed entirely in the United States. The Company should be able to
compete for further TLP projects of this size, including the fabrication of
hull sections.
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.
Through Dolphin Services, the Company also provides interconnect piping
services on offshore platforms, inshore steel and wood structure construction,
and steel warehousing and sales. Interconnect piping 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. Dolphin Services also contracts with oil and gas
companies that have platforms and other structures located in the inland lakes
and bays throughout the Southeast
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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.
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 180,000 square feet of covered fabrication area, and over 17,000
square feet of warehouse storage area and 8,000 square feet of training and
medical facilities. 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 for expansion. The
west yard, which has approximately 72,000 square feet of covered fabrication
area and 3,500 square feet of warehouse storage area, spans 6,750 linear feet
of the Houma Navigation Canal, of which 2,350 feet is steel bulkhead.
Dolphin Services operates from 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 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, a 10,000-square
foot blasting and coating facility and 600 linear feet of steel bulkhead.
Southport is located on a 13-acre site located in Harvey, Louisiana, a
suburb of New Orleans, on the Harvey Canal, which has access to the Gulf of
Mexico through the Intracoastal Canal. The facility includes 7,550 square feet
of administrative offices, 22,300 square feet of covered fabrication area and
1,450 linear feet of steel bulkhead.
The Company owns all of the foregoing properties except the property where
the Southport facility is located, which is held subject to a three-year
lease. The Company has an option to purchase this property that is exercisable
prior to May 14, 1999 at a purchase price of $1,150,000.
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 19 crawler cranes, which range in tonnage capacity from 150 to
300 tons and service both of the Company's yards. The Company owns nine of
these 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 repairs and 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
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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 60 to 100 tons. Dolphin Services also owns two
Manitowoc 4100 cranes with lifting capacities of 200 to 230 tons and five
smaller cranes ranging from 60 to 100 tons lifting capacity. Southport rents
two crawler cranes with lifting capacities of 100 and 150 tons, respectively.
MATERIALS AND SUPPLIES
The principal materials and supplies 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 accidents. Through
1997 the Company rewarded 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 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 non-destructive testing of all welds, which process is
performed by an independent contractor.
The Company's main and west yards are 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 67% (Texaco, Inc., British Petroleum Company and Atlantia Corporation),
35% (Shell Offshore, Inc., Global Industries
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Offshore, Inc., Coastal Corporation) and 40% (Texaco, Inc., British Gas Ltd.)
of revenue for fiscal 1997, 1996 and 1995, respectively. In addition, at
December 31, 1997, 54% of the Company's backlog was attributable to three
projects, two of which 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.
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, cancellation fees.
Under fixed price contracts, the Company receives the price fixed in the
contract, subject to adjustment only for change orders approved 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 of
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 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 of Operations. As an incentive to
control man-hours through 1997 the Company paid production bonuses to its
supervisory and salary employees if the actual hours worked on a contract are
less than the estimated hours used to formulate a bid for the project.
SEASONALITY
Although high activity levels in the oil and gas industry and capacity
limitations have somewhat diminished the seasonality of the Company's
operations in recent years, the Company's operations have historically been
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 during 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 57%, 61%, and 81% of the Company's total net
income for fiscal 1997, 1996 and 1995, respectively. Because of this
seasonality, full year results are not likely to be a direct multiple of any
particular quarter or combination of quarters.
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COMPETITION
The offshore platform fabrication industry is highly competitive and
influenced by events largely outside of the control of offshore platform
fabrication companies. Platform fabrication 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 as well as for the projects typically performed by Southport.
Certain of the Company's competitors have greater financial and other
resources than the Company.
Management believes that, while new competitors can enter the market for
smaller structures relatively easily, it is more difficult for several reasons
to enter the market for jackets 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 waterway due to environmental and wetland regulations, and the
limited availability of experienced supervisory and management personnel.
Management believes that the Company's competitive pricing, expertise in
fabricating offshore 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 are 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 December 31, 1997 the Company's backlog was $86.3 million, $79.7
million of which management expects to be performed during 1998. Of the $86.3
million backlog at December 31, 1997, approximately 54% was attributable to
three projects, two of which were for the same customer.
The Company's backlog is based on management's estimate of the direct labor
hours required to complete, and the remaining revenue to be recognized 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 cancellation
fees.
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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 Minerals Management
Service (United States Department of the Interior) ("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. Offshore
construction and drilling in certain areas has also 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.
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.
8
<PAGE>
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, which
historically have resulted in approximately $100,000 in expenditures per year.
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 the Company, including
interconnect piping and other service activities conducted on offshore
platforms and activities performed on the spud barges owned by the Company,
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. Gulf Island Fabrication, Inc. 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. Dolphin Services is conventionally insured for workers'
compensation liability with a $100,000 deductible. 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 that such
coverage will be adequate to cover all claims that may arise.
EMPLOYEES
The Company's workforce varies based on the level of ongoing fabrication
activity at any particular time. During 1997, the number of Company employees
ranged from approximately 525 to more than 1,000, approximately 335 of which
were added through the acquisition of Dolphin Services. As of March 1, 1998,
the
9
<PAGE>
Company had approximately 1,250 employees, approximately 200 of which were
added through the acquisition of Southport. 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. 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, has 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.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Certain statements included in this report and in oral statements made from
time to time by management of the Company that are not statements of
historical fact are forward-looking statements. In this report, forward-
looking statements are included primarily in the sections entitled "Business
and Properties," "Legal Proceedings," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The words
"expect," "believe," "anticipate," "project," "plan," "estimate," "predict"
and similar expressions often identify forward-looking statements. All such
statements are subject to factors that could cause actual results and outcomes
to differ materially from the results and outcomes predicted in the statements
and investors are cautioned not to place undue reliance upon them.
ITEM 3. 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 to modify 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
10
<PAGE>
claims of the Plaintiff. In addition, the Company has asserted that it is
entitled to coverage as an additional named 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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below is the name, age and offices held by each of the executive
officers of the Company as of March 1, 1998. All officers of the Company serve
at the pleasure of the Company's Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Kerry J. Chauvin................. 50 President, Chief Executive Officer and
Director
William A. Downey................ 51 Vice President--Operations
Murphy A. Bourke................. 53 Vice President--Marketing
Joseph P. Gallagher, III......... 47 Vice President--Finance, Chief
Financial Officer, Treasurer and
Secretary
</TABLE>
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 and in that capacity he
also serves as chief accounting officer of the Company. Mr. Gallagher served
as the Company's Controller from 1985 until 1997. He has been the Company's
Treasurer since
11
<PAGE>
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 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, no par value per share (the "Common Stock"), is
traded on the Nasdaq National Market under the symbol "GIFI." At March 13,
1998, the Company had approximately 5,200 holders of its Common Stock of
record and individual participants including securities position listings.
The following table sets forth the high and low bid 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 a two-for-one stock split of the Common Stock
effected in the form of a stock dividend paid on 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.................................................. 39.50 15.00
</TABLE>
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. 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 $2.7 million in the year ended
December 31, 1996, and $16.6 million through the termination of the Company's
S Corporation Status on April 4, 1997.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial 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, 1997 are derived from the
audited financial statements of the Company. The table also sets forth pro
forma financial information as of and for the years ended December 31, 1997,
1996 and 1995 that gives effect to the termination of the Company's S
Corporation status, as further explained in the notes to the Company's audited
financial statements included elsewhere in this report. 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 report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997(1) 1996 1995 1994 1993
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue........................ $ 136,355 $ 79,004 $ 63,779 $ 60,984 $ 65,435
Cost of revenue................ 112,033 68,673 60,034 57,519 60,599
--------- -------- -------- -------- --------
Gross profit................... 24,322 10,331 3,745 3,465 4,836
General and administrative
expenses...................... 4,670 2,161 1,730 1,567 1,585
Non-recurring compensation
charge(2)..................... -- 500 -- -- --
--------- -------- -------- -------- --------
Operating income............... 19,652 7,670 2,015 1,898 3,251
Net interest expense........... 109 384 430 328 70
--------- -------- -------- -------- --------
Income before income taxes..... 19,543 7,286 1,585 1,570 3,181
Income taxes................... 5,973 -- -- -- --
Cumulative deferred tax
provision..................... 1,144 -- -- -- --
--------- -------- -------- -------- --------
Net income..................... $ 12,426 $ 7,286 $ 1,585 $ 1,570 $ 3,181
========= ======== ======== ======== ========
PRO FORMA DATA:
Income before provision for
income taxes.................. $ 19,543 $ 7,286 $ 1,585
Provision for income taxes..... 5,973 -- --
Pro forma provision for income
taxes(3)...................... 1,379 2,934 602
--------- -------- --------
Pro forma net income........... $ 12,191 $ 4,352 $ 983
========= ======== ========
Pro forma basic earnings per
share......................... $ 1.15 $ 0.55 $ 0.13
========= ======== ========
Pro forma diluted earnings per
share......................... $ 1.14 $ 0.55 $ 0.13
========= ======== ========
Pro forma weighted-average
common shares................. 10,633 7,854 7,854
========= ======== ========
Pro forma adjusted weighted-
average common shares......... 10,700 7,854 7,854
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $17,555 $11,001 $10,048 $ 7,437 $ 8,217
Property, plant and equipment, net... 34,505 17,735 13,483 13,873 14,567
Total assets......................... 67,678 35,909 30,414 25,665 29,225
Debt, including current
maturities(4)....................... -- 6,187 5,545 4,477 2,424
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Direct labor hours worked(5).......... 2,150 1,073 920 1,037 981
Backlog(6)
Direct labor hours.................. 1,341 1,038 427 400 404
Dollars............................. $86,312 $87,093 $22,003 $20,740 $20,832
</TABLE>
13
<PAGE>
- --------
(1) Includes results of operations of Dolphin Services from January 2, 1997.
(2) 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. As a result, 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.
(3) 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--Tax Adjustments," and Notes
1 and 2 to the Company's financial statements included elsewhere in this
Report.
(4) Information for 1997, 1996, 1995, 1994 and 1993 includes $0, $530,000,
$434,000, $477,000 and $324,000, respectively, of current maturities of
debt.
(5) Direct labor hours are hours worked by employees directly involved in the
production of the Company's products.
(6) The Company's backlog is based on management's estimate of the number of
direct labor hours required to complete, and the remaining revenues to be
recognized with respect to, those projects on which a customer has
authorized the Company to begin work or purchase materials. Backlog at
December 31, 1997 included approximately 125,000 direct labor hours and
$6.6 million attributable to portions of orders expected to be completed
after December 31, 1998.
ITEM 7. 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, generally favorable
trends in these factors have led to increased activity levels in the Gulf of
Mexico.
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 deepwater 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.
14
<PAGE>
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. The Company
believes the number of blocks leased by oil and gas companies in the Gulf of
Mexico and the number of active drilling rigs in the Gulf of Mexico are
leading indicators of demand for the Company's products, with fabricating
activity trailing leasing and drilling activity by one to three years. 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, more intensive drilling activity in shallow
water areas, and increased exploration of deepwater areas of the Gulf of
Mexico. As a result, demand for the Company's products improved. Revenue in
1997 was $136.4 million, a 72.7% increase over 1996 revenue, and pro forma net
income was $12.2 million, a 180% increase over 1996 pro forma net income. The
Company's backlog at December 31, 1997 was $86.3 million as compared to $87.1
million at the end of 1996.
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 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.
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. 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, has 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 to approximately 1,000 employees, including
approximately 335 employees added through the acquisition of Dolphin Services.
The Company also added approximately 200 employees in January 1998 as a result
of its acquisition of Southport. Because the Company has succeeded in
increasing its production workforce through the acquisitions of Southport and
Dolphin Services and its own recruiting efforts, the Company does not
anticipate the need to engage a material amount of contract labor in the
foreseeable future.
Although recent high activity levels in the oil and gas industry and
capacity limitations have somewhat diminished the seasonality of the Company's
operations in recent years, the Company's operations have traditionally been
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 during 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
15
<PAGE>
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>
1997 1996 1995
------------------- ------------------- --------------------
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................. 21% 26% 27% 26% 25% 27% 24% 24% 22% 26% 30% 22%
Gross profit............ 20% 26% 29% 25% 13% 26% 30% 31% 7% 25% 40% 28%
Net income (loss)....... 19% 27% 30% 24% 11% 27% 34% 28% (12%) 26% 55% 31%
Direct labor hours (in
000's)................. 497 542 588 523 249 304 264 256 219 256 245 200
</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. If these adjustments were to 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.
The Company has developed a plan to modify its information technology to
recognize the year 2000. The Company has committed to purchase software and
upgrade its hardware to address the year 2000. The project is to be
substantially complete and operational by mid to late 1998 and is expected to
cost approximately $77,000. Management does not expect this project to have a
significant effect on the Company's operations. The Company is currently
evaluating its position with significant suppliers and large customers to
ensure that those parties have appropriate plans to address year 2000 issues
where they may otherwise impact the operations of the Company. The Company
does not have any significant suppliers or large customers that directly
interface with the Company's information technology systems. There is no
guarantee that the systems of the Company's suppliers and customers will be
year 2000 compliant and that such non-compliance will not have an adverse
effect on the Company.
RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 1997 and 1996
The Company's revenue for the year ended December 31, 1997 was $136.4
million, an increase of 72.7%, compared to $79.0 million in revenue for the
year ended December 31, 1996. Revenue increased as a result of the acquisition
of Dolphin Services and high activity levels in the oil and gas industry
during 1997 which created 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 year ended December
31, 1997, compared to 1996 (2.1 million in 1997 versus 1.1 million in 1996).
The combination of increased volume and strong pricing enabled the Company to
increase gross profit by 135% to $24.3 million (17.8% of revenue) for the year
ended December 31, 1997, compared to the $10.3 million (13.1% of revenue) of
gross profit for the year ended December 31, 1996.
Cost of revenue was $112.0 million in 1997 compared to $68.7 million in
1996. 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. As a percentage
of revenue, these costs decreased to 82.2% compared to 86.9% in 1996.
The Company's general and administrative expenses were $4.7 million for the
year ended December 31, 1997, compared to $2.7 million for the year ended
December 31, 1996. Although the absolute dollar cost of the Company's general
and administrative expenses increased by $2.0 million for 1997, as a
percentage of revenue,
16
<PAGE>
it remained constant at 3.4%. The increase of $2.0 million for the year 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 year ended December
31, 1997, and (iii) additional costs associated with increased production
levels and the reporting requirements of a public company for 1997.
The Company's net interest expense decreased to $100,000 for 1997 compared
to $400,000 for 1996. As a result of the use of the net proceeds from the
Company's Initial Public Offering to repay all of the Company's outstanding
debt and net cash provided by operations of $18.3 million in 1997, as compared
to $7.2 million in 1996, the weighted average borrowings for 1997 were lower
in comparison to 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 23.8% 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.
Cost of revenue was $68.7 million in 1996 compared to $60.0 million in 1995.
These costs decreased to 89.9% of revenue in 1996 from 94.1% of revenue in
1995, 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.
Excluding a $500,000 non-recurring compensation expense in 1996, general and
administrative expenses were $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 to $384,000 in 1996 from $430,000 in 1995 as the
weighted average of the Company's borrowings decreased during 1996.
PRO FORMA TAX ADJUSTMENTS
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. Pro forma income taxes related to
operations as an S Corporation for 1997 and 1996 would have been $1.4 million
and $2.9 million, respectively.
17
<PAGE>
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 and received 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 defined herein). The
balance of the proceeds was used by the Company as additional working capital.
Working capital increased 60% from the prior year end to $17.6 million at
December 31, 1997.
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 increased by 156% to $18.3 million for the year
ended December 31, 1997, primarily attributable to cash received from
customers related to increased sales. Net cash used in investing activities
for the year ended December 31, 1997 was $20.7 million, related to the $5.8
million purchase of Dolphin Services, $15.2 million of capital expenditures
and $300,000 of other miscellaneous items. 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 1997 the Company purchased five new Manitowoc cranes and a used
American Model 5300 crane, constructed a pressure vessel fabrication facility,
expanded its fabrication shop and pipe mill, installed construction skidways,
and acquired various other fabrication equipment and facilities.
Net cash provided by financing activities of $7.9 million during 1997
represented the net proceeds of $31.3 million from 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 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 December 31, 1997, there were
no borrowings outstanding under the Bank Credit Facility.
Effective January 1, 1998, the Company acquired all the outstanding stock of
Southport. The purchase price was $6.0 million in cash, plus contingent
payments of up to $5.0 million based on Southport's net income over a four
year period ending December 31, 2001. The initial payment of $6.0 million was
funded through working capital generated from operations.
The Company's Board of Directors has approved a capital budget of $14.6
million for 1998, including the purchase of five Manitowoc 888 crawler cranes,
an additional skidway system for large jackets, automated painting, welding
and steel cutting systems and another barge, equipped with an 80-ton crane,
for use in inland construction operations. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
In this report the consolidated financial statements and supplementary data
of the Company appear on pages F-1 through F-14 and are incorporated herein by
reference. See Index to Consolidated Financial Statements on page 19.
18
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
A change in the Company's independent accountants and the information
required by this item has been previously reported by the Company in a Current
Report on Form 8-K dated August 25, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and officers called for by
this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 1998 Annual Meeting of Shareholders and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of the Company's executives called
for by this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 1998 Annual Meeting of Shareholders and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management called for by this item will be included in the Company's
definitive Proxy Statement prepared in connection with the 1998 Annual Meeting
of Shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions called
for by this item will be included in the Company's definitive Proxy Statement
prepared in connection with the 1998 Annual Meeting of Shareholders and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements schedules and exhibits are filed as
part of this Report:
(i) Financial Statements Page
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors...................................... F-1
Consolidated Balance Sheets at December 31, 1997 and December 31,
1996............................................................... F-2
Consolidated Statements of Income for the Years Ended December 31,
1997, 1996 and 1995................................................ F-3
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995............................................ F-5
Notes to Consolidated Financial Statements.......................... F-6
</TABLE>
(ii) Schedules
Other schedules have not been included because they are not required, not
applicable, immaterial or the information required has been included
elsewhere herein.
(iii) Exhibits
See Exhibit Index on page E-1. The Company will furnish to any eligible
stockholder, upon written request, a copy of any exhibit listed upon
payment of a reasonable fee equal to the Company's expenses in furnishing
such exhibit. Such requests should be addressed to Ms. Valarae Bates,
Investor Relations, Gulf Island Fabrication, Inc., P.O. Box 310, Houma, LA
70361-0310.
19
<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.
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 water surface.
floating production Floating structure that supports offshore oil
platform: and gas production equipment (TLP, 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
and supports the deck structure located above
the level of storm waves.
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.
G-1
<PAGE>
pressure vessel: A metal container generally cylindrical or
spheroid, capable of withstanding various
internal pressure loadings.
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 dreiven into the
seabed. A tension leg platform is typically
used in water depths exceeding 1,000 feet.
G-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Gulf Island Fabrication, Inc.
We have audited the accompanying consolidated balance sheet of Gulf Island
Fabrication, Inc. as of December 31, 1997 and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. 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 audit. The consolidated financial statements of Gulf
Island Fabrication, Inc. as of December 31, 1996, and for each of the two
years in the period ended December 31, 1996, were audited by other auditors
whose report dated January 23, 1997, except for the third paragraph of Note 1
which is as of February 13, 1997, the second paragraph of Note 4 which is as
of February 14, 1997, and the third paragraph of Note 4 which is as of October
28, 1997, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Gulf
Island Fabrication, Inc. at December 31, 1997, and the consolidated results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------------
Ernst & Young LLP
New Orleans, Louisiana
January 26, 1998
F-1
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
ASSETS 1997 1996
------ ------- -------
<S> <C> <C>
Current assets:
Cash......................................................... $ 6,879 $ 1,357
Contracts receivable, net.................................... 22,760 13,480
Costs and estimated earnings in excess of billings on
uncompleted contracts....................................... 903 1,306
Prepaid expenses............................................. 914 500
Inventory.................................................... 968 1,113
Recoverable income taxes..................................... 321 --
------- -------
Total current assets....................................... 32,745 17,756
Property, plant and equipment, net............................. 34,505 17,735
Other assets................................................... 428 418
------- -------
Total assets............................................... $67,678 $35,909
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 3,368 $ 1,081
Billings in excess of costs and estimated earnings on
uncompleted contracts....................................... 5,925 2,205
Accrued employee costs....................................... 3,068 1,903
Accrued expenses............................................. 2,829 1,036
Current portion of notes payable............................. -- 530
------- -------
Total current liabilities.................................. 15,190 6,755
Deferred income taxes.......................................... 1,878 --
Notes payable, less current portion............................ -- 5,657
------- -------
Total liabilities.......................................... 17,068 12,412
Shareholders' equity:
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 and 7,000,000 shares issued and outstanding at
December 31, 1997 and 1996, respectively.................... 4,133 1,000
Additional paid-in capital................................... 34,865 6,670
Retained earnings............................................ 11,612 15,827
------- -------
Total shareholders' equity................................. 50,610 23,497
------- -------
$67,678 $35,909
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Revenue............................................ $136,355 $79,004 $63,779
Cost of revenue.................................... 112,033 68,673 60,034
-------- ------- -------
Gross profit....................................... 24,322 10,331 3,745
General and administrative expenses................ 4,670 2,661 1,730
-------- ------- -------
Operating income................................... 19,652 7,670 2,015
Other expense (income):
Interest expense................................. 348 415 447
Interest income.................................. (230) (31) (17)
Other--net....................................... (9) -- --
-------- ------- -------
109 384 430
-------- ------- -------
Income before income taxes......................... 19,543 7,286 1,585
Income taxes....................................... 5,973 -- --
Cumulative deferred tax provision.................. 1,144 -- --
-------- ------- -------
Net income......................................... $ 12,426 $ 7,286 $ 1,585
======== ======= =======
Pro forma data:
Income before income taxes....................... $ 19,543 $ 7,286 $ 1,585
Income taxes..................................... 5,973 -- --
Pro forma income taxes related to operations as S
Corporation..................................... 1,379 2,934 602
-------- ------- -------
Pro forma net income............................. $ 12,191 $ 4,352 $ 983
======== ======= =======
Pro forma per share data:
Pro forma basic earnings per share............... $ 1.15 $ 0.55 $ 0.13
======== ======= =======
Pro forma diluted earnings per share............. $ 1.14 $ 0.55 $ 0.13
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,1995...... 7,000 $1,000 $ 6,170 $10,081 $17,251
Dividends...................... -- -- -- (434) (434)
Net income..................... -- -- -- 1,585 1,585
------ ------ ------- ------- -------
Balance at December 31, 1995... 7,000 1,000 6,170 11,232 18,402
Dividends...................... -- -- -- (2,691) (2,691)
Non-recurring compensation
charge........................ -- -- 500 -- 500
Net income..................... -- -- -- 7,286 7,286
------ ------ ------- ------- -------
Balance at December 31, 1996... 7,000 1,000 6,670 15,827 23,497
Issuance of common stock....... 4,600 3,133 28,195 -- 31,328
Dividends...................... -- -- -- (16,641) (16,641)
Net income..................... -- -- -- 12,426 12,426
------ ------ ------- ------- -------
Balance at December 31, 1997... 11,600 $4,133 $34,865 $11,612 $50,610
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 12,426 $ 7,286 $ 1,585
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 2,932 1,586 1,382
Non-recurring non-cash compensation charge..... -- 500 --
Deferred income taxes.......................... 1,878 -- --
Changes in operating assets and liabilities:
Contracts receivable.......................... (4,291) (538) (4,818)
Costs and estimated earnings in excess of
billings on uncompleted contracts............ 458 (801) 1,573
Other assets.................................. 109 (630) 74
Accounts payable and accrued expenses......... 1,578 64 1,356
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 3,233 (306) 1,172
-------- -------- --------
Net cash provided by operating activities.... 18,323 7,161 2,324
Cash flows from investing activities:
Capital expenditures, net....................... (15,179) (5,838) (992)
Payment for purchase of Dolphin Services, net of
cash acquired.................................. (5,803) -- --
Other........................................... 253 -- --
-------- -------- --------
Net cash used in investing activities........ (20,729) (5,838) (992)
Cash flows from financing activities:
Proceeds from initial public offering........... 31,328 -- --
Proceeds from issuance of notes payable......... 41,900 24,353 21,595
Principal payments on notes payable............. (48,659) (23,712) (20,526)
Dividends....................................... (16,641) (2,691) (434)
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 7,928 (2,050) 635
-------- -------- --------
Net increase (decrease) in cash.................. 5,522 (727) 1,967
Cash at beginning of period...................... 1,357 2,084 117
-------- -------- --------
Cash at end of period............................ $ 6,879 $ 1,357 $ 2,084
======== ======== ========
Supplemental cash flow information:
Interest paid................................... $ 408 $ 415 $ 447
======== ======== ========
Income taxes paid............................... $ 5,861 $ -- $ --
======== ======== ========
Property, plant and equipment acquired through
accrued expenses............................... $ 1,408 $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Gulf Island Fabrication, Inc. ("Gulf Island"), located in Houma, Louisiana,
is engaged in the fabrication and refurbishment of offshore oil and gas
platforms for oil and gas industry companies. Gulf Islands principal markets
are concentrated in the offshore regions of the coast of the Gulf of Mexico.
The consolidated financial statements include the accounts of Gulf Island and
its wholly owned subsidiary (collectively "the Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
On January 2, 1997, Gulf Island acquired all outstanding shares of Dolphin
Services, Inc., Dolphin Steel Sales, Inc. and Dolphin Sales and Rentals Inc.
for $5.9 million (the "Dolphin Acquisition"). The acquired corporations
perform fabrication, sandblasting, painting and construction services 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. The three
corporations are referred to hereinafter collectively as "Dolphin Services."
The Dolphin Acquisition was financed by borrowings under Gulf Island's line of
credit. Gulf Island acquired assets with a fair value of $9.7 million and
assumed liabilities of $3.8 million. The acquisition was accounted for under
the purchase method of accounting. Accordingly, the operations of Dolphin
Services are included in the Company's operations from January 2, 1997.
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 became subject to federal and state income taxes. (See Note 2.)
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 statement, increasing the total shares
outstanding to 11.6 million (the "Initial Public Offering"). The Company
received $34.5 million from the sale of the shares and paid $3.2 million for
underwriting and other fees related to the Initial Public Offering resulting
in net proceeds from the sale of $31.3 million.
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.
Concentration of Credit Risk
The principal customers of the Company are the major and large independent
oil and gas companies. These concentrations of customers may impact the
Company's overall exposure to credit risk, either positively or negatively, in
that customers may be similarly affected by changes in economic or other
conditions. However, the Company's management believes that the portfolio of
receivables is diversified and that such diversification minimizes any
potential credit risk. Receivables are generally not collateralized.
The Company believes that its provision for possible losses on uncollectible
accounts receivable is adequate for its credit loss exposure.
F-6
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 the 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. Profit incentives are
included in revenue when their realization is reasonably assured. Claims for
extra work or changes in scope of work are included in revenue when collection
is probable. 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
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
Income taxes have been provided using the liability method in accordance
with the Financial Accounting Standards Board's Statement No. 109, "Accounting
for Income Taxes." Prior to April 4, 1997, the Company's shareholders had
elected to have the Company taxed as an S Corporation for federal and state
income tax purposes whereby shareholders were 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 during the period the Company was an S Corporation
(see Note 2).
Reclassifications
Certain items included in the financial statements for the years ended
December 31, 1996 and 1995 have been reclassified to conform to the December
31, 1997 financial statement presentation.
NOTE 2--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
F-7
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
total distribution. The balance sheet of the Company as of December 31, 1997
reflects a deferred income tax liability of $1.9 million, which includes $1.1
million 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, 1995 using an assumed effective tax rate of
approximately 38%.
NOTE 3--ACQUISITION OF DOLPHIN SERVICES
The following unaudited pro forma information presents a summary of
consolidated results of operations of Gulf Island and Dolphin Services as if
the acquisition had occurred on January 1, 1996. Pro forma adjustments include
(1) elimination of intercompany sales between Gulf Island 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 (IN
THOUSANDS,
EXCEPT PER SHARE DATA)
----------------------
<S> <C>
Revenue............................................ $103,007
Pro forma net income............................... 8,333
Pro forma basic and diluted net income per share... 1.19
</TABLE>
NOTE 4--SHAREHOLDERS' EQUITY
On December 1, 1996, Gulf Island's principal shareholders sold 98,000 (1.4%)
of their existing shares to officers and management employees at $3.57 per
share (number of shares and per share prices adjusted for effect of stock
splits described in following paragraphs). The per share price on that date
was based on an independent appraisal that valued Gulf Island as a privately
held business. As a result of the Initial Public Offering, the Company
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 expected to receive in the public offering and the net cash price
recipients of the 98,000 shares expected to pay. The net cash price to
recipients of $1.78 per share represented the $3.57 per share price charged by
the shareholders, less $1.88 per share of tax-free dividends that the
recipients expected 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 (in each case adjusted for the effect of the stock
splits described in the following paragraphs). The compensation charge
resulted in a corresponding increase to additional paid-in capital.
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, which resulted in
7,000,000 total outstanding shares. This recapitalization is reflected
retroactively in the accompanying financial statements and per share
calculations.
(b) Authorized 5,000,000 shares of no par value preferred stock. There
are no preferred shares issued or outstanding.
(c) Increased the authorized common shares from 10,000,000 shares to
20,000,000 shares.
F-8
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 that became effective
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.
NOTE 5-- PRO FORMA PER SHARE DATA
Pro forma per share data as shown in the statement of income consists of the
Company's historical income, adjusted to reflect income taxes as if the
Company had operated as a C Corporation during all periods presented. This
calculation for the year ended December 31, 1997 excludes the charge of $1.1
million related to cumulative deferred income taxes resulting from conversion
to a C Corporation on April 4, 1997. Further, the weighted average share
calculations for 1997 include the assumed issuance of additional shares
sufficient to pay the distributions made to shareholders in connection with
the Company's Initial Public Offering, to the extent such distributions
exceeded net income for the year ended December 31, 1996.
NOTE 6--NEW ACCOUNTING STANDARD
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement No. 128 replaced APB Opinion No. 15 for the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share exclude any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement No. 128 requirements.
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share.. $12,191 $4,352 $ 983
======= ====== ======
Denominator:
Denominator for basic earnings per share--
weighted-average shares.......................... 10,633 7,854 7,854
Effect of dilutive securities:
Employee stock options............................ 67 -- --
Dilutive potential common shares:
Denominator for diluted earnings per share--
adjusted weighted-average shares............... 10,700 7,854 7,854
======= ====== ======
Pro forma basic earnings per share.................. $ 1.15 $ 0.55 $ 0.13
======= ====== ======
Pro forma diluted earnings per share................ $ 1.14 $ 0.55 $ 0.13
======= ====== ======
</TABLE>
NOTE 7--ACQUISITION OF SOUTHPORT, INC.
Effective January 1, 1998, the Company acquired all of the outstanding
shares of Southport, Inc. and its wholly owned subsidiary Southport
International, Inc. (collectively "Southport"). Southport specializes in the
fabrication of living quarters for offshore platforms. The purchase price was
$6.0 million cash, plus contingent payments of up to an additional $5.0
million based on Southport's net income over a four-year period ending
December 31, 2001. The purchase price plus $101,000 of direct expenses
exceeded the fair value of assets acquired and liabilities assumed by $4.4
million.
F-9
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--CONTRACTS RECEIVABLE
Amounts due on contracts as of December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Completed contracts...................................... $ 725 $ 2,993
Contracts in progress:
Current................................................ 20,549 8,685
Retainage due within one year.......................... 1,556 1,806
Less: Allowance for doubtful accounts.................... 70 4
------- -------
$22,760 $13,480
======= =======
</TABLE>
NOTE 9--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to uncompleted contracts as of December 31 is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Costs incurred on uncompleted contracts...................... $77,613 $23,419
Estimated profit earned to date.............................. 13,382 2,296
------- -------
90,995 25,715
Less: Billings to date....................................... 96,017 26,614
------- -------
$(5,022) $ (899)
======= =======
</TABLE>
The above amounts are included in the accompanying balance sheet under the
following captions:
<TABLE>
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts...................................... $ 903 $1,306
Billings in excess of costs and estimated earnings on
uncompleted contracts...................................... (5,925) (2,205)
------- ------
$(5,022) $ (899)
======= ======
</TABLE>
NOTE 10--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31(in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land..................................................... $ 2,457 $ 2,123
Buildings................................................ 8,723 5,160
Machinery and equipment.................................. 25,765 10,814
Furniture and fixtures................................... 673 426
Transportation equipment................................. 1,053 404
Improvements............................................. 11,450 9,385
Construction in progress................................. 1,594 128
------- -------
51,715 28,440
Less: Accumulated depreciation........................... 17,210 10,705
------- -------
$34,505 $17,735
======= =======
</TABLE>
F-10
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 1997, 1996, and 1995, the Company expensed $3,203,000,
$2,801,000, and $3,000,000, respectively, related to these leases.
NOTE 11--INCOME TAXES
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 (see Note 2). In conjunction with the Company's
change in tax status, the Company recorded a $1.1 million deferred tax
liability.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1997
are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
Depreciation.................................................... $2,314
Deferred tax assets:
Employee benefits............................................... 419
Other benefits.................................................. 17
------
Total deferred assets......................................... $ 436
------
Net deferred tax liabilities...................................... $1,878
======
</TABLE>
Significant components of income taxes for the year ended December 31, 1997
were as follows:
<TABLE>
<S> <C>
Current:
Federal.......................................................... $4,451
State............................................................ 788
------
Total current.................................................. 5,239
Deferred:
Federal.......................................................... 1,731
State............................................................ 147
------
Total deferred................................................. 1,878
------
Income taxes....................................................... $7,117
======
</TABLE>
The primary difference between income taxes computed at the U.S. federal
statutory rate of 34% and the Company's effective pro forma tax rate of 38% is
state income taxes.
NOTE 12--LINE OF CREDIT AND NOTES PAYABLE
The Company's bank credit facility 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 1.5%. The Revolver matures December 31, 1999 and is secured by a
mortgage on the Company's real estate, equipment and fixtures, and the stock
of Dolphin Services. At December 31, 1997, there were no borrowings
outstanding under the credit facility. The Company is required to maintain
certain balance sheet and cash flow ratios. The Company pays a fee quarterly
of three-eighths of one percent per annum on the average unused portion of the
line of credit.
F-11
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1997, the Company used a portion of the net proceeds received from
the Initial Public Offering (see Note 1) to repay all of its indebtedness.
NOTE 13--LONG-TERM INCENTIVE PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting For Stock-Based Compensation" (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equal the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
On February 13, 1997, the Board of Directors adopted the Long-Term Incentive
Plan (the "Plan"). The Plan has authorized the grant of options to purchase an
aggregate of 1,000,000 shares of the Company's common stock to certain
officers and key employees of the Company chosen by a committee appointed by
the Board of Directors (the "Compensation Committee") to administer such plan.
Under the Plan, all options granted have 10-year terms, and conditions
relating to the vesting and exercise of options are determined by the
Compensation Committee for each option. Options granted under the Plan are
"non-statutory options" (options which do not afford income tax benefits to
recipients, but the exercise of which may provide tax deductions for the
Company). Each option will have an exercise price per share not less than the
fair market value of a share of common stock on the date of grant and no
individual employee may be granted options to purchase more than an aggregate
of 400,000 shares of common stock. These options vest over a five-year period.
Pro forma information regarding net income and earnings per share is
required by Statement 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using the Black-Sholes option pricing model with the following weighted
average assumptions for 1997: a risk-free interest rate of 6.36%; dividend
yield of zero; volatility factor of the expected market price of the Company's
common stock of .745; and a weighted average expected life of the options of
eight years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of trade options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimated, in management's option, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
F-12
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options (net of expected tax benefits) is amortized to expense over the
options' vested period. Since the Company's options generally vest over a
five- year period, the pro forma disclosures are not indicative of future
amounts until Statement 123 is applied to all outstanding non-vested options.
The Company's pro forma information for 1997 is as follows (in thousands,
except for per share data):
<TABLE>
<S> <C>
Net income:
Pro forma as reported.......................................... $12,191
Pro forma including the effect of options...................... $11,927
Basic earnings per share:
Pro forma as reported.......................................... $ 1.15
Pro forma including the effect of options...................... $ 1.12
Diluted earnings per share:
Pro forma as reported.......................................... $ 1.14
Pro forma including the effect of options...................... $ 1.11
</TABLE>
A summary of the Company's stock options activity and related information
for the year ended December 31, 1997 is as follows (in thousands, except for
per share data):
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE
(000) EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding--beginning of year.................. -- --
Granted......................................... 413 $12.040
Exercised....................................... -- --
Expired......................................... -- --
Forfeited....................................... (20) 16.875
-----
Options outstanding at the end of the year...... 393 11.790
=====
Options exercisable at the end of the year...... -- --
===== =======
Weighted-average fair value of options granted
during the year................................ $9.13
=====
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$7.50 to $16.875. The weighted average remaining contractual life of those
options is nine years.
NOTE 14--RETIREMENT PLAN
The Company has a defined contribution plan (the Plan) for all employees
that are 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, 1997,
1996, and 1995, the Company contributed $723,000, $542,000, and $239,200,
respectively.
NOTE 15--CONTINGENT LIABILITIES
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
F-13
<PAGE>
GULF ISLAND FABRICATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
events. Management is vigorously defending this 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 16--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 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Customer A........................................ $13,383 $ -- $ --
Customer B........................................ 21,603 -- --
Customer C........................................ 40,491 -- 12,036
Customer D........................................ -- -- 13,230
Customer E........................................ -- 8,196 --
Customer F........................................ -- 9,379 --
Customer G........................................ -- 10,119 --
</TABLE>
Contracts receivable from customers A, B, and C totaled $10.0 million as of
December 31, 1997.
NOTE 17--QUARTERLY OPERATING RESULTS (UNAUDITED)
A summary of quarterly results of operations for the years ended December
31, 1997 and 1996 were as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue.......................... $30,224 $35,023 $36,311 $34,797
Gross profit..................... 4,865 6,424 6,986 6,047
Pro forma net income............. 2,248 3,265 3,698 2,980
Pro forma basic earnings per
share........................... 0.29 0.28 0.32 0.26
Pro forma diluted earnings per
share........................... 0.29 0.28 0.32 0.25
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue.......................... $19,504 $21,704 $19,168 $18,628
Gross profit..................... 1,346 2,626 3,129 3,230
Pro forma net income............. 485 1,238 1,524 1,105
Pro forma basic earnings per
share........................... 0.06 0.16 0.19 0.14
Pro forma diluted earnings per
share........................... 0.06 0.16 0.19 0.14
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement No.128.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on
March 23, 1998.
Gulf Island Fabrication, Inc.
(Registrant)
By: /s/ Kerry J. Chauvin
----------------------------------
KERRY J. CHAUVIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ Alden J. Laborde Chairman of the Board
- -----------------------------------
ALDEN J. LABORDE
/s/ Kerry J. Chauvin President, Chief Executive Officer and
- ----------------------------------- Director (Principal Executive Officer)
KERRY J. CHAUVIN
/s/ Joseph P. Gallagher, III Vice President--Finance, Chief Financial
- ----------------------------------- Officer, Secretary and Treasurer
JOSEPH P. GALLLAGHER, III (Principal Financial and Accounting
Officer)
/s/ Gregory J. Cotter Director
- -----------------------------------
GREGORY J. COTTER
/s/ Thomas E. Fairley Director
- -----------------------------------
THOMAS E. FAIRLEY
/s/ Hugh J. Kelly Director
- -----------------------------------
HUGH J. KELLY
/s/ John P. Laborde Director
- -----------------------------------
JOHN P. LABORDE
/s/ Huey J. Wilson Director
- -----------------------------------
HUEY J. WILSON
/s/ Stephen G. Benton, Jr. Director
- -----------------------------------
STEPHEN G. BENTON, JR.
S-1
<PAGE>
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER
-------
2.1 Stock Purchase Agreement with respect to Dolphin Services, Inc.
dated November 27, 1996.*
2.2 Stock Purchase Agreement with respect to Dolphin Steel Sales,
Inc. dated as of November 7, 1996.*
2.3 Stock Purchase Agreement with respect to Dolphin Sales &
Rentals, Inc. dated as of November 27, 1996.*
2.4 Stock Purchase Agreement, dated as of November 12, 1997, between
the Company and the shareholders of Southport, Inc. **
3.1 Amended and Restated Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.
4.1 Specimen Common Stock Certificate.*
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 Sixth 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 May 1, 1997 (the "Bank
Credit Facility").
10.5 The Company's Long-Term Incentive Plan.*+
10.6 Form of Stock Option Agreement under the Company's Long-Term
Incentive Plan, as amended.+
10.7 Form of Reimbursement Agreement.*+
10.8 Employment Agreement dated as of January 1, 1998 between
Southport, Inc. and Stephen G. Benton, Jr. **+
16.1 Letter from Price Waterhouse LLP regarding change in independent
accountants.***
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Report of Price Waterhouse LLP.
27.1 Financial Data Schedule.
- --------
+ Management Contract or Compensatory Plan.
* 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).
** Incorporated by reference to the Company's Current Report on Form 8-K dated
January 1, 1998.
*** Incorporated by reference to the Company's Current Report on Form 8-K dated
August 25, 1997.
E-1
<PAGE>
BY-LAWS
OF
GULF ISLAND FABRICATION, INC.
(AS AMENDED ON FEBRUARY 4, 1998)
SECTION 1
OFFICES
1.1 PRINCIPAL OFFICE. The principal office of the Corporation shall be
located at 583 Thompson Road, Houma, Louisiana 70363.
1.2 ADDITIONAL OFFICES. The Corporation may have such offices at such
other places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
SECTION 2
SHAREHOLDER MEETINGS
2.1 PLACE OF MEETINGS. Unless otherwise required by law or these By-laws,
all meetings of the shareholders shall be held at the principal office of the
Corporation or at such other place, within or without the State of Louisiana, as
may be designated by the board of Directors.
2.2 ANNUAL MEETINGS; NOTICE THEREOF. An annual meeting of the
shareholders shall be held each year on the date and at the time as the Board of
Directors shall designate, for the purpose of electing directors and of the
transaction of such other business as may be properly brought before the
meeting. If no annual shareholders' meeting is held for a period of eighteen
months, any shareholder may call such meeting to be held at the registered
office of the Corporation as shown on the records of the Secretary of State of
the State of Louisiana.
2.3 SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, may be called by or at the direction of the Board of
Directors. Shareholders may call a special meeting of shareholders in
accordance with the applicable provisions of the Articles of Incorporation.
2.4 NOTICE OF MEETINGS. Except as otherwise provided by law or the
Articles of Incorporation, the authorized person or persons calling a
shareholders' meeting shall cause written notice of the time, place and purpose
of the meeting to be given to all shareholders entitled to vote at such meeting,
at least 10 days and not more than 75 days prior to the day fixed for the
meeting. Notice of the annual meeting need not state the purpose or purposes
thereof, unless action is to be
<PAGE>
taken at the meeting as to which notice is required by law or the By-laws.
Notice of a special meeting shall state the purpose or purposes thereof, and the
business conducted at any special meeting shall be limited to the purpose or
purposes stated in the notice.
2.5 LIST OF SHAREHOLDERS. At every meeting of shareholders, a list of
shareholders entitled to vote, arranged alphabetically and certified by the
Secretary or by the agent of the Corporation having charge of transfers of
shares, showing the number and class of shares held by each such shareholder on
the record date for the meeting and confirming the number of votes per share as
to which each such shareholder is entitled, shall be produced on the request of
any shareholder.
2.6 QUORUM. At all meetings of shareholders, the holders of a majority of
the total voting power shall constitute a quorum; provided, however, that this
subsection shall not have the effect of reducing the vote required to approve
any matter that may be established by law, the Articles of Incorporation or
these By-laws.
2.7 VOTING. When a quorum is present at any shareholders' meeting, the
vote of the holders of a majority of the votes actually cast shall decide each
question brought before such meeting, unless the resolution of the question
requires, by express provision of law, the Articles of Incorporation or these
By-laws, a different vote or one or more separate votes by the holders of a
class or series of capital stock, in which case such express provision shall
apply and control the decision of such question. Directors shall be elected by
plurality vote.
2.8 PROXIES. At any meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person or by proxy appointed by
an instrument in writing executed by such shareholder and bearing a date not
more than eleven months prior to the meeting, unless the instrument provides for
a longer period, but in no case will an outstanding proxy be valid for longer
than three years from the date of its execution. The person appointed as proxy
need not be a shareholder of the Corporation.
2.9 ADJOURNMENTS. Adjournments of any annual or special meeting of
shareholders may be taken without new notice being given unless a new record
date is fixed for the adjourned meeting, but any meeting at which directors are
to be elected shall be adjourned only from day to day until such directors shall
have been elected.
2.10 WITHDRAWAL. If a quorum is present or represented at a duly organized
shareholders' meeting, such meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum as fixed in Section 2.6 of these By-laws, or the refusal of any
shareholders to vote.
2.11 LACK OF QUORUM. If a meeting cannot be organized because a quorum has
not attended, those present may adjourn the meeting to such time and place as
they may determine, subject, however, to the provisions of Section 2.9 hereof.
In the case of any meeting called for the
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election of directors, those who attend the second of such adjourned meetings,
although less than a quorum as fixed in Section 2.6 hereof, shall nevertheless
be deemed to constitute a quorum for the purpose of electing directors.
2.12 PRESIDING OFFICER. The Chairman of the Board or a person designated
by the Chairman of the Board, or in their absence a person designated by the
Board of Directors, shall preside at all shareholders' meetings.
2.13 DEFINITION OF SHAREHOLDER. As used in these By-laws, and unless the
context otherwise requires, the term shareholder shall mean a person who is (i)
the record holder of shares of the Corporation's common stock or any other
capital stock of the Corporation granted voting rights, or (ii) a registered
holder of any bonds, debentures or similar obligations granted voting rights by
the Corporation pursuant to La.R.S. 12:75H.
SECTION 3
DIRECTORS
3.1 NUMBER. All of the corporate powers shall be vested in, and the
business and affairs of the Corporation shall be managed by, a Board of
Directors. Except as otherwise fixed by or pursuant to Article III(B) of the
Articles of Incorporation (as it may be duly amended from time to time) relating
to the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
directors by class vote, the Board of Directors shall consist of eight natural
persons; provided that, if after the last action of the Board of Directors with
respect to nomination of directors prior to the mailing to shareholder of proxy
materials for any meeting of shareholders at which directors are to be elected,
any person or persons named therein to be nominated at the direction of the
Board of Directors becomes unable or unwilling to serve, the foregoing number of
authorized directors shall be automatically reduced by a number equal to the
number of such persons unless the Board of Directors selects a replacement
nominee or nominees. No director need be a shareholder. The Secretary shall
have the power to certify at any time as to the number of directors authorized
and as to the class to which each director has been elected or assigned.
3.2 POWERS. The Board may exercise all such powers of the Corporation and
do all such lawful acts and things which are not by law, the Articles of
Incorporation or these By-laws directed or required to be done by the
shareholders.
3.3 CLASSES. The Board of Directors, other than those directors who may
be elected by the holders of any class or series of stock having preference over
the Common Stock as to dividends or upon liquidation (whose term of office may
be determined by the Board of Directors pursuant to Section 3.3), shall be
divided, with respect to the time during which they shall hold office, into
three classes as nearly equal in number as possible, with the initial term of
office of Class I directors expiring at the annual meeting of shareholders to be
held in 1998, of Class II Directors expiring at
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the next succeeding annual meeting of shareholders and of Class III directors
expiring at the second succeeding annual meeting of shareholders, with all such
directors to hold office until their successors are elected and qualified. At
each annual meeting of shareholders, directors chosen to succeed those whose
terms then expire shall be elected to hold office for a term expiring at the
annual meeting of shareholder held in the third year following the year of their
election and until their successors are duly elected and qualified. If the Board
of Directors shall appoint any director to fill a vacancy on the Board, whether
resulting from an increase in the number of directors or otherwise, such
Director shall be assigned to a class by the Board of Directors so that all
classes of directors shall be as nearly equal in number as possible. In the
event of a decrease in the number of directors, the Board of Directors may
reassign the remaining directors to classes so that all classes of directors
shall be as nearly equal in number as possible.
3.4 GENERAL ELECTION. At each annual meeting of shareholders, directors
shall be elected to succeed those directors whose terms then expire. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
3.5 VACANCIES. Except as otherwise provided in the Articles of
Incorporation or these By-laws, the office of a director shall become vacant if
he dies, resigns or is duly removed from office.
3.6 FILLING VACANCIES. Except as otherwise provided in the Articles of
Incorporation or Section 3.8 of these By-laws, any vacancy on the board
(including any vacancy resulting from an increase in the authorized number of
directors or from failure of the shareholders to elect the full number of
authorized directors) may, notwithstanding any resulting absence of a quorum of
directors, be filled by a majority vote of the Board of Directors remaining in
office, provided that the shareholder shall have the right, at any special
meeting called for such purpose prior to such action by the Board, to fill the
vacancy. A director elected pursuant to this section shall serve until the next
shareholders' meeting held for the election of directors of the class to which
he shall have been appointed and until his successor is elected and qualified.
3.7 NOTICE OF SHAREHOLDER NOMINEES. Except as otherwise provided in
Section 3.8 of these By-laws, only persons who are nominated in accordance with
the procedures set forth in Article IV(E) of the Articles of Incorporation shall
be eligible for election as directors.
3.8 DIRECTORS ELECTED BY PREFERRED SHAREHOLDERS. Notwithstanding anything
in these By-laws to the contrary, whenever the holders of any one or more
classes or series of stock having a preference over the Common Stock as to
dividends or upon liquidation shall have the right, voting separately as a
class, to elect one or more directors of the Corporation, the provisions of the
Articles of Incorporation (as they may be duly amended from time to time) fixing
the rights and preferences of such preferred stock shall govern with respect to
the nomination, election, term, removal, vacancies or other related matters with
respect to such directors.
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3.9 COMPENSATION OF DIRECTORS. Directors shall receive such compensation
for their services, in their capacity as directors, as may be fixed by
resolution of the Board of Directors; provided, however, that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 4
MEETINGS OF THE BOARD
4.1 PLACE OF MEETINGS. The meetings of the Board of Directors may be held
at such place within or without the State of Louisiana as a majority of the
directors may from time to time appoint.
4.2 INITIAL MEETINGS. Except as otherwise determined by the Board of
Directors, the first meeting of each newly-elected Board shall be held
immediately following the shareholders' meeting at which the Board, or any class
thereof, is elected and at the same place as such meeting, and no notice of such
first meeting shall be necessary for the newly-elected directors in order
legally to constitute the meeting.
4.3 REGULAR MEETINGS; NOTICE. Regular meetings of the Board may be held
at such times as the Board may form time to time determine. Notice of regular
meetings of the Board of Directors shall be given, but no special form of notice
or time of notice shall be necessary.
4.4 SPECIAL MEETINGS; NOTICE. Special meetings of the Board may be called
by or at the direction of the Chairman of the Board or the President on
reasonable notice given to each director, either personally or by telephone,
mail, telex, telecopy or any other comparable form of facsimile communication.
Special meetings shall be called by the Secretary in like manner and on like
notice on the written request of a majority of the directors and if such officer
fails or refuses, or is unable within 24 hours to call a meeting when requested,
then the directors making the request may call the meeting on two days' written
notice given to each director. The notice of a special meeting of directors
need not state it purpose or purposes, but if the notice states a purpose or
purposes and does not state a further purpose to consider such other business as
may properly come before the meeting, the business to be conducted at the
special meeting shall be limited to the purpose or purposes stated in the
notice.
4.5 WAIVER OF NOTICE. Directors present at any regular or special meeting
shall be deemed to have received, or to have waived, due notice thereof,
provided that a director who participates in a meeting by telephone (as
permitted by Section 4.9 hereof) shall not be deemed to have received or waived
due notice if, at the beginning of the meeting, he objects to the transaction of
any business because the meeting is not lawfully called.
4.6 QUORUM. A majority of the Board shall be necessary to constitute a
quorum for the transaction of business, and except as otherwise provided by law,
the Articles of Incorporation or these By-laws, the acts of a majority of the
directors present at a duly-called meeting at which a
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quorum is present shall be the acts of the board. If a quorum is not present at
any meeting of the Board of Directors, the directors present may adjourn the
meeting from time to time without notice other than announcement at the meeting,
until a quorum is present.
4.7 WITHDRAWAL. If a quorum was present when the meeting convened, the
directors present may continue to do business, taking action by vote of a
majority of a quorum as fixed in Section 4.6 hereof, until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum
as fixed in Section 4.6 hereof or the refusal of any director present to vote.
4.8 ACTION BY CONSENT. Any action that may be taken at a meeting of the
Board, or any committee thereof, may be taken by a consent in writing signed by
all of the directors or by all members of the committee, as the case may be, and
filed with the records of proceedings of the Board or committee.
4.9 MEETINGS BY TELEPHONE OR SIMILAR COMMUNICATION. Members of the Board
may participate at and be present at any meeting of the Board or any committee
thereof by means of conference telephone or similar communications equipment if
all persons participating in such meeting can hear and communicate with each
other.
SECTION 5
COMMITTEES OF THE BOARD
5.1 GENERAL. The Board may designate one or more committees, each
committee to consist of two or more of the directors of the Corporation (and one
or more directors may be named as alternate members to replace any absent or
disqualified regular members), which, to the extent provided by resolution of
the Board or these By-laws, shall have and may exercise the powers of the Board
in the management of the business and affairs of the Corporation, and may have
power to authorize the seal of the Corporation to be affixed to documents, but
no such committee shall have power or authority to amend the Articles of
Incorporation, adopt an agreement of merger, consolidation or share exchange,
adopt or recommend to the shareholders the sale, lease or exchange of all or
substantially all of the Corporation's assets, recommend to the shareholders a
dissolution of the Corporation or a revocation of dissolution, remove directors,
or amend these By-laws; and unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or authorize
the issuance of stock. Such committee or committees shall have such name or
names as may be stated in these By-laws, or as may be determined, from time to
time, by the Board. Any vacancy occurring in any such committee shall be filled
by the Board, but the President may designate another director to serve on the
committee pending action by the Board. Each such member of a committee shall
hold office during the term designated by the Board.
5.2 COMPENSATION COMMITTEE. The Board shall establish and maintain a
Compensation Committee consisting of two or more directors, each of whom (i)
shall be qualified to the extent appropriate as a "non-employee director" under
Rule 16b-3 of the Securities Exchange Commission
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and as an "outside director" under Section 162(m) of the Internal Revenue Code
and (ii) shall meet any further qualifications designated by the Board. The
Compensation Committee shall review and analyze the compensation of the
Corporation's executive officers; review and provide general guidance as to
compensation of the Corporation's other managers; evaluate the performance of
the Corporation's executive officers; administer the Corporation's Long-Term
Incentive Compensation Plan, including grants thereunder; and perform such other
services as may be designated by the Board.
5.3 AUDIT COMMITTEE. The Board shall establish an Audit Committee
consisting of at least two directors, a majority of whom are not officers or
employees of the Corporation or any of its affiliates. The Audit Committee
shall (i) facilitate communication among the Corporation's directors,
management, independent accountants and internal auditing personnel regarding
matters relating to financial accounting, reporting and controls, (ii) assist
the Board of Directors in fulfilling its fiduciary responsibilities as to
accounting policies and reporting practices of the Corporation and all
subsidiaries and the sufficiency of auditing practices with respect thereto by,
among other things, reviewing the scope of audit coverage, including
consideration of the Corporation's accounting practices and procedures and
system of internal accounting controls and reporting to the Board with respect
thereto, (iii) operate as the Board's principal agent in ensuring the
independence of the Corporation's independent accountants, the integrity of
management and the adequacy of disclosure to shareholders, and (iv) perform such
other services as may be designated by the Board.
SECTION 6
REMOVAL OF BOARD MEMBERS
Directors may be removed in accordance with the applicable provisions of
the Articles of Incorporation.
SECTION 7
NOTICES
7.1 FORM OF DELIVERY. Whenever under the provisions of law, the Articles
of Incorporation or these By-laws notice is required to be given to any
shareholder or director, it shall not be construed to mean personal notice
unless otherwise specifically provided in the Articles of Incorporation or these
By-laws, but such notice may be given by mail, addressed to such shareholder or
director at his address as it appears on the records of the Corporation, with
postage thereon prepaid, or in such other manner as may be specified in these
By-laws. Notices given by mail shall be deemed to have been given at the time
they are deposited in the United States mail, and all other notices shall be
deemed to have been give upon receipt.
7.2 WAIVER. Whenever any notice is required to be given by law, the
Articles of Incorporation or these By-laws, a waiver thereof in writing signed
by the person or persons entitled
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to such notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
In addition, notice shall be deemed to have been given to, or waived by, any
shareholder or director who attends a meeting of shareholders or directors in
person, or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the transaction of any business because the meeting
is not lawfully called or convened.
SECTION 8
OFFICERS
8.1 DESIGNATIONS. The officers of the Corporation shall be elected by the
directors and shall be the President, Secretary and Treasurer. The Board of
Directors may appoint a Chief Executive Officer, a Chief Operating Officer, a
Chief Accounting Officer, one or more Vice Presidents and such other officers as
it shall deem necessary. Officers shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board. To the extent permitted by law, more than one office
may be held by a single person.
8.2 TERM OF OFFICE. The officers of the Corporation shall hold office at
the pleasure of the Board of Directors. Except as otherwise provided in the
resolution of the Board of Directors electing any officer, each officer shall
hold office until the first meeting of the Board of Directors after the annual
meeting of shareholders next succeeding his or her election, and until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. Any officer may resign at any time upon written notice to the
Board, Chairman of the Board, President or Secretary of the Corporation. Such
resignation shall take effect at the time specified therein and acceptance of
such resignation shall not be necessary to make it effective. The Board may
remove any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officers, if any, with the
Corporation, but the election of an officer shall not in and of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled for the unexpired
position of the term by the Board at any regular or special meeting.
8.3 THE CHAIRMAN OF THE BOARD. The Board may appoint a Chairman of the
Board who shall preside at meetings of the Board of Directors and the
shareholders and perform such other duties as may be designated by the Board of
Directors or these By-laws. The Chairman of the Board shall not, solely by
virtue of such position, be an officer of the Corporation but may be designated
an officer by the Board of Directors.
8.4 THE PRESIDENT. The President shall, unless otherwise provided by the
Board, have general and active responsibility for the management of the business
of the Corporation, shall be the chief executive and chief operating officer of
the Corporation, shall supervise the daily operations
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of the business of the Corporation and shall ensure that all orders, policies
and resolutions of the Board are carried out.
8.5 THE VICE PRESIDENTS. The Vice Presidents (if any) shall have such
designations and perform such duties as the President or the Board of Directors
shall prescribe.
8.6 THE SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose. He shall
give, or cause to be given, notice of all meetings of the shareholders and
regular and special meetings of the Board, and shall perform such other duties
as may be prescribed by the Board or President. He shall keep in safe custody
the seal of the Corporation, if any, and affix such seal to any instrument
requiring it.
8.7 THE ASSISTANT SECRETARY. The Assistant Secretary shall have the same
powers and duties as the Secretary and shall perform such other duties as may be
prescribed by the Board or President.
8.8 THE TREASURER. The Treasurer shall have the custody of the corporate
funds and shall keep or cause to be kept full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall deposit all
monies and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
He shall keep a proper accounting of all receipts and disbursements and shall
disburse the funds of the Corporation only for proper corporate purposes or as
may be ordered by the Board and shall render to the President and the Board at
the regular meetings of the Board, or whenever they may require it, an account
of all his transactions as Treasurer and of the financial condition and results
of operations of the Corporation.
SECTION 9
STOCK
9.1 CERTIFICATES. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by the President or a Vice President and
the Secretary or an Assistant Secretary evidencing the number and class (and
series, if any) of shares owned by him, containing such information as required
by law and bearing the seal of the Corporation. As provided in the Articles of
Incorporation, the Board of Directors may approve the use of dual forms of stock
certificates, one for issuance to U.S. citizen stockholders, and one for
issuance to non-U.S. citizen stockholders. If any stock certificate is manually
signed by a transfer agent or registrar other than the Corporation itself or an
employee of the Corporation, the signature of any such officer may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be an officer, transfer agent or registrar of the Corporation before such
certificate is issued, it may be issued by the Corporation with the same
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effect as if such person or entity were an officer, transfer agent or registrar
of the Corporation on the date of issue.
9.2 MISSING CERTIFICATES. The President or any Vice President may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the Corporation's receipt of an affidavit of that fact
from the person claiming the certificate of stock to be lost, stolen or
destroyed. As a condition precedent to the issuance of a new certificate or
certificates, the officers of the Corporation shall, unless dispensed with by
the President, require the owner of such lost, stolen or destroyed certificate
or certificates, or his legal representative, to (i) give the Corporation a bond
or (ii) enter into a written indemnity agreement, in each case in an amount
appropriate to indemnify the Corporation against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
9.3 TRANSFERS. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives upon
surrender and cancellation of certificates for a like number of shares. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books, provided that as
a condition precedent to the transfer of shares on the records of the
Corporation, the Corporation may require representations or other proof of the
identity and citizenship of any prospective stockholder and may restrict
transfers to non-U.S. citizens as provided in the Articles of Incorporation.
SECTION 10
DETERMINATION OF SHAREHOLDERS
For the purpose of determining shareholders entitled to notice of and to
vote at a meeting, or to receive a dividend, or to receive or exercise
subscription or other rights, or to participate in a reclassification of stock,
or in order to make a determination of shareholders for any other proper
purpose, the Board of Directors may fix in advance a record date for
determination of shareholders for such purpose, such date to be not more than 60
days and, if fixed for the purpose of determining shareholders entitled to
notice of and to vote at a meeting, not less than 10 days, prior to the date on
which the action requiring the determination of shareholders is to be taken.
SECTION 11
INDEMNIFICATION
11. DEFINITIONS. As used in this section the following terms shall have
the meanings set forth below:
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(a) "Board" - the Board of Directors of the Corporation.
(b) "Claim" - any threatened, pending or completed claim, action,
suit, or proceeding, whether civil, criminal, administrative or investigative
and whether made judicially or extra-judicially, or any separate issue or matter
therein, as the context requires.
(c) "Determining Body" - (i) those members of the Board who are not
named as parties to the Claim for which indemnification is being sought
("Impartial Directors"), if there are at least three Impartial Directors, (ii) a
committee of at least three Impartial Directors appointed by the Board
(regardless whether the members of the Board of Directors voting on such
appointment are Impartial Directors) or (iii) if there are fewer than three
Impartial Directors or if the Board of Directors or the committee appointed
pursuant to clause (ii) of this paragraph so directs (regardless whether the
members thereof are Impartial Directors), independent legal counsel, which may
be the regular outside counsel of the Corporation.
(d) "Disbursing Officer" - the President of the Corporation or, if the
President is a party to the Claim for which indemnification is being sought, any
officer not a party to such Claim who is designated by the President to be the
Disbursing Officer with respect to indemnification requests related to the
Claim, which designation shall be made promptly after receipt of the initial
request for indemnification with respect to such Claim.
(e) "Expenses" - any expenses or costs, including, without limitation,
attorney's fees, judgments, punitive or exemplary damages, fines and amounts
paid in settlement.
(f) "Indemnitee" - each person who is or was a director or officer of
the Corporation.
11.2 INDEMNITY.
(a) To the extent such Expenses exceed the amounts reimbursed or paid
pursuant to policies of liability insurance maintained by the Corporation, the
Corporation shall indemnify each Indemnitee against any Expenses actually and
reasonably incurred by him (as they are incurred) in connection with any Claim
either against him or as to which he is involved solely as a witness or person
required to give evidence, by reason of his position (i) as a director or
officer of the Corporation, (ii) as a director or officer of any subsidiary of
the Corporation, (iii) as a fiduciary with respect to any employee benefit plan
of the Corporation, or (iv) as a director, officer, partner, employee or agent
of another corporation, partnership, joint venture, trust or other for-profit or
not-for-profit entity or enterprise, if such position is or was held at the
request of the Corporation, whether relating to service in such position before
or after the effective date of this Section, if he (i) is successful in his
defense of the claim on the merits or otherwise or (ii) has been found by the
Determining Body (acting in good faith) to have met the Standard of Conduct
(defined below); provided that (A) the amount otherwise payable by the
Corporation may be reduced by the Determining Body to such amount as it deems
proper if it determines that the Claim involved the
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receipt of a personal benefit by Indemnitee, and (B) no indemnification shall be
made in respect of any Claim as to which Indemnitee shall have been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable for willful or intentional misconduct in the performance of his duty
to the Corporation or to have obtained an improper personal benefit, unless, and
only to the extent that, a court shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as
the court deems proper.
(b) For purposes of this Section 11, the Standard of Conduct is met
when the conduct by an Indemnitee with respect to which a Claim is asserted was
conduct that was in good faith and that he reasonably believed to be in, or not
opposed to, the best interest of the Corporation, and, in the case of a criminal
action or proceeding, that he had no reasonable cause to believe was unlawful.
The termination of any Claim by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not meet the Standard of Conduct.
(c) Promptly upon becoming aware of the existence of any Claim as to
which he may be indemnified hereunder, Indemnitee shall notify the President of
the Corporation of the Claim and whether he intends to seek indemnification
hereunder. If such notice indicates that Indemnitee does so intend, the
President shall promptly advise the Board thereof and notify the Board that the
establishment of the Determining Body with respect to the Claim will be a matter
presented at the next regularly scheduled meeting of the Board. Such a meeting
is to be held within 90 calendar days of the date of Indemnitee's request. If a
meeting of the Board of Directors is not regularly scheduled within 120 calendar
days of such request, the President shall cause a special meeting of the Board
of Directors to be called within such period in accordance with these By-laws.
After the Determining Body has been established the President shall inform the
Indemnitee thereof and Indemnitee shall immediately provide the Determining Body
with all facts relevant to the Claim known to him. No later than the 45th day
(the "Determination Date") after its receipt of such information, together with
such additional information as the Determining Body may request of Indemnitee,
the Determining Body shall determine, and shall advise Indemnitee of its
determination, whether Indemnitee has met the Standard of Conduct.
(d) During such 45-day period, Indemnitee shall promptly inform the
Determining Body upon his becoming aware of any relevant facts not theretofore
provided by him to the Determining Body, unless the Determining Body has
obtained such facts by other means. The providing of such facts to the
Determining Body shall not begin a new 45-day period.
(e) The Determining Body shall have no authority to revoke a
determination that Indemnitee met the Standard of Conduct unless Indemnitee (i)
submits fraudulent information to the Determining Body at any time during the 45
days prior to the Determination Date or (ii) fails to comply with the provisions
of subsections (c) or (d) hereof, including without limitation Indemnitee's
obligation to submit information or documents relevant to the Claim reasonably
requested by the Determining Body prior to the Determination Date.
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(f) In the case of any Claim not involving a proposed, threatened or
pending criminal proceeding,
(i) if Indemnitee has, in the good faith judgment of the Determining
Body, met the Standard of Conduct, the Corporation may, in its sole discretion
after notice to Indemnitee, assume all responsibility for the defense of the
Claim, and, in any event, the Corporation and the Indemnitee each shall keep the
other informed as to the progress of the defense, including prompt disclosure of
any proposals for settlement; provided that if the Corporation is a party to the
Claim and Indemnitee reasonably determines that there is a conflict between the
positions of the Corporation and Indemnitee with respect to the Claim, then
Indemnitee shall be entitled to conduct his defense, with counsel of his choice;
and provided further that Indemnitee shall in any event be entitled at his
expense to employ counsel chosen by him to participate in the defense of the
Claim; and
(ii) the Corporation shall fairly consider any proposals by Indemnitee
for settlement of the Claim. If the Corporation (A) proposes a settlement
acceptable to the person asserting the Claim, or (B) believes a settlement
proposed by the person asserting the Claim should be accepted, it shall inform
Indemnitee of the terms thereof and shall fix a reasonable date by which
Indemnitee shall respond. If Indemnitee agrees to such terms, he shall execute
such documents as shall be necessary to effect the settlement. If he does not
agree he may proceed with the defense of the Claim in any manner he chooses, but
if he is not successful on the merits or otherwise, the Corporation's obligation
to indemnify him for any Expenses incurred following his disagreement shall be
limited to the lesser of (A) the total Expenses incurred by him following his
decision not to agree to such proposed settlement or (B) the amount the
Corporation would have paid pursuant to the terms of the proposed settlement.
If, however, the proposed settlement would impose upon Indemnitee any
requirement to act or refrain from acting that would materially interfere with
the conduct of his affairs, Indemnitee may refuse such settlement and proceed
with the defense of the Claim, if he so desires, at the Corporation's expense
without regard to the limitations imposed by the preceding sentence. In no
event, however, shall the Corporation be obligated to indemnify Indemnitee for
any amount paid in a settlement that the Corporation has not approved.
(g) In the case of a Claim involving a proposed, threatened or pending
criminal proceeding, Indemnitee shall be entitled to conduct the defense of the
claim, and to make all decisions with respect thereto, with counsel of his
choice; provided, however, that the Corporation shall not be obligated to
indemnify Indemnitee for an amount paid in settlement that the Corporation has
not approved.
(h) After notifying the Corporation of the existence of a Claim,
Indemnitee may from time to time request the Corporation to pay the Expenses
(other than judgments, fines, penalties or amounts paid in settlement) that he
incurs in pursuing a defense of the Claim prior to the time that the Determining
Body determines whether the Standard of Conduct has been met. If the Disbursing
Officer believes the amount requested to be reasonable, he shall pay to
Indemnitee the amount requested (regardless of Indemnitee's apparent ability to
repay such amount) upon receipt of an
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undertaking by or on behalf of Indemnitee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation under the circumstances. If the disbursing Officer does not believe
such amount to be reasonable, the Corporation shall pay the amount deemed by him
to be reasonable and Indemnitee may apply directly to the Determining Body for
the remainder of the amount requested.
(i) After the Determining Body has determined that the Standard of
Conduct was met, for so long as and to the extent that the Corporation is
required to indemnify Indemnitee under this Agreement, the provisions of
paragraph (h) shall continue to apply with respect to Expenses incurred after
such time except that (i) no undertaking shall be required of Indemnitee and
(ii) the Disbursing Officer shall pay to Indemnitee such amount of any fines,
penalties or judgments against him which have become final as the Corporation is
obligated to indemnify him.
(j) Any determination by the Corporation with respect to settlements
of a Claim shall be made by the Determining Body.
(k) The Corporation and Indemnitee shall keep confidential, to the
extent permitted by law and their fiduciary obligations, all facts and
determinations provided or made pursuant to or arising out of the operation of
this Section, and the Corporation and Indemnitee shall instruct its or his
agents and employees to do likewise.
11.3 ENFORCEMENT.
(a) The rights provided by this Section shall be enforceable by
Indemnitee in any court of competent jurisdiction.
(b) If Indemnitee seeks a judicial adjudication of his rights under
this Section, Indemnitee shall be entitled to recover from the Corporation, and
shall be indemnified by the Corporation against, any and all Expenses actually
and reasonably incurred by him in connection with such proceeding but only if he
prevails therein. If it shall be determined that Indemnitee is entitled to
receive part but not all of the relief sought, then the Indemnitee shall be
entitled to be reimbursed for all Expenses incurred by him in connection with
such judicial adjudication if the amount to which he is determined to be
entitled exceeds 50% of the amount of his claim. Otherwise, the Expenses
incurred by Indemnitee in connection with such judicial adjudication shall be
appropriately prorated.
(c) In any judicial proceeding described in this subsection, the
Corporation shall bear the burden of proving that Indemnitee is not entitled to
any Expenses sought with respect to any Claim.
11.4 SAVING CLAUSE. If any provision of this Section is determined by a
court having jurisdiction over the matter to require the Corporation to do or
refrain from doing any act that is in violation of applicable law, the court
shall be empowered to modify or reform such provision so that,
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as modified or reformed, such provision provides the maximum indemnification
permitted by law, and such provision, as so modified or reformed, and the
balance of this Section, shall be applied in accordance with their terms.
Without limiting the generality of the foregoing, if any portion of this Section
shall be invalidated on any ground, the Corporation shall nevertheless indemnify
an Indemnitee to the full extent permitted by any applicable portion of this
Section that shall not have been invalidated and to the full extent permitted by
law with respect to that portion that has been invalidated.
11.5 NON-EXCLUSIVITY.
(a) The indemnification and advancement of Expenses provided by or
granted pursuant to this Section shall not be deemed exclusive of any other
rights to which Indemnitee is or may become entitled under any statute, article
of incorporation, by-law, authorization of shareholders or directors, agreement,
or otherwise.
(b) It is the intent of the Corporation by this Section to indemnify
and hold harmless Indemnitee to the fullest extent permitted by law, so that if
applicable law would permit the Corporation to provide broader indemnification
rights than are currently permitted, the Corporation shall indemnify and hold
harmless Indemnitee to the fullest extent permitted by applicable law
notwithstanding that the other terms of this Section would provide for lesser
indemnification.
11.6 SUCCESSORS AND ASSIGNS. This Section shall be binding upon the
Corporation, its successors and assigns, and shall inure to the benefit of the
Indemnitee's heirs, personal representatives, and assigns and to the benefit of
the Corporation, its successors and assigns.
11.7 INDEMNIFICATION OF OTHER PERSONS. The Corporation may indemnify any
person not covered by Sections 11.1 through 11.6 to the extent provided in a
resolution of the Board or a separate section of these By-laws.
SECTION 12
ADOPTION AND AMENDMENT OF BY-LAWS
By-laws of the Corporation may be adopted and amended as provided in the
Articles of Incorporation.
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SECTION 13
MISCELLANEOUS
13.1 DIVIDENDS. Except as otherwise provided by law, the Articles of
Incorporation or these By-laws, dividends upon the stock of the Corporation may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, property, or shares of stock, subject to the
limitations specified in the Articles of Incorporation.
13.2 VOTING OF SHARES OWNED BY CORPORATION. Unless otherwise directed by
the Board, any shares of capital stock issued by a wholly-owned subsidiary of
the Corporation may be voted by the President of the Corporation, or by any
person authorized to do so by the President, at any shareholders' meeting of the
subsidiary (or in connection with any written consent in lieu thereof).
13.3 FISCAL YEAR. The Board of Directors may adopt for and on behalf of
the Corporation a fiscal or a calendar year.
13.4 SEAL. The Board of Directors may adopt a corporate seal, which shall
have inscribed thereon the name of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise. Failure to affix the seal shall not, however, affect the validity of
any instrument.
13.5 GENDER. All pronouns and variations thereof used in these By-laws
shall be deemed to refer to the masculine, feminine or neuter gender, singular
or plural, as the identity of the person, persons, entity or entities referred
to may require.
13.6 CONTROL SHARE ACQUISITIONS. The provisions of Sections 135 through
140.2 of the Louisiana Business Corporation Law (La.R.S. 12:135 through 140.2)
do not apply to control share acquisitions of shares of the Corporation.
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SIXTH AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT
AMONG
GULF ISLAND FABRICATION, INC.,
AS BORROWER,
FIRST NATIONAL BANK OF COMMERCE
AND
WHITNEY NATIONAL BANK,
AS BANKS,
AND
FIRST NATIONAL BANK OF COMMERCE,
AS AGENT
- --------------------------------------------------------------------------------
DATED EFFECTIVE AS OF MAY 1, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Section 1. Relation to Prior Credit Arrangements................................... 2
1.1 Revolving Credit Facility............................................... 3
1.2 Borrowing Procedure Under the Revolving Credit Facility................. 4
1.3 Terms and Conditions Governing Letters of Credit........................ 4
Section 2. Notes Evidencing Borrowings............................................. 5
2.1 Notes................................................................... 5
2.2 No Novation............................................................. 5
Section 3. Interest and Fees....................................................... 6
3.1 Interest -- Revolving Credit Facility................................... 6
3.2 Default Rate............................................................ 6
3.3 Prime Rate.............................................................. 6
3.4 Origination Fee......................................................... 7
3.5 Method of Calculating Interest and Fees................................. 7
3.6 Interest Rate Options................................................... 7
Section 4. Payments, Prepayments, and Reduction or Termination of
the Revolving Credit Facility........................................... 12
4.1 Method of Payment....................................................... 12
4.2 Sharing of Payments..................................................... 13
4.3 Payments Without Deduction.............................................. 13
4.4 Reduction of Credit..................................................... 14
Section 5. Representations and Warranties of Borrower.............................. 14
5.1 Corporate Existence..................................................... 14
5.2 Authorization; Validity................................................. 14
5.3 No Conflicts............................................................ 15
5.4 Financial Statements.................................................... 15
5.5 Litigation.............................................................. 15
5.6 Liens................................................................... 16
5.7 Subsidiaries............................................................ 16
5.8 Purpose................................................................. 16
5.9 Use of Proceeds; Margin Securities...................................... 16
5.10 Compliance with ERISA................................................... 16
5.11 Consents................................................................ 17
5.12 Tax Returns............................................................. 17
5.13 Operation of Business................................................... 17
5.14 Rights in Properties; Liens............................................. 17
5.15 Debt.................................................................... 17
5.16 Disclosure.............................................................. 18
5.17 Registered Office; Principal Place of Business; Location of Collateral.. 18
5.18 Investment Company Act.................................................. 19
5.19 Other Agreements........................................................ 19
</TABLE>
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<TABLE>
<C> <S> <C>
5.20 Compliance with Law..................................................... 19
5.21 Corporate Name.......................................................... 20
5.22 Collateral.............................................................. 21
5.23 Taxpayer I.D. Numbers................................................... 21
5.24 Effect of Dolphin Merger................................................ 21
Section 6. Borrower's Covenants.................................................... 21
6.1 Financial Statements.................................................... 21
6.2 Access.................................................................. 23
6.3 Insurance............................................................... 23
6.4 Repair.................................................................. 23
6.5 Taxes................................................................... 24
6.6 Corporate Existence..................................................... 24
6.7 Merger.................................................................. 24
6.8 Compliance.............................................................. 25
6.9 Use of Proceeds......................................................... 26
6.10 Financial Covenants..................................................... 26
6.11 Liens................................................................... 27
6.12 Debt.................................................................... 28
6.13 Shareholder or Employee Loans........................................... 28
6.14 Change in Business...................................................... 28
6.15 Accounts Receivable..................................................... 28
6.16 Compliance with Agreements.............................................. 29
6.17 Further Assurances...................................................... 29
6.18 Disposition of Assets................................................... 29
6.19 Change Tax I.D. Number.................................................. 29
6.20 Indemnity............................................................... 29
6.21 Real Property........................................................... 30
Section 7. Conditions Precedent to Extensions of Credit............................ 30
7.1 Borrower's Resolutions.................................................. 31
7.2 Dolphin Services' Resolutions........................................... 31
7.3 Notes................................................................... 31
7.5 Incumbency.............................................................. 31
7.6 Certification........................................................... 31
7.7 Opinion................................................................. 32
Section 8. Additional Conditions Precedent to Advances and/or Letters of Credit.... 32
8.1 Default................................................................. 32
8.2 Warranties.............................................................. 32
Section 9. Events of Default....................................................... 33
9.1 Payment................................................................. 33
9.2 Other Indebtedness...................................................... 33
9.3 Other Default........................................................... 33
9.4 Insolvency.............................................................. 33
</TABLE>
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<TABLE>
<C> <S> <C>
9.5 ERISA................................................................... 34
9.6 Agreements.............................................................. 34
9.7 Representation or Warranty.............................................. 35
9.8 Subsidiary Default...................................................... 35
Section 10. Agent................................................................... 36
10.1 Authorization and Action................................................ 36
10.2 Agent's Reliance, Etc................................................... 36
10.3 First NBC and Affiliates................................................ 37
10.4 Bank Credit Decision.................................................... 38
10.5 Indemnification......................................................... 38
10.6 Successor Agent......................................................... 39
10.7 Benefits of Section..................................................... 39
10.8 Change in Specified Percentage.......................................... 40
Section 11. General................................................................. 40
11.1 Definitions............................................................. 40
11.2 Financial Terms......................................................... 46
11.3 Delay................................................................... 46
11.4 Notices................................................................. 46
11.5 Expenses................................................................ 48
11.6 Severability............................................................ 48
11.7 Counterparts............................................................ 48
11.8 Law..................................................................... 48
11.9 Successors.............................................................. 49
11.10 Amendments.............................................................. 49
11.11 Entire Agreement........................................................ 49
11.12 Conflicts............................................................... 49
</TABLE>
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<PAGE>
SIXTH AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT
THIS SIXTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (the
"Agreement"), dated effective as of the 1st day of May, 1997, by and among GULF
ISLAND FABRICATION, INC., a Louisiana corporation ("Borrower") (formerly known
as GIFI, Inc., successor by merger to Gulf Island Fabrication, Inc., a Louisiana
corporation), WHITNEY NATIONAL BANK, a national banking association ("Whitney"),
FIRST NATIONAL BANK OF COMMERCE, a national banking association, in its
individual capacity ("First NBC") (each of Whitney and First NBC being sometimes
referred to individually as a "Bank" and collectively as the "Banks"), and FIRST
NATIONAL BANK OF COMMERCE, a national banking association, in its capacity as
agent for Banks as set forth hereinafter (the "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower, Banks and Agent entered into that certain Fifth Amended
and Restated Revolving Credit and Term Loan Agreement, dated effective as of
October 24, 1996 (the "Credit Agreement") which amended and restated the then
existing credit arrangements among Borrower, Banks and Agent;
WHEREAS, Borrower, Banks and Agent entered into that certain First
Amendment to Fifth Amended and Restated Revolving Credit and Term Loan
Agreement dated effective as of January 2, 1997 (the "First Amendment"), whereby
the then existing Term Credit Facility (as defined in the Credit Agreement) was
increased by $5,000,000, Borrower was permitted to acquire Dolphin Services,
Inc. ("Dolphin Services"), Dolphin Steel Sales, Inc. ("Dolphin Steel"), and
Dolphin
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Sales & Rentals, Inc. ("Dolphin Sales"), and the maturity date of the then
existing Term Credit Facility (as defined in the Credit Agreement) was extended;
WHEREAS, Borrower, Banks and Agent entered into that certain Second
Amendment to Fifth Amended and Restated Revolving Credit and Term Loan Agreement
dated effective as of March 18, 1997 (the "Second Amendment") whereby the
Revolving Credit Facility (as defined in the Credit Agreement) was increased
from $12,000,000 to $20,000,000, the maturity of such Revolving Credit Facility
was extended from December 31, 1998 to December 31, 1999, and certain other
changes were made to enable Borrower to complete its contemplated initial public
offering (as amended by the First Amendment and the Second Amendment, the Credit
Agreement shall be referred to as the "Revised Credit Agreement"); and
WHEREAS, Borrower, Banks and Agent desire to amend and restate their
existing credit arrangements to facilitate administration of such credit
arrangements, to eliminate the Term Credit Facility which has been paid in full,
to modify certain other credit terms following Borrower's initial public
offering, and to reflect the merger of Dolphin Sales and Dolphin Steel into
Dolphin Services.
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements and undertakings herein contained, Borrower, Banks and Agent hereby
agree as follows:
Section 1. Relation to Prior Credit Arrangements. Subject to the terms
and conditions hereof, each Bank severally agrees that Borrower's obligations as
evidenced by the Revised Credit Agreement and the Prior Notes shall be modified
and restated in their entirety on the terms and conditions set forth herein. To
the extent there is any conflict between the Revised Credit Agreement and this
Agreement or the Prior Notes and the Notes, the provisions of this Agreement and
the Notes shall govern. To the extent this Agreement or the Notes is or are
silent on any matter or provision contained in the Revised Credit Agreement or
the Prior Notes, such matter or provision
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<PAGE>
of the Revised Credit Agreement or the Prior Notes shall be deemed to be
revoked. Borrower and Banks acknowledge and agree that (i) the modification and
restatement of the Obligations under the terms and conditions set forth herein
do not constitute a payment, prepayment or novation of the Obligations evidenced
by the Revised Credit Agreement and the Prior Notes and (ii) the Obligations
continue to be secured by the Existing Security with the original rank and
priority thereof.
1.1 Revolving Credit Facility. Banks shall make available to Borrower a
revolving line of credit (the "Revolving Credit Facility") in the maximum
principal amount of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00) (as
modified pursuant to Section 4.4 below, the "Revolving Commitment"), which
Revolving Credit Facility may be drawn upon by Borrower on any Business Day of
Banks during the period from the date hereof until and including December 31,
1999, or such earlier date as may be fixed by Borrower on at least one (1)
Business Day's telephonic notice to Agent, to be confirmed in writing by
Borrower, in the form of the issuance by Banks on behalf of and for the account
of Borrower of irrevocable stand-by letters of credit in the form provided for
by, and containing such terms and conditions as are acceptable to Banks and in
such amounts as Borrower may from time to time request (each such letter of
credit, as well as any letters of credit issued pursuant to and in accordance
with the Revised Credit Agreement or any predecessor agreement which remain
outstanding on the date hereof, being hereinafter referred to individually as a
"Letter of Credit" and collectively as the "Letters of Credit") or in the form
of actual fundings to Borrower by Banks in such amounts as Borrower may from
time to time request (each such funding, as well as the aggregate amount of the
Prior Notes previously funded by Banks and outstanding on the date hereof, being
hereinafter referred to individually as an "Advance" and collectively as the
"Advances"), so long as (a) the aggregate principal amount of all Letters of
Credit outstanding at any one time does not exceed the LC Commitment and (b) the
aggregate principal
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<PAGE>
amount of all Letters of Credit and of all Advances outstanding at any one time
does not exceed the Revolving Commitment. The Revolving Commitment available to
Borrower from time to time under the Revolving Credit Facility shall be reduced
by the aggregate of the face amount of any outstanding Letters of Credit and of
all unpaid Advances made by Banks to Borrower pursuant to this Agreement and the
remaining amount of the Revolving Commitment shall constitute the "Unused
Commitment". Any draws made under the Letters of Credit by the beneficiaries
thereof shall constitute Advances as defined in this Agreement. The Unused
Commitment available under the Revolving Credit Facility shall be restored but
simultaneously reduced by the amount of any Advances which are made to Borrower
to reimburse Banks for draws under the Letters of Credit.
1.2 Borrowing Procedure Under the Revolving Credit Facility. Agent shall
receive at least one (1) Business Day's prior telephonic notice from Borrower
(to be confirmed in writing by Borrower) of each proposed Letter of Credit and
of each Advance to be issued under the Revolving Credit Facility. If all
conditions precedent to the issuance of any such Letter of Credit or any such
Advance have been met, Agent will, without any further consent or approval from
Banks, or either one of them, on the date requested make each Letter of Credit
or Advance available to Borrower at Agent's office at 201 St. Charles Avenue,
New Orleans, Louisiana 70170, and each Letter of Credit or Advance shall be
shared equally by Banks.
1.3 Terms and Conditions Governing Letters of Credit. The terms and
conditions governing the issuance of Letters of Credit by Banks on behalf of and
for the account of Borrower shall be provided for by Agent in its standard form
of Application for Stand-By Letter of Credit, a copy of which is attached hereto
as Exhibit "A", with appropriate insertions and such additional terms and
conditions governing the issuance of specific Letters of Credit as may be agreed
upon by Borrower and Agent at the time of Borrower's request to Agent for the
issuance thereof. Upon
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Agent's issuance of a Letter of Credit, one-half (1/2) of the amount of such
Letter of Credit shall automatically be deemed to have been provided by Whitney,
and, without the necessity of further documentation transferring an interest in
the Letter of Credit to Whitney, Whitney shall possess a one-half (1/2) interest
in all rights and obligations accruing to and incurred by Agent with respect to
such Letter of Credit. Whitney shall record its one-half (1/2) share of any
draws on the Letter of Credit on the schedule attached to its Revolving Note as
provided in Section 2.1 below.
Section 2. Notes Evidencing Borrowings.
2.1 Notes. The Advances (including, without limitation, the outstanding
indebtedness of Borrower to Banks under the Prior Notes which, as provided in
Section 1.1, shall be deemed an "Advance" hereunder) shall be evidenced by two
(2) promissory notes of Borrower payable to the order of First NBC and Whitney,
respectively, each in the original principal amount of TEN MILLION AND NO/100
DOLLARS ($10,000,000.00) and in the forms set forth as Exhibits "B" and "C" to
this Agreement (each such note, together with any and all renewals,
modifications, extensions, amendments, supplements and/or substitutions
therefor, being sometimes referred to herein individually as a "Note" and
collectively as the "Notes"), with appropriate insertions, each of which shall
be dated the date hereof and shall be payable in full on December 31, 1999. All
Advances made by Banks to Borrower pursuant to this Agreement and all payments
of principal shall be recorded by Banks on the schedule attached to each Note,
but Banks' failure to record or to record correctly such Advances shall in no
way affect Borrower's obligation to repay same.
2.2 No Novation. The execution and delivery of the Notes shall not
constitute a payment, prepayment or novation of the obligations of Borrower
heretofore evidenced by the Prior Notes, but does constitute a renewal and
restatement of the Prior Notes in their entirety.
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<PAGE>
Section 3. Interest and Fees.
3.1 Interest -- Revolving Credit Facility. In the absence of an Event of
Default, the unpaid principal of the Notes shall bear interest until paid at the
Prime Rate, adjusted daily, or the LIBO Rate, or some combination thereof, as
specified in Section 3.6 below. Interest prior to maturity shall be payable
quarterly in arrears on the last day of each March, June, September and December
commencing June 30, 1997, and continuing until maturity. Interest after
maturity of the Notes for any reason whatsoever shall be increased to the Prime
Rate plus three percent (3%) and shall be payable on demand. Upon the issuance
of a Letter of Credit by Agent on behalf of and for the account of Borrower, a
fee of one percent (1%) per annum on the principal amount of such Letter of
Credit shall be payable by Borrower for the number of days such Letter of Credit
is to remain outstanding. A fee on the Unused Commitment of three-eighths (3/8)
of one percent (1%) per annum shall be payable by Borrower quarterly in arrears
on the last day of each March, June, September and December commencing June 30,
1997, and continuing until maturity.
3.2 Default Rate. If an Event of Default shall occur in the payment on or
before the due date of any principal or interest due hereunder or under any of
the other Loan Documents, including, without limitation, the Notes, Borrower
will pay interest thereon (retroactively) from the date of the Event of Default
on such payment up to the date of the actual payment (as well after as before
judgment) at the Prime Rate plus three percent (3%) (the "Default Rate"),
without regard to whether there has been an acceleration of the payment of
principal. Such interest at the Default Rate shall be payable on demand.
3.3 Prime Rate. "Prime Rate" shall mean that index which shall be
established by Citibank, N.A. at New York, New York as its "prime rate". Each
change in the interest rate on each Note shall take effect on the effective date
of the change in the Prime Rate.
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3.4 Origination Fee. No origination fee shall be payable by Borrower.
3.5 Method of Calculating Interest and Fees. Interest at the Prime Rate
and any fee shall be computed on the basis of a year consisting of 365 days and
paid for actual days elapsed, and interest at the LIBO Rate shall be computed on
the basis of a year consisting of 360 days.
3.6 Interest Rate Options. Until an Event of Default occurs, Borrower
shall have the following interest rate options:
(a) Advances to Borrower under the Revolving Credit Facility may from
time to time be (i) LIBO Rate Advances, (ii) Prime Rate Advances, or (iii)
any combination thereof, as determined by Borrower with respect to its
Advances and noticed to Agent in accordance with paragraphs (b), (c), and
(d) below; provided that no Advance shall be made to Borrower as a LIBO
Rate Advance under the Revolving Credit Facility after the day that is one
month prior to the Termination Date. For purposes of this paragraph (a),
an Advance shall be deemed "made" upon an initial borrowing by Borrower
under paragraph (b) below, any conversion of such Advance under paragraph
(c) below, and upon any continuation of such Advance under paragraph (d)
below.
(b) With respect to any new Advance, Borrower shall provide Agent with
telephonic notice of its intended borrowing, which notice must be received
by Agent prior to 10:00 A.M., New Orleans time, at least one (1) Business
Day prior to the requested Borrowing Date, which notice shall specify (i)
the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether
the borrowing is to be of LIBO Rate Advances or Prime Rate Advances or a
combination thereof, (iv) the respective amounts of each such type of
Advance, and (v) if the borrowing is to be entirely or partly of LIBO Rate
Advances, the respective lengths of the Interest Periods therefor.
7
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(c) Borrower may elect from time to time to convert any of its LIBO
Rate Advances to Prime Rate Advances by giving Agent telephonic notice of
such election, which notice must be received by Agent prior to 10:00 A.M.,
New Orleans time, at least one (1) Business Day prior to the requested
conversion; provided that any such conversion, of LIBO Rate Advances shall
only be made on the last day of an Interest Period with respect thereto.
Borrower may elect from time to time to convert any of its Prime Rate
Advances to LIBO Rate Advances by giving Agent telephonic notice of such
election, which notice must be received by Agent prior to 10:00 A.M., New
Orleans time, at least one (1) Business Day prior to the requested
conversion. Any such notice of conversion to LIBO Rate Advances shall
specify the length of the initial Interest Period thereof and the amount of
the Prime Rate Advance to be converted. All or any part of Borrower's
outstanding LIBO Rate Advances and Prime Rate Advances may be converted as
provided herein; provided that (i) no Prime Rate Advance may be converted
into a LIBO Rate Advance when any Event of Default has occurred and is
continuing, (ii) partial conversions of Prime Rate Advances to LIBO Rate
Advances shall be in an aggregate principal amount of $500,000 or a whole
multiple of $100,000 in excess thereof, (iii) partial conversions of LIBO
Rate Advances to Prime Rate Advances shall be in an aggregate principal
amount of $500,000 or a whole multiple of $100,000 in excess thereof, (iv)
no Prime Rate Advance under the Revolving Credit Facility may be converted
into a LIBO Rate Advance after the date that is one month prior to the
Termination Date, and (v) any such conversion may only be made if, after
giving effect thereto, paragraph (e) shall not have been contravened.
(d) Any LIBO Rate Advances may be continued as such upon the
expiration of an Interest Period with respect thereto by Borrower giving
Agent telephonic notice, which
8
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notice must be received by Agent prior to 10:00 A.M., New Orleans time, at
least one (1) Business Day prior to the requested continuation; provided,
that (i) no LIBO Rate Advance may be continued as such when any Event of
Default has occurred and is continuing, (ii) no LIBO Rate Advances under
the Revolving Credit Facility may be continued as such after the date which
is one month prior to the Termination Date, and (iii) any such continuation
shall be made only if, after giving effect thereto, paragraph (e) shall not
be contravened. If Borrower shall fail to give such notice or if such
continuation is not permitted, then Borrower shall be deemed to have
requested that the LIBO Rate Advance be converted automatically to a Prime
Rate Advance on the last day of the then current Interest Period with
respect thereto.
(e) All borrowings, conversions and continuations of Advances
hereunder by Borrower and all selections of Interest Periods hereunder by
Borrower shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of the
Advances to Borrower constituting each LIBO Rate tranche (i.e., LIBO Rate
Advances made on the same day and having the same Interest Period) shall be
equal to $500,000 or a whole multiple of $100,000 in excess thereof. If
Borrower has no Prime Rate Advances outstanding, Borrower may have a
maximum of five (5) LIBO Rate tranches in aggregate in effect at any one
time, and, if Borrower has Prime Rate Advances outstanding, Borrower may
have a maximum of four (4) LIBO Rate tranches in aggregate in effect at any
one time.
(f) Each determination of an interest rate by Agent pursuant to any
provision of this Agreement shall be conclusive and binding on Borrower in
the absence of manifest error.
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Agent shall, at the request of Borrower, deliver to Borrower a statement
showing the quotations used by Agent in determining the LIBO Rate.
(g) If prior to the first day of any Interest Period, Agent shall have
determined (which determination shall be conclusive and binding upon
Borrower) that either:
(i) adequate and reasonable means do not exist for ascertaining the
LIBO Rate for such Interest Period; or
(ii) the interest rate determined for such Interest Period does not
adequately and fairly reflect the cost to Banks (as conclusively
certified by Agent) of making, maintaining or funding their LIBO
Rate Advances during such Interest Period, in either case with
respect to (i) proposed Advances that Borrower has requested be
made as LIBO Rate Advances, (ii) LIBO Rate Advances that will
result from the requested conversion of Prime Rate Advances into
LIBO Rate Advances, or (iii) the continuation of LIBO Rate
Advances beyond the expiration of the then current Interest
Period with respect thereto;
Agent shall give telephonic notice thereof to Borrower as soon as
practicable thereafter. Unless Borrower notifies Agent upon receipt of such
notice that it wishes to rescind or modify its request, Agent shall arrange
that (x) any affected LIBO Rate Advances requested by Borrower shall be
made as Prime Rate Advances, (y) any Prime Rate Advances to Borrower that
were to have been converted to LIBO Rate Advances shall be continued as, or
converted to, Prime Rate Advances, and (z) all outstanding LIBO Rate
Advances to Borrower shall be converted, on the last day of the then
current Interest Period with respect thereto, to Prime Rate Advances.
Until such notice has been withdrawn by Agent, no further LIBO Rate
Advances shall be made to Borrower, nor shall Borrower have the right to
convert Prime Rate Advances to LIBO Rate Advances.
(h) Notwithstanding any other provision in this Agreement, if the
adoption of or any change in any law or regulation or in the interpretation
or application thereof (whether or not having the force of law) shall make
it unlawful or impossible for Bank to make,
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maintain or fund LIBO Rate Advances as contemplated by this Agreement: (a)
the commitment of Banks hereunder to make LIBO Rate Advances, continue LIBO
Rate Advances as such and convert Prime Rate Advances to LIBO Rate Advances
shall forthwith be cancelled; (b) the Advances then outstanding as LIBO
Rate Advances, if any, shall be converted automatically to Prime Rate
Advances on the respective last days of the then current Interest Periods
with respect to such Advances or within such earlier period as required by
law; and (c) Borrower shall pay Banks such amounts, if any, as may be
required pursuant to paragraph (i) below.
(i) Borrower agrees to indemnify Banks and to hold Banks harmless from
any loss or expense which Banks may sustain or incur as a consequence of
(a) the making by Borrower of a prepayment (whether mandatory or optional)
or any other payment of a LIBO Rate Advance on a day which is not the last
day of the Interest Period with respect thereto, and/or (b) the conversion,
whether voluntary or involuntary, of a LIBO Rate Advance into a Prime Rate
Advance pursuant to this Section 3.6 or otherwise on a day which is not the
last day of an Interest Period with respect thereto, including, without
limitation, in each case any such loss or expense arising from the
reemployment of funds obtained by it to maintain its LIBO Rate Advances
hereunder or from fees payable to terminate the deposits from which such
funds were obtained. This covenant shall survive the termination of this
Agreement and the payment of the Advances and all other obligations
hereunder.
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Section 4. Payments, Prepayments, and Reduction or Termination of the
Revolving Credit Facility.
4.1 Method of Payment. All payments of principal, interest and other
amounts to be made by Borrower under this Agreement or any of the Notes or other
Loan Documents shall be made to Agent for the account of Banks at Agent's office
at 201 St. Charles Avenue, New Orleans, Louisiana 70170 (or at such other
address as Agent or either of Banks may notify Borrower in writing), in
immediately available funds, without setoff, deduction or counterclaim, not
later than 2:00 p.m. (New Orleans, Louisiana time) on the date on which such
payment shall become due (each such payment made after such time on such due
date to be deemed to have been made on the next succeeding Business Day) and, in
the case of payments of principal under the Revolving Credit Facility, in an
amount of at least $100,000.00, or an integral multiple thereof. Borrower
shall, at the time of making each such payment, specify to Agent the sums
payable by Borrower under this Agreement, the Notes or other Loan Documents to
which such payment is to be applied. Notwithstanding the foregoing sentence,
unless and until an Event of Default shall have occurred and be continuing (in
which event such payments shall be applied by Agent as Banks in their sole
discretion shall determine), all payments received by Agent shall be applied
first to the payment of all amounts (except principal and interest) at the time
due and unpaid hereunder or under any of the other Loan Documents, then to
interest hereon or thereon accrued to the date of payment and finally to the
unpaid principal hereunder or thereunder. Whenever any payment under this
Agreement, the Notes or any other Loan Document shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest. Upon receipt of each such payment,
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Agent shall make prompt payment within three (3) Business Days to each Bank in
like funds of all amounts received by Agent for the account of such Bank.
4.2 Sharing of Payments. Banks shall share equally all payments made
pursuant to this Agreement and the benefits of and from the Collateral and all
proceeds from the sale thereof. If either Bank shall receive at any time any
payment hereunder, or interest thereon, or receive any Collateral (or proceeds
thereof) in respect thereof (whether voluntarily or involuntarily, by setoff or
otherwise), or interest in any of the foregoing, in a greater proportion than
the other Bank (such Bank receiving the greater proportion being referred to
herein as the "Benefitted Bank"), such Benefitted Bank shall purchase for cash
from the other Bank such portion of such other Bank's Notes or Letters of
Credit, or shall provide such other Bank with the benefit of any such Collateral
or the proceeds thereof, as the case may be, as shall be necessary to cause such
Benefitted Bank to share the excess payment or benefits of such Collateral or
proceeds equally with the other Bank; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
Benefitted Bank, such purchases shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery. Borrower agrees that each
Bank so purchasing a portion of another Bank's Notes or Letters of Credit, as
the case may be, may exercise all rights of payment (including, without
limitation, rights of setoff) with respect to such portion as fully as if such
Bank were the direct holder of such portion.
4.3 Payments Without Deduction. Borrower shall pay principal, interest
and other amounts under, and in accordance with the terms of, this Agreement,
the Notes and the other Loan Documents free and clear of and without deduction
for any and all present and future taxes, levies, imposts, deductions, charges,
withholdings and all other liabilities whatsoever.
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4.4 Reduction of Credit. Subject to Section 3.6(i) above, Borrower may
from time to time, upon at least three (3) Business Day's prior telephonic
notice (confirmed in writing) to Agent, permanently reduce the amount of the
maximum Revolving Commitment available under the Revolving Credit Facility, but
only upon payment of the outstanding principal amount of each Note in excess of
one-half ( 1/2) of the then reduced amount of the maximum Revolving Commitment
available under the Revolving Credit Facility. Any such reduction of the
Revolving Commitment shall be in an amount of $100,000.00 or an integral
multiple thereof. Subject to Section 3.6(i) above, Borrower may at any time on
like notice terminate the entire Revolving Commitment available under the
Revolving Credit Facility upon payment in full of the Notes and other
liabilities of Borrower relating to the Revolving Credit Facility.
Section 5. Representations and Warranties of Borrower.
Borrower represents and warrants to Banks and Agent that:
5.1 Corporate Existence. Each of Borrower and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Louisiana; and each of Borrower and its Subsidiaries has all
necessary corporate power and authority to acquire, own and hold the property
and all other properties it purports to own and hold and to carry on its
business as now conducted.
5.2 Authorization; Validity. Each of Borrower and its Subsidiaries is
and/or has been duly authorized to execute and deliver this Agreement and all
other Loan Documents to which such Borrower or Subsidiary is a party and to
perform its obligations under this Agreement and all other Loan Documents to
which such Borrower or Subsidiary is a party. Borrower is duly authorized and
will continue to be duly authorized to borrow money hereunder. Each of this
Agreement and the other Loan Documents to which Borrower or one of its
Subsidiaries is a party, as executed and
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delivered, constitutes the legal, valid and binding obligation of Borrower
and/or such Subsidiary, enforceable in accordance with the respective terms
thereof.
5.3 No Conflicts. The execution and delivery of the Loan Documents and
the per formance by each of Borrower and its Subsidiaries of its obligations
thereunder do not and will not conflict with any provision of law or of the
charter or by-laws of Borrower or such Subsidiary or of any agreement binding
upon Borrower or such Subsidiary, as the case may be.
5.4 Financial Statements. Borrower's audited financial statement as of
December 31, 1996, a copy of which has been furnished to Banks, has been
prepared in conformity with GAAP applied on a basis consistent with that of the
preceding fiscal year and period, presents fairly the financial condition of
Borrower as of such date and the results of its operations for the periods then
ended. Borrower's unaudited financial statement as of March 31, 1997, a copy of
which has been previously furnished to Banks, except for the absence of
footnotes normally associated with financial statements prepared in accordance
with GAAP, has been prepared in conformity with GAAP and presents fairly the
financial condition of Borrower as of such date and the results of its
operations for the periods then ended. Since December 31, 1996, there has been
no material adverse change in Borrower's financial condition. Since December
31, 1996, there has been no material adverse change in the financial condition
of any of Borrower's Subsidiaries.
5.5 Litigation. To the best of Borrower's knowledge, after due inquiry,
no litigation or governmental proceedings are pending or threatened against
Borrower or any of its Subsidiaries, the results of which might materially
affect Borrower's or such Subsidiary's financial condition or operations,
except those referred to in a schedule furnished contemporaneously herewith and
attached hereto as Schedule 1. Other than any liability incident to such
litigation or proceedings or provided for or disclosed in the financial
statements referred to in Section 5.4, Borrower does not
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have any material contingent liabilities. No Subsidiary has any material
contingent liability other than those imposed by the Collateral Documents.
5.6 Liens. None of the assets of Borrower or any of its Subsidiaries with
a net book value of greater than $25,000.00 is subject to any Lien, except for
the Liens created pursuant to the Collateral Documents and Permitted Liens.
5.7 Subsidiaries. Borrower has no Subsidiaries other than Dolphin
Services, and Dolphin Services has no Subsidiaries.
5.8 Purpose. The proceeds of the Revolving Credit Facility shall be used
by Borrower for general corporate purposes.
5.9 Use of Proceeds; Margin Securities. Borrower is not engaged in the
business of purchasing or selling margin stock (as defined in Regulation U of
the Board of Governors of the Federal Reserve System) or extending credit to
others for the purpose of purchasing or carrying margin stock and,
notwithstanding Section 5.8 hereof, no part of the proceeds of any borrowing
hereunder will be used to purchase or carry any margin stock or for any other
purpose which would violate any of the margin regulations of such Board of
Governors.
5.10 Compliance with ERISA. Each of Borrower and its Subsidiaries is in
compliance with all statutes and governmental rules and regulations applicable
to it, including, without limitation, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). No condition exists or event or transaction
has occurred in connection with any plan, as defined in Sections 3(3) and 3(37)
of ERISA, maintained by Borrower or any of its Subsidiaries (any such plan being
hereinafter called the "Plan"), which could result in Borrower's or such
Subsidiary's incurring any material liability, fine or penalty. No Reportable
Event (as defined in ERISA) has occurred with
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respect to any such Plan. Neither Borrower nor any of its Subsidiaries has
withdrawn from any such Plan or initiated steps to do so and no steps have been
taken to terminate any such Plan.
5.11 Consents. No consent, approval or authorization of, or registration
or declaration with, any federal or state governmental authority or other
regulatory agent for the validity of the execution and delivery or for the
performance by Borrower or any of its Subsidiaries of the Loan Documents is
required.
5.12 Tax Returns. Each of Borrower and its Subsidiaries has filed all tax
returns which are required to be filed by any jurisdiction, and has paid all
taxes which have become due pursuant to said returns or pursuant to any
assessments.
5.13 Operation of Business. Each of Borrower and its Subsidiaries
possesses all licenses, permits, franchises, patents, copyrights, trademarks and
trade names, or rights thereto, to conduct its business substantially as now
conducted and as presently proposed to be conducted, and neither Borrower nor
any of its Subsidiaries is in violation of any valid rights of others with
respect to any of the foregoing.
5.14 Rights in Properties; Liens. Each of Borrower and its Subsidiaries
has good and indefeasible title to its properties and assets, real and personal,
including the properties and assets reflected in the financial statements
described in Section 5.4 hereof, and none of the properties, assets or leasehold
interests of Borrower or any Subsidiary is subject to any Lien, except as
permitted by Section 6.11 hereof.
5.15 Debt. Borrower has no Debt, except as disclosed in the financial
statements described in Section 5.4 hereof and as otherwise permitted by this
Agreement. No Subsidiary of Borrower has any Debt except as owed to Borrower or
as otherwise permitted by this Agreement.
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5.16 Disclosure. No statement, information, report, representation or
warranty made by Borrower or any of its Subsidiaries in this Agreement or in any
of the other Loan Documents or furnished by Borrower or any of its Subsidiaries
to Banks or Agent in connection with the negotiation or preparation of this
Agreement, or any amendment hereto, contains any untrue statement of a material
fact or omits to state any material fact necessary to make the statements herein
or therein not misleading. There is no fact known to Borrower or to any of its
Subsidiaries that has not been disclosed in writing to Banks which has a
material adverse effect, or which might in the future have a material adverse
effect, on the business, assets, financial condition or operations of Borrower,
any of its Subsidiaries or on the Collateral.
5.17 Registered Office; Principal Place of Business; Location of
Collateral. The principal place of business, chief executive office and
registered office of Borrower and the place where Borrower keeps its books and
records and all Collateral is located on the Real Property. The principal
place of business, chief executive office and registered office of Dolphin
Services and the place where Dolphin Services keeps its books and records and
all Collateral owned by Dolphin Services and encumbered by the Collateral
Documents is located in Terrebonne Parish, Louisiana (with the exception of
certain such Collateral which is, from time to time and in the ordinary course
of Dolphin Services' business, temporarily located at job sites outside of
Terrebonne Parish). Borrower has always maintained its registered office in
either Terrebonne or East Baton Rouge Parish, Louisiana, and Dolphin Services
has always maintained its registered office in Terrebonne Parish, Louisiana.
Neither Borrower nor any of its Subsidiaries does, or has ever done, any
business from any location other than as set forth in this Section. No Person
other than Borrower, Dolphin Services, Agent and Banks has possession of any of
the Collateral.
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5.18 Investment Company Act. Neither Borrower nor any of its Subsidiaries
is an "Investment Company" within the meaning of the Investment Company Act of
1940, as amended.
5.19 Other Agreements. With the exception of construction contracts
entered into by Borrower or one of its Subsidiaries in the ordinary course of
Borrower's or such Subsidiary's business, neither Borrower nor any of its
Subsidiaries is a party to any indenture, loan or credit agreement, or to any
lease or other agreement or instrument, or subject to any charter of corporate
restriction which could have a material adverse effect on the business,
properties, assets, operations or conditions, financial or otherwise, of
Borrower or such Subsidiary, or the ability of Borrower or such Subsidiary to
pay and perform its obligations under the Loan Documents to which it is a party.
Neither Borrower nor any of its Subsidiaries is in default in any respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument material to its business to
which it is a party.
5.20 Compliance with Law. Each of Borrower and its Subsidiaries is in
compliance with all laws, rules, regulations, orders and decrees which are
applicable to Borrower, its Subsidiaries or any of their respective properties.
Without limiting the generality of the foregoing:
(a) Employment Matters. Each of Borrower and its Subsidiaries is in
full compliance with all applicable laws, rules, regulations and
governmental standards regarding employment, including, without limitation,
the minimum wage and overtime provisions of the Fair Labor Standards Act,
as amended (29 U.S.C. (S)(S) 201-219), and the regulations promulgated
thereunder.
(b) Environmental Matters.
(i) Each of Borrower and its Subsidiaries and all of their
respective properties, assets and operations are in full
compliance with all Environmental Laws. Neither Borrower nor any
of its Subsidiaries is aware of or has received notice of, any
past, present or future
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conditions, events, activities, practices or incidents which may
interfere with or prevent the compliance or continued compliance
of Borrower or any of its Subsidiaries with all Environmental
Laws.
(ii) Each of Borrower and its Subsidiaries has obtained all permits,
licenses and authorizations and has filed all plans which are
required under Environmental Laws in order to conduct its
business and/or own its properties and assets including without
limitation all Louisiana air emission permits required under any
Environmental Law in order to conduct Borrower's or such
Subsidiary's business and/or own its assets or properties.
(iii) Each of Borrower and its Subsidiaries has on file an SPCC Plan
as required under applicable Environmental Laws in connection
with Borrower's or any Subsidiary's storage of petroleum on the
Real Property.
(iv) No Hazardous Substances or Solid Wastes exist on, about or
within or have been used, generated, stored, transported,
disposed of on, or released from any of the properties or assets
of Borrower or any of its Subsidiaries except in compliance with
Environmental Laws.
(v) There is no action, suit, proceeding, investigation or inquiry
before any court, administrative agency or other governmental
authority pending or, to the knowledge of Borrower or any of its
Subsidiaries, threatened against Borrower or any of its
Subsidiaries relating in any way to any Environmental Law.
Neither Borrower nor any of its Subsidiaries has (A) been
notified of any liability for remedial action under any
Environmental Law, (B) received any request for information by
any governmental authority with respect to the condition, use or
operation of any of its properties or assets, or (C) received
any notice from any governmental authority or other Person with
respect to any violation of or liability under any Environmental
Law.
5.21 Corporate Name. The exact corporate name of Borrower as it appears in
its articles of incorporation is as set forth in the introduction of this
Agreement and, with the exception of doing business under the name GIFI, Inc.,
Borrower has never done any business in any location under any other name. The
exact corporate name of Dolphin Services as it appears in its articles of
incorporation is as set forth in the recitals of this Agreement, and Dolphin
Services has never done any business in any location under any other name.
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5.22 Collateral. The Collateral Documents create in favor of Banks, and/or
Agent for the benefit of Banks, valid, enforceable and perfected Liens on the
properties described therein, which Liens secure the payment and performance of
the obligations of Borrower and its Subsidiaries to Banks described in the
Collateral Documents, and which Liens are superior to the rights of all third
Persons, whether now existing or hereafter arising.
5.23 Taxpayer I.D. Numbers. Borrower's Federal Taxpayer Identification
Number is 72-1147390, and Dolphin Services' Federal Taxpayer Identification
Number is 72-0890896.
5.24 Effect of Dolphin Merger. Following the merger of Dolphin Sales and
Dolphin Steel into Dolphin Services pursuant to a certain Agreement of Merger
among Dolphin Sales, Dolphin Steel and Dolphin Services, dated April 30, 1997,
Dolphin Services acquired ownership of Dolphin Sales' immovable property subject
to the Liens previously created by the Collateral Documents on such immovable
property which continue in full force and effect and with the same ranking as
existed prior to said merger.
Section 6. Borrower's Covenants.
From the date of this Agreement and thereafter until the expiration or
termination of the Revolving Commitment, and until the Notes and other
liabilities of Borrower hereunder are paid in full and all other obligations and
liabilities under the Loan Documents are performed and paid in full, Borrower
agrees that it will:
6.1 Financial Statements. Furnish to Agent:
(a) promptly after the sending or filing thereof, copies of all
reports which Borrower sends to any of its public security holders, and
copies of all Forms 10-K, 10-Q and 8-K, Schedules 13E-4 (including all
exhibits filed therewith) and registration statements, and
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any other filings or statements that Borrower files with the Securities and
Exchange Commission or any national securities exchange;
(b) within one hundred twenty (120) days after the end of each fiscal
year, a copy of Borrower's financial statements (describing assets,
liabilities, and results of operations for Borrower and its Subsidiaries on
a consolidated basis), audited by independent certified public accountants
of nationally recognized standing selected by Borrower and reasonably
satisfactory to Banks, prepared in conformity with GAAP;
(c) within forty-five (45) days after the end of each month, a copy of
Borrower's unaudited financial statements (describing assets, liabilities,
and results of operations for Borrower and its Subsidiaries on a
consolidated basis) prepared in conformity with GAAP, except for the
absence of footnotes normally associated with financial statements prepared
in accordance with GAAP;
(d) together with the financial statements furnished by Borrower under
preceding clause (a), a certificate of the president or chief financial
officer of Borrower to the effect that no Event of Default with respect to
Borrower, or event which might mature into an Event of Default with respect
to Borrower, has occurred and is continuing;
(e) forthwith upon the occurrence of an Event of Default, a
certificate of the president or chief financial officer of Borrower
specifying the nature and the period of existence thereof and what action
Borrower proposes to take with respect thereto;
(f) written notice of any and all litigation affecting Borrower or any
of its Subsidiaries, directly or indirectly; provided, however, this
requirement shall not apply to litigation involving Borrower or one of its
Subsidiaries and any other party if such litigation involves, in the
aggregate, less than $500,000.00;
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(g) prompt notice of any change in the present officers, directors
and/or stockholders of Borrower or any of its Subsidiaries; and
(h) from time to time, such other information as Banks may reasonably
request.
6.2 Access. Permit access, and cause its Subsidiaries to permit access,
by Banks and Agent to the books and records and other property of Borrower and
its Subsidiaries during normal business hours and upon reasonable notice and
permit, and cause its Subsidiaries to permit, Banks to make copies of said books
and records.
6.3 Insurance. Maintain, and cause its Subsidiaries to maintain, with
financially sound and reputable insurance companies workmen's compensation
insurance, liability insurance and insurance on Borrower's and its Subsidiaries'
property, assets and business at least to such extent and against such hazards
and liabilities as is commonly maintained by similar companies and, in addition
to the foregoing insurance, such insurance as may be required in the Collateral
Documents. In the case of property (whether owned by Borrower or by one of its
Subsidiaries) on which Banks or Agent has a Lien, Borrower shall provide, and
shall cause its Subsidiaries to provide, Agent with duplicate originals or
certified copies of such policies of insurance naming Banks as additional loss
payees and as additional insureds as their interests may appear and providing
that such policies will not be canceled without thirty (30) days' prior written
notice to Banks.
6.4 Repair. Maintain, preserve and keep, and cause its Subsidiaries to
maintain, preserve, and keep, Borrower's and such Subsidiaries' properties in
good repair, working order and condition, and make, and cause its Subsidiaries
to make, necessary and proper repairs, renewals and replacements so that
Borrower's and its Subsidiaries' business carried on in connection therewith may
be properly conducted at all times.
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6.5 Taxes. Pay or discharge, and cause its Subsidiaries to pay and
discharge, at or before maturity or before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on Borrower or any of its
Subsidiaries or its income or profits or any of its property, and (b) all lawful
claims for labor, materials and supplies which, if unpaid, might become a Lien
upon any of Borrower's property or the property of any of its Subsidiaries;
provided, however, that neither Borrower nor any Subsidiary shall be required to
pay or discharge any tax, levy, assessment or governmental charge which is being
contested in good faith by appropriate proceedings diligently pursued.
6.6 Corporate Existence. Maintain its corporate existence in good
standing and cause its Subsidiaries to maintain their respective corporate
existences in good standing.
6.7 Merger. Without the prior written consent of Banks, not, and cause
each of its Subsidiaries not to:
(a) be a party to any merger or consolidation (other than a merger of
one or more of the Subsidiaries into another Subsidiary or a merger of one
or more of the Subsidiaries into Borrower, in either event followed by
notice to Banks of the merger delivered within ten (10) days after the
merger becomes effective);
(b) except in the normal course of its business, sell, transfer,
convey, or lease all or any substantial part of Borrower's or a
Subsidiary's assets;
(c) sell or assign, except in the normal course of Borrower's business
or the business of one of its Subsidiaries, with or without recourse, any
accounts receivable or chattel paper.
6.8 Compliance. Comply, and cause its Subsidiaries to comply, with all
statutes, laws, ordinances, orders, rules and regulations applicable to Borrower
or such Subsidiary, including,
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without limitation, all Environmental Laws and ERISA; provided, however,
Borrower and its Subsidiaries shall be deemed to be in compliance with this
requirement for such time as Borrower or one of its Subsidiaries may be
contesting, in good faith and with diligence by appropriate proceed ings, any
alleged violation of any statute, rule or regulation. Borrower shall not permit,
and shall cause each of its Subsidiaries not to permit, any condition to exist
in connection with any Plan which might constitute grounds for the PBGC to
institute proceedings to have such Plan terminated or a trustee appointed to
administer such Plan, and Borrower shall not engage in, or permit to exist or
occur, and shall cause its Subsidiaries not to engage in or permit to occur or
exist, any other condition, event or transaction with respect to, any such Plan
which could result in Borrower or one of its Subsidiaries incurring any material
liability, fine or penalty.
Without limiting the generality of the foregoing, Borrower shall comply,
and shall cause each of its Subsidiaries to comply, fully with and maintain in
effect any and all environmental permits and licenses required under any
Environmental Law in order to conduct Borrower's or such Subsidiary's business.
To the extent such permits are required but have not been obtained, or to the
extent such existing permits must be modified or renewed, Borrower shall make,
and shall cause its Subsidiaries to make, timely application for and obtain all
such permits, modifications or renewals thereof, as the case may be, including,
but not limited to, necessary federal and/or state water discharge, air emission
and waste management permits.
As often as Banks or Agent may require, Borrower shall submit to Agent
written progress reports addressing the status of environmental permits and
plans required of Borrower or any of its Subsidiaries, including pending permit
applications.
Anything contained herein to the contrary notwithstanding, Borrower shall
not use, or permit any of its Subsidiaries to use, any of the properties of
Borrower or of one of Borrower's Subsidiaries
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or allow such properties to be used for the storage, treatment or disposal of
Solid Waste or Hazardous Substances except in the ordinary course of Borrower's
or such Subsidiary's business and in compliance with the terms of any applicable
Environmental Law or permit.
6.9 Use of Proceeds. Not use or permit any proceeds of the Advances to be
used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying any margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended from time to time, and furnish to Banks, upon either of their
requests, a statement in conformity with the requirements of Federal Reserve
Form U-1 referred to in Regulation U of the Board of Governors of the Federal
Reserve System.
6.10 Financial Covenants. Maintain, on a consolidated basis with all of
its Subsidiaries,
(a) a ratio of current assets to current liabilities, as determined in
accordance with GAAP, in excess of 1.50 to 1.00;
(b) a minimum Net Worth of THIRTY-EIGHT MILLION AND NO/100 DOLLARS
($38,000,000.00) from the date of this Agreement until June 30, 1997 and a
minimum Net Worth thereafter equal to the sum of THIRTY-EIGHT MILLION AND
NO/100 DOLLARS ($38,000,000.00) plus (1) fifty percent (50%) of the
earnings of Borrower and its Subsidiaries, as determined in accordance with
GAAP, accruing after June 30, 1997 and (2) one hundred percent (100%) of
the proceeds of any future public equity offering by Borrower, net of any
fees, commissions, expenses and other costs incurred by Borrower in
connection with such public equity offering;
(c) a ratio of Debt to Net Worth no greater than .50 to 1.00; and
(d) a ratio of EBIT to Interest Expense of at least 4.00 to 1.00, such
ratio to be determined as of the end of each fiscal quarter by giving
effect to such fiscal quarter and the
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three (3) immediately preceding fiscal quarters; provided that there shall
be no Event of Default under this Section 6.10(d) unless Borrower fails to
meet the ratio described in this Section 6.10(d) for three (3) successive
fiscal quarters.
6.11 Liens. Not create, incur, or suffer to exist, and not permit any of
Borrower's Subsidiaries to create, incur or suffer to exist, any Lien on any of
Borrower's property or on the property of Borrower's Subsidiaries except ((a)
through (g) of this Section being referred to collectively as the "Permitted
Liens"):
(a) those for taxes, assessments or governmental charges or levies if
the same shall not at the time be delinquent or thereafter can be paid
without penalty, or are being contested in good faith and by appropriate
proceedings;
(b) those imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than sixty (60) days
past due;
(c) those arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(d) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect the marketability of the same or interfere with
the use thereof in the business of Borrower or of any of Borrower's
Subsidiaries;
(e) lessors' interests under financing leases;
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(f) liens on assets of Borrower and its Subsidiaries not covered by
the Loan Documents which liens secure obligations of Borrower or its
Subsidiaries in the ordinary course of business which in the aggregate for
all such obligations of Borrower and its Subsidiaries do not exceed
$250,000.00; and
(g) the Liens created pursuant to the Loan Documents.
6.12 Debt. Not create or permit to exist, and not allow any of Borrower's
Subsidiaries to create or permit to exist, any Debt without the prior written
consent of Banks, if, as a result thereof, exclusive of the indebtedness
contemplated by this Agreement, the aggregate amount of Debt of Borrower and its
Subsidiaries would exceed the sum of $1,000,000.00; provided, however, that any
Subsidiary may incur Debt owed to Borrower and such Debt owed to Borrower shall
not be included in the $1,000,000.00 limit.
6.13 Shareholder or Employee Loans. Not make, and not permit any
Subsidiary to make, advances or loans to employees of Borrower or any Subsidiary
or shareholders of Borrower which exceed the aggregate amount of $100,000.00.
6.14 Change in Business. Carry on and conduct, and cause its Subsidiaries
to carry on and conduct, the business of Borrower and each of its Subsidiaries
in substantially the same manner and in substantially the same fields of
enterprise as such businesses are presently conducted; provided, however, that
the foregoing shall not prevent Borrower or one of its Subsidiaries from
engaging in new and additional activities as long as said activities are in
substantially the same fields of enterprise as are currently being engaged in by
Borrower and Dolphin Services.
6.15 Accounts Receivable. Provide, and cause its Subsidiaries to provide,
Banks with aging reports of Borrower's and such Subsidiaries' accounts
receivable on a monthly basis.
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6.16 Compliance with Agreements. Comply with, and cause each of its
Subsidiaries to comply with, all indentures, mortgages, deeds of trust and other
agreements binding on Borrower or any Subsidiary or affecting its properties or
business.
6.17 Further Assurances. Execute and deliver, and cause its Subsidiaries
to execute and deliver, such further documentation as may be requested by Banks
or Agent to carry out the provisions and purposes of this Agreement and the
other Loan Documents and to preserve and perfect the Liens of Banks or Agent for
the benefit of Banks, as the case may be, in the Collateral.
6.18 Disposition of Assets. Not sell, lease, assign, transfer or otherwise
dispose of, and shall cause each of its Subsidiaries not to sell, lease, assign,
transfer or otherwise dispose of, any of its assets, except dispositions of
inventory, equipment, and scrap in the ordinary course of business and as
otherwise provided in this Agreement.
6.19 Change Tax I.D. Number. Not change, and cause Dolphin Services not to
change, any of the Federal Taxpayer Identification Numbers set forth in Section
5.23 hereof without giving Agent at least sixty (60) days' prior written notice.
6.20 Indemnity. Indemnify, defend and hold Agent and Banks and their
respective directors, officers, agents, attorneys and employees harmless from
and against all claims, demands, causes of action, liabilities, losses, costs
and expenses (including, without limitation, costs of suit, reasonable legal
fees and fees of expert witnesses) arising from or in connection with (a) the
presence in, on or under any property of Borrower or of any Subsidiary of
Borrower (including, without limitation, the Real Property) of any Hazardous
Substance or Solid Waste, or any releases or discharges (as the terms "release"
and "discharge" are defined under any applicable Environmental Law) of any
Hazardous Substance or Solid Waste on, under or from such property, (b) any
activity carried on or undertaken on or off such property of Borrower or of any
of its Subsidiaries, whether prior to or during the term of this Agreement, and
whether by Borrower, any of its
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Subsidiaries or any predecessor in title to Borrower's or such Subsidiary's
property or any officers, employees, agents, contractors or subcontractors of
Borrower, any Subsidiary of Borrower or any predecessor in title to the property
of Borrower or such Subsidiary, or any third persons at any time occupying or
present on such property, in connection with the handling, use, generation,
manufacture, treatment, removal, storage, decontamination, clean-up,
transportation or disposal of any Hazardous Substance or Solid Waste at any time
located or present on or under any of the aforedescribed property, or (c) any
breach of any representation, warranty or covenant under the terms of this
Agreement. The foregoing indemnity shall further apply to any residual
contamination on or under any or all of the aforedescribed property, or
affecting any natural resources, and to any contamination of any property or
natural resources arising in connection with the use, handling, storage,
transportation or disposal of any Hazardous Substance or Solid Waste, and
irrespective of whether any of such activities were or will be undertaken in
accordance with applicable laws, regulations, codes and ordinances. The
indemnity described in this Section shall survive the termination of this
Agreement for any reason whatsoever.
6.21 Real Property. Not create a Lien on any of the Real Property, or
permit any Subsidiary to create a Lien on any of the Real Property, in favor of,
or otherwise convey, or permit a Subsidiary to convey, any portion of the Real
Property to any Person without the prior written consent of Banks.
Section 7. Conditions Precedent to Extensions of Credit.
The obligation of Banks to extend credit to Borrower under this Agreement
is subject to the satisfaction of the conditions precedent, in addition to the
applicable conditions precedent set forth
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in Section 8 below with respect to Advances and/or Letters of Credit, that
Borrower shall have delivered, or caused to be delivered, to Banks in form and
substance satisfactory to Banks:
7.1 Borrower's Resolutions. Copies, duly certified by the secretary or
assistant secretary of Borrower, of (a) the resolutions of Borrower's Board of
Directors authorizing the borrowings hereunder and the execution and delivery of
all of the Loan Documents to which Borrower is a party, (b) all documents
evidencing other necessary corporate action and (c) all approvals or consents,
if any, with respect to the Loan Documents.
7.2 Dolphin Services' Resolutions. Copies, duly certified by the
secretary or assistant secretary of Dolphin Services, of (a) the resolutions of
Dolphin Services' Board of Directors authorizing the borrowings hereunder and
the execution and delivery of all of the Loan Documents to which Dolphin
Services is a party, (b) all documents evidencing other necessary corporate
action and (c) all approvals or consents, if any, with respect to the Loan
Documents.
7.3 Notes. Borrower's duly executed Notes payable to the order of Banks.
7.4 New Collateral Documents. The duly authorized and executed new
Collateral Documents of Borrower and Dolphin Services annexed hereto as Exhibits
"D", "E", "F", "G", "H", "I", and "J" (the "New Collateral Documents").
7.5 Incumbency. Certificates of Borrower's and Dolphin Services'
secretary or assistant secretary, substantially in the form of Exhibit "K"
hereto, certifying the name of the officers of Borrower and Dolphin Services
authorized to execute the Loan Documents, and all other documents or
certificates to be delivered hereunder, together with the true signatures of
such officers.
7.6 Certification. A certificate, substantially in the form of Exhibit
"L" hereto, of the president or chief financial officer of Borrower as to the
matters set out in Sections 8.1 and 8.2 hereof.
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7.7 Opinion. The opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., counsel to Banks and Agent, addressed to Banks and Agent, to
the effect that (a) Borrower and Dolphin Services are corporations duly
organized, validly existing and in good standing under the laws of the State of
Louisiana; (b) Borrower has full power to execute, deliver and perform its
obligations under this Agreement, the Notes and the Collateral Documents to
which it is a party; (c) Dolphin Services has full power to execute, deliver and
perform its obligations under this Agreement and the Collateral Documents to
which it is a party; (d) such actions have been duly authorized by all
necessary corporate action, and are not in conflict with any provision of law or
of the charter or by-laws of Borrower or Dolphin Services, nor to the best of
counsel's knowledge, in conflict with any agreement binding upon Borrower or
Dolphin Services; and (e) this Agreement, the Notes, and the New Collateral
Documents are the legal and binding obligations of Borrower enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bank ruptcy, reorganization, moratorium or similar laws.
Section 8. Additional Conditions Precedent to Advances and/or Letters of
Credit.
The obligation of Banks to make any Advance and/or issue any Letter of
Credit under the Revolving Credit Facility is subject to, in addition to the
satisfaction of all other conditions precedent applicable to the Revolving
Credit Facility and set forth in Section 7 above, the satisfaction of each of
the following conditions precedent:
8.1 Default. Before and after giving effect to such Advance and/or Letter
of Credit, no Event of Default shall have occurred and be continuing.
8.2 Warranties. Before and after giving effect to such Advance and/or
Letter of Credit, the representations and warranties in Section 5 hereof shall
be true and correct as though made on
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the date of such Advance and/or Letter of Credit except for such changes as are
specifically permitted hereunder.
Section 9. Events of Default.
The following events shall constitute Events of Default hereunder and under
the Revolving Credit Facility, individually and collectively, and under all
other Loan Documents:
9.1 Payment. Default in the payment of principal on any one or more of
the Notes when due, or default in the payment of any interest on any one or more
of the Notes or any expense or fee hereunder or under any of the other Loan
Documents, which default shall continue for a period of five (5) days following
written notice thereof to Borrower from Banks or Agent;
9.2 Other Indebtedness. Any other indebtedness of Borrower is not paid at
maturity or becomes due and payable prior to its expressed maturity by reason of
any default by Borrower in the performance or observance of any obligation or
condition thereunder which default shall continue for a period of thirty (30)
days following written notice thereof to Borrower from Banks or Agent;
9.3 Other Default. Any default of any other obligation of Borrower under
the terms of any note or notes, mortgage, indenture, loan agreement or security
document of Borrower, including, without limitation, any of the Loan Documents,
which default shall continue for a period of thirty (30) days following written
notice thereof to Borrower from Banks or Agent, it being expressly understood
and agreed that a default under any note, mortgage, indenture, loan agreement or
security document of Borrower, including, without limitation, any of the Loan
Documents, shall constitute a default under all other notes, mortgages,
indentures, loan agreements and security documents held by Banks or Agent,
including, without limitation, the Loan Documents;
9.4 Insolvency. Borrower or any Subsidiary of Borrower becomes insolvent
or admits in writing its inability to pay its debts as they mature or applies
for, consents to, or acquiesces in the
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appointment of a trustee or receiver for Borrower, such Subsidiary or any
property of Borrower or of such Subsidiary; or, in the absence of such
application, consent or acquiescence, a trustee or receiver is appointed for
Borrower, for any Subsidiary of Borrower or for a substantial part of any
property of either Borrower or of any of its Subsidiaries and is not discharged
within thirty (30) days; or any bankruptcy, reorganization, debt arrangement, or
other proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding is instituted by or against Borrower or any of Borrower's
Subsidiaries, and if instituted against Borrower or one of Borrower's
Subsidiaries, it is consented to or acquiesced in by Borrower or such
Subsidiary, or remains for thirty (30) days undismissed; or any warrant of
attachment is issued against any substantial portion of the property of Borrower
or of any Subsidiary of Borrower which is not released within thirty (30) days
of service;
9.5 ERISA. The PBGC applies to a United States District Court for the
appointment of a trustee to administer any Plan adopted, established or
maintained by Borrower, or for a decree adjudicating that any such Plan must be
terminated; a trustee is appointed pursuant to ERISA to administer any such
Plan; any action is taken to terminate any such Plan or any such Plan is
permitted or caused to be terminated if, at the time such action is taken or
such termination of such Plan occurs, the Plan's "vested liabilities," as
defined in Section 3(25) of ERISA, exceed the then value of its assets at the
time of such termination;
9.6 Agreements. Default in the performance of any of Borrower's covenants
and/or agreements set forth in this Agreement and/or any of the other Loan
Documents (and not constituting an Event of Default under any of the preceding
subsections of this Section 9), which default shall continue for a period of
thirty (30) days after written notice thereof to Borrower from Banks or Agent;
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9.7 Representation or Warranty. Any representation or warranty made by
Borrower or by any Subsidiary of Borrower herein is untrue in any material
respect, or any schedule, statement, report, notice or writing furnished by
Borrower or any of the Owners to Banks is untrue in any material respect on the
date as of which the facts set forth are stated or certified which default shall
continue for a period of thirty (30) days after written notice thereof to
Borrower from Banks or Agent; and
9.8 Subsidiary Default. Any Subsidiary of Borrower defaults on the
payment of any amount due Banks under any Loan Document to which such Subsidiary
is a party, which default shall continue for a period of five (5) days following
written notice thereof to Borrower from Banks or Agent; any representation or
warranty made by a Subsidiary of Borrower under any Loan Document is untrue in
any material respect as of the date made, or any schedule, statement, report,
notice or writing furnished by a Subsidiary of Borrower to Banks is untrue in
any material respect on the date as of which the facts set forth are stated or
certified, which default shall continue for a period of thirty (30) days after
written notice thereof to Borrower from Banks or Agent; or any Subsidiary of
Borrower defaults in the performance of any other covenant and/or agreement set
forth in any Loan Document to which such Subsidiary is a party, which default
shall continue for a period of thirty (30) days after written notice thereof to
Borrower from Banks or Agent.
Upon the occurrence of any Event of Default, Banks, or Agent upon the
direction of Banks, in addition to all of the remedies conferred upon Agent
and/or Banks under law, in equity or under any of the Loan Documents, may
declare the Revolving Commitment to be terminated and the Notes to be due and
payable, whereupon the Revolving Commitment shall immediately terminate, and the
Notes shall become immediately due and payable, without notice of any kind,
except that if an event
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described in Section 9.4 occurs, the Revolving Commitment shall immediately
terminate, and the Notes shall become immediately due and payable without
declaration or notice of any kind.
Section 10. Agent.
10.1 Authorization and Action. Each Bank hereby appoints and authorizes
Agent to execute the Collateral Documents on behalf of each such Bank and to
take such action as Agent on such Bank's behalf, and to exercise such powers
under the Loan Documents, as are delegated to Agent by the terms thereof,
together with such other powers as are reasonably incidental thereto, including,
without limitation, the enforcement of the Loan Documents in accordance with the
terms thereof (including, without limitation, the collection of the Notes), and
Agent hereby accepts such appointment. As to any matters not expressly provided
for by the Loan Documents (including, without limitation, enforcement or
collection of the Notes), Agent shall not be required to exercise any discretion
or take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of Banks and such instructions shall be binding upon Banks;
provided, however, that Agent shall not be required to take any action which
exposes Agent to personal liability or which is contrary to any of the Loan
Documents or applicable law. Agent shall not consent to any amendment of this
Agreement or any of the other Loan Documents (and no amendment by Banks shall be
effective without consent of Agent), the effect of which would be to increase
the amount of the Obligations or extend the maturity of any obligation, reduce
the bases on which any interest is computed, release any Collateral, waive any
provision regarding covenants or obligations of Borrower or the Owners or Events
of Default, without the express written consent of all Banks.
10.2 Agent's Reliance, Etc. Neither Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them under or in
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connection with any of the Loan Documents except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, Agent: (i) may treat the payee of any Note as the holder thereof
until Agent receives written notice of the assignment or transfer thereof signed
by such payee and in form satisfactory to Agent; (ii) may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (iii) makes no warranty or representation to
any Bank and shall not be responsible to any Bank for any statements, warranties
or representations made in or in connection with any of the Loan Documents; (iv)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of any of the Loan
Documents on the part of Borrower or to inspect the property (including the
books and records) of Borrower; (v) shall not be responsible to any Bank for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of any of the Loan Documents or any other instruments or document
furnished pursuant hereto; and (vi) shall incur no liability under or in respect
of any of the Loan Documents by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telegram, cable or telex) believed
by it to be genuine and signed by the proper party or parties.
10.3 First NBC and Affiliates. With respect to the Note payable to the
order of First NBC and the portion of the Revolving Commitment applicable to
First NBC, First NBC shall have the same rights and powers under the Loan
Documents as the other Bank and may exercise the same as though it were not
Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly
indicated, include First NBC in its individual capacity. Without limiting the
generality of the foregoing, First NBC and its affiliates may accept deposits
from, and generally engage in any kind
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of business with, Borrower, and any person, firm or corporation who may do
business with or own securities of Borrower, all as if First NBC were not Agent
and without any duty to account therefor to Banks.
10.4 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon Agent or any other Bank and based on the
financial statements furnished by Borrower and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it
will, independently and without reliance upon Agent or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Loan Documents. Each Bank acknowledges that a copy of this Agreement has
been made available to it and each Bank acknowledges that it is satisfied with
the form and substance of this Agreement.
10.5 Indemnification. Banks agree to indemnify and hold Agent harmless (to
the extent not reimbursed by Borrower), ratably according to the respective
principal amounts of the Notes then held by each of them (or if no Notes are at
the time outstanding, ratably according to the respective amounts of their
commitments hereunder), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against Agent in any way relating to or arising out of any of
the Loan Documents or any action taken or omitted by Agent under any of the Loan
Documents (including, without limitation, attorneys' fees and other costs
associated with defending Agent against any of the foregoing), provided that no
Bank shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent's gross negligence or wilful misconduct.
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Without limitation of the foregoing, each Bank agrees to reimburse Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including attorneys' fees) incurred by Agent in connection with the
preparation, execution, administration, or enforcement of, or the preservation
of any rights under, the Loan Documents, to the extent that Agent is not
reimbursed for such expenses by Borrower.
10.6 Successor Agent. Agent may resign at any time by giving written
notice thereof to Banks and Borrower and may be removed at any time with or
without cause by Banks by notice to Borrower. Upon any such resignation or
removal, Banks shall have the right to appoint a successor agent by notice to
Borrower. If no successor agent shall have been so appointed by Banks, and
shall have accepted such appointment, within thirty (30) days after Agent's
giving of notice of its resignation, then Agent may, on behalf of Banks, appoint
a successor agent, by notice to Borrower and Banks, which successor agent shall
be a commercial bank organized under the laws of the United States of America or
any state thereof having a combined capital and surplus of at least $5,000,000.
Upon the acceptance of any appointment as Agent by a successor agent, such
successor agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of Agent, and Agent shall be discharged
from its duties and obligations under the Loan Documents. After Agent's
resignation or removal hereunder as Agent, the provisions of this Section 10
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under the Loan Documents.
10.7 Benefits of Section. None of the provisions of this Section shall
inure to the benefit of Borrower or any Person other than Banks; consequently,
neither Borrower nor any other Person shall be entitled to rely upon, or to
raise as a defense, in any manner whatsoever, the failure of any Bank to comply
with such provisions.
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10.8 Change in Specified Percentage. No Bank shall assign outright its
entire interest in the Revolving Credit Facility or the Revolving Commitment or
make any participation without the consent of the other Bank and Agent.
Section 11. General.
11.1 Definitions. As used in this Agreement, terms used herein with
initial capital letters shall have the following meanings, unless defined
elsewhere in this Agreement or unless the context clearly indicates otherwise:
"Advance" has the meaning ascribed to the term in Section 1.1 of this
Agreement.
"Agent" has the meaning ascribed to the term on the first page hereof.
"Agreement" means this Sixth Amended and Restated Revolving Credit
Agreement, as it may be further amended, restated, modified and/or
supplemented from time to time in the future.
"Bank" and "Banks" have the meanings ascribed to the terms on the
first page hereof.
"Benefitted Bank" has the meaning ascribed to the term in Section 4.2
hereof.
"Borrower" has the meaning ascribed to the term on the first page
hereof.
"Borrowing Date" means any Business Day specified in a notice pursuant
to Section 3.6 as a date on which Borrower requests Banks to make Advances
hereunder.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a legal holiday for commercial banks in the State of
Louisiana.
"Capitalized Leases" means capital leases and subleases, as defined in
the Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 13, dated November 1976, as amended.
"Collateral" means all property described in and subject to the
Collateral Documents and any and all other property hereafter made subject
to a Lien to secure the payment and performance of the Obligations.
"Collateral Documents" means the documents listed on Exhibit "M"
annexed hereto and any and all other documents, instruments and agreements
delivered to Agent or Banks to secure the Obligations and/or any other
obligations described in this Agreement, as the foregoing may be amended,
modified or supplemented from time to time.
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"Credit Agreement" has the meaning ascribed in the recital paragraphs
of this Agreement.
"Debt" means: (a) all obligations of Borrower or of any of
Borrower's Subsidiaries for borrowed money, (b) all obligations of Borrower
or of any of Borrower's Subsidiaries evidenced by bonds, notes, debentures
or other similar instruments, (c) all obligations of Borrower or of any of
Borrower's Subsidiaries to pay the deferred purchase price of property or
services, except trade accounts payable by Borrower or by any of Borrower's
Subsidiaries arising in the ordinary course of business which are not past
due by more than sixty (60) days unless such trade accounts payable are
being contested in good faith by appropriate proceedings, (d) all
obligations of Borrower or of any of Borrower's Subsidiaries under any
Capitalized Leases, (e) all obligations of Borrower or of any of
Borrower's Subsidiaries under guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), assumptions or
other contingent obligations, in respect of, or to purchaser or otherwise
acquire, any obligation or indebtedness of Borrower or of any of
Borrower's Subsidiaries, or any other obligations, contingent or otherwise,
(f) all obligations secured by a Lien (except trade accounts payable by
Borrower or by any of Borrower's Subsidiaries arising in the ordinary
course of business which are not past due by more than sixty (60) days
unless such trade accounts payable are being contested in good faith by
appropriate proceedings secured by a vendor's lien) existing on property
owned by Borrower or by any of Borrower's Subsidiaries, whether or not the
obligations secured thereby have been assumed by Borrower or by any of
Borrower's Subsidiaries or are non-recourse to the credit of Borrower or of
any of Borrower's Subsidiaries, (g) all reimbursement obligations of
Borrower or of any of Borrower's Subsidiaries, other than performance
bonds of Borrower or of any of Borrower's Subsidiaries (whether contingent
or otherwise), relating to letters of credit, bankers' acceptances and
similar instruments, and (h) all liabilities of Borrower or of any of
Borrower's Subsidiaries in respect of unfunded vested benefits under any
Plan; provided, however, the term "Debt" shall not include money borrowed
by Borrower or by any of Borrower's Subsidiaries to pay premiums on
insurance policies obtained by Borrower or by any of Borrower's
Subsidiaries in the ordinary course of Borrower's or of any of Borrower's
Subsidiaries' business and shall further not include any type of obligation
of a Subsidiary to Borrower.
"Default Rate" has the meaning ascribed to the term in Section 3.2
hereof.
"EBIT" means, with respect to any Person for any period, consolidated
net income of such Person for such period, plus (i) interest expense for
such Person for such period, and (ii) tax expense for such period for taxes
which have been provided for by such Person for such period, to the extent
that any of the same are deducted from net revenues in determining such
Person's consolidated net income for such period.
"Environmental Laws" means any and all federal, state and local laws,
regulations, ordinances, orders and requirements pertaining to health,
safety or the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S) 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42
U.S.C. (S) 6901 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq., the
Clean
41
<PAGE>
Water Act, 33 U.S.C. (S) 1251 et seq., the Toxic Substances Control Act, 15
U.S.C. (S) 2601 et seq., the Louisiana Environmental Quality Act, La. R.S.
30:2001, et seq., and all similar laws, regulations and requirements of any
governmental authority or agency having jurisdiction over Borrower, any of
its Subsidiaries or any of the property or assets of Borrower or of any of
its Subsidiaries, as such laws, regulations and requirements may be amended
or supplemented from time to time.
"Event of Default" means the occurrence of any event described in
Section 9 hereof or the occurrence of any other event which with the lapse
of time, or lapse of time and notice to Borrower would constitute an Event
of Default.
"Existing Security" means all security previously granted by Borrower
or by one of its Subsidiaries to Banks pursuant to the Collateral Documents
and other Loan Documents.
"First NBC" has the meaning ascribed to the term in the recitals to
this Agreement.
"FNBC LIBO Rate": with respect to each Interest Period pertaining to a
LIBO Rate Advance, the rate per annum equal to the rate quoted on page 16
of the Telerate screen (or such other page as may replace the LIBO page on
that service for displaying London interbank offered rates of major banks)
at approximately 11:00 a.m. New Orleans, Louisiana time (or as soon
thereafter as is practicable) on the day that is one Business Day prior to
the beginning of such Interest Period for Eurodollar deposit instruments
issued on the first day of such Interest Period for the number of months
comprised therein and in an amount comparable to the amount of the LIBO
Rate Advance to which such Interest Period applies. The FNBC LIBO Rate
determined by Agent with respect to a particular Interest Period shall be
fixed at such rate for the duration of such Interest Period.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as of
the date in question. Accounting principles are applied on a "consistent
basis" when the accounting principles observed in a current period are
comparable in all material respects to those accounting principles applied
in a preceding period.
"Hazardous Substance" has the meaning specified in any applicable
Environmental Law and means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent or other material which is or
becomes listed, regulated or addressed under any Environmental Law,
including, without limitation, asbestos, petroleum and polychlorinated
biphenyls.
"Interest Expense" means with respect to any Person for any period,
interest expense for such Person for such period, determined in accordance
with GAAP.
"Interest Period" means with respect to any LIBO Rate Advance:
42
<PAGE>
(i) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such LIBO Rate Advance
and ending one, two, or three months thereafter, as selected by
Borrower in its notice to Agent of borrowing or notice of
conversion, as the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the day immediately
following the last day of the next preceding Interest Period
applicable to such LIBO Rate Advance and ending one, two or three
months thereafter, as selected by Borrower by notice to Agent not
less than one (1) Business Day prior to the last day of the then
current Interest Period with respect thereto; and
provided, that:
(x) if any Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar
month in which event such Interest Period shall end on the
immediately preceding Business Day;
(y) any Interest Period which, with respect to a LIBO Rate
Advance under the Revolving Credit Facility, would otherwise
extend beyond the Termination Date shall end on the Termination
Date; and
(z) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar
month.
"LC Commitment" means the lesser of (a) FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00) or (b) the Revolving Commitment at the time in
question.
"Letters of Credit" has the meaning ascribed to the term in Section
1.1 hereof.
"LIBO Rate" means with respect to each day during an Interest Period
for a LIBO Rate Advance, an interest rate per annum equal to the sum of (a)
one and one-half percent (1.50%) plus (b) the FNBC LIBO Rate.
"LIBO Rate Advance" means an Advance made under the Revolving Credit
Facility which bears interest at the LIBO Rate.
"Lien" means any lien, judgment, mortgage, deed of trust, security
interest, tax lien, financing statement, pledge, charge, hypothecation,
assignment, preference, priority or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or title
retention agreement), whether arising by contract, operation of law
43
<PAGE>
or otherwise; provided, however, that the term "Lien" shall exclude any
statutory mechanic's or laborer's lien arising in the ordinary course of
the business of Borrower and its Subsidiaries which is cancelled or bonded
within sixty (60) days of its recordation.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Collateral Documents, and any and all other documents, instruments and
agreements executed in connection with the Advances, as the foregoing may
be modified, supplemented and/or amended from time to time.
"Net Worth" means the sum of the common stock, additional paid-in
capital and retained earnings accounts of Borrower and its Subsidiaries on
a consolidated basis, as shown in conformity with GAAP on its balance sheet
at the time of such determination, less the amount of any treasury stock
shown thereon and less the amount of any intangible assets (such as
patents, trademarks, copyrights or goodwill) shown thereon.
"New Collateral Documents" has the meaning ascribed to the term in
Section 7.4 of this Agreement.
"Notes" has the meaning ascribed to the term in Section 2.1 of this
Agreement.
"Obligations" means all obligations, indebtedness and liabilities of
Borrower to Agent and/or either or both of Banks, now existing or hereafter
arising, whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several, including,
without limitation, the obligations, indebtedness, and liabilities of
Borrower under this Agreement, the Notes and the other Loan Documents, and
all interest accruing thereon and all attorneys' fees and other expenses
incurred in the enforcement or collection thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Permitted Liens" has the meaning ascribed to the term in Section 6.11
hereof.
"Person" means any individual, corporation, business, trust,
association, company, partnership, joint venture, governmental authority or
other entity.
"Plan" has the meaning ascribed to the term in Section 5.10 hereof.
"Prime Rate" has the meaning ascribed to the term in Section 3.3
hereof.
"Prime Rate Advance" means an Advance made under the Revolving Credit
Facility which bears interest at the Prime Rate.
"Prior Notes" means, collectively, the Revolving Notes (as defined in
the Revised Credit Agreement) executed by Borrower in favor of Banks
pursuant to the Revised Credit Agreement or any other notes evidencing the
Revolving Credit Facility which were executed
44
<PAGE>
by Borrower in favor of Banks pursuant to any predecessor agreement among
Borrower and Banks.
"Real Property" means the property described on Exhibit "N" hereto,
whether owned by Borrower or by one of its Subsidiaries.
"Revised Credit Agreement" has the meaning ascribed in the recital
paragraphs of this Agreement.
"Revolving Commitment" means TWENTY MILLION AND NO/100 DOLLARS
($20,000,000.00), as such amount may be reduced by Borrower in accordance
with Section 4.4 of this Agreement.
"Revolving Credit Facility" has the meaning ascribed to the term in
Section 1.1 of this Agreement.
"Solid Waste" has the meaning specified in any applicable
Environmental Law.
"Subsidiary" means, as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Termination Date" means December 31, 1999.
"UCC" means the Uniform Commercial Code, as in effect from time to
time in each state where any of the Collateral is located or otherwise has
a situs; provided, however, if the Uniform Commercial Code in no particular
state is ascertainable or applicable, UCC shall mean the Uniform Commercial
Code, as in effect from time to time in the State of Louisiana.
"Unused Commitment" has the meaning ascribed to the term in Section
1.1 hereof.
"Whitney" has the meaning ascribed to the term in the recitals to this
Agreement.
All definitions contained in this Agreement are equally applicable to the
singular and plural forms of the terms defined. The words "hereof," "herein"
and "hereunder" and words of similar import referring to this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified, all Section references pertain to this Agreement.
45
<PAGE>
11.2 Financial Terms. Unless otherwise defined or the context otherwise
requires, all financial and accounting terms shall be defined under GAAP.
11.3 Delay. No delay on the part of Banks, Agent or any holder of any one
or more of the Notes, in the exercise of any power or right shall operate as a
waiver thereof, nor shall any single or partial exercise of any power or right
preclude other or further exercise thereof, or the exercise of any other power
or right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
11.4 Notices. All notices, statements, requests and demands given to or
made under any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given or made when deposited in the mail, postage
pre-paid, registered or certified mail return receipt requested addressed:
If to Banks:
First National Bank of Commerce
201 St. Charles Avenue
New Orleans, Louisiana 70170
Attention: Mr. J. Charles Freel, Jr.
Senior Vice President
and
46
<PAGE>
Whitney National Bank
228 St. Charles Avenue
New Orleans, Louisiana 70130
Attention: Mr. Harry C. Stahel
Senior Vice President
With a copy to:
William H. Hines, Esq.
Jones, Walker, Waechter, Poitevent,
Carrere & Denegre
Place St. Charles
201 St. Charles Avenue
New Orleans, Louisiana 70170
If to Agent:
First National Bank of Commerce
201 St. Charles Avenue
New Orleans, Louisiana 70170
Attention: Mr. J. Charles Freel, Jr.
Senior Vice President
With a copy to:
William H. Hines, Esq.
Jones, Walker, Waechter, Poitevent,
Carrere & Denegre
Place St. Charles
201 St. Charles Avenue
New Orleans, Louisiana 70170
If to Borrower:
Gulf Island Fabrication, Inc.
583 Thompson Road
Houma, Louisiana 70363
Attention: Kerry J. Chauvin, President
or
Gulf Island Fabrication, Inc.
P.O. Box 310
Houma, Louisiana 70361
Attention: Kerry J. Chauvin, President
47
<PAGE>
With respect to notices to Borrower, such notices shall, if sent by
overnight courier or other means requiring a street address, be sent to the
first address provided above. If such notices are sent by means not requiring a
street address, such notices shall be sent to the second address provided above.
11.5 Expenses. Whether or not the Advances are made, Borrower agrees to
reimburse Banks and Agent, upon demand, for all expenses (including reasonable
attorneys' fees and legal expenses incurred by Banks and/or Agent) incurred by
Banks and/or Agent in the preparation, negotiation and/or execution of the Loan
Documents, and in enforcing the obligations of Borrower hereunder or under any
of the other Loan Documents, and to pay, and save Banks and Agent harm less
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of this Agreement, the execution, delivery
or issuance of the Notes, and/or the execution, delivery and recordation of the
other Loan Documents, which obligations of Borrower shall survive any
termination of this Agreement.
11.6 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
11.7 Counterparts. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
11.8 Law. The Loan Documents, and each of them, shall be contracts made
under and governed by the laws of the State of Louisiana.
48
<PAGE>
11.9 Successors. This Agreement shall be binding upon Borrower, Banks,
Agent and their respective successors and assigns, and shall inure to the
benefit of Borrower, Banks and the succes sors and assigns of Banks and Agent.
Borrower shall not assign its rights, obligations or duties hereunder or under
any of the Loan Documents without the prior written consent of Banks. Banks
shall give Borrower written notice of any assignment of its interests hereunder
to any other Person, upon which assignment Borrower shall perform all of its
respective obligations under the Loan Documents in favor of Banks' assignee(s)
as though such assignee(s) were originally a party or parties to this Agreement.
11.10 Amendments. No amendment or waiver of any provision of this Agreement
or consent to any departure therefrom by Borrower, Banks or Agent shall be
effective unless the same shall be in writing and signed by Borrower, Banks and
Agent and, in the case of a waiver or consent, such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
11.11 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes any and all prior agreements with respect to
the transactions contemplated hereby.
11.12 Conflicts. This Agreement is in addition to and supplements the
provisions of the other Loan Documents. To the extent that the provisions of
this Agreement are in conflict with, and not merely in addition to, the
provisions of the other Collateral Documents, the provisions of this Agreement
shall govern.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto and intervenors herein have caused
this Agreement to be executed by their respective officers thereunto duly
authorized effective as of the date first written above.
BORROWER:
GULF ISLAND FABRICATION, INC.
By: /s/ Kerry J. Chauvin
-----------------------------------
Kerry J. Chauvin, President
BANKS:
FIRST NATIONAL BANK OF COMMERCE
By: /s/ J. Charles Freel, Jr.
-----------------------------------
J. Charles Freel, Jr.,
Senior Vice President
WHITNEY NATIONAL BANK
By: /s/ Harry C. Stahel
-----------------------------------
Harry C. Stahel,
Senior Vice President
AGENT:
FIRST NATIONAL BANK OF COMMERCE
By: /s/ J. Charles Freel, Jr.
-----------------------------------
J. Charles Freel, Jr.,
Senior Vice President
50
<PAGE>
INTERVENTION
------------
NOW INTO THESE PRESENTS COMES Dolphin Services, Inc., which hereby
reaffirms and ratifies its obligations under those Collateral Documents (as
listed on Exhibit "M" hereto) to which it is a party, whether directly or as
successor by merger to Dolphin Sales & Rentals, Inc.
DOLPHIN SERVICES, INC.
By: /s/ Kerry J. Chauvin
-------------------------------
Kerry J. Chauvin, President
51
<PAGE>
EXHIBITS
--------
A. First NBC's form of Application for Stand-By Letter of Credit
B. $10,000,000.00 Revolving Promissory Note made payable to the order of First
NBC
C. $10,000,000.00 Revolving Promissory Note made payable to the order of
Whitney
D. Third Amendment to Collateral Pledge Agreement and Receipt (Possessory
Collateral Security Agreement)(Borrower)
E. Third Amendment to Collateral Assignment of Leases and Rents (Borrower)
F. Third Amendment to Commercial Security Agreement (Borrower)
G. First Amendment to Pledge of Collateral Mortgage Note (Dolphin Services)
H. First Amendment to Pledge of Collateral Mortgage Note (Dolphin Services, as
successor by merger to Dolphin Sales)
I. First Amendment to Commercial Security Agreement (Dolphin Services)
J. First Amendment to Commercial Pledge and Security Agreement
K. Incumbency Certificates
L. Borrower's Default and Warranty Certificate
M. List of Collateral Documents
N. Description of Real Property
SCHEDULES
---------
1. List of Borrower's Litigation
52
<PAGE>
*****************************
All exhibits and schedules have
been omitted and will be furnished
to the Commission's staff upon request
*****************************
53
<PAGE>
FORM OF STOCK OPTION AGREEMENT
FOR THE GRANT OF
NON-QUALIFIED STOCK OPTIONS UNDER THE
GULF ISLAND FABRICATION, INC.
LONG-TERM INCENTIVE PLAN
THIS AGREEMENT is entered into and effective as of ________________, by and
between Gulf Island Fabrication, Inc., a Louisiana corporation (the "Company"),
and ____________ (the "Optionee").
WHEREAS Optionee is a key employee of the Company and the Company considers
it desirable and in its best interest that Optionee be given an inducement to
acquire a proprietary interest in the Company and an incentive to advance the
interests of the Company by possessing an option to purchase shares of the
common stock of the Company, no par value per share (the "Common Stock") in
accordance with the Gulf Island Fabrication, Inc. Long-Term Incentive Plan (the
"Plan").
NOW, THEREFORE, in consideration of the premises, it is agreed by and
between the parties as follows:
I.
Grant of Option
The Company hereby grants to Optionee effective as of the date hereof (the
"Date of Grant") the right, privilege and option to purchase ________ shares of
Common Stock (the "Option") at an exercise price of $________ per share (the
"Exercise Price"). The Option shall be exercisable at the time specified in
Section II below. The Option is a non-qualified stock option and shall not be
treated as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
II.
Time of Exercise
2.1 Subject to the provisions of the Plan and the other provisions of this
Section II, the Option shall become exercisable as to one-fifth of the shares
covered thereby on the first anniversary of the Date of Grant, an additional
one-fifth of the shares covered thereby on the second anniversary of the Date of
Grant, an additional one-fifth of the shares covered thereby on the third
anniversary of the Date of Grant, an additional one-fifth of the shares covered
thereby on the fourth anniversary of the Date of Grant, and an additional one-
fifth of the shares covered thereby on the fifth anniversary of the Date of
Grant.
-1-
<PAGE>
2.2 During Optionee's lifetime, the Option may be exercised only by him or
his guardian if he has been declared incompetent. In the event of death, the
Option may be exercised as provided herein by the Optionee's estate or by the
person to whom such right devolves as a result of the Optionee's death.
2.3 If an Optionee ceases to be an employee because of death, disability
within the meaning of Section 22(e)(3) of the Code ("Disability") or retirement,
the Option must be exercised, to the extent otherwise exercisable at the time of
termination of employment, within one year from the date on which the Optionee
ceases to be an employee, but in no event later than ten years following the
Date of Grant.
2.4 If Optionee's employment is terminated, other than as a result of
death, disability or retirement, the Option shall terminate immediately.
2.5 The Option shall expire and may not be exercised later than ten years
following the Date of Grant.
III.
Method of Exercise of Option
3.1 Optionee may exercise all or a portion of the Option by delivering to
the Company a signed written notice of his intention to exercise the Option,
specifying therein the number of shares to be purchased. Upon receiving such
notice, and after the Company has received full payment of the Exercise Price,
the appropriate officer of the Company shall cause the transfer of title of the
shares purchased to Optionee on the Company's stock records and cause to be
issued to Optionee a stock certificate for the number of shares being acquired.
Optionee shall not have any rights as a shareholder until the stock certificate
is issued to him.
3.2 The Option may be exercised by the payment of the Exercise Price in
cash, in shares of Common Stock held for six months or in a combination of cash
and shares of Common Stock held for six months. The Optionee may also pay the
Exercise Price by delivering a properly executed exercise notice together with
irrevocable instructions to a broker approved by the Compensation Committee
(with a copy to the Company) to promptly deliver to the Company the amount of
sale or loan proceeds to pay the Exercise Price.
IV.
No Contract of Employment Intended
Nothing in this Agreement shall confer upon Optionee any right to continue
in the employment of the Company or any of its subsidiaries, or to interfere in
any way with the right of
-2-
<PAGE>
the Company or any of its subsidiaries to terminate Optionee's employment
relationship with the Company or any of its subsidiaries at any time.
V.
Binding Effect
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
successors.
VI.
Non-Transferability
The Option granted hereby may not be transferred, assigned, pledged or
hypothecated in any manner, by operation of law or otherwise, other than by
will, by the laws of descent and distribution or pursuant to a domestic
relations order, as defined in the Code, and shall not be subject to execution,
attachment or similar process.
VII.
Inconsistent Provisions
The Option granted hereby is subject to the provisions of the Plan as in
effect on the date hereof and as it may be amended. In the event any provision
of this Agreement conflicts with such a provision of the Plan, the Plan
provision shall control.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GULF ISLAND FABRICATION, INC.
By:
--------------------------------
Member
Compensation Committee
--------------------------------
--------------------------------
Optionee
-3-
<PAGE>
SUBSIDIARIES OF GULF ISLAND FABRICATION, INC.
COMPANY STATE OF INCORPORATION
Dolphin Services, Inc. Louisiana
Southport, Inc. Louisiana
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-46155) pertaining to the Long-Term Incentive Plan of our report dated
January 26, 1998, with respect to the consolidated financial statements of Gulf
Island Fabrication, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1997.
/s/ ERNST & YOUNG LLP
---------------------------------
ERNST & YOUNG LLP
New Orleans, Louisiana
March 20, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-46155) of Gulf Island Fabrication, Inc. of our
report dated January 23, 1997, except for the third paragraph of Note 1 which is
as of February 13, 1997, the second paragraph of Note 4 which is as of February
14, 1997 and the third paragraph of Note 4 which is as of October 28, 1997,
appearing in Exhibit 23.3 in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
New Orleans, Louisiana
March 23, 1998
<PAGE>
EXHIBIT 23.3
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 two 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.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
New Orleans, Louisiana
January 23, 1997, except for the third
paragraph of Note 1 which is as of
February 13, 1997, the second paragraph
of Note 4 which is as of February 14,
1997 and the third paragraph of Note
4 which is as of October 28, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,879
<SECURITIES> 0
<RECEIVABLES> 22,760
<ALLOWANCES> 0
<INVENTORY> 914
<CURRENT-ASSETS> 32,745
<PP&E> 51,715
<DEPRECIATION> 17,210
<TOTAL-ASSETS> 67,678
<CURRENT-LIABILITIES> 15,190
<BONDS> 0
0
0
<COMMON> 4,133
<OTHER-SE> 46,477
<TOTAL-LIABILITY-AND-EQUITY> 67,678
<SALES> 136,355
<TOTAL-REVENUES> 136,355
<CGS> 112,033
<TOTAL-COSTS> 116,703
<OTHER-EXPENSES> (239)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 348
<INCOME-PRETAX> 19,543
<INCOME-TAX> 7,117
<INCOME-CONTINUING> 19,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,426
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.14
</TABLE>
