<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997
REGISTRATION NO. 333-34603
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TRANSCOASTAL MARINE SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE
(State or Other Jurisdiction 1389 72-1353528
of Incorporation or (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification Number)
</TABLE>
JOHNNIE W. DOMINGUE
TRANSCOASTAL MARINE SERVICES, INC.
3535 BRIARPARK, SUITE 210
HOUSTON, TEXAS 77042
(713) 784-7429
(Name, address, including zip code, and telephone number, including area
code, of registrant's principal executive offices and agent for service)
copies to:
<TABLE>
<S> <C>
ROBERT J. VIGUET, JR. TED W. PARIS
CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & BAKER & BOTTS, L.L.P.
MARTIN 3000 ONE SHELL PLAZA
1200 SMITH STREET, SUITE 1400 910 LOUISIANA
HOUSTON, TEXAS 77002-4310 HOUSTON, TEXAS 77002-4995
(713) 658-1818 (713) 229-1234
FAX: (713) 658-2553 FAX: (713) 229-1522
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and the list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1997
PROSPECTUS
5,000,000 SHARES
COMMON STOCK
[TRANSCOASTAL MARINE SERVICES, INC. LOGO]
------------------------
All of the shares of common stock, par value $.001 per share ("Common
Stock"), of TransCoastal Marine Services, Inc. ("TCMS") offered hereby are being
sold by TCMS. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "TCMS." Prior to the Offering, there has been
no public market for the Common Stock. It is estimated that the initial public
offering price will be in the range of $14.00 to $16.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF MATERIAL
RISKS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
-------- ------------ -----------
<S> <C> <C> <C>
Per Share...............................
Total(3)................................
</TABLE>
- ---------------
(1) TCMS has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by TCMS estimated at $1,300,000.
(3) TCMS has granted the Underwriters a 30-day option to purchase up to an
additional 750,000 shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by the Underwriters. The
Underwriters reserve the right to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor in New York, New York on or about , 1997.
------------------------
JEFFERIES & COMPANY, INC. JOHNSON RICE & COMPANY L.L.C.
, 1997
<PAGE> 3
[GRAPHIC: PHOTOGRAPH OF M/V DISCOVERY.]
THE M/V DISCOVERY PERFORMING JETTING OPERATIONS IN THE GULF OF MEXICO.
[GRAPHIC: PHOTOGRAPH OF SPUD BARGE SPREAD ON LOCATION AT A WORK SITE.]
SPUD BARGE SPREAD INSTALLING A PIPELINE IN THE GULF OF MEXICO TRANSITION
ZONE.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Concurrently with and as a condition to the closing of the Offering,
TransCoastal Marine Services, Inc., a recently organized Delaware corporation,
will acquire, in separate transactions (collectively, the "Acquisitions"), in
exchange for cash and shares of its Common Stock, four privately owned marine
construction businesses (each a "Founding Company") and certain real properties
used in the businesses of the Founding Companies. Unless otherwise indicated by
the context, references herein to (i) "TCMS" mean TransCoastal Marine Services,
Inc. (and its predecessor), prior to consummation of the Acquisitions, and (ii)
the "Company" mean TCMS, pro forma to give effect to the Acquisitions.
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated by the context, all share, per share and financial
information set forth herein (i) has been adjusted to give effect to the
Acquisitions (except that no effect is given to the post-closing adjustments to
the acquisition consideration provided for in the acquisition agreements
relating to two of the Acquisitions, which the Company currently estimates will
result in increases to the acquisition consideration that will not exceed $0.5
million in the aggregate); (ii) assumes an initial public offering price of
$15.00 per share (the midpoint of the estimated initial public offering price
range); (iii) assumes that the Underwriters' over-allotment option will not be
exercised; and (iv) gives effect to a stock split of the outstanding shares of
Common Stock effected in August 1997. The number of shares of Common Stock to be
issued in each Acquisition will depend on the initial public offering price of
the Common Stock. Accordingly, the disclosures herein relating to the shares of
Common Stock to be issued in connection with the Acquisitions are estimated,
based on an assumed initial public offering price of $15.00 per share.
THE COMPANY
GENERAL
TCMS was organized in April 1996 to become a fully integrated marine
construction company focusing on the transition zone (marsh, swamp and coastal
regions out to water depths of 20 feet) and shallow water (water depths of 20 to
200 feet) regions along the U.S. Gulf Coast. The Company's goal is to become a
leader in the consolidation of these fragmented segments of the marine
construction industry through an aggressive acquisition program. TCMS has
entered into definitive agreements to acquire the Founding Companies
concurrently with the closing of the Offering. As a result of the Acquisitions,
the Company believes it will be the largest provider of transition zone marine
construction services along the U.S. Gulf Coast, as well as a significant
provider of shallow water construction services. The Company's primary services
include pipeline installation and repair, hydrostatic testing and commissioning
of pipelines and fabrication and refurbishment of components for offshore
platforms and drilling rigs.
Although TCMS has recently been formed and has no operating history, the
Founding Companies have been in business an average of 47 years and have
substantial experience in operating in difficult transition zone and shallow
water environments. Marine construction activities in the transition zone
require substantial expertise and customized equipment, as compared to open
water operations, due to the unique physical characteristics often involved,
including unstable marshbeds and obstructions such as trees, submerged stumps
and a substantial infrastructure of existing pipelines. The Company believes it
will benefit from the expertise developed by the management and personnel of the
Founding Companies in operating in transition zone and shallow water
environments and its ability to design and manufacture its own specialized
equipment for these operations.
Following the Acquisitions, the Company will provide marine construction
and related services from five port facilities strategically located along the
U.S. Gulf Coast from Orange, Texas to Mobile, Alabama. The Company believes this
geographic coverage will create marketing advantages and operating efficiencies
for the Founding Companies by improving their access to projects in this region
and providing the ability to offer a broader range of services to their existing
customer bases. The Company believes these advantages will result in higher
utilization of its assets. The Company also believes it will be able to use its
fabrication operations to reduce its equipment maintenance costs and related
vessel downtime and eliminate subcontracting of certain services (including
hydrostatic testing and pipeline burial) on many of its pipeline installation
and repair projects.
3
<PAGE> 5
OPERATIONS
Pipeline Installation and Repair. The efficient development of an offshore
oil and gas field frequently involves the addition or extension of an
infrastructure of gathering lines and trunklines (large diameter pipelines). The
Company's pipeline installation operations are focused on the transition zone
and shallow water regions along the U.S. Gulf Coast, where the Company believes
it is the only company providing pipeline installation and repair services from
water depths of 200 feet through the transition zone and to onshore gathering
and processing facilities. The Company's fleet includes (i) 15 spud barges and
ancillary equipment, operated in water depths of up to 20 feet, and (ii) two
anchor barges and three multipurpose vessels (used in both pipeline installation
and repair and hydrostatic testing, commissioning and related operations),
primarily operated in water depths beyond 20 feet. The Company also owns
specialized equipment for offshore pipeline jetting (a specialized pipeline
burying technique) and testing services, marine dredging and trench digging. The
Company generated revenue of approximately $53.5 million and $45.9 million from
its pipeline installation and repair services during the twelve months ended
December 31, 1996 and the six months ended June 30, 1997, respectively.
Hydrostatic Testing and Commissioning. The Company performs onshore and
offshore hydrostatic testing and commissioning of pipelines for oil and gas
producers and pipeline construction companies along the U.S. Gulf Coast and in
certain international markets. During hydrostatic testing, water is pumped into
a newly installed or existing pipeline to increase the internal pressure beyond
the designed capacity of the pipeline in order to test its structural integrity.
Pipeline commissioning involves final preparation of a completed and
successfully tested pipeline for operation in accordance with applicable
regulatory standards. In connection with its hydrostatic testing and
commissioning services, the Company also performs pipeline cleaning, drying and
dehydration services. The Company generated revenue of approximately $7.6
million and $4.4 million from its hydrostatic testing and commissioning and
related services during the twelve months ended December 31, 1996 and the six
months ended June 30, 1997, respectively.
Offshore Fabrication. The Company fabricates and refurbishes (i) structural
components of fixed platforms for use in the offshore development and production
of oil and gas and (ii) structural components, primarily deck structures, for
offshore drilling rigs and barge drilling rigs. The Company also manufactures
amphibious undercarriages for marine construction equipment used in transition
zone waters. The Company generated revenue of approximately $11.8 million and
$5.8 million from its offshore fabrication services during the twelve months
ended December 31, 1996 and the six months ended June 30, 1997, respectively.
INDUSTRY OVERVIEW
The market for offshore pipeline installation and related services along
the U.S. Gulf Coast is primarily dependent on the levels of oil and gas
exploration, development and production activities and pipeline capacity
utilization in the Gulf of Mexico. The Company believes recent increases in oil
and gas production in the Gulf of Mexico have significantly reduced available
pipeline capacity to transport the hydrocarbons to onshore gathering,
transmission and processing facilities. In a report published in January 1997,
the Minerals Management Service of the U.S. Department of the Interior (the
"MMS") projected an increase in Gulf of Mexico oil production of up to 76% from
1,097 Mbpd (thousand barrels per day) in 1996 to 1,932 Mbpd by 2000, and an
increase in natural gas production of up to 25% from 13.8 Bcfd (billion cubic
feet per day) in 1996 to 17.2 Bcfd by 2000, assuming increased use of new
technologies, such as 3-D seismic and horizontal drilling techniques, would
offset declines in production from currently producing fields. This outlook is
supported by recent increases in offshore leases awarded by the Department of
the Interior in its semi-annual Outer Continental Shelf ("OCS") lease auctions.
The number of offshore leases awarded to operators increased from 202 in 1992,
covering approximately 1.0 million acres, to 1,508 in 1996, covering
approximately 8.0 million acres.
The MMS anticipates that a substantial portion of the increased oil and gas
production in the Gulf of Mexico will come from deep water projects. The Company
believes the continued development of deep water (depths of 200 feet to 1,000
feet) and very deep water (depths of 1,000 feet and deeper) oil and gas fields
will require construction of new pipelines and tie-ins to existing pipeline
systems in the transition zone and shallow
4
<PAGE> 6
water regions along the U.S. Gulf Coast to transport future hydrocarbon
production to shore. The Company also expects increases in demand for its
services resulting from new pipeline construction needed to support incremental
development activity within these transition zone and shallow water regions, as
well as the repair service requirements of the existing pipeline infrastructure.
According to a June 1997 report by Offshore Data Services, Inc., there were 255
pipeline construction projects in the design or planning phase in the Gulf of
Mexico, including 165 in water depths of less than 150 feet.
BUSINESS STRATEGY
The Company's business strategy emphasizes growth through continued
consolidation of the transition zone and shallow water segments of the marine
construction industry and internal development. Key elements of the Company's
business strategy include:
Maintaining Focus on Transition Zone and Shallow Water Market Segments. The
Company intends to maintain its focus on the U.S. Gulf Coast transition zone and
shallow water markets because of its strong competitive position and substantial
expertise in these markets and the positive outlook for new oil and gas
exploration and development activity in the Gulf of Mexico. The Company
anticipates substantial growth in these markets as new pipelines are added to
gather and transport the higher levels of production expected to result from
increased exploration and development activity in the Gulf of Mexico.
Capitalizing on Combined Capabilities of the Founding Companies. The
Company believes that, as a result of the consolidation of the Founding
Companies, it is the only company providing pipeline installation and repair
services from water depths of 200 feet through the transition zone and to
onshore gathering, transmission and processing facilities along the U.S. Gulf
Coast. The Company's competitors in the pipeline installation and repair
services market currently provide services either in the transition zone or
shallow water regions, but not both. This market segmentation often requires
customers to separate an installation or repair project into different
components and award it to multiple contractors or award the project to a single
contractor and rely on that contractor's ability to coordinate with
subcontractors to complete the balance of the project.
Expanding through Acquisitions. The Company intends to increase its market
presence by acquiring additional businesses and assets. The Company believes the
highly fragmented nature of the industry presents a substantial consolidation
opportunity for a well-capitalized competitor with a strong market presence.
Pursuing International Expansion Opportunities. The Company also intends to
expand internationally by capitalizing on its relationships with hydrostatic
testing customers in international markets and domestic customers with
international operations and the experience of its management in developing
business and conducting operations in international markets. The Company intends
to target areas for international expansion with geographic conditions similar
to those along the U.S. Gulf Coast, such as Venezuela and offshore West Africa.
Improving Operating Margins. The Company believes the combination of the
Founding Companies will provide significant opportunities to improve operating
margins and increase profitability. The Company believes it will be able to
achieve operating efficiencies and cost savings by consolidating overlapping
facilities and administrative functions and by implementing a comprehensive
marketing effort emphasizing its abilities as an integrated provider of pipeline
installation and repair and related services in the transition zone and shallow
water market segments.
SUMMARY OF THE ACQUISITIONS
TCMS has entered into definitive agreements to acquire the Founding
Companies concurrently with and as a condition to the closing of the Offering.
The consideration TCMS will pay to acquire the Founding Companies and certain
related real estate consists of (i) approximately $85.7 million in cash, (ii)
$3.0 million in 8.0% notes payable over a ten-year term ending in 2007 and (iii)
2,570,933 shares of Common Stock, and the Company will also assume up to $11.5
million of indebtedness of the Founding Companies. Two of the Acquisitions are
subject to post-closing adjustments, based on a multiple of estimated earnings
before interest, taxes, depreciation and amortization ("EBITDA") and payable in
a combination of cash and shares of Common Stock. Based on a preliminary
determination, the Company currently estimates that such post-closing
adjustments will not exceed $0.5 million. See "Certain
Transactions -- Acquisitions of the Founding Companies."
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by TCMS................. 5,000,000 shares
Common Stock outstanding after the
Offering(1)................................ 8,826,933 shares
Use of Proceeds.............................. The net proceeds from the Offering will be
used, together with $35.0 million of initial
borrowings under a new credit agreement (the
"Credit Agreement"), to pay the cash portion
of the aggregate purchase price for the
Acquisitions, to repay indebtedness of TCMS
and the Founding Companies and to pay certain
costs related to the Offering and the
Acquisitions. Additional borrowings under the
Credit Agreement will be available for other
general corporate purposes, which may include
future acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol................ TCMS
</TABLE>
- ---------------
(1) The number of shares to be outstanding when the Offering closes will consist
of (i) an aggregate of 1,256,000 shares issued to founders of TCMS and
certain of its executive officers and consultants, (ii) 2,570,933 shares to
be issued as consideration in the Acquisitions and (iii) the 5,000,000
shares being offered hereby. Such share number does not include (i)
approximately 526,000 shares subject to options anticipated to be
outstanding under TCMS' 1997 Stock Option Plan (the "1997 Stock Option
Plan") on the date the Offering closes, (ii) an aggregate of 50,000 shares
issuable pursuant to a warrant (the "MG Warrant") issued by TCMS to
McFarland, Grossman & Company, Inc. ("MGCO"), a financial advisory firm that
assisted the Company in connection with the Acquisitions and in arranging
the Credit Agreement, or (iii) an aggregate of 175,000 shares issuable
pursuant to a warrant (the "Lender Warrant") to be issued by TCMS to Joint
Energy Development Investments, Limited Partnership, an affiliate of Enron
Capital & Trade Resources Corp. (the "Lender"), in connection with the
Credit Agreement. The number of shares to be outstanding on closing of the
Offering will decrease if the initial public offering price is higher, and
will increase if the initial public offering price is lower, than $15.00 per
share. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Combined Liquidity and Capital Resources,"
"Management -- 1997 Stock Option Plan" and "Certain
Transactions -- Organization of the Company," "-- Acquisitions of the
Founding Companies" and "-- Financial Advisory Services." The holders of
3,826,933 shares have agreed not to offer or sell any of their shares for a
period of one year from the date of this Prospectus without the prior
written consent of Jefferies & Company, Inc. See "Underwriting." In
addition, all shares issued as consideration in the Acquisitions will be
"restricted securities" under Rule 144 of the Securities Act of 1933, as
amended (the "Securities Act"), and will be issued to an aggregate of nine
persons, all of whom are affiliates of Founding Companies.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
6
<PAGE> 8
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following summary unaudited pro forma combined financial information
presents certain historical information of the Company, as adjusted to give
effect to (i) the Acquisitions, (ii) the closing of the Offering and the
application of the proceeds therefrom, (iii) the receipt and application of
$35.0 million of initial borrowings under the Credit Agreement and (iv) the
other pro forma adjustments referred to below. See "Selected Financial
Information" and the Unaudited Pro Forma Combined Financial Statements and the
notes thereto included in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Statement of Operations Information(1):
Revenue................................................... $ 72,744 $ 54,906
Cost of revenue........................................... 60,573 42,923
Selling, general and administrative expenses(2)........... 6,931 3,943
Depreciation and amortization(3).......................... 5,918 3,626
Operating income (loss)................................... (678) 4,414
Interest expense(4)....................................... (4,519) (2,259)
Other income, net......................................... 1,163 617
Provision (benefit) for income taxes...................... (967) 1,432
Net income (loss)......................................... $ (3,067) $ 1,340
========== ==========
Pro forma income (loss) per share......................... $ (.35) $ .15
Shares used in computing pro forma income (loss) per
share(5)............................................... 8,850,266 8,850,266
</TABLE>
<TABLE>
<CAPTION>
AS ADJUSTED(1)
--------------
JUNE 30, 1997
--------------
(IN THOUSANDS)
<S> <C>
Balance Sheet Information:
Working capital........................................... $ 9,445
Property, plant and equipment, net........................ 63,493
Total assets.............................................. 162,590
Long-term debt, net of current maturities................. 37,700
Stockholders' equity...................................... 85,157
</TABLE>
- ---------------
(1) The pro forma combined statement of operations information assumes the
Offering, the Acquisitions, $35.0 million of initial borrowings under the
Credit Agreement and the issuance of the presently outstanding Common Stock
all were closed on January 1 of each period presented. The pro forma, as
adjusted, balance sheet information assumes those transactions were closed
on June 30, 1997. The pro forma combined financial information (i) is not
necessarily indicative of the results the Company would have obtained had
these events actually occurred when assumed or of the Company's future
results, (ii) is based on preliminary estimates (primarily of the aggregate
purchase price of the Acquisitions), available information and certain
assumptions management deems appropriate and (iii) should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus.
(2) Includes the effect of certain eliminations of related-party rental and
lease expenses resulting from the purchase of certain real properties as
part of the Acquisitions, as follows: (i) $357,000 for the year ended
December 31, 1996; and (ii) $179,000 for the six months ended June 30, 1997.
Does not include anticipated future costs related to TCMS' new corporate
management and costs associated with being a public company, which cannot be
accurately estimated at this time and which management of TCMS expects will
be offset by certain cost savings and margin improvements resulting from the
combination of the Founding Companies (which also cannot be accurately
estimated at this time).
(3) Includes amortization of the $64.6 million of goodwill to be recorded as a
result of the Acquisitions and additional depreciation expense due to the
allocation of $43.7 million of the purchase price to property, plant and
equipment, as described in the Notes to the Unaudited Pro Forma Combined
Financial Statements.
(4) Reflects interest expense relating to $35.0 million of initial borrowings
under the Credit Agreement and the $3.0 million of 8.0% notes being issued
to the sole shareholder of RFCNI as part of the Acquisition of RFCNI, net of
a reduction in interest expense related to the refinancing of the Founding
Companies' outstanding indebtedness.
(5) Includes (i) an aggregate of 1,256,000 shares issued to founders of TCMS and
certain of its executive officers and consultants, (ii) 2,570,933 shares to
be issued as consideration in the Acquisitions, (iii) the effect of 50,000
shares issuable pursuant to the MG Warrant and (iv) the 5,000,000 shares
being offered hereby.
7
<PAGE> 9
SUMMARY HISTORICAL FINANCIAL INFORMATION FOR THE FOUNDING COMPANIES
The following table presents summary historical financial information for
each of the Founding Companies (see "The Company" for the complete names of
each) for the three most recent fiscal years (except where otherwise indicated),
the six months ended June 30, 1996 and 1997 and the eight months ended August
31, 1997. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included in this Prospectus.
<TABLE>
<CAPTION>
EIGHT
SIX MONTHS ENDED MONTHS
JUNE 30 ENDED
------------------ AUGUST 31,
1994 1995 1996 1996 1997 1997
------- ------- ------- ------- ------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Woodson(1):
Revenue..................... $ 7,786 $18,075 $17,933 $10,689 $18,104 $26,039
Cost of revenue............. 5,874 12,716 13,561 7,833 15,243 21,200
Selling, general and
administrative
expenses................. 3,011 2,672 2,968 1,479 1,435 1,791
Depreciation and
amortization............. 728 574 562 291 455 634
Operating income (loss)..... (1,827) 2,113 842 1,086 971 2,414
CSI(2):
Revenue..................... $ 5,331 $ 5,226 $ 8,447 $ 3,815 $ 9,606 $11,032
Cost of revenue............. 2,964 3,334 5,264 2,463 5,651 6,619
Selling, general and
administrative
expenses................. 1,725 2,285 2,435 1,160 1,270 1,758
Depreciation and
amortization............. 288 269 359 202 245 336
Operating income (loss)..... 354 (662) 389 (10) 2,440 2,319
HBH(1):
Revenue..................... $15,261 $14,771 $36,873 $19,062 $23,850 $33,323
Cost of revenue............. 12,585 16,803 33,727 16,343 19,394 25,700
Selling, general and
administrative
expenses................. 929 867 1,000 484 671 1,056
Depreciation and
amortization............. 503 871 1,482 719 750 1,007
Operating income (loss)..... 1,244 (3,770) 664 1,516 3,035 5,560
RFCNI(1):
Revenue..................... $ 5,611 $10,497 $ 9,730 $ 3,159 $ 4,536 $ 7,062
Cost of revenue............. 4,715 9,426 8,260 2,708 3,825 5,596
Selling, general and
administrative
expenses................. 650 698 885 363 674 919
Depreciation and
amortization............. 16 15 12 8 8 14
Operating income............ 230 358 573 80 29 533
</TABLE>
- ---------------
(1) Fiscal year results are for fiscal years ended December 31, 1994, 1995 and
1996.
(2) Fiscal year results are for fiscal years ended May 31, 1994 and 1995 and the
twelve months ended December 31, 1996.
8
<PAGE> 10
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective investors should carefully consider
the following factors, as well as the other information contained in this
Prospectus.
FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements. The words
"expect," "believe," "anticipate," "project," "estimate," "predict" and similar
expressions are intended to identify forward-looking statements. Such statements
involve risks, uncertainties and assumptions (including the risk factors
described below). Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.
CYCLICAL INDUSTRY; DEPENDENCE ON OIL AND GAS INDUSTRY
The demand for marine construction services has traditionally been
cyclical, depending primarily on the capital expenditures of oil and gas
companies for developmental construction. These capital expenditures are
influenced by such factors as prevailing oil and gas prices, expectations about
future prices, the cost of exploring for, producing and delivering oil and gas,
the sale and expiration dates of available offshore leases, the discovery rate
of new oil and gas reserves in offshore areas, local and international political
and economic conditions, technological advances, and the ability of oil and gas
companies to generate funds for capital expenditures. Oil and natural gas prices
and the level of offshore drilling and exploration activity have varied
substantially in recent years, resulting in significant fluctuations in demand
for the Company's services. Significant downturns in demand have in the past
adversely impacted each of the Founding Companies, with the result that each of
the Founding Companies has from time to time incurred operating losses. See
"-- History of Operating Losses of the Founding Companies." A significant or
prolonged reduction in oil or natural gas prices in the future would likely
depress offshore drilling and development activity. A substantial reduction of
such activity would reduce demand for the Company's services and could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Industry Overview."
HISTORY OF OPERATING LOSSES OF THE FOUNDING COMPANIES
Each of the Founding Companies has, from time to time, incurred losses from
operations, particularly during periods of low industry demand for marine
construction services. Some of these operating losses have been incurred in
recent periods. Woodson and RFCNI incurred net operating losses in the three
months ended March 31, 1997, and CSI and HBH incurred net operating losses in
fiscal 1995 and in the three months ended March 31, 1996. The predecessor to
RFCNI completed bankruptcy proceedings in 1988 following a prolonged period of
operating losses. In the event of a substantial or prolonged decline in demand,
the Company could be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Industry Overview."
RISKS ASSOCIATED WITH CONTRACTUAL PRICING IN THE OFFSHORE CONSTRUCTION INDUSTRY
As a result of the competitive conditions in the marine construction
industry, a substantial number of the Company's projects are performed on a
fixed-price basis. The revenue, costs and gross profit realized on a contract
will often vary from the estimated amounts for various reasons, including errors
in estimates or bidding, changes in the availability and cost of labor and
material and variations in productivity from the original estimates. These
variations and the risks inherent in the marine construction industry may result
in revenue and gross profits different from those originally estimated and can
result in reduced profitability or losses on projects. Depending on the size of
a project, variations from estimated contract performance can have a significant
impact on the Company's operating results for any particular fiscal quarter or
year. See "Business -- Customers and Contracts."
9
<PAGE> 11
ABSENCE OF COMBINED OPERATING HISTORY
TCMS was organized in April 1996 and has conducted no operations to date
other than in connection with the Offering and the Acquisitions. The Founding
Companies have operated as separate, independent businesses, and there can be no
assurance that the Company will be able to integrate the operations of these
businesses successfully or to institute the systems and procedures, including
accounting and financial reporting systems, necessary to manage the combined
enterprises on a profitable basis. Until the Company establishes centralized
accounting and other administrative systems, it will rely on the separate
systems of the Founding Companies. The success of the Company will depend, in
part, on the extent to which the Company is able to centralize these functions,
eliminate the unnecessary duplication of other functions and otherwise integrate
the Founding Companies and such additional businesses as the Company may
acquire. TCMS' executive management team has only recently been assembled, and
no assurance can be given that those executive officers will be able to manage
effectively the combined entity or implement the Company's business strategy.
The inability of the Company to integrate the Founding Companies successfully
would have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows. See "Business -- Business
Strategy" and "Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions and the Offering, 8,826,933 shares of Common
Stock will be outstanding. The 5,000,000 shares of Common Stock offered hereby
will be freely tradable unless acquired by affiliates of TCMS. All the remaining
shares of Common Stock to be outstanding on the closing of the Acquisitions and
the Offering (as well as all shares issuable pursuant to the MG Warrant and the
Lender Warrant) may be resold publicly only following their effective
registration under the Securities Act or pursuant to an exemption from the
registration requirements of that act, such as Rule 144 thereunder. Shareholders
of the Founding Companies will have certain registration rights with respect to
2,370,933 shares of Common Stock received by them in the Acquisitions, subject
to the one-year Lockup Period described below. The availability for sale, or
sale, of the shares of Common Stock eligible for future sale could adversely
affect the market price of the Common Stock prevailing from time to time.
After the Offering closes, TCMS intends to file a registration statement on
Form S-8 with the Securities and Exchange Commission (the "Commission") to
register the shares issuable pursuant to the 1997 Stock Option Plan under the
Securities Act. After that registration statement becomes effective, the shares
registered thereby generally will on issuance be freely tradable by holders who
are not affiliates of TCMS and, subject to the volume and other limitations of
Rule 144, by holders who are affiliates of TCMS. See "Management -- 1997 Stock
Option Plan."
TCMS and its directors and executive officers, MGCO, J&D Capital
Investments, L.C. (which is majority owned by G. Darcy Klug, a promoter of
TCMS), all of TCMS' other current stockholders and all persons who receive
shares of Common Stock in connection with the Acquisitions (other than Common
Stock issuable upon exercise of the Lender Warrant) have agreed not to offer or
sell any of those shares for a period of one year from the date of this
Prospectus (the "Lockup Period") without the prior written consent of Jefferies
& Company, Inc., except that TCMS may issue Common Stock in connection with the
Acquisitions and, subject to certain conditions, in connection with future
acquisitions, on exercise of the MG Warrant, the Lender Warrant and pursuant to
awards under the 1997 Stock Option Plan. Jefferies & Company, Inc. has advised
TCMS that it has no present intention to waive the restrictions on sales of
shares of Common Stock during the Lockup Period. See "Shares Eligible for Future
Sale."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to grow by acquiring additional marine construction
businesses. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses, if any, into the Company without substantial costs, delays,
or other operational or financial difficulties. The Company expects to face
competition for acquisition candidates, which may limit the number of
acquisition opportunities available to the Company and may lead to higher
acquisition prices. Further, acquisitions involve a number of other risks,
including failure of the acquired business to achieve expected results,
diversion of management's attention and resources to acquisitions, failure
10
<PAGE> 12
to retain key customers or personnel of the acquired business and risks
associated with unanticipated events or liabilities, some or all of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Acquisitions accounted for as purchases may result in
substantial annual noncash amortization charges for goodwill and other
intangible assets in the Company's statements of operations. See
"Business -- Business Strategy."
The Company's acquisition strategy will require substantial capital. Using
internally generated cash or debt to complete acquisitions could substantially
limit the Company's operational and financial flexibility. The extent to which
the Company will be able or willing to use shares of Common Stock to consummate
acquisitions will depend on its market value from time to time and the
willingness of potential sellers to accept it as full or partial payment. Using
shares of Common Stock for this purpose may result in significant dilution to
then existing stockholders. No assurance can be given the Company will be able
to obtain the capital it will need to continue to finance a successful
acquisition program and its other cash needs. In addition, acquisitions
involving consideration in excess of $5.0 million will require the consent of
the Lender under the Credit Agreement. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."
NEED FOR SKILLED WORKERS
The Company's ability to remain productive and become profitable will
depend substantially on its ability to retain and attract skilled construction
workers, primarily welders, pipefitters and equipment operators. The Company's
ability to expand its operations is impacted by its ability to increase its
labor force. The demand for skilled workers is high and the supply is limited. A
significant increase in the wages paid by competing employers could result in a
reduction in the Company's skilled labor force, increases in the wage rates paid
by the Company, or both. If either of these events occurred, the capacity and
profitability of the Company could be diminished and the growth potential of the
Company could be impaired. See "Business -- Employees."
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including the
timing of future acquisitions, seasonal fluctuations in the demand for marine
construction services (particularly during the winter months) and competitive
factors. Accordingly, quarterly comparisons of the Company's revenue and
operating results should not be relied on as an indication of future
performance, and the results of any quarterly period may not be indicative of
results to be expected for a full year. The Company recognizes most of its
contract revenue on a percentage-of-completion basis. Accordingly, contract
price and cost estimates are reviewed periodically as the work progresses, and
adjustments proportionate to the percentage of completion are reflected in
income in the period when the facts giving rise to a revised estimate become
known. To the extent that these adjustments result in a reduction or elimination
of previously reported profits with respect to a project, the Company would
recognize a charge against current earnings, which could be material. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Customers and Contracts."
OPERATING RISKS
Domestic. Marine construction involves a high degree of operational risk.
Hazards such as vessels capsizing, sinking, grounding, colliding and sustaining
damage from severe weather conditions are inherent in marine operations. These
hazards can cause personal injury or loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage and
suspension of operations. Certain employees of the Company are covered by
provisions of the Jones Act, the Death on the High Seas Act and general maritime
law, which laws operate to make the liability limits established by state
workers' compensation laws inapplicable to these employees and, instead, permit
them or their representatives to pursue actions against the Company and the
applicable vessel for damages or job-related injuries, with generally no
statutory limitations on the Company's potential liability. The failure of
offshore pipelines and structural components during and after installation can
result in similar injuries and damages. Litigation arising from such an
occurrence may result in the Company being named as a defendant in lawsuits
asserting large claims. The Company maintains
11
<PAGE> 13
such insurance protection as it deems prudent, including hull insurance on its
vessels. However, certain risks are either not insurable or insurance is
available only at rates that the Company considers not to be economical. There
can be no assurance that any such insurance will be sufficient or effective
under all circumstances or against all hazards to which the Company may be
subject. A successful claim for which the Company is not fully insured could
have a material adverse effect on the Company. Moreover, no assurance can be
given that the Company will be able to maintain adequate insurance in the future
at rates it considers reasonable. For a discussion of two class action lawsuits
involving large claims for compensatory and punitive damages against one of the
Founding Companies arising from events that occurred during the course of a
pipeline installation project for a third party gas transmission company (and as
to which the total amount of damages to which the Company may have exposure
cannot reasonably be estimated at this time), see "Business -- Legal
Proceedings."
International. The Company's international operations are subject to a
number of risks inherent in business operations in foreign countries, including
political, social and economic instability, potential seizure or nationalization
of assets, currency restrictions and exchange rate fluctuations, nullification,
modification or renegotiation of contracts, import-export quotas and other forms
of public and governmental regulations, all of which are beyond the control of
the Company. Additionally, the ability of the Company to compete in
international markets may be adversely affected by import duties and fees,
foreign taxes, foreign governmental regulations that favor or require the
awarding of contracts to local contractors, or regulations requiring foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction.
COMPETITION
The marine construction services business is highly competitive and in
recent years has been characterized by overcapacity, which resulted in
substantial pressure on pricing and operating margins. Overcapacity in the
industry may recur in the future. Contracts for marine construction services are
usually awarded on a competitive bid basis. Price competition is a primary
factor in determining which qualified contractor with available equipment is
awarded a contract. Some of the Company's competitors are larger and have
greater financial and other resources than the Company. See "-- Cyclical
Industry; Dependence on Oil and Gas Industry" and "Business -- Competition."
GOVERNMENTAL REGULATION
The Company's operations are subject to and affected by various types of
governmental regulation, including numerous federal, state and local
environmental protection laws and regulations, which are becoming increasingly
complex, stringent and expensive. Significant fines and penalties may be imposed
for noncompliance, and certain environmental laws impose joint and several
"strict liability" for remediation of spills and releases of oil and hazardous
substances, creating liability for environmental damages, without regard to
negligence or fault. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, including the
Company's subcontractors, or for acts of the Company which were in compliance
with all applicable laws at the time such acts were performed. Future
acquisitions by the Company also may be subject to regulation, including
antitrust reviews. In addition, the Company depends on the demand for its
services from the oil and gas industry and could be affected materially by
changes in taxes, price controls or other laws relating to the oil and gas
industry generally. The adoption of laws or regulations curtailing exploration
and development drilling for oil and gas for economic, environmental or other
policy reasons could adversely affect the Company's operations by limiting
demand for its services. See "Business -- Governmental Regulation and
Environmental Matters."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the closing of the Acquisitions and the Offering, TCMS' founders,
executive officers and directors and the persons receiving shares of Common
Stock in connection with the Acquisitions will beneficially own 3,826,933 shares
of Common Stock. These stockholders will control in the aggregate approximately
43.4% of the votes of all shares of Common Stock and, if acting in concert, may
be able to exercise control over the Company's affairs, elect the entire Board
of Directors and control the outcome of any matter submitted to a vote of the
Company's stockholders. See "Security Ownership of Certain Beneficial Owners and
Management."
12
<PAGE> 14
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES OF FOUNDING COMPANIES
Of the estimated net proceeds of the Offering and the initial borrowings
under the Credit Agreement, approximately $85.7 million will be paid as the cash
portions of the purchase prices for the Acquisitions and the related real
estate. As a result of the CSI acquisition, Mr. Daniel N. Hargett, Sr., will
receive $36.7 million and will hold more than five percent of the shares of
Common Stock outstanding when the Offering closes. Following the CSI
Acquisition, Mr. Hargett will serve as a director of TCMS and will continue to
serve as president of CSI. Shareholders of Woodson will receive an aggregate of
$19.8 million in cash and will hold approximately 14% of the Common Stock
outstanding when the Offering closes. Four of the Woodson shareholders will
continue to serve as president of the respective Woodson companies following the
closing of the Offering.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The success of the Company's operations will depend on the continuing
efforts of its executive officers and the senior operating management of the
Founding Companies, and likely will depend on the senior management of any
significant businesses the Company acquires in the future. The business or
prospects of the Company could be affected adversely if any of those persons
does not continue in his or her management role after joining the Company, and
the Company is unable to attract and retain qualified replacements. See
"Management."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which TCMS and representatives of the
Underwriters will negotiate, may not be indicative of the price at which the
Common Stock will trade after the Offering. See "Underwriting" for the factors
to be considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market, but no
assurance can be given that an active trading market will develop or be
maintained for the Common Stock. The market price of the Common Stock after the
Offering may fluctuate significantly from time to time in response to numerous
factors, including the timing of any acquisitions by the Company, variations in
the reported financial results of the Company or those of its competitors,
changes by financial research analysts in their estimates of future earnings of
the Company, changing conditions in the economy in general or in the Company's
industry in particular and unfavorable publicity or changes in applicable laws
and regulations (or judicial or administrative interpretations thereof)
affecting the Company or its business. In addition, the stock markets experience
significant price and volume volatility from time to time which may affect the
market price of the Common Stock for reasons unrelated to the Company's
performance.
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
The Amended and Restated Certificate of Incorporation of TCMS (the
"Charter") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends and distributions and voting rights)
as the Board of Directors may determine. The issuance of this "blank-check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise. In addition, the Charter contains a prohibition of stockholder action
by written consent and an anti-greenmail provision. Certain provisions of the
Delaware General Corporation Law (the "DGCL") may also discourage takeover
attempts that have not been approved by the Board of Directors. See "Description
of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate,
substantial dilution in the net tangible book value of their stock of $12.68 per
share and may experience further dilution in that value from issuances of Common
Stock in the future. See "Dilution."
13
<PAGE> 15
THE COMPANY
TCMS was organized in April 1996 to become a fully integrated marine
construction company focusing on the transition zone (marsh, swamp and coastal
regions out to water depths of 20 feet) and shallow water (water depths of 20 to
200 feet) regions along the U.S. Gulf Coast. The Company's goal is to become a
leader in the consolidation of these fragmented segments of the marine
construction industry through an aggressive acquisition program. On closing of
the Acquisitions, the Company's services will include offshore pipeline
installation and repair services, hydrostatic testing and commissioning of
pipelines and fabrication and refurbishment of components for offshore platforms
and drilling rigs. TCMS has entered into definitive agreements to acquire the
Founding Companies concurrently with and as a condition to the closing of the
Offering. In 1996, the Founding Companies, which have been in business an
average of 47 years, had pro forma combined revenue of approximately $73.0
million. For a description of the transactions pursuant to which these
businesses will be acquired, see "Certain Transactions -- Organization of the
Company." The following is a brief description of the Founding Companies:
Woodson. Woodson Construction Company (collectively with three affiliated
companies, "Woodson") is primarily engaged in the business of installing and
repairing pipelines in water depths of up to 20 feet, through the transition
zone to onshore gathering, transmission and processing facilities along the U.
S. Gulf Coast. Woodson is headquartered in Lafayette, Louisiana and maintains
its primary operating facility in Delcambre, Louisiana. Woodson primarily
operates in the marshland areas of Louisiana and, to a lesser extent, in similar
regions in neighboring states. In addition to pipeline installation and repair,
Woodson also (i) manufactures amphibious undercarriages for use in its own
operations and for sale to third parties, and (ii) performs onshore
environmental site assessments and on-site remediation of petroleum-contaminated
areas. Woodson generated revenue of approximately $17.9 million and $18.1
million during the year ended December 31, 1996 and the six months ended June
30, 1997, respectively.
CSI. CSI Hydrostatic Testers, Inc. (collectively with a subsidiary and an
affiliated company, "CSI"), performs (i) onshore and offshore hydrostatic
testing and commissioning of pipelines, (ii) pipeline cleaning, drying and
dehydration and (iii) pipeline jetting and other pipeline burial services. CSI
is headquartered in Lafayette, Louisiana and operates along the U.S. Gulf Coast
and in certain international markets. CSI generated revenue of approximately
$8.4 million and $9.6 million during the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively.
HBH. HBH, Inc. ("HBH") focuses its operations on installing and repairing
offshore pipelines for the oil and gas industry within the transition zone and
shallow water regions along the U. S. Gulf Coast. HBH is headquartered in Belle
Chasse, Louisiana and operates primarily off the coast of Louisiana and in
Mobile Bay, off the coast of Alabama. HBH generated revenue of approximately
$36.9 million and $23.9 million during the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively.
RFCNI. The Red Fox Companies of New Iberia, Inc. ("RFCNI") is primarily
engaged in the fabrication and refurbishment of (i) structural components of
fixed platforms for use in the development of oil and gas, and (ii) structural
components, primarily deck structures, for offshore drilling rigs and barge
drilling rigs. RFCNI also fabricates marine sewage treatment units, which are
installed on offshore platforms and drilling rigs. RFCNI's headquarters and
principal fabrication yard are located in New Iberia, Louisiana. RFCNI generated
revenue of approximately $9.7 million and $4.5 million during the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively.
SUMMARY OF TERMS OF THE ACQUISITIONS. The aggregate consideration TCMS will
pay to acquire the Founding Companies and certain related real estate consists
of (i) approximately $85.7 million in cash, (ii) $3.0 million in 8.0% notes
payable over a ten-year term ending in 2007 and (iii) 2,570,933 shares of Common
Stock. The Company will also assume up to $11.5 million of indebtedness of the
Founding Companies and then repay or refinance substantially all that
indebtedness at or shortly after the closing of the Acquisitions. In addition,
the acquisition agreements for the RFCNI and CSI acquisitions provide for
post-closing adjustments, which are to be determined based on a multiple of
estimated EBITDA for RFCNI and one of the entities comprising CSI, payable in a
combination of cash and shares of Common Stock. Based
14
<PAGE> 16
on a preliminary determination, the Company currently estimates that such
post-closing adjustments will not exceed $0.5 million.
The closing of each Acquisition is subject to customary conditions,
including, among others: the continuing accuracy of the representations and
warranties made by the Founding Companies, their principal shareholders and
TCMS; the performance of each of their respective covenants included in the
agreements relating to the Acquisitions; and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
each Founding Company prior to the closing date.
Any Founding Company's acquisition agreement may be terminated under
certain circumstances prior to the closing of the Offering, including: (i) by
the mutual consent of the Board of Directors of TCMS and the owner or owners of
that Founding Company; (ii) by TCMS if the disclosure schedules to the
acquisition agreement are amended to reflect a material adverse change in that
Founding Company; or (iii) if a material breach or default under the agreement
by one party occurs and is not waived. No assurance can be given that the
conditions to the closing of all the Acquisitions will be satisfied or waived or
that each Acquisition will close. See "Certain Transactions -- Acquisitions of
the Founding Companies."
Senior management of each of the Founding Companies will continue to be
employed by the respective Founding Companies immediately following the
Offering. In addition to serving as directors of TCMS, H. Daniel Hughes II and
Daniel N. Hargett, Sr. will continue to serve as president of HBH and CSI,
respectively, each under a three-year employment agreement. The current
president of each Woodson company and ten other senior members of management of
the Founding Companies will also execute employment agreements to continue to
serve their respective Founding Companies.
TCMS is a Delaware corporation. Its corporate offices are located at 3535
Briarpark, Suite 210, Houston, Texas 77042, and its telephone number is (713)
784-7429.
15
<PAGE> 17
USE OF PROCEEDS
TCMS estimates its net proceeds from the Offering will be approximately
$68.5 million (approximately $79.1 million if the Underwriters exercise their
over-allotment option in full), after deducting the underwriting discounts and
commissions and estimated offering expenses, including approximately $0.7
million to be used to repay advances under the J&D Loan Agreement, which were
used to fund Offering expenses. The Company will use these net proceeds,
together with $35.0 million of initial borrowings under the Credit Agreement, to
(i) pay the $85.7 million cash portion of the aggregate purchase price for the
Acquisitions, (ii) repay up to $11.5 million of outstanding indebtedness of the
Founding Companies, (iii) pay success bonuses and salaries aggregating $0.5
million to certain members of executive management of TCMS, (iv) pay financial
advisory fees of $0.9 million to MGCO, (v) pay debt costs related to the Credit
Agreement of $0.9 million and (vi) for general corporate purposes. Additional
borrowings under the Credit Agreement will be available for general corporate
purposes, which may include future acquisitions.
TCMS intends to enter into the Credit Agreement with the Lender prior to
the closing of the Offering. TCMS expects borrowings under the Credit Agreement
will be secured by liens on substantially all the Company's assets (including
accounts receivable and after-acquired property). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Combined
Liquidity and Capital Resources."
The indebtedness of the Founding Companies to be repaid from the proceeds
of the Offering bears interest at rates ranging from 6.6% to 11.2% per annum and
would otherwise mature at various dates through April 2003. Advances under the
J&D Loan Agreement bear interest at a rate of 10.0% per annum and are due on or
before the earlier of June 19, 1998 and 30 days following the closing of the
Offering.
DIVIDEND POLICY
TCMS currently intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. Any future dividends will be at the discretion
of the Board of Directors, after taking into account various factors, including,
among others, the Company's financial condition, results of operations, cash
flows from operations, current and anticipated cash needs and expansion plans,
the income tax laws then in effect, the requirements of Delaware law, the
restrictions imposed by the Credit Agreement and any restrictions that may be
imposed by the Company's future credit arrangements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term debt and capitalization of the Company as of June 30, 1997(i) on a
pro forma combined basis to give effect to the Acquisitions and (ii) as adjusted
to give effect to the Offering and the application of the estimated net proceeds
therefrom and the receipt and application of $35.0 million of initial borrowings
under the Credit Agreement, as described in "Use of Proceeds." This table should
be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements of the Company and the notes thereto included in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable and current maturities of long-term debt(1)... $ 4,027 $ 1,294
Notes payable to founding stockholders(2)................... 85,686 --
------- --------
Total short-term debt............................. $89,713 $ 1,294
======= ========
Long-term debt, net of current maturities................... $11,654 $ 37,700
Stockholders' equity:
Preferred Stock, $.001 par value, 2,000,000 shares
authorized; none issued and outstanding................ -- --
Common Stock, $.001 par value, 20,000,000 shares
authorized; 3,826,933 issued and outstanding, pro
forma; and 8,826,933 issued and outstanding, as
adjusted............................................... 4 9
Restricted Common Stock, $.001 par value, 3,000,000 shares
authorized; none issued and outstanding................ -- --
Additional paid-in capital................................ 9,948 78,499
Retained earnings......................................... 6,635 6,635
Net unrealized gain on available for sale securities, net
of deferred income taxes............................... 14 14
------- --------
Total stockholders' equity........................... 16,601 85,157
------- --------
Total capitalization.............................. $28,255 $122,857
======= ========
</TABLE>
- ---------------
(1) For a description of the Company's debt, see the notes to Unaudited Pro
Forma Combined Financial Statements and notes to the Founding Companies'
Financial Statements included herein.
(2) Includes the cash portion of the aggregate consideration to be paid in
connection with the Acquisitions, which will be paid from a portion of the
net proceeds of the Offering and borrowings under the Credit Agreement.
17
<PAGE> 19
DILUTION
The deficit in pro forma net tangible book value of the Company as of June
30, 1997 was approximately $(48.0) million, or approximately $(12.56) per share
of Common Stock, after giving effect to the Acquisitions and the financings
thereof. The pro forma net tangible book value per share represents the quotient
of the Company's pro forma tangible net worth (pro forma total tangible assets
less pro forma total liabilities) divided by the number of shares of Common
Stock to be outstanding after giving effect to the Acquisitions. After giving
effect to the sale of the shares of Common Stock offered hereby, and after
deducting underwriting discounts and estimated offering expenses payable by the
Company and the application of the estimated net proceeds therefrom and the
receipt and application of $35.0 million of initial borrowings under the Credit
Agreement, as described in "Use of Proceeds," the Company's pro forma net
tangible book value as of June 30, 1997 would have been approximately $20.5
million, or approximately $2.32 per share. This represents an immediate increase
in pro forma net tangible book value of approximately $14.88 per share to
existing stockholders and an immediate dilution of approximately $12.68 per
share to new investors purchasing shares in the Offering. The following table
illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
Pro forma net tangible book value per share before the
Offering.................................................. $(12.56)
Increase in pro forma net tangible book value per share
attributable to new investors............................. 14.88
-------
Pro forma net tangible book value per share after the
Offering.................................................. 2.32
------
Dilution per share to new investor(s)....................... $12.68
======
</TABLE>
The dilution to new investors purchasing shares in the Offering will
increase if the initial public offering price is higher, and will decrease if
the initial public offering price is lower, than $15.00 per share.
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of June 30, 1997, the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by existing stockholders and the new investors purchasing shares of Common
Stock from the Company in the Offering (before deducting underwriting discounts
and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 3,826,933 43.4% $(48,048,000)(1) (178)% $(12.56)
New investors.............. 5,000,000 56.6% 75,000,000 278 15.00
--------- ----- ------------ -----
Total............ 8,826,933 100.0% $ 26,952,000 100.0%
========= ===== ============ =====
</TABLE>
- ---------------
(1) Total consideration paid by existing stockholders represents the Company's
pro forma combined stockholders' equity less pro forma combined goodwill, in
each case before giving effect to the post-merger adjustments set forth in
the Unaudited Pro Forma Combined Balance Sheet of TCMS and the Founding
Companies included herein.
18
<PAGE> 20
SELECTED FINANCIAL INFORMATION
In accordance with the applicable accounting rules of the Commission,
Woodson has been identified as the "accounting acquiror" for financial
accounting purposes. The following selected historical consolidated financial
information of the accounting acquiror has been derived (i) from the audited
financial statements of Woodson for the years ended December 31, 1992, 1993,
1994, 1995 and 1996 and (ii) from the unaudited financial statements of Woodson
for the six months ended June 30, 1996 and 1997, which have been prepared on the
same basis as the audited statements and, in the opinion of Woodson, reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of that information. See the combined historical financial
statements of Woodson and the notes thereto included herein. The following
summary unaudited pro forma financial information represents historical
information of the Company, as adjusted to give effect to (i) the Acquisitions,
(ii) the closing of the Offering and the application of the proceeds therefrom,
(iii) the receipt and application of $35.0 million of initial borrowings under
the Credit Agreement and (iv) the other pro forma adjustments referred to below.
See the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included herein.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
INFORMATION FOR WOODSON:
Revenue.............................. $25,529(1) $14,302 $ 7,786 $18,075 $17,933 $10,689 $18,104
Cost of revenue...................... 21,845(1) 10,909 5,874 12,716 13,561 7,833 15,243
Selling, general and administrative
expenses........................... 3,254 2,991 3,011 2,672 2,968 1,479 1,435
Depreciation and amortization........ 794 831 728 574 562 291 455
------- ------- ------- ------- ------- ------- -------
Operating income (loss).............. (364) (429) (1,827) 2,113 842 1,086 971
Interest income...................... 59 43 20 25 86 40 64
Interest expense..................... (57) (58) (101) (109) (35) (6) (45)
Other income, net.................... 248(2) 107 96 69 357(3) 99 496(3)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.... (114) (337) (1,812) 2,098 1,250 1,219 1,486
Provision (benefit) for income
taxes.............................. (4) (141) (86) 91 91 17 191
Cumulative effect of accounting
change............................. -- 225(4) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ (110) $ 29 $(1,726) $ 2,007 $ 1,159 $ 1,202 $ 1,295
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1996 ENDED JUNE 30, 1997
----------------- --------------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE INFORMATION)
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS INFORMATION(5):
Revenue................................................... $ 72,744 $ 54,906
Cost of revenue........................................... 60,573 42,923
Selling, general and administrative expenses(6)........... 6,931 3,943
Depreciation and amortization(7).......................... 5,918 3,626
---------- ----------
Operating income (loss)................................... (678) 4,414
Interest expense(8)....................................... (4,519) (2,259)
Other income, net......................................... 1,163 617
Provision (benefit) for income taxes...................... (967) 1,432
---------- ----------
Net income (loss)......................................... $ (3,067) $ 1,340
========== ==========
Pro forma income (loss) per share......................... $ (.35) $ .15
Shares used in computing pro forma income (loss) per
share(9)................................................ 8,850,266 8,850,266
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30, 1997
------------------------------------------ ------------------------
PRO FORMA
AS
1992 1993 1994 1995 1996 HISTORICAL ADJUSTED(5)
------ ------ ------ ------ ------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital............................... $3,938 $2,862 $1,401 $4,628 $3,803 $ 3,432 $ 9,445
Property, plant and equipment, net............ 2,745 2,669 2,252 1,872 2,956 4,348 63,493
Total assets.................................. 9,956 8,764 6,997 9,007 9,156 13,648 162,590
Long-term debt, net of current maturities..... 79 48 19 -- -- -- 37,700
Shareholders' equity.......................... 7,775 7,370 5,646 7,616 7,717 8,707 85,157
</TABLE>
- ---------------
(1) Variance between years is primarily attributable to a higher level of
construction activity and the fact that the 1992 period was a thirteen-month
period due to a change in fiscal year end.
(2) This amount is primarily comprised of royalty income not realized in other
periods.
(3) This amount primarily represents gains recognized on the sale of various
assets.
(4) Represents the net effect of adopting FASB No. 109, "Accounting for Income
Taxes."
(5) The pro forma combined statement of operations information assumes the
Offering, the Acquisitions, $35.0 million of initial borrowings under the
Credit Agreement and the issuance of the presently outstanding Common Stock
all were closed on January 1 of each period presented. The pro forma, as
adjusted balance sheet information assumes those transactions were closed on
June 30, 1997. The pro forma combined financial information (i) is not
necessarily indicative of the results the Company would have obtained had
these events actually occurred when assumed or of the Company's future
results, (ii) is based on preliminary estimates, available information and
certain assumptions management deems appropriate and (iii) should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus.
(6) Includes the effect of certain eliminations of related-party rental and
lease expenses resulting from the purchase of certain real properties as
part of the Acquisitions, as follows: (i) $357,000 for the year ended
December 31, 1996 and (ii) $179,000 for the six months ended June 30, 1997.
Does not include anticipated future costs related to TCMS' new corporate
management and costs associated with being a public company, which cannot be
accurately estimated at this time and which management of TCMS expects will
be offset by certain cost savings and margin improvements resulting from the
combination of the Founding Companies (which also cannot be accurately
estimated at this time).
(7) Includes amortization of the $64.6 million of goodwill to be recorded as a
result of the Acquisitions and additional depreciation expense due to the
allocation of $43.7 million of the purchase price to property, plant and
equipment, as described in the Notes to the Unaudited Pro Forma Combined
Financial Statements.
(8) Reflects interest expense relating to $35.0 million of initial borrowings
under the Credit Agreement and the $3.0 million of 8.0% notes being issued
to the sole shareholder of RFCNI as part of the Acquisition of RFCNI, net of
a reduction in interest expense related to the refinancing of the Founding
Companies' outstanding indebtedness.
(9) Includes (i) an aggregate of 1,256,000 shares issued to founders of TCMS and
certain of its executive officers and consultants, (ii) 2,570,933 shares to
be issued as consideration in the Acquisitions, (iii) the effect of 50,000
shares issuable pursuant to the MG Warrant and (iv) the 5,000,000 shares
being offered hereby.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Information" and the financial statements and the notes thereto
included elsewhere in this Prospectus. The following information contains
forward-looking statements. For a discussion of certain limitations inherent in
such statements, see "Risk Factors -- Forward-Looking Information."
INTRODUCTION
The Company derives its revenue primarily from providing services related
to pipeline installation and repair, hydrostatic testing and commissioning of
pipelines, and fabrication and refurbishment of components for oil and gas
production platforms and drilling rigs. To a lesser extent, the Company
generates revenue from (i) the manufacture and sale of amphibious undercarriages
for marine construction equipment used in stump-studded swamp terrain and (ii)
onshore environmental site assessments and on-site remediation of petroleum-
contaminated areas.
Most of the Company's services are provided under fixed-priced contracts
and are generally completed within one year. These contracts are usually
accounted for using the percentage-of-completion method of accounting. Under
this method, the percentage-of-completion is determined by comparing contract
costs incurred to date with total estimated contract costs. Any significant
revision in cost and income estimates is reflected in the accounting period in
which the facts that require the revision become known. Income is recognized by
applying the percentage completed to the projected total income for each
contract in progress. Cost of revenue consists of direct material, labor and
subcontracting costs and indirect costs related to contract performance, such as
indirect labor, supplies and tools. Cost of revenue also includes the
manufacturing costs related to the amphibious undercarriages sold and costs
associated with the services provided for site assessments and remediation
activities. Selling, general and administrative expenses have historically
consisted primarily of compensation and benefits to owners as well as to sales
and administrative employees, fees for professional services and other general
office expenses. Selling, general and administrative expenses have also
historically included incentive and discretionary bonuses paid to owners,
including amounts paid in lieu of S corporation distributions to enable them to
meet their income tax obligations.
The Founding Companies have historically operated as independent, privately
owned entities, and their results of operations reflect varying tax structures
(S corporations or C corporations) which have influenced the historical level of
owners' compensation. Cost of revenue and selling, general and administrative
expenses as a percentage of revenue may not be comparable among the individual
Founding Companies because of differences in their operations.
The Company believes the combination of the Founding Companies will provide
opportunities to improve operating margins and increase profitability. The
Company believes it will be able to achieve operating efficiencies and cost
savings by consolidating overlapping facilities and certain administrative
functions, eliminating the rental expense on certain related party leases
relating to certain real properties being purchased as part of the Acquisitions
and by rationalizing its asset base. In addition, the Company believes it will
be able to increase its asset utilization by implementing a comprehensive
marketing effort to capitalize on its position as an integrated provider of
pipeline installation and repair and related services in both the transition
zone and shallow water market segments. The Company anticipates the savings and
margin improvements from these efforts will be partially offset by costs related
to the Company's new corporate management and by costs associated with being a
public company; however, the Company cannot currently quantify these anticipated
savings, margin improvements or costs. Except for the elimination of the rental
expense referred to above, the pro forma financial information herein reflects
neither expected savings, margin improvements nor expected incremental costs.
The marine construction industry along the U. S. Gulf Coast is highly
seasonal as a result of weather conditions, the availability of daylight hours
and the timing of capital expenditures by oil and gas companies. Historically,
the Founding Companies have performed a substantial portion of their services
during the period from March through November, and, therefore, a
disproportionate portion of their contract revenue, gross
21
<PAGE> 23
profit and net income generally has been earned during the second and third
quarters of the calendar year. Because of this seasonality, the Company's future
full year results are not likely to be a direct multiple of any particular
quarter or combination of quarters. Additionally, the Company's results of
operations will also be affected by the level of oil and gas exploration and
development activity maintained by oil and gas companies in the Gulf of Mexico.
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.
In July 1996, the Commission issued Staff Accounting Bulletin No. 97 ("SAB
97"), relating to business combinations immediately prior to an initial public
offering. SAB 97 requires that these combinations be accounted for using the
purchase method of accounting and requires one of the companies to be designated
as the accounting acquiror. In connection with the Acquisitions and the
Offering, Woodson has been designated as the acquiring company because its
current shareholders, in the aggregate, represent the highest percentage of the
Common Stock (other than shares of Common Stock to be issued in the Offering)
that will be issued to former shareholders of the Founding Companies. For the
remaining Founding Companies including TCMS, $64.6 million (pro forma as of June
30, 1997) of the excess of the purchase price over the fair value of the net
assets to be acquired, will be recorded as "goodwill" and will be amortized as a
non-cash charge to the Company's statements of operations over a 40-year period.
The annual pro forma impact of this amortization expense, which is generally
non-deductible for tax purposes, is $1.6 million. Prior to the issuance of SAB
97, goodwill and related amortization expense were not required to be recorded
for most business combinations similar to the Acquisitions. See "Certain
Transactions -- Organization of the Company."
COMBINED RESULTS OF OPERATIONS
The combined results of operations of the Founding Companies for the
periods presented in the table below do not represent combined results of
operations presented in accordance with generally accepted accounting principles
(because combining companies not under common control is not permitted under
those principles), but are only a summation of the revenue, cost of revenue,
selling, general and administrative expenses and depreciation and amortization
of TCMS and the individual Founding Companies on a historical basis (and these
items as a percentage of revenue). The combined results exclude the effects of
pro forma adjustments and intercompany eliminations between the Founding
Companies and, therefore, may not be comparable to the Company's
post-combination results of operations because: (i) the Founding Companies were
not under common control or common management during the periods presented; (ii)
the Founding Companies had different tax structures during the periods
presented; (iii) the Company will incur incremental costs related to its new
corporate management and being a public company; (iv) the Company will use the
purchase method to record the Acquisitions, resulting in the recording of
goodwill, which will be amortized over 40 years; and (v) the combined
information does not reflect the potential benefits and cost savings the Company
expects to realize when operating as a combined entity.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------------
1994(1) 1995(1) 1996(2) 1996 1997
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........................ $33,989 100.0% $48,569 100.0% $72,983 100.0% $36,725 100.0% $56,096 100.0%
Costs and expenses:
Cost of revenue.............. 26,138 76.9 42,279 87.0 60,812 83.3 29,347 79.9 44,113 78.6
Selling, general and
administrative expenses.... 6,315 18.6 6,522 13.4 7,288 10.0 3,486 9.5 4,122 7.4
Depreciation and
amortization............... 1,535 4.5 1,729 3.6 2,415 3.3 1,220 3.3 1,458 2.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income (loss)........ $ 1 --% $(1,961) (4.0)% $ 2,468 3.4% $ 2,672 7.3% $ 6,403 11.4%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ---------------
(1) The financial information is presented on the basis of a year ended December
31 for each Founding Company except CSI, which is presented for the fiscal
year ended May 31.
(2) Reflects results of operations for the Founding Companies for the twelve
months ended December 31, 1996.
22
<PAGE> 24
Recent Unaudited Pro Forma Combined Financial Results
On a pro forma combined basis, the Founding Companies generated revenue of
$76.3 million for the eight months ended August 31, 1997. The pro forma combined
operating income for the period was $8.0 million, which is net of $4.9 million
of depreciation and amortization on a pro forma combined basis. Pro forma
combined net income for the eight months ended August 31, 1997 was $2.9 million,
resulting in pro forma income per share of $0.33 (using 8,850,266 shares of
Common Stock in the computation of pro forma income per share).
Combined results for the six months ended June 30, 1997 compared to the six
months ended June 30, 1996
Revenue. Revenue increased $19.4 million, or 52.7%, for the six months
ended June 30, 1997 compared to the corresponding period in the prior year. The
increase primarily resulted from increased pipeline construction activity at
Woodson and HBH, with revenue increasing by $12.2 million from this activity. In
addition, revenue increased $5.8 million at CSI, with the newly acquired (and
recently refurbished) M/V Discovery (a multi-purpose service vessel) generating
most of this increase, and $1.4 million at RFCNI, as a result of increased
fabrication activity during the 1997 period.
Cost of revenue. Cost of revenue increased $14.8 million, or 50.3%, for the
six months ended June 30, 1997 compared to the corresponding period in the prior
year. The increase primarily resulted from increased costs of $10.5 million at
Woodson and HBH, associated principally with increased pipeline construction
activity. In addition, costs associated with the operation of the M/V Discovery
were primarily responsible for a $3.2 million increase in cost of revenue at CSI
for the 1997 period. As a percentage of revenue, cost of revenue was 78.6% for
the six months ended June 30, 1997 compared to 79.9% for the corresponding
period in the prior year.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.6 million, or 18.2%, for the six months
ended June 30, 1997 compared to the corresponding period in the prior year. As a
percentage of revenue, selling, general and administrative expenses were 7.4%
for the six months ended June 30, 1997 compared to 9.5% for the corresponding
period in the prior year.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.2 million, or 19.5%, for the six months ended June 30, 1997
compared to the corresponding period in the prior year. The increase was related
to equipment purchases and the acquisition of, and improvements to, the M/V
Discovery.
Combined results for 1996 compared to 1995
Revenue. Revenue increased $24.4 million, or 50.3%, in 1996 compared to
1995. The increase was due primarily to the increased revenues of $22.1 million
at HBH resulting largely from a full year of operations of the BH-400 pipelay
barge, which was placed in service in October 1995, and the completion of a
large pipeline installation project in the transition zone along the U.S. Gulf
Coast.
Cost of revenue. Cost of revenue increased $18.5 million, or 43.8%, in 1996
compared to 1995. The increase was primarily attributable to the increase in
activity resulting from a full year of operations of the BH-400. As a percentage
of revenue, cost of revenue was 83.3% in 1996 compared to 87.0% in 1995. The
improved margin was primarily due to reductions in standby time, weather
downtime and subcontract services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.8 million, or 11.7%, in 1996 compared to
1995. As a percentage of revenue, selling, general and administrative expenses
were 10.0% in 1996 compared to 13.4% in 1995.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.7 million, or 39.7%, in 1996 compared to 1995, due primarily to the
acquisition of the BH-400 in October 1995.
Combined results for 1995 compared to 1994
Revenue. Revenue increased $14.6 million, or 42.9%, in 1995 compared to
1994. The increase was due primarily to increased pipeline installation and
repair operations and increased fabrication activity.
23
<PAGE> 25
Cost of revenue. Cost of revenue increased $16.1 million, or 61.8%, in 1995
compared to 1994. The increase was due to increased pipeline installation and
repair activity, including increased costs relating to standby time, weather
downtime and subcontract services caused in part by the late delivery of the
BH-400. In addition, increased activity in lower margin, material-intensive
fabrication work contributed to the cost increase as well as to the higher cost
as a percentage of revenue. As a percentage of revenue, cost of revenue was
87.0% in 1995 compared to 76.9% in 1994.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 3.3%, in 1995 compared to
1994. As a percentage of revenue, selling, general and administrative expenses
were 13.4% in 1995 compared to 18.6% in 1994.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.2 million, or 12.6%, due primarily to equipment purchases by HBH.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1997, TCMS and the Founding Companies
generated a combined $2.5 million of net cash from operating activities. Net
cash used in investing activities was a combined $2.9 million. Principal uses of
cash consisted of $5.5 million of capital expenditures, including approximately
$3.5 million to acquire the M/V Discovery, offset partially by $2.4 million in
proceeds from sales of investments. Net cash provided by financing activities
was a combined $2.2 million, due to net increases in long-term debt. At June 30,
1997, TCMS and the Founding Companies had working capital of $5.7 million and
long-term debt, net of current maturities, of $10.0 million. On a pro forma
basis, after giving effect to the Offering and the application of the proceeds
therefrom together with $35.0 million of initial borrowings under the Credit
Agreement, the Company would have had combined working capital of $9.4 million
and long-term debt, net of current maturities, of $37.7 million at June 30,
1997.
During 1996, the Founding Companies generated a combined $3.5 million in
net cash from operating activities. Principal sources of cash were net income of
$2.5 million and depreciation and amortization of $2.4 million, offset partially
by net uses of cash for working capital, principally accounts receivable. Net
cash used in investing activities was a combined $1.9 million. Principal uses of
cash consisted of $5.0 million for purchases of equipment, offset partially by
proceeds from the sales of investments, collection of notes receivable from a
shareholder and proceeds from the sale of equipment. Net cash used in financing
activities was a combined $2.1 million. At December 31, 1996, the Founding
Companies had combined working capital of $2.6 million and long-term debt of
$7.4 million.
TCMS intends to enter into the Credit Agreement with the Lender prior to
the closing of the Offering. TCMS expects that the Credit Agreement will provide
for borrowings up to $75.0 million, with the initial borrowing availability
being $50.0 million (the "Initial Availability") and the remaining $25.0 million
being made available from time to time and in such amounts as the Lender shall
determine in its sole discretion. The Credit Agreement will be divided into two
tranches: (i) a senior secured revolving credit facility (the "Revolving Credit
Facility"), providing for borrowings of up to $60.0 million ($40.0 million of
which will comprise part of the Initial Availability), and (ii) $15.0 million of
senior subordinated term loan borrowings (the "Term Loan Facility") ($10.0
million of which will comprise the remainder of the Initial Availability). The
Company also expects (i) borrowings under the Revolving Credit Facility will
bear interest at LIBOR plus 275 basis points (8.37% at October 3, 1997), payable
quarterly, and (ii) borrowings under the Term Loan Facility will bear interest
at LIBOR plus 375 basis points (9.37% at October 3, 1997), payable quarterly.
Interest expense will be effected by approximately $44,000 for a 1/8 percent
variance in the LIBOR rate on the initial borrowings of $35.0 million.
Borrowings under the Credit Agreement will be secured by liens on substantially
all the Company's assets (including accounts receivable and after-acquired
property) and a pledge of the capital stock of the Founding Companies and each
of the Company's other subsidiaries. Borrowings under the Credit Agreement are
expected to be used to pay a portion of the aggregate purchase price for the
Acquisitions and for general corporate purposes, which may include future
acquisitions. The Company expects that the Credit Agreement will require the
Company to comply with various loan covenants, including (i) maintenance of
certain financial ratios; (ii) restrictions on additional indebtedness; and
24
<PAGE> 26
(iii) restrictions on liens, guarantees, advances and dividends. The Company
anticipates the term of the Credit Agreement will extend through October 1999
and all outstanding principal and accrued and unpaid interest under the
Revolving Credit Facility and the Term Loan Facility as of that date will be due
and payable on that date. The Company also anticipates the Credit Agreement will
contain mandatory prepayment provisions requiring prepayment of outstanding
borrowings from the issuance of debt or equity securities for cash and any
proceeds from other borrowings.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company expects
to fund future acquisitions through the issuance of additional equity as well as
through a combination of working capital, cash flow from operations and
borrowings, including borrowings under the Credit Agreement.
The Company is, from time to time, exposed to various contingencies arising
in the ordinary course of business, including, among others, legal actions
arising from accidents and other events resulting from the operational risks
inherent in the marine construction business. For a discussion of two class
action lawsuits involving large claims for compensatory and punitive damages
against one of the Founding Companies arising from events that occurred during
the course of a pipeline installation project for a third party gas transmission
company (and as to which the total amount of damages to which the Company may
have exposure cannot reasonably be estimated at this time), see
"Business -- Legal Proceedings." There can be no assurance that these lawsuits
or other legal actions or contingencies that may arise in the future will not
have a material adverse effect on the Company's business, financial condition,
results of operations and liquidity.
INFLATION
Inflation has not had a material impact on the Company's results of
operations for the last three years or during the six months ended June 30,
1997.
RESULTS OF OPERATIONS -- WOODSON
The following table presents certain selected data (and that data as a
percentage of revenue) of Woodson on a historical basis for the periods
indicated (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........................... $ 7,786 100.0% $18,075 100.0% $17,933 100.0% $10,689 100.0% $18,104 100.0%
Costs and expenses:
Cost of revenue................. 5,874 75.4 12,716 70.3 13,561 75.6 7,833 73.3 15,243 84.2
Selling, general and
administrative expenses....... 3,011 38.7 2,672 14.8 2,968 16.6 1,479 13.8 1,435 7.9
Depreciation and amortization... 728 9.4 574 3.2 562 3.1 291 2.7 455 2.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income (loss)........... $(1,827) (23.5)% $ 2,113 11.7% $ 842 4.7% $ 1,086 10.2% $ 971 5.4%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Woodson's results for the six months ended June 30, 1997 compared to the six
months ended June 30, 1996
Revenue. Revenue increased $7.4 million, or 69.4%, for the six months ended
June 30, 1997 compared to the corresponding period in the prior year. The
increase was primarily due to increases of $7.2 million and $0.6 million,
respectively, in pipeline construction revenue and revenue related to the
manufacturing of amphibious undercarriages, partially offset by a decrease of
$0.4 million in revenue from environmental services. The pipeline construction
revenue increase was attributable to improved market activity in 1997.
Cost of revenue. Cost of revenue increased $7.4 million, or 94.6%, for the
six months ended June 30, 1997 compared to the corresponding period in the prior
year. The increase was primarily due to the increase in pipeline construction
activity in the 1997 period. As a percentage of revenue, cost of revenue was
84.2% for the six months ended June 30, 1997 compared to 73.3% for the
corresponding period in the prior year.
25
<PAGE> 27
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $44,000, or 3.0%, for the six months ended
June 30, 1997 compared to the corresponding period in the prior year. As a
percentage of revenue, selling, general and administrative expenses were 7.9%
for the six months ended June 30, 1997 compared to 13.8% for the corresponding
period in the prior year.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.2 million, or 56.4%, for the six months ended June 30, 1997
compared to the corresponding period in the prior year. The increase was due to
the additional property, plant and equipment placed in service in 1996 and early
1997.
Woodson's results for 1996 compared to 1995
Revenue. Revenue decreased $0.1 million, or 0.8%, in 1996 compared to 1995.
The decrease was primarily a result of a $0.7 million decrease in environmental
services revenue caused by less activity with the Louisiana Department of
Environmental Quality, partially offset by a $0.6 million increase in revenue
from sales of amphibious undercarriages.
Cost of revenue. Cost of revenue increased $0.8 million, or 6.6%, in 1996
compared to 1995. The increase was primarily due to additional maintenance costs
during equipment downtime. As a percentage of revenue, cost of revenue was 75.6%
in 1996 compared to 70.3% in 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.3 million, or 11.1%, in 1996 compared to
1995. The increase was primarily due to a one-time bonus paid to officers and
the employment of a safety consultant. As a percentage of revenue, selling,
general and administrative expenses were 16.6% in 1996 compared to 14.8% in
1995.
Depreciation and amortization. Depreciation and amortization expenses were
essentially unchanged for 1996 compared to 1995.
Woodson's results for 1995 compared to 1994
Revenue. Revenue increased $10.3 million, or 132%, in 1995 compared to
1994. The increase was primarily due to the unusual decline in 1994 new sales
contracts resulting from adverse market conditions and a corresponding increase
in 1995 revenue because of increased activity, primarily in the pipeline
construction market.
Cost of revenue. Cost of revenue increased $6.8 million, or 117%, in 1995
compared to 1994. As a percentage of revenue, cost of revenue was 70.3% in 1995
compared to 75.4% in 1994. The percentage decrease was primarily due to higher
utilization rates for Woodson's pipelaying barges and related equipment, which
resulted in a reduction in maintenance costs as there was less time available in
1995 to perform maintenance on idle equipment.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.3 million, or 11.3%, in 1995 compared to
1994. The decrease was primarily due to a reduction in bad debt expense. As a
percentage of revenue, selling, general and administrative expenses were 14.8%
in 1995 compared to 38.7% in 1994. The percentage decrease was primarily due to
the significant increase in revenue discussed above without a commensurate
increase in overhead expenses.
Depreciation and amortization. Depreciation and amortization expenses
decreased $0.2 million 1995, or 21.2%, compared to 1994.
Woodson's liquidity and capital resources
Woodson generated $0.3 million in net cash in operating activities for the
six months ended June 30, 1997. Generally, sufficient funds for operating the
business have been generated from operations with minimum borrowings, due in
part to the S elections made by two of the affiliated entities, which limited
corporate level income taxes. Net cash provided by investing activities was $1.3
million, primarily from proceeds from sales of investments, which were offset
partially by capital expenditures. Net cash used in
26
<PAGE> 28
financing activities was $0.8 million, representing repayments of short-term
borrowings. At June 30, 1997, Woodson had working capital of $3.4 million,
including $1.0 million in short-term borrowings.
Woodson generated $2.7 million in net cash from operating activities in the
year ended December 31, 1996. Net cash used in investing activities was
approximately $1.8 million, principally for capital expenditures. Net cash used
in financing activities was $0.6 million, primarily for the payment of
dividends. At December 31, 1996, Woodson had working capital of $3.8 million,
including $0.7 million in short-term borrowings.
RESULTS OF OPERATIONS -- CSI
The following table presents certain selected data (and that data as a
percentage of revenue) of CSI on a historical basis for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------------
1994(1) 1995(1) 1996(2) 1996 1997
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........................... $ 5,331 100.0% $ 5,226 100.0% $ 8,447 100.0% $ 3,815 100.0% $ 9,606 100.0%
Costs and expenses:
Cost of revenue................. 2,964 55.6 3,334 63.8 5,264 62.3 2,463 64.6 5,651 58.8
Selling, general and
administrative expenses....... 1,725 32.4 2,285 43.7 2,435 28.8 1,160 30.4 1,270 13.2
Depreciation and amortization... 288 5.4 269 5.1 359 4.3 202 5.3 245 2.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income (loss)........... $ 354 6.6% $ (662) (12.7)% $ 389 4.7% $ (10) (0.3)% $ 2,440 25.4%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ---------------
(1) The financial information is presented for the twelve months ended May 31.
(2) Reflects results of operations for the twelve months ended December 31,
1996.
CSI's results for the six months ended June 30, 1997 compared to the six
months ended June 30, 1996
Revenue. Revenue increased $5.8 million, or 152%, for the six months ended
June 30, 1997 compared to the corresponding period in the prior year. The
increase was primarily due to the additional revenue generated by the M/V
Discovery, which was acquired in early January 1997.
Cost of revenue. Cost of revenue increased $3.2 million, or 129%, for the
six months ended June 30, 1997 compared to the corresponding period in the prior
year. The increase was primarily due to costs associated with the operation of
the M/V Discovery. As a percentage of revenue, cost of revenue was 58.8% for the
six months ended June 30, 1997 compared to 64.6% for the corresponding period in
the prior year. The decrease as a percentage of revenue was due to increased
marine construction activity.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.1 million, or 9.5%, for the six months
ended June 30, 1997 compared to the corresponding period in the prior year. As a
percentage of revenue, selling, general and administrative expenses were 13.2%
for the six months ended June 30, 1997 compared to 30.4% for the corresponding
period in the prior year. The percentage decrease was primarily attributable to
the significant increase in revenue relating to the M/V Discovery without a
commensurate increase in overhead expenses.
Depreciation and amortization. Depreciation and amortization expenses
increased $43,000, or 21.3%, for the six months ended June 30, 1997 compared to
the corresponding period in the prior year. The increase was related to the
acquisition of, and improvements to, the M/V Discovery.
CSI's results for the year ended December 31, 1996 compared to the year ended
May 31, 1995
Revenue. Revenue increased $3.2 million, or 61.3%, in 1996 compared to the
1995 period. The increase was primarily due to an increase in marine
construction activity in the Gulf of Mexico.
27
<PAGE> 29
Cost of revenue. Cost of revenue increased $1.9 million, or 57.9%, in 1996
compared to the 1995 period. The increase in cost of revenue was primarily due
to the corresponding increase in revenue and related direct costs resulting from
the increased activity. As a percentage of revenue, cost of revenue was 62.3% in
1996 compared to 63.8% in the 1995 period.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 6.6%, in 1996 compared to the
1995 period. As a percentage of revenue, selling, general and administrative
expenses were 28.8% in 1996 compared to 43.7% in the 1995 period. The percentage
decrease was primarily due to the significant increase in revenue experienced in
1996 without a commensurate increase in overhead expenses.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.1 million, or 33.5%, for 1996 compared to the 1995 period. The
increase was related to additions of property, plant and equipment in 1995 and
1996.
CSI's results for the year ended May 31, 1995 compared to the year ended May
31, 1994
Revenue. Revenue decreased nominally in 1995 compared to the 1994 period.
Cost of revenue. Cost of revenue increased $0.4 million, or 12.5%, in 1995
compared to the 1994 period. As a percentage of revenue, cost of revenue was
63.8% in 1995 compared to 55.6% in the 1994 period. The percentage increase was
primarily due to lower margins on contracts for hydrostatic testing services
performed in the 1995 period, resulting from price discounting.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.6 million, or 32.5%, in 1995 compared to
the 1994 period. The increase was primarily due to an expansion of the
administrative staff and the payment of a one-time bonus of $100,000 to CSI's
principal officers. As a percentage of revenue, selling, general and
administrative expenses were 43.7% in 1995 compared to 32.4% in the 1994 period.
Depreciation and amortization. Depreciation and amortization expenses were
essentially unchanged in 1995 compared to the 1994 period.
CSI's results for the seven months ended December 31, 1995
The following table presents certain selected data (and that data as a
percentage of revenue) of CSI on a historical basis for the period indicated
(dollars in thousands):
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
DECEMBER 31,
1995
-----------------
<S> <C> <C>
Revenue..................................................... $6,041 100.0%
Costs and expenses:
Cost of revenue........................................... 3,010 49.8
Selling, general and administrative expenses.............. 1,282 21.2
Depreciation and amortization............................. 177 3.0
------ -----
Operating income............................................ $1,572 26.0%
====== =====
</TABLE>
Revenue. Revenue for the seven months ended December 31, 1995 included
three significant high-margin jobs totaling $2.5 million, or 41.4% of the total
revenue for the period. These unusually high-margin, short-duration jobs were
bid on the basis of standard rental rates and included substantially higher
built-in margins compared to competitive bid projects.
Cost of revenue. As a percentage of revenue, cost of revenue was 49.8%,
compared to 63.8% for the twelve months ended May 31, 1995. The decrease as a
percentage of revenue was due primarily to the higher-margin jobs included in
the job mix in the seven-month period.
28
<PAGE> 30
Selling, general and administrative expenses. As a percentage of revenue,
selling, general and administrative expenses were 21.2%, compared to 43.7% for
the twelve months ended May 31, 1995. The seven months represented an active
period during which revenues increased substantially while selling, general and
administrative expenses remained relatively constant.
Depreciation and Amortization. On a per-month basis, depreciation and
amortization expenses were relatively constant in the seven months ended
December 31, 1995 and the twelve months ended May 31, 1995.
CSI's liquidity and capital resources
CSI generated $0.5 million in net cash from operating activities during the
six months ended June 30, 1997. Net cash used in investing activities was $3.8
million, with $4.2 million used for capital expenditures being offset partially
by the sale of certain investments that generated net proceeds of $0.4 million.
Net cash provided by financing activities was approximately $3.7 million,
principally related to the issuance of notes payable. At June 30, 1997, CSI had
working capital of $2.1 million and $5.8 million of debt outstanding (of which
$1.1 million was classified as current). Long-term debt consisted of a $3.4
million mortgage note on the M/V Discovery and three bank notes aggregating $1.9
million.
CSI generated $1.2 million in net cash from operating activities during the
year ended December 31, 1996. Net cash used in investing activities was
approximately $0.2 million, principally for capital expenditures, which was
offset by proceeds from sales of investments. Net cash used in financing
activities was $1.2 million, which included borrowings of $2.5 million and
repayments of $1.2 million and purchase of treasury stock for $2.3 million. At
December 31, 1996, CSI had working capital of $1.7 million and $2.1 million of
debt outstanding.
RESULTS OF OPERATIONS -- HBH
The following table presents certain selected data (and that data as a
percentage of revenue) of HBH on a historical basis for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------------------------------- ----------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.......................... $15,261 100.0% $14,771 100.0% $36,873 100.0% $19,062 100.0% $23,850 100.0%
Costs and expenses:
Cost of revenue................ 12,585 82.4 16,803 113.7 33,727 91.5 16,343 85.7 19,394 81.3
Selling, general and
administrative expenses...... 929 6.1 867 5.9 1,000 2.7 484 2.5 671 2.8
Depreciation and
amortization................. 503 3.3 871 5.9 1,482 4.0 719 3.8 750 3.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income (loss).......... $ 1,244 8.2% $(3,770) (25.5)% $ 664 1.8% $ 1,516 8.0% $ 3,035 12.7%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
HBH's results for the six months ended June 30, 1997 compared to the six
months ended June 30, 1996
Revenue. Revenue increased $4.8 million, or 25.1%, for the six months ended
June 30, 1997 compared to the corresponding period in the prior year. The
revenue increase was attributable to improved pipeline construction activity in
1997, with two major projects contributing $16.8 million in revenue.
Cost of revenue. Cost of revenue increased $3.1 million, or 18.7%, for the
six months ended June 30, 1997 compared to the corresponding period in the prior
year. The increase was primarily attributable to costs related to the higher
level of activity in pipeline construction in 1997. Improved pricing and less
subcontracting costs as a percentage of overall cost on the major projects in
the current period have contributed to higher margins. As a percentage of
revenue, cost of revenue was 81.3% for the six months ended June 30, 1997
compared to 85.7% for the corresponding period in the prior year.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 38.6%, for the six months
ended June 30, 1997 compared to the corresponding period in the prior year. The
increase was primarily attributable to accruals of performance bonuses in 1997,
which were partially
29
<PAGE> 31
offset by the elimination of consulting fees paid in 1996 to HBH's former sole
shareholder. As a percentage of revenue, selling, general and administrative
expenses were 2.8% for the six months ended June 30, 1997 compared to 2.5% for
the corresponding period in the prior year.
Depreciation and amortization. Depreciation and amortization expenses
increased $31,000, or 4.3%, for the six months ended June 30, 1997 compared to
the corresponding period in the prior year due to additions to its property,
plant and equipment.
HBH's results for 1996 compared to 1995
Revenue. Revenue increased $22.1 million, or 150%, in 1996 compared to
1995. The increase was due primarily to full year operating results of the
BH-400, which was placed in service in October 1995, and the completion of a
large pipeline installation project which generated $13.0 million in revenue.
Cost of revenue. Cost of revenue increased $16.9 million, or 101%, in 1996
compared to 1995. The increase was primarily attributable to direct costs, such
as labor, associated with the operations of the BH-400. As a percentage of
revenue, cost of revenue was 91.5% in 1996 compared to 113.7% in 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.1 million, or 15.3%, in 1996 compared to
1995. The increase was primarily attributable to increased salaries. As a
percentage of revenue, selling, general and administrative expenses were 2.7% in
1996 compared to 5.9% in 1995.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.6 million, or 70.2%, in 1996 compared to 1995, due primarily to the
acquisition of the BH-400 in October 1995.
HBH's results for 1995 compared to 1994
Revenue. Revenue decreased $0.5 million, or 3.2%, in 1995 compared to 1994.
The decrease was due primarily to the completion of a large pipeline
installation project in 1994, which generated $5.6 million in revenue.
Cost of revenue. Cost of revenue increased $4.2 million, or 33.5%, in 1995
compared to 1994. The increase was primarily attributable to the late delivery
of the BH-400, which delayed the start of two fixed-price contract jobs, thereby
increasing costs relating to standby time, weather downtime and sub-contract
services. As a percentage of revenue, cost of revenue was 114% in 1995 compared
to 82.5% in 1994.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 6.7%, in 1995 compared to
1994. The decrease was primarily attributable to the payment of performance
bonuses in 1994. As a percentage of revenue, selling, general and administrative
expenses were 5.9% in 1995 compared to 6.1% in 1994.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.4 million, or 73.2%, in 1995 compared to 1994, due primarily to the
acquisition of the BH-400 in October 1995 and other additions to property, plant
and equipment in 1994 and 1995.
HBH's liquidity and capital resources
HBH generated $1.2 million in net cash from operating activities during the
six months ended June 30, 1997. Net cash used in investing activities was $0.3
million, principally for capital expenditures. Net cash used in financing
activities was $0.9 million, which included $20.2 million proceeds from a bank
line of credit and $21.2 million of repayments. At June 30, 1997, HBH had a
working capital deficit of $0.2 million, including $1.5 million of current
maturities of debt.
HBH generated $0.1 million in net cash from operating activities during the
year ended December 31, 1996. Net cash provided by investing activities was
approximately $0.1 million, principally for capital expenditures of $1.0 million
which was offset by $0.9 million of collections on notes. Net cash used in
financing activities was $0.1 million, which included $29.0 million of
borrowings throughout the year under a
30
<PAGE> 32
bank line of credit, $0.6 million from subordinated debt and $0.3 million from
capital contributions from HBH's sole shareholder, together with debt repayments
throughout the year of $30.5 million. At December 31, 1996, HBH had a working
capital deficit of $3.5 million, including $2.4 million of current maturities of
debt.
RESULTS OF OPERATIONS -- RFCNI
The following table presents certain selected data (and that data as a
percentage of revenue) of RFCNI on a historical basis for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
-------------- --------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............................. $5,611 100.0% $10,497 100.0% $9,730 100.0% $3,159 100.0% $4,536 100.0%
Costs and expenses:
Cost of revenue................... 4,715 84.0 9,426 89.8 8,260 84.9 2,708 85.7 3,825 84.3
Selling, general and
administrative expenses......... 650 11.6 698 6.7 885 9.1 363 11.5 674 14.9
Depreciation and amortization..... 16 .3 15 .1 12 .1 8 .3 8 .2
------ ----- ------- ----- ------ ----- ------ ----- ------ -----
Operating income.................... $ 230 4.1% $ 358 3.4% $ 573 5.9% $ 80 2.5% $ 29 0.6%
====== ===== ======= ===== ====== ===== ====== ===== ====== =====
</TABLE>
RFCNI's results for the six months ended June
30, 1997 compared to the six months ended June 30, 1996
Revenue. Revenue increased $1.4 million, or 43.6%, in the six months ended
June 30, 1997 compared to the corresponding period in the prior year. Revenue
from general fabrication work increased $0.8 million and revenue from
fabrication of sewage treatment units increased $0.6 million for the 1997
period.
Cost of revenue. Cost of revenue increased $1.1 million, or 41.2%, for the
six months ended June 30, 1997 compared to the corresponding period in the prior
year. As a percentage of revenue, cost of revenue was 84.3% for the six months
ended June 30, 1997 compared to 85.7% for the corresponding period in the prior
year.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.3 million, or 85.7%, for the six months
ended June 30, 1997 compared to the corresponding period in the prior year. The
increase was primarily attributable to higher levels of marketing personnel and
related costs. As a percentage of revenue, selling, general and administrative
expenses were 14.9% for the six months ended June 30, 1997 compared to 11.5% for
the corresponding period in the prior year.
Depreciation and amortization. Depreciation and amortization expenses were
unchanged for the period ended June 30, 1997 compared to the corresponding
period in the prior year.
RFCNI's results for 1996 compared to 1995
Revenue. Revenue decreased $0.8 million, or 7.3%, in 1996 compared to 1995.
The decrease was due primarily to the completion of a large deck and jacket
fabrication project in 1995, which generated $4.7 million in revenue.
Cost of revenue. Cost of revenue decreased $1.2 million, or 12.4%, in 1996
compared to 1995. The decrease was primarily attributable to less subcontracting
of fabrication work in 1995 compared to 1996. As a percentage of revenue, cost
of revenue was 84.9% in 1996 compared to 89.8% in 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $0.2 million, or 26.8%, in 1996 compared to
1995. The increase was primarily attributable to an increase in payroll and
related costs due to personnel added to expand RFCNI's marketing capabilities.
As a percentage of revenue, selling, general and administrative expenses were
9.1% for 1996 compared to 6.7% in 1995.
Depreciation and amortization. Depreciation and amortization expenses were
essentially unchanged in 1996 compared to 1995.
31
<PAGE> 33
RFCNI's results for 1995 compared to 1994
Revenue. Revenue increased $4.9 million, or 87.1%, in 1995 compared to
1994. The increase was due primarily to revenue generated from a large deck and
jacket fabrication project in 1995, which generated $4.7 million in revenue.
Cost of revenue. Cost of revenue increased $4.7 million, or 99.9%, in 1995
compared to 1994. The increase was primarily attributable to high material
procurement costs associated with the above-mentioned deck and jacket
fabrication project. As a percentage of revenue, cost of revenue was 89.8% in
1995 compared to 84.0% in 1994.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $48,000, or 7.4%, in 1995 compared to 1994. As
a percentage of revenue, selling, general and administrative expenses were 6.7%
in 1995 compared to 11.6% in 1994.
Depreciation and amortization. Depreciation and amortization expenses were
essentially unchanged in 1995 compared to 1994.
RFCNI's liquidity and capital resources
RFCNI generated $0.7 million in net cash from operating activities during
the six months ended June 30, 1997. Net cash used in investing activities was
minimal. At June 30, 1997, RFCNI had working capital of $0.5 million and no debt
outstanding.
RFCNI used $0.6 million in net cash from operating activities during the
year ended December 31, 1996. Net cash provided from investing activities was
approximately $0.1 million, principally from collections of debt from related
parties. Net cash used in financing activities was $0.2 million, primarily for
dividend payments to RFCNI's sole shareholder. At December 31, 1996, RFCNI had
working capital of $0.5 million and no debt outstanding.
ACCOUNTING MATTERS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS
No. 128, which is effective for periods ending after December 15, 1997,
including interim periods, simplifies the standards for computing earnings per
share and replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. Initial adoption of this standard is
not expected to have a material impact on the Company's financial position or
results of operations.
32
<PAGE> 34
BUSINESS
GENERAL
TCMS was organized in April 1996 to become a fully integrated marine
construction company focusing on the transition zone (marsh, swamp and coastal
regions out to water depths of 20 feet) and shallow water (water depths of 20 to
200 feet) regions along the U.S. Gulf Coast. The Company's goal is to become a
leader in the consolidation of these fragmented segments of the marine
construction industry through an aggressive acquisition program. TCMS has
entered into definitive agreements to acquire the Founding Companies
concurrently with the closing of the Offering. As a result of the Acquisitions,
the Company believes it will be the largest provider of transition zone marine
construction services along the U.S. Gulf Coast, as well as a significant
provider of shallow water construction services. The Company's primary services
include pipeline installation and repair, hydrostatic testing and commissioning
of pipelines and fabrication and refurbishment of components for offshore
platforms and drilling rigs.
Although TCMS has recently been formed and has no operating history, the
Founding Companies have been in business an average of 47 years and have
substantial experience in operating in difficult transition zone and shallow
water environments. Marine construction activities in the transition zone
require substantial expertise and customized equipment, as compared to open
water operations, due to the unique physical characteristics often involved,
including unstable marshbeds and obstructions such as trees, submerged stumps
and a substantial infrastructure of existing pipelines. The Company believes it
will benefit from the expertise developed by the management and personnel of the
Founding Companies in operating in transition zone and shallow water
environments and its ability to design and manufacture its own specialized
equipment for these operations.
Following the Acquisitions, the Company will provide marine construction
and related services from five port facilities strategically located along the
U.S. Gulf Coast from Orange, Texas to Mobile, Alabama. The Company believes this
geographic coverage will create marketing advantages and operating efficiencies
for the Founding Companies by improving their access to projects in this region
and providing the ability to offer a broader range of services to their existing
customer bases. The Company believes these advantages will result in higher
utilization of its assets. The Company also believes it will be able to use its
fabrication operations to reduce its equipment maintenance costs and related
vessel downtime and eliminate subcontracting of certain services (including
hydrostatic testing and pipeline burial) on many of its pipeline installation
and repair projects.
OPERATIONS
Pipeline Installation and Repair. The efficient development of an offshore
oil and gas field frequently involves the addition or extension of an
infrastructure of gathering lines and trunklines (large diameter pipelines). The
Company's pipeline installation operations are focused on the transition zone
and shallow water regions along the U.S. Gulf Coast, where the Company believes
it is the only company providing pipeline installation and repair services from
water depths of 200 feet through the transition zone and to onshore gathering
and processing facilities. The Company's fleet includes (i) 15 spud barges and
ancillary equipment, operated in water depths of up to 20 feet, and (ii) two
anchor barges and three multipurpose vessels (used in both pipeline installation
and repair and hydrostatic testing, commissioning and related operations),
primarily operated in water depths beyond 20 feet. The Company also owns
specialized equipment for offshore pipeline jetting (a specialized pipeline
burying technique) and testing services, marine dredging and trench digging. The
Company generated revenue of approximately $53.5 million and $45.9 million from
its pipeline installation and repair services during the twelve months ended
December 31, 1996 and the six months ended June 30, 1997, respectively.
Offshore pipeline installation generally involves welding together standard
lengths (typically 40-foot lengths) of concrete coated steel pipe using a series
of welding, X-ray, coating and inspection stations along the length of a barge.
The new welds are X-rayed to ensure their integrity and then coated with
protective materials to inhibit corrosion and add weight to the pipe. In many
cases, the barge moves ahead on its anchors
33
<PAGE> 35
or spuds and the completed pipe sections are moved off the stern to settle on
the seabed. In swamps, marshes and certain other transition zone waters, the
completed pipeline is often installed by pulling it from the barge using a winch
while the barge remains in place. When necessary, a pontoon ramp or "stinger"
system is used in these operations to support the descending pipe to avoid
over-stressing the pipeline.
Once the pipeline has settled on the seabed, it is often buried to a
specified depth in order to protect it from potential damage or to comply with
environmental regulations and concerns. For example, in waters offshore the
United States, state and federal governmental regulations require that offshore
oil and gas pipelines greater than 8.75 inches in diameter and located in water
depths of 200 feet or less be buried at least three feet below the sea floor.
Pipelines are generally buried either by dredging or digging a trench ahead of
the pipelaying operations for the pipeline to settle into as it is installed or
by following the pipelaying operations with a towed jet sled, which uses high
pressure bursts of air and water to create a trench underneath the pipeline as
it settles into the seabed.
The Company owns and operates various barges, vessels and other items of
equipment to perform full-service pipeline construction projects in transition
zone and shallow water regions. The Company also provides construction
personnel, support equipment and logistical services as required for each
individual project. For pipelaying in water depths of 10 feet to 200 feet, the
Company uses its pipelay barge BH-400, which is capable of laying pipe from two
inches to 36 inches in diameter. For transition zone and other shallow water
projects, the Company uses a variety of equipment, including its pipelay barge
BH-300, which is capable of laying pipe from two inches to 36 inches in diameter
in water depths of up to 40 feet. Both the BH-400 and the BH-300 can be
outfitted with either a seabed plow or a skid-mounted jet sled for pipeline
burial operations. For swamp and marsh projects, the Company owns a lay barge
spread consisting of three interconnected spud barges (a barge that uses
multiple spuds attached vertically to the hull, which are lowered and raised as
necessary to anchor the barge in the seabed) and related equipment. The Company
also owns the equipment necessary to outfit a second spread of spud barges,
which it historically has rented from time to time as demand has dictated. In
addition, the Company has two jet/bury barges (BH-200 and BH-202), which are
equipped to bury pipe from two inches to 20 inches in diameter and are capable
of working in water depths as shallow as three feet and as deep as 25 feet.
The Company's fleet also includes three multi-purpose vessels, the
M/V Discovery, the M/V Sea Level 21 and the M/V Sand Queen. The M/V Discovery is
used for pipeline jetting and other support services, as well as hydrostatic
testing and commissioning services. The M/V Sea Level 21 and M/V Sand Queen are
used primarily in hydrostatic testing and commissioning services, but can also
be used as support vessels in connection with the Company's pipeline
installation and repair services. For a listing of the Company's principal
marine equipment, see "-- Marine Vessels and Equipment."
Hydrostatic Testing and Commissioning. The Company performs onshore and
offshore hydrostatic testing and commissioning of pipelines for oil and gas
producers and pipeline construction companies along the U.S. Gulf Coast and in
certain international markets. During hydrostatic testing, water is pumped into
a newly installed or existing pipeline to increase the internal pressure beyond
the designed capacity of the pipeline in order to test its structural integrity.
Pipeline commissioning involves final preparation of a completed and
successfully tested pipeline for operation in accordance with applicable
regulatory standards. In connection with its hydrostatic testing and
commissioning services, the Company also performs pipeline cleaning, drying and
dehydration services. The Company has three vessels that are used for
hydrostatic testing, including the M/V Discovery, a 270-foot, multi-purpose
construction utility vessel equipped with a dynamic positioning system. The
Company generated revenue of approximately $7.6 million and $4.4 million from
its hydrostatic testing and commissioning and related services during the twelve
months ended December 31, 1996 and the six months ended June 30, 1997,
respectively.
Offshore Fabrication. The Company fabricates and refurbishes (i) structural
components of fixed platforms for use in the offshore development and production
of oil and gas and (ii) structural components, primarily deck structures, for
offshore drilling rigs and barge drilling rigs. Components are built either as
single structures or in sections to be installed on location. The Company also
manufactures amphibious undercarriages for marine construction equipment used in
transition zone waters. The Company generated revenue of
34
<PAGE> 36
approximately $11.8 million and $5.8 million from its offshore fabrication
services during the twelve months ended December 31, 1996 and the six months
ended June 30, 1997, respectively.
INDUSTRY OVERVIEW
The market for offshore pipeline installation and related services along
the U.S. Gulf Coast is primarily dependent on the levels of oil and gas
exploration, development and production activities and pipeline capacity
utilization in the Gulf of Mexico. The Company believes recent increases in oil
and gas production in the Gulf of Mexico have significantly reduced available
pipeline capacity to transport the hydrocarbons to onshore gathering,
transmission and processing facilities. In a report published in January 1997,
the Minerals Management Service of the U.S. Department of the Interior (the
"MMS") projected an increase in Gulf of Mexico oil production of up to 76.1%
from 1,097 Mbpd (thousand barrels per day) in 1996 to 1,932 Mbpd by 2000, and an
increase in natural gas production of up to 25% from 13.8 Bcfd (billion cubic
feet per day) in 1996 to 17.2 Bcfd by 2000, assuming increased use of new
technologies, such as 3-D seismic and horizontal drilling techniques, would
offset declines in production from currently producing fields. This outlook is
supported by recent increases in offshore leases awarded by the Department of
the Interior in its semi-annual Outer Continental Shelf ("OCS") lease auctions.
The number of offshore leases awarded to operators increased from 202 in 1992,
covering approximately 1.0 million acres, to 1,508 in 1996, covering
approximately 8.0 million acres.
The MMS anticipates that a substantial portion of the increased oil and gas
production in the Gulf of Mexico will come from deep water projects. The Company
believes the continued development of deep water (depths of 200 feet to 1,000
feet) and very deep water (depths of 1,000 feet and deeper) oil and gas fields
will require construction of new pipelines and tie-ins to existing pipeline
systems in the transition zone and shallow water regions along the U.S. Gulf
Coast to transport future hydrocarbon production to shore. The Company also
expects increases in demand for its services resulting from new pipeline
construction needed to support incremental development activity within these
transition zone and shallow water regions, as well as the repair service
requirements of the existing pipeline infrastructure. According to a June 1997
report by Offshore Data Services, Inc., there were 255 pipeline construction
projects in the design or planning phase in the Gulf of Mexico, including 165 in
water depths of less than 150 feet.
BUSINESS STRATEGY
The Company's business strategy emphasizes growth through continued
consolidation of the transition zone and shallow water segments of the marine
construction industry and internal development. Key elements of the Company's
business strategy include:
Maintaining Focus on Transition Zone and Shallow Water Market Segments. The
Company intends to maintain its focus on the U.S. Gulf Coast transition zone and
shallow water markets because of its strong competitive position and substantial
expertise in these markets and the positive outlook for new oil and gas
exploration and development activity in the Gulf of Mexico. The Company
anticipates substantial growth in these markets as new pipelines are added to
gather and transport the higher levels of production expected to result from
increased exploration and development activity in the Gulf of Mexico.
Capitalizing on Combined Capabilities of the Founding Companies. The
Company believes that, as a result of the consolidation of the Founding
Companies, it is the only company providing pipeline installation and repair
services from water depths of 200 feet through the transition zone and to
onshore gathering, transmission and processing facilities along the U.S. Gulf
Coast. The Company's competitors in the pipeline installation and repair
services market currently provide services either in the transition zone or
shallow water regions, but not both. This market segmentation often requires
customers to separate an installation or repair project into different
components and award it to multiple contractors or award the project to a single
contractor and rely on that contractor's ability to coordinate with
subcontractors to complete the balance of the project. The Company believes its
capabilities place it in a favorable position to bid and compete for contracts
requiring expertise in both the transition zone and shallow water regions.
35
<PAGE> 37
Expanding Through Acquisitions. The Company intends to increase its market
presence by acquiring additional businesses and assets. The market for
transition zone and shallow water marine construction services is primarily
served by small and medium-sized private companies, and the Company believes the
highly fragmented nature of the industry presents a substantial consolidation
opportunity for a well-capitalized competitor with a strong market presence.
Pursuing International Expansion Opportunities. The Company also intends to
expand internationally by capitalizing on its relationships with hydrostatic
testing customers in international markets and domestic customers with
international operations and the experience of its management in developing
business and conducting operations in international markets. The Company intends
to target areas for international expansion with geographic conditions similar
to those along the U.S. Gulf Coast, such as Venezuela and offshore West Africa.
The Company may pursue international expansion through acquisitions of regional
marine construction companies or relocation of existing equipment.
Improving Operating Margins. The Company believes the combination of the
Founding Companies will provide significant opportunities to improve operating
margins and increase profitability. The Company believes it will be able to
achieve operating efficiencies and cost savings by consolidating overlapping
facilities and certain administrative functions and by rationalizing its asset
base. In addition, the Company believes it will be able to increase its asset
utilization by implementing a comprehensive marketing effort to capitalize on
its position as an integrated provider of pipeline installation and repair and
related services in the transition zone and shallow water market segments.
MARINE VESSELS AND EQUIPMENT
The Company's fleet includes three multi-purpose vessels, two anchor barges
and 15 spud barges. The following table describes the Company's principal marine
construction equipment.
<TABLE>
<CAPTION>
DIMENSIONS
NAME TYPE (FEET) FUNCTION
---- ---- ---------- --------
<S> <C> <C> <C>
M/V Discovery... Multi-purpose 270 x 42 x 19 Hydrostatic testing, pipeline jetting, diving
Construction Ship support, coring support; 8-point mooring system;
(Panamanian flagged) dynamic positioning system; accommodations for 54
persons
M/V Sea Level Multi-purpose 165 x 40 x 12 Hydrostatic testing, diving support, coring support;
21............ Construction Ship 4-point mooring system; accommodations for 28 persons
(U.S. flagged)
M/V Sand Multi-purpose 96 x 24 x 7 Hydrostatic testing and diving support;
Queen......... Utility Vessel accommodations for 19 persons
(U.S. flagged)
BH-400.......... Anchor Barge 260 x 72 x 16 Pipe laying (2"-36" diameter pipe) in 10' to 300'
(U.S. flagged) water depths; 8-point mooring system; accommodations
for 84 persons
BH-300.......... Anchor Barge 185 x 45 x 9 Pipe laying (2"-36" diameter pipe) in 5' to 40'
water depths; 4-point mooring system and spuds
BH-203.......... Spud/Utility Barge 90 x 26 x 5 Pipeline repair, pipeline burial in 4' to 25' water
depths
BH-202.......... Spud/Bury Barge 100 x 32 x 5 Pipeline jetting, dredging in 5' to 25' water
depths
BH-200.......... Spud/Bury Barge 120 x 30 x 7 Pipeline jetting, dredging in 5' to 25' water
depths
BH-105.......... Spud/Anchor Barge 150 x 40 x 8 Pipe laying (2"-20" diameter pipe), dredging, pile
driving in 5' to 100' water depths
BH-104.......... Spud Barge 110 x 34 x 6 Pipe laying (2"-20" diameter pipe), dredging, pile
driving in 4' to 25' water depths
Woodson Marsh Three Interconnected 140 x 38 x 7 Pipe laying (2"-48" diameter pipe) in 1' to 40'
Pipelay Spud Barges 140 x 36 x 7 water depths
Spread........ 140 x 36 x 7
</TABLE>
The Company anticipates that all the vessels and barges (together with all
the other property, plant and equipment currently owned by the Company) will be
subject to liens securing indebtedness outstanding under
36
<PAGE> 38
the Credit Agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Combined Liquidity and Capital
Resources."
FACILITIES
Administration. The Company owns administrative buildings in Lafayette and
Belle Chasse, Louisiana, and leases office space in New Iberia, Louisiana and
Houston, Texas.
Construction Support Facilities. The Company's marine construction
activities are supported by five onshore bases which provide administrative
functions for projects and dock space for the Company's floating equipment with
the ability to supply the vessels with provisions and fuel, and to perform
maintenance and repairs to vessels and equipment. The facility located in Belle
Chasse, Louisiana is owned by the Company. The facilities and dock frontage at
Berwick and Delcambre, Louisiana, and Mobile Bay, Alabama are leased, with
remaining lease terms ranging from month-to-month to 16 years.
Fabrication Yard. The Company's principal fabrication yard is located in
New Iberia, Louisiana, with waterfront docking and direct, deep channel access
to the Gulf of Mexico. The fabrication facility includes approximately 14 acres
of leased land and a 23,200 square foot fabrication shop which is supplied with
automatic welding, heavy fabrication and material handling equipment. The
fabrication yard also has specially designed concrete reinforcements and
approximately 700 linear feet of water frontage. The Company is improving the
fabrication yard to provide it with the ability to load out structures weighing
up to 5,000 tons. The fabrication yard also has a rail spur, which provides it
direct access to rail transportation. The Company also owns an 18,000 square
foot fabrication facility situated on approximately two acres of land in
Lafayette, Louisiana, and has an option to purchase a 10,000 square foot
fabrication facility situated on approximately five acres of land in Belle
Chasse, Louisiana.
MATERIALS
The principal materials used by the Company in its business are carbon and
alloy steel in various forms, welding supplies, fuel oil, gasoline and paint,
which are currently available in adequate supply from many sources. The Company
does not depend on any single supplier or source. Pipe used in the Company's
pipeline construction operations is generally provided by the Company's
customers.
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. Each of the Founding Companies has established
guidelines to ensure compliance with all applicable state and federal safety
regulations. Each of them provides ongoing training and safety education through
orientations for new employees and subcontractors, periodic crew safety training
meetings and first aid and CPR training. Each of the Founding Companies has a
comprehensive drug testing program and conducts periodic employee health
screenings.
The Company's operations are conducted in compliance with the applicable
standards of the American Petroleum Institute, the American Welding Society and
the American Society of Mechanical Engineers, as well as customer
specifications. Training programs have been instituted to upgrade the skills of
the Company's personnel and maintain high-quality standards. Management believes
these programs enhance the quality of its services and reduce the total cost of
work performed.
CUSTOMERS AND CONTRACTS
The Company's primary customers are major and independent oil and gas
exploration and production companies, drilling contractors, hydrocarbon
transportation companies and other marine construction companies. The level of
construction services required by any one customer depends on the amount of that
customer's capital expenditure budget devoted to marine construction in any
single year. Consequently, customers that account for a significant portion of
revenue in one fiscal year may represent an immaterial
37
<PAGE> 39
portion of revenue in subsequent fiscal years. The five most significant
customers of the Founding Companies on a combined basis during fiscal 1996 (in
alphabetical order) were: Mallard Bay Drilling, Inc., Mobil Corporation,
Offshore Energy Development Corporation, Samedan Oil Corporation and Shell Oil
Company. The Company had only one customer that represented more than 10% of its
pro forma combined revenues in fiscal 1996. While the Company is not dependent
on any one customer, the loss of one of its significant customers could, at
least on a short-term basis, have an adverse effect on the Company's results of
operations.
The Company's contracts are typically of short duration, being completed in
one to six months. A substantial number of the Company's projects are performed
on a fixed-price basis, although some projects are performed on an
alliance/partnering or cost-plus basis. Under a fixed-price contract, the
Company receives the price fixed in the contract, subject to adjustment only for
change orders placed by the customer. As a result, the Company is responsible
for all cost overruns under fixed-price contracts. Under a typical
alliance/partnering arrangement, 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 than the cost levels
targeted in the contract, the contract price is reduced by a portion of the
savings. If the cost to completion is greater than targeted costs, the contract
price is increased, but generally to the target price plus the actual
incremental cost of material and direct labor. Accordingly, under an
alliance/partnering arrangement, the Company has some protection against cost
overruns but must share a portion of any cost savings with the customer. Under
cost-plus arrangements, the Company receives a specified fee in excess of its
direct labor and material cost and so is protected against cost overruns but
does not benefit directly from cost savings. The revenue, costs and gross profit
realized on a contract will often vary from the estimated amounts on which such
contracts were originally based because of various reasons, including errors in
estimates or bidding, changes in the availability and cost of labor and material
and variations in productivity from the original estimates. These variations and
the risks inherent in the marine construction industry may result in revenue and
gross profits different from those originally estimated and can result in
reduced profitability or losses on projects. Depending on the size of a project,
variations from estimated contract performance can have a significant impact on
the Company's operating results for any particular fiscal quarter or year.
COMPETITION
The marine construction services business is highly competitive and in
recent years has been characterized by overcapacity, which has resulted in
substantial pressure on pricing and operating margins. The Company expects the
overcapacity in the industry to reoccur from time to time in the future.
Contracts for marine construction services are usually awarded on a competitive
bid basis. Although the Company believes customers consider, among other things,
the availability and technical capabilities of equipment and personnel,
efficiency, condition of equipment, safety record and reputation, price
competition is currently a primary factor in determining which qualified
contractor with available equipment is awarded a contract. Some of the Company's
competitors are larger and have greater financial and other resources than the
Company.
The Company categorizes the market for offshore construction services into
four segments: (i) transition zone (less than 20 feet), (ii) shallow water (20
feet to 200 feet), (iii) deep water (200 feet to 1,000 feet) and (iv) very deep
water (1,000 feet or deeper). The Company generally focuses on projects in
transition zone and shallow water regions along the U.S. Gulf Coast. Activity
in these regions has increased significantly in recent years primarily because
of increases in oil and gas production in the Gulf of Mexico. Several companies
that have one or more derrick or pipelaying barges compete in the transition
zone and shallow water regions. The Company believes, however, that, on the
closing of the Acquisitions, it will be the largest transition zone marine
construction services company focused on the U.S. Gulf Coast and a significant
provider of shallow water marine construction services in that area. The Company
believes that competition for projects in the deep water (greater than 200 feet)
and the very deep water (greater than 1,000 feet) regions of the Gulf of Mexico
is primarily limited to two large competitors, Global Industries, Ltd. and J.
Ray McDermott, S.A., with several other international contractors capable of
relocating equipment to the Gulf of Mexico to work on specific deep or very deep
water contracts. Because projects in the deep and very deep water regions
involve different vessels and equipment, as well as different technical
expertise, the Company does not presently intend to compete in those markets.
38
<PAGE> 40
The Company also competes with numerous competitors in connection with its
hydrostatic testing and commission services and fabrication operations.
BACKLOG
As of August 31, 1997, the Company's unfilled contracts and backlog orders
(including verbal orders) amounted to approximately $58.8 million; however, the
Company does not consider its backlog amounts to be a reliable indicator of
future revenue because most of the Company's projects are awarded and performed
within a relatively short period of time. The Company's backlog fluctuates
significantly based on the timing of contract awards and varying levels of
operating activity throughout the year. The Company is generally able to
complete its projects within a 12-month period.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
General
Many aspects of the Company's operations are subject to governmental
regulation, including regulation by the U.S. Coast Guard, the National
Transportation Safety Board, the U.S. Customs Service and the Occupational
Safety and Health Administration, as well as by private industry organizations
such as the American Bureau of Shipping. The Coast Guard and the National
Transportation Safety Board set safety standards and are authorized to
investigate vessel accidents and recommend improved safety standards relating to
vessels. The Occupational Safety and Health Administration performs similar
functions with respect to the Company's onshore facilities and operations. In
addition, the Company depends on the demand for its services from the oil and
gas industry and, therefore, the Company's business is affected by the laws and
regulations, as well as changing taxes and governmental policies, relating to
the oil and gas industry generally.
Certain of the Company's barges and vessels are subject to safety and
classification standards imposing requirements for periodic inspections and the
maintenance of certain certificates and insurance coverages, generally depending
on the type and size of and service performed by the barge or vessel. In
addition, in order for a vessel to engage in the U.S. Coastwise Trade (providing
transportation services between the states), the vessel must have been built in
the United States. All the Company's barges and vessels are eligible for service
in the U.S. Coastwise Trade, except for the M/V Discovery, a Panamanian flagged
vessel. As a multi-purpose construction vessel providing non-transportation
services to the offshore oil and gas industry, the Company believes the market
for the services performed by the M/V Discovery is not materially limited by its
Panamanian registration.
The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its operations. The Company believes that it has obtained all permits, licenses
and certificates necessary to the conduct of its 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 during the course of the Company's fabrication
operations.
Environmental, Health and Safety
The operations of the Company are also affected by numerous federal, state
and local laws and regulations relating to protection of the environment
including the Outer Continental Shelf Lands Act, the Federal Water Pollution
Control Act of 1972 and the Oil Pollution Act of 1990. The Company is not aware
of any noncompliance with applicable environmental laws and regulations that
would likely have a material adverse effect on the Company's business or
financial condition. The requirements of these laws and regulations are becoming
increasingly complex, stringent and expensive, and some provide for liability
for damages to natural resources or threats to public health and safety. Certain
environmental laws provide for "strict liability" for remediation of spills and
releases of hazardous substances. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or civil
penalties, and criminal
39
<PAGE> 41
prosecution. Such laws and regulations may expose the Company to liability for
(i) its actions that may cause environmental damage such as barge or vessel
collisions with rigs, tankers or pipelines or defective Company manufactured
products or improper installation of products of others, (ii) the conduct of or
conditions caused by others or (iii) acts of the Company that are in compliance
with all applicable laws at the time such acts were performed. It is possible
that changes in the environmental laws and enforcement policies thereunder, or
claims for damages to persons, property, natural resources or the environment,
could result in substantial costs and liabilities to the Company. The Company's
insurance policies provide liability coverage for sudden and accidental
occurrences of pollution and cleanup and containment of the foregoing in amounts
the Company believes are comparable to policy limits carried by other
construction contractors in the offshore industry.
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 may require public disclosure related to the use of various
hazardous substances. Compliance with these 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 its facilities are in substantial compliance with these
regulatory standards, and the Company does not currently anticipate any material
adverse effect on its business or consolidated financial position as a result of
future compliance with existing environmental laws and regulations controlling
the discharge of materials into the environment or otherwise relating to the
protection of the environment. 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 expenditures by the Company which may
be material. Accordingly, there can be no assurance that the Company will not
incur significant environmental compliance costs in the future. In addition,
offshore construction and drilling in certain areas has 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.
The Company's operations are also governed by laws and regulations relating
to workplace and worker health, primarily the Occupational Safety and Health Act
and the regulations promulgated thereunder. In addition, various other
governmental and quasi-governmental agencies require the Company to obtain
certain permits, licenses and certificates from time to time with respect to its
operations. The Company believes it has all material permits, licenses and
certificates necessary to the conduct of its existing business.
Certain employees of the Company are covered by provisions of the Jones
Act, the Death on the High Seas Act and general maritime law, which laws operate
to make the liability limits established by state workers' compensation laws
inapplicable to these employees and, instead, permit them or their
representatives to pursue actions against the Company for damages or job-related
injuries, with generally no limitations on the Company's potential liability.
The 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, sinking, 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.
LEGAL PROCEEDINGS
The Company is currently involved in two class action lawsuits for
unspecified personal injury and property damages arising from events in October
1991 and January 1992 during the course of a pipeline installation project for a
third party gas transmission company. One of the class actions, involving
approximately 9,840 class members, entitled Rivera v. United Gas Pipeline Co.,
No. 28738, was instituted against Woodson Construction Company, Inc. on October
29, 1991 in the 40th Judicial District Court, Parish of
40
<PAGE> 42
St. John the Baptist, State of Louisiana, and the other class action, involving
approximately 7,858 class members, entitled Husseiney v. United Gas Pipeline
Co., No. 29089, was instituted on January 27, 1992 against Woodson Construction
Company, Inc. in the 40th Judicial District Court, Parish of St. John the
Baptist, State of Louisiana. The claims of 24 representative class members in
each case were tried in 1995, and judgments were rendered against Woodson
Construction Company, Inc., which were later affirmed by the court of appeal. In
the Rivera lawsuit, five of the 24 representative plaintiffs were awarded
compensatory damages of $7,500 in the aggregate, but punitive damages were
denied. In the Husseiney lawsuit, compensatory damages of $18,589 and punitive
damages of $9,500 in the aggregate were assessed against Woodson Construction
Company, Inc. in favor of 16 of the 24 representative plaintiffs. In both
lawsuits, the compensatory damages awarded are expected to be covered by the
Company's insurance, but punitive damage awards are not expected to be covered
by insurance. The compensatory and punitive damages awarded to the 16
representative class members varied according to the representatives' proximity
to the incident and individual experience with respect to it. The amount of
compensatory and punitive damages applicable to the remaining 7,834 class
members who seek to adjudicate their damage claims will be litigated on an
individual basis. Until those remaining damage claims are finally adjudicated,
settled, dismissed or otherwise terminated, the total amount of the punitive
damages to which the Company may be subject cannot reasonably be estimated, and
there can be no assurance that it will not be materially adverse to the
Company's financial position or results of operations. In July 1997, all parties
involved applied to the Louisiana Supreme Court for further discretionary review
of the existing judgments. The Company believes that there are meritorious
arguments favorable to its position, but is unable to predict whether the
Louisiana Supreme Court will grant relief from the judgments.
The Company is involved in various other lawsuits arising in the ordinary
course of business, some of which involve substantial claims for damages. While
the outcome of these other lawsuits cannot be predicted with certainty,
management believes these other matters will not have a material adverse effect
on the consolidated financial position or results of operations of the Company.
INSURANCE
The Company's operations are subject to inherent risks of offshore and
inland marine activity, including hazards such as vessels capsizing, sinking,
grounding, colliding and sustaining damage from severe weather conditions. These
hazards can cause personal injury or loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage and
suspension of operations. The Company maintains such insurance protection as it
deems prudent, including hull insurance. However, certain risks are either not
insurable or insurance is available only at rates that the Company considers not
to be economical. There can be no assurance that any such insurance will be
sufficient or effective under all circumstances or against all hazards to which
the Company may be subject. A successful claim for which the Company is not
fully insured could have a material adverse effect on the Company. Moreover, no
assurance can be given that the Company will be able to maintain adequate
insurance in the future at rates it considers reasonable.
INTELLECTUAL PROPERTY
Although the Company's intellectual property rights are, in the aggregate,
important to the Company's business, the Company believes its technical
knowledge and experience, reputation and customer relationships are more
important to its competitive position than any patents, licenses, trademarks or
other intellectual property rights.
EMPLOYEES
The size of the Company's work force, other than its clerical and
administrative personnel, is variable and depends on the Company's workload at
any particular time. As of July 31, 1997, the Founding Companies had an
aggregate of approximately 645 employees. In addition, many workers are hired on
a contract basis and are available to the Company on short notice. None of the
Company's employees are covered by a collective bargaining agreement.
41
<PAGE> 43
The Company's ability to remain productive and become profitable will
depend substantially on its ability to retain and attract skilled construction
workers, primarily welders, pipefitters and equipment operators. The Company's
ability to expand its operations depends on its ability to increase its labor
force. The demand for such workers is high and the supply is limited. While the
Company believes its wage rates are competitive and its relationship with its
skilled labor force is good, a significant increase in the wages paid by
competing employers could result in a reduction in the Company's skilled labor
force, increases in the wage rates paid by the Company, or both. If either of
these events occurred, the profits realized by the Company from work then in
progress would be reduced or eliminated and, in the long-term, the capacity and
profitability of the Company could be diminished and the growth potential of the
Company could be impaired.
42
<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers and directors of TCMS as of the closing of the Offering (ages are as of
August 31, 1997).
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bill E. Stallworth................ 65 Chairman of the Board of Directors and Chief
Executive Officer(1)
Thad "Bo" Smith................... 55 President, Chief Operating Officer and Director
Johnnie W. Domingue............... 50 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
H. Daniel Hughes II............... 38 Director(4); President of HBH
Daniel N. Hargett, Sr. ........... 57 Director(1)(4); President of CSI
Patrick B. Collins................ 68 Director(3)
Clifford E. McFarland............. 41 Director(1)(3)
D. Glenn Richardson............... 54 Director(2)
Jean Savoy........................ 50 Director(1)(2)(3)
Nathan M. Avery................... 62 Director(1)(2)(4)
</TABLE>
- ---------------
(1) Member of Board Executive Committee.
(2) Member of Board Compensation Committee.
(3) Member of Board Audit Committee.
(4) Appointment will become effective when the Offering closes.
Bill E. Stallworth has served as Chairman of the Board and Chief Executive
Officer of TCMS since August 1997. Mr. Stallworth has over 40 years of
experience in the oil and gas engineering and construction industries including
experience as a field engineer, construction manager, project director, group
vice president of fabrication, offshore installation and submarine pipeline
construction, and, as the President of Brown & Root International, Inc.,
executive manager of worldwide engineering and construction activities. Mr.
Stallworth served in various capacities with Brown & Root, Inc. ("Brown & Root")
from 1956 to 1986, including service as a member of Brown & Root's Board of
Directors from 1981 to 1986. Mr. Stallworth founded an engineering and
construction consulting company in 1986, providing services in the international
oil and gas and construction industries. Mr. Stallworth is currently serving on
the Board of Directors of Fugro N.V., a multi-national consulting company, and
on the Texas A&M Board of Advisors for the Center of International Business
Studies. Mr. Stallworth holds a bachelor of science degree in architectural
construction from Texas A&M University.
Thad "Bo" Smith has served as President and Chief Operating Officer of TCMS
since August 1997. Mr. Smith has 29 years of experience in offshore and shallow
water marine construction projects, including field supervision, cost
estimating, contract procurement, operations management, corporate business
development, strategic planning and executive management, with direct
involvement in offshore pipeline construction and fabrication operations in both
domestic and international shallow water regions. From January 1997 to August
1997, he worked as an independent consultant in the areas of business strategy
and product development. From 1967 to 1996, Mr. Smith held various positions
with Brown & Root, where his last position was President of Brown & Root's
Worldwide Service, Civil and Environmental Business. Mr. Smith was with Brown &
Root's Marine Division from 1967 to 1986 with his last position as Senior Vice
President with responsibilities for its European and African offshore oil and
gas construction business. Mr. Smith is currently serving on the University of
Houston, College of Business Dean's Executive Advisory Board and is a Director
for the Houston Area Research Council. Mr. Smith holds a bachelor of business
administration degree in management from the University of Houston.
Johnnie W. Domingue has served as Senior Vice President and Chief Financial
Officer of TCMS since May 1997. From 1996 to 1997, Mr. Domingue was Vice
President and Chief Financial Officer of Ankle &
43
<PAGE> 45
Foot Centers of America, a start-up venture for the consolidation of foot and
ankle specialists. From 1988 to 1995, he was employed by Community Health
Computing, Corp., a computer software and service company, in various positions
including President and Chief Executive Officer. In 1995, Community Health
Computing Corp. and Community Health Computing, Inc., one of its subsidiaries,
were reorganized under bankruptcy proceedings pursuant to Chapter 11 of the
United States Bankruptcy Code. Mr. Domingue served as Vice President, Finance
and Treasurer of Synercom Technology, Inc., a publicly traded company, from 1982
to 1988. From 1976 to 1982, he served as Vice President of Finance and
Controller of Galveston-Houston Company. From 1970 to 1976, Mr. Domingue served
in a number of positions as a certified public accountant with Coopers & Lybrand
LLP.
H. Daniel Hughes II will become a director of TCMS on the closing of the
Offering. Mr. Hughes has served as the President of HBH since 1993 and served as
its Vice President from 1991 to 1993. Prior to joining HBH, he held various
positions in related entities since 1981, including service as President of
Dixie Machine Welding and Metalworks, Inc., a topside ship repair and industrial
fabrication company. Mr. Hughes holds a bachelor of business administration from
the University of Texas at Austin.
Daniel N. Hargett, Sr. will become a director of TCMS on the closing of the
Offering. He has served as Chief Executive Officer of CSI since 1963. In 1981,
Mr. Hargett founded Hargett Mooring & Marine, Inc., a supplier of vessels
providing marine construction support.
Patrick B. Collins was elected to the Board of Directors in September 1997.
From 1967 to 1991, Mr. Collins was a partner with Coopers & Lybrand LLP. Since
1991, Mr. Collins has been an independent business consultant specializing in
financial and accounting matters. Mr. Collins is currently serving on the Board
of Directors of HCC Insurance Holdings, Inc., a property and casualty insurance
company based in Houston, Texas.
Clifford E. McFarland was elected to the Board of Directors in September
1997. In November 1991, Mr. McFarland co-founded McFarland, Grossman & Company,
Inc., a Houston, Texas-based investment banking and financial advisory firm, and
has served as its Managing Director and President since that time. Mr. McFarland
is currently serving on the Board of Directors of Teletouch Communications, Inc.
of Tyler, Texas and Sport Clips, Inc., of Georgetown, Texas.
D. Glenn Richardson was elected to the Board of Directors in September
1997. Mr. Richardson founded Falcon Drilling Company, Inc. of Houston, Texas,
which he served as a director and as President and Chief Operating Officer from
1990 until his retirement in June 1996. Mr. Richardson founded Glendel Drilling
Company, Inc., a barge drilling rig operator based in Abbeville, Louisiana, and
served as its President from 1980 to 1989. Mr. Richardson currently owns and
operates a cattle ranch in Louisiana.
Jean Savoy was elected to the Board of Directors in September 1997. Mr.
Savoy, a promoter of TCMS, is a member, manager and director of J&D Capital
Investments, L.C., a consulting and financial services company based in
Lafayette, Louisiana. For more than the past 25 years, Mr. Savoy has served as
an independent directional and horizontal drilling consultant for independent
and major oil and gas companies and various directional drilling concerns.
Nathan M. Avery will become a director of TCMS on the closing of the
Offering. Since 1972, Mr. Avery has served as Chairman of the Board, President
and Chief Executive Officer of Galveston-Houston Company, a company specializing
in manufacturing oilfield service products. He has been active in the oil and
gas industry since the 1960s. Mr. Avery is currently a director and member of
the Executive Committee of Daniel Industries, Inc. and a director of Prime
Cable. He is also an advisory director of Cooper Cameron Corporation. Mr. Avery
was Chairman of the Board of the Board of Directors of Bettis Corporation until
December 1996.
In addition to these persons, the Company intends to continue to employ
substantially all of the senior operating management of each of the Founding
Companies following the closing of the Acquisitions.
44
<PAGE> 46
COMMITTEES OF THE BOARD
The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee advises the
Board of Directors on matters relating to the senior management of the Company.
The Audit Committee recommends the appointment of auditors and oversees the
accounting and audit functions of the Company. The Compensation Committee
determines executive officers' and key employees' salaries and bonuses and
administers the 1997 Stock Option Plan. Messrs. Stallworth, Hargett, Savoy,
McFarland and Avery will serve as members of the Executive Committee. Messrs.
Collins, McFarland and Savoy will serve as members of the Company's Audit
Committee and Messrs. Richardson, Avery and Savoy will serve as members of the
Compensation Committee.
DIRECTOR COMPENSATION
After the closing of the Offering, each member of the Board of Directors
who is not a full-time employee of the Company (a "Non-Employee Director") will
be paid (i) an annual retainer of $5,000, payable in quarterly installments, and
(ii) $500 per meeting of the Board of Directors or any committee thereof (unless
held on the same day as a Board meeting) at which the director is present.
Directors who are full-time employees of the Company will not receive any
compensation for serving as directors. All directors will be reimbursed for all
ordinary and necessary expenses incurred in attending any meeting of the Board
of Directors or any committee thereof or otherwise incurred in their capacity as
directors.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
TCMS was organized in April 1996 and, prior to the Offering, has not
conducted any operations other than activities related to the Acquisitions and
the Offering. TCMS did not pay any compensation to its executive officers during
1996. During 1997, TCMS has compensated Mr. Domingue $50,000 under an employment
memorandum executed on April 21, 1997 between TCMS and Mr. Domingue. Prior to
their becoming officers of the Company, Messrs. Stallworth and Smith were
compensated under a consulting agreement between the Company and Stallworth,
Frankhouser & Associates, a Houston-based consulting firm. See "Certain
Transactions." Pursuant to their respective employment agreements, Messrs.
Stallworth, Smith and Domingue will receive success bonuses of $115,000,
$130,000 and $100,000, respectively, on the closing of the Offering. See
"-- 1997 Stock Option Plan."
TCMS has entered into employment agreements with Messrs. Stallworth and
Smith effective August 1, 1997 and will have employment agreements with each of
Messrs. Hargett, Domingue and Hughes following the closing of the Offering.
Their annualized base salaries will be: Mr. Stallworth -- $200,000; Mr. Smith --
$200,000; Mr. Hargett -- $200,000; Mr. Domingue -- $180,000; and Mr.
Hughes -- $175,000.
The following summary of the executive employment agreements does not
purport to be complete and is qualified by reference to them, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. Each such employment agreement provides for an annual base
salary in an amount not less than the initial specified amount and entitling the
employee to participate in all TCMS' compensation plans (as defined) in which
other executive officers of TCMS participate. Each of these agreements has a
three-year term and continues thereafter on a year-to-year basis on the same
terms and conditions existing at the time of renewal, subject to the right of
TCMS and the employee to terminate the employee's employment at any time. If the
employee's employment is terminated by TCMS without cause (as defined), the
employee will be entitled, for 12 months following the effective date of such
termination, to (i) periodic payments equal to his annual cash base salary (as
defined) from TCMS, including bonuses, if any, and (ii) continued participation
in all TCMS' compensation plans (other than the granting of new awards under the
1997 Stock Option Plan or any other performance-based plan) during such period.
If a change of control (as defined) of TCMS occurs and the terms of the
employment agreement are not adopted, the employee will be entitled to receive
an amount equal to 36 months of his then-current base salary under the
agreement, payable semimonthly. The employment agreements contain or will
contain covenants limiting competition with the Company during the term of the
employment agreement and for additional periods up to two years after the
termination of employment.
45
<PAGE> 47
1997 STOCK OPTION PLAN
In August 1997, the Board of Directors and the stockholders of TCMS
approved the 1997 Stock Option Plan. The 1997 Stock Option Plan provides for the
granting of stock options ("Options") to directors, executive officers, certain
other employees and certain non-employee consultants of the Company. Within
certain limitations provided by the 1997 Stock Option Plan, such Options may
include provisions regarding vesting, exercise price, the amount of each grant
and other terms as shall be approved by the Board of Directors or by a committee
designated by the Board. Options granted under the 1997 Stock Option Plan may be
either options that qualify as "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Options"), or those that do not qualify as such ("Non-qualified
Options"). The 1997 Stock Option Plan, which permits up to 750,000 shares of
Common Stock to be issued, terminates in August 2007.
The 1997 Stock Option Plan is administered by the Board of Directors or by
the Compensation Committee of the Board, which committee, to the extent
required, will be constituted so as to qualify for certain exemptions under Rule
16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, to satisfy the requirements of Section 162(m) of the Code, will at all
times consist of at least two non-employee directors. Subject to the terms of
the 1997 Stock Option Plan, the Board of Directors or the Compensation Committee
determines the persons to whom Options are granted and the terms and the number
of shares covered by each Option. The term of each Option may not exceed ten
years from the date the Option is granted, or five years in the case of an
Incentive Option granted to a holder of more than 10% of the fully diluted
capital stock of TCMS. Non-qualified Options and Incentive Options may become
exercisable six months after the date of grant and may continue to be
exercisable, in whole or in part, up to ten years after the date of grant, as
determined by the Board or the Compensation Committee.
The 1997 Stock Option Plan provides that all Non-qualified Options and
Incentive Options which are not exercisable on the date of termination of an
Optionholder's employment generally expire when the optionee ceases to be
affiliated with the Company; however, the Board of Directors or the Compensation
Committee may, in its discretion, permit the holder to exercise unvested Options
following such termination for specified periods of time if the six-month
waiting period has been satisfied. Options may not be transferred other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee may be exercised only by the optionee. The 1997 Stock Option Plan
provides that each stock option agreement with respect to any Non-qualified
Option or Incentive Option shall specify the effects of termination of
employment or consulting on exercisability of such options.
The 1997 Stock Option Plan contains a provision accelerating the
exercisability of Options upon the occurrence of specified events, including
merger, consolidation, dissolution or liquidation of TCMS. The acceleration of
vesting of Options in the event of a merger or other similar event may be seen
as an anti-takeover provision and may have the effect of discouraging a proposal
for merger, a takeover attempt or other efforts to gain control of TCMS.
Payment on the exercise of an Option may be in cash, by check or, at the
discretion of the Board, by delivery of shares of Common Stock with a "fair
market value," as defined in the 1997 Stock Option Plan, equal to the aggregate
exercise price, or by means of a "cashless exercise" involving the sale of
shares by, or a loan from, a broker.
Pursuant to the 1997 Stock Option Plan and effective as of the date the
initial public offering price is determined, Incentive Options will be granted
to Messrs. Stallworth, Smith, Domingue, Hargett and Hughes. The shares under the
option grant will be equal to 2.5 times the annual compensation of each
respective executive divided by the initial public offering price. Assuming an
initial public offering price per share of $15.00, Incentive Options to purchase
shares of Common Stock will be granted to the persons named in "-- Executive
Compensation and Employment Agreements" above as follows: 33,333 shares to Mr.
Stallworth, 33,333 shares to Mr. Smith, 30,000 shares to Mr. Domingue, 33,333
shares to Mr. Hargett and 29,167 shares to Mr. Hughes. Each of those Options
will have an exercise price equal to the initial public offering price per
share. These Options will vest at the rate of 20% per year, commencing on the
first anniversary of the closing of the Offering, and will expire at the earlier
of ten years from the date of grant or three months following termination of
employment.
46
<PAGE> 48
Pursuant to an October 1997 action of the Board of Directors and under the
terms of the 1997 Stock Option Plan, the Company has approved Non-qualified
Options for each of the initial Non-Employee Directors as follows (the
"Non-Employee Director Awards"): (i) the automatic grant to each of the initial
Non-Employee Directors (including those elected to begin service upon completion
of the Offering) of options to purchase 5,000 shares, effective as of the date
the initial public offering price is determined, at an exercise price equal to
the initial per share public offering price, (ii) the automatic grant to each
Non-Employee Director elected after the completion of the Offering of options to
purchase 5,000 shares, effective on the date of such person's initial election
as a director, at an exercise price equal to the fair market value of the Common
Stock on the date of such grant, and (iii) the automatic grant to each
Non-Employee Director of options to purchase 5,000 shares at each annual meeting
of stockholders thereafter at which such director is re-elected or remains a
director, unless such annual meeting is held within three months following such
person's election as a director, at an exercise price equal to the fair market
value of the Common Stock on the date of such grant. The Company has reserved
100,000 shares of Common Stock for issuance pursuant to the Non-Employee
Directors Awards; however, the Board of Directors may revoke at any time the
next automatic grant of options otherwise provided for pursuant to the
Non-Employee Director Awards. Each option granted pursuant to the Non-Employee
Director Awards shall be exercisable in full six months after the date of grant
and shall expire ten years after the date of grant, unless sooner exercised or
cancelled due to termination of service or death.
47
<PAGE> 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 27, 1997, and as adjusted to give
effect to the closing of the Acquisitions and the Offering, as to (i) all
persons who will then be the "beneficial owners" (as defined by the Commission)
of 5% or more of the Common Stock, (ii) each director and person nominated to
become a director on closing of the Offering; (iii) each executive officer; (iv)
certain executive officers of each of the Founding Companies; and (v) all
executive officers and directors of the Company as a group. All persons listed
have an address c/o the Company's principal executive offices and have sole
voting and investment power with respect to their shares, unless otherwise
indicated.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED AS OF BENEFICIALLY
OCTOBER 27, OWNED AFTER
1997(1) OFFERING(1)
------------------- -------------------
NUMBER OF NUMBER OF
SHAREHOLDERS SHARES PERCENT SHARES PERCENT
------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Jean Savoy(2)(3)................................. 742,500 58.9% 742,500 8.4%
G. Darcy Klug(2)(3).............................. 737,500 58.7 737,500 8.4
J&D Capital Investments, L.C.(3)................. 737,500 58.7 737,500 8.4
James B. Thompson, Jr.(3)........................ 100,000 8.0 100,000 1.1
Bill E. Stallworth............................... 100,000 8.0 100,000 1.1
Thad Smith....................................... 100,000 8.0 100,000 1.1
Johnnie W. Domingue.............................. 75,000 6.0 75,000 *
Beldon E. Fox, Jr.(3)............................ 75,000 6.0 75,000 *
Clifford E. McFarland(4)......................... 55,000 4.2 55,000 *
Patrick B. Collins............................... 8,000 * 8,000 *
The Succession of Herbert D. Hughes.............. -- -- 600,000 6.8
Louis Woodson.................................... -- -- 580,000 6.6
Daniel N. Hargett, Sr............................ -- -- 533,333 6.0
H. Daniel Hughes II.............................. -- -- -- --
D. Glenn Richardson.............................. 5,000 * 5,000 *
Nathan Avery..................................... -- -- 5,000 *
All executive officers, directors and persons
nominated to become directors as a group (10
persons)....................................... 1,085,500 81.9 1,923,833 21.6
</TABLE>
- ---------------
* Less than one percent
(1) Shares shown include shares that could be acquired on exercise of currently
outstanding stock options which vest within 60 days of the date of this
Prospectus as follows: Jean Savoy -- 5,000; Clifford E. McFarland -- 5,000;
Patrick B. Collins -- 5,000; D. Glenn Richardson -- 5,000; and Nathan
Avery -- 5,000.
(2) Shares shown include 737,500 shares held by J&D Capital Investments, L.C.,
of which Mr. Klug owns 73.75% and Mr. Savoy owns 26.25% of the membership
interests.
(3) The holder has agreed to exchange certain shares of Common Stock for an
equal number of shares of Restricted Common Stock, par value $.001 per share
("Restricted Common Stock"), contemporaneously with the closing of the
Offering under certain circumstances. See "Certain Transactions --
Acquisitions of the Founding Companies" and "Description of Capital
Stock -- Common Stock and Restricted Common Stock."
(4) Shares shown reflect warrants to purchase 50,000 shares issued to McFarland,
Grossman & Company, Inc., of which Mr. McFarland is a co-founder and
managing director.
48
<PAGE> 50
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with its formation, TCMS issued 600,000 shares of its Common
Stock to J&D Capital Investments, L.C. ("J&D") for an aggregate cash
consideration of $600 (62,500 of which shares were subsequently sold to
unrelated third parties). G. Darcy Klug and Jean Savoy, promoters of TCMS, own
73.75% and 26.25% of the membership interests of J&D, respectively. TCMS also
issued, in connection with its formation, 300,000 shares of Common Stock to G.
Darcy Klug, individually (200,000 of which shares were subsequently contributed
by Mr. Klug to J&D and 100,000 of which shares were subsequently sold to James
B. Thompson, Jr.), and 75,000 shares of Common Stock to Beldon E. Fox, Jr., each
for cash consideration equal to $.001 per share. On closing of the Offering, the
holders of these 975,000 shares of Common Stock have agreed to exchange such
shares for an equal number of shares of Restricted Common Stock to the extent
required to ensure that shareholders of the Woodson companies become,
collectively, the largest holder of TCMS voting stock immediately following the
Acquisitions.
Effective February 19, 1997, TCMS and J&D entered into a consulting
agreement pursuant to which J&D provides consulting and financial services to
TCMS. Under the consulting agreement, J&D is to receive a consulting fee of
$12,500 per month, payable on the closing of the Offering, at which time the
agreement shall terminate. On September 24, 1997, TCMS and J&D amended the
consulting agreement, so that, following the completion of the Offering, J&D
will provide the Company financial advisory and related services in connection
with its acquisition program. J&D will receive a consulting fee of $23,500 per
month and Non-Qualified options under the 1997 Stock Option Plan to purchase
44,000 shares (assuming an initial public offering price of $15.00 per share)
for an exercise price equal to the initial public offering price per share.
These options will vest at the rate of 20% per year, commencing on the first
anniversary of the closing of the Offering, and will expire at the earlier of
ten years from the date of grant or three months following termination of the
consulting and financial services agreement. In addition, J&D will also be
eligible to receive annual performance-based bonuses. In addition, J&D has made
advances to TCMS pursuant to the J&D Loan Agreement to enable TCMS to pay
various professional and administrative expenses in connection with its
formation and the Offering. As of September 30, 1997, there were outstanding
advances under the J&D Loan Agreement totaling $554,583, which amount bears
interest at a rate of 10% per annum and is payable on or before the earlier of
June 19, 1998 or 30 days following the closing of the Offering. All the advances
made under the J&D Loan Agreement, together with accrued interest thereon, will
be repaid from the net proceeds of the Offering. See "Use of Proceeds."
On April 14, 1997, TCMS entered into an agreement for consulting services
("Executive Services Agreement") with Stallworth, Frankhouser & Associates, a
Houston-based business consulting firm ("SFA"), pursuant to which Bill E.
Stallworth and Thad Smith have provided executive services to TCMS in connection
with its formation, the Acquisitions and the Offering. Under the Executive
Services Agreement, SFA is entitled to receive (i) $10,000 per month for the
services provided by Mr. Stallworth so long as he provides a minimum of 85 hours
of services per month to TCMS and (ii) $250 per hour for the services provided
by Mr. Smith, with a maximum daily charge of $2,000 per day. Either TCMS or SFA
may terminate the Executive Services Agreement by providing the other party 30
days' prior notice. The Executive Services Agreement was amended to provide for
termination of consulting services effective August 1, 1997, and to provide for
the payment of cash bonuses, payable upon the closing of the Offering, to Mr.
Stallworth and Mr. Smith in the amount of $115,000 and $130,000, respectively.
Effective August 1, 1997, the Company entered into employment agreements with
Mr. Stallworth and Mr. Smith under which each will receive a base salary of
$10,000 per month prior to the closing of the Offering.
On April 21, 1997, TCMS executed a memorandum agreement with Johnnie W.
Domingue, providing the terms of Mr. Domingue's employment with TCMS in
connection with its formation, the Acquisitions and the Offering. Under that
agreement, Mr. Domingue receives a base salary of $10,000 per month. Mr.
Domingue will receive a success bonus of $100,000 on the closing of the
Offering. Either party may terminate the agreement on 30 days' written notice.
49
<PAGE> 51
From March 1997 to April 1997, TCMS also sold a total of 275,000 shares of
Common Stock at $.001 per share to various members of management as follows: Mr.
Stallworth -- 100,000 shares; Mr. Smith -- 100,000 shares; and Mr.
Domingue -- 75,000 shares.
TCMS has entered into stock repurchase agreements with each of Messrs.
Stallworth, Smith and Domingue, pursuant to which TCMS is entitled to
repurchase, for $.001 per share, a portion of the shares of Common Stock
previously issued to each of them, in the event such individual (i) is
terminated from his employment with TCMS for cause (as defined in the
agreements) or (ii) voluntarily resigns from his employment with TCMS within 18
months of the closing of the Offering. All shares of Common Stock held by such
persons on the closing of the Offering will initially be subject to the
repurchase rights and that number will be reduced pro rata each month thereafter
until the end of that 18-month period, when no shares will be subject to
repurchase by TCMS. Messrs. Stallworth, Smith and Domingue may not sell any
shares of Common Stock so long as they remain subject to the repurchase rights.
ACQUISITIONS OF THE FOUNDING COMPANIES
Concurrently with the closing of the Offering, TCMS will acquire by merger
or stock purchase all the issued and outstanding capital stock of the Founding
Companies, at which time, each Founding Company will become a wholly owned
subsidiary of TCMS. The aggregate consideration TCMS will pay to acquire the
Founding Companies and certain related real estate consists of (i) approximately
$85.7 million in cash, (ii) $3.0 million in 8% notes payable over a ten-year
term ending in 2007 and (iii) 2,570,933 shares of Common Stock. TCMS will also
assume up to $11.5 million of indebtedness of the Founding Companies and then
repay or refinance substantially all that indebtedness at or shortly after the
closing of the Acquisitions. In addition, the acquisition agreements for the
RFCNI and CSI Acquisitions provide for post-closing adjustments, which are to be
determined based on a multiple of estimated EBITDA of RFCNI and one of the
entities comprising CSI, payable in a combination of cash and shares of Common
Stock. Based on a preliminary determination, the Company currently estimates
that such post-closing adjustments will not exceed $0.5 million.
The consideration being paid by TCMS for each Founding Company was
determined by arm's-length negotiations between TCMS and the owner or owners of
that Founding Company.
HBH and two of the Woodson companies are S corporations. In connection with
the Acquisitions, these companies will make distributions to their shareholders
equal to 42% of their undistributed net earnings since January 1, 1997 ("S
Corporation Distributions"). If the S Corporation Distributions were distributed
as of June 30, 1997, the aggregate amount of the S Corporation Distributions
would have been $2.6 million.
The following table sets forth the estimated consideration to be paid by
TCMS for each of the Founding Companies and related real estate (dollars in
thousands). These amounts do not include any S Corporation Distributions to be
made to the shareholders of the various Founding Companies.
<TABLE>
<CAPTION>
SHARES OF
LONG-TERM COMMON DEBT
CASH DEBT STOCK ASSUMED
------- --------- --------- -------
<S> <C> <C> <C> <C>
Woodson(1)(2).................................... $19,836 $ -- 1,237,600 $ --
CSI.............................................. 40,000 -- 533,333 5,500
HBH.............................................. 24,350(3) -- 600,000 6,000
RFCNI............................................ 1,500 3,000 200,000 --
------- ------ --------- -------
Total.................................. $85,686 $3,000 2,570,933 $11,500
======= ====== ========= =======
</TABLE>
- ---------------
(1) Three of the Woodson Companies will be acquired for TCMS Common Stock in
separate merger transactions and the stock of the fourth Woodson Company
will be purchased for cash and shares of TCMS Common Stock.
(2) J&D, James B. Thompson, Jr. and Beldon E. Fox, Jr. have each agreed to
exchange their shares of Common Stock for Restricted Common Stock
contemporaneously with the closing of the Offering to the
50
<PAGE> 52
extent required to ensure that shareholders of the Woodson companies become,
collectively, the largest holder of Common Stock entitled to vote
immediately following the Acquisitions. See "Description of Capital
Stock -- Common Stock and Restricted Common Stock."
(3) Does not include an option exercise price of $1.2 million applicable to an
option to purchase a five-acre tract of real property and improvements
adjacent to a 13-acre tract of land used by HBH, which is being acquired in
connection with the Acquisition of HBH.
In connection with the Acquisitions, and as consideration for their
interests in the Founding Companies, the following officers, directors and
beneficial owners of more than 5% of the outstanding shares of Common Stock will
receive cash and shares of Common Stock as set forth in the following table
(dollars in thousands). These amounts do not include any S Corporation
Distributions to be made to the shareholders of the various Founding Companies.
<TABLE>
<CAPTION>
SHARES OF
NAME CASH COMMON STOCK
---- ------- ------------
<S> <C> <C>
Daniel N. Hargett, Sr...................................... $36,670 533,333
Louis Woodson.............................................. -- 580,000
The Succession of Herbert D. Hughes........................ 24,350 600,000
------- ---------
Total............................................ $61,020 1,713,333
======= =========
</TABLE>
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by its stockholders or by entities controlled by its
stockholders. At June 30, 1997, the aggregate amount of indebtedness of these
Founding Companies that was subject to personal guarantees was approximately
$12.5 million. TCMS intends to repay such indebtedness at the closing of the
Acquisitions.
Certain of the Acquisitions (the "Mergers") are structured so that each
relevant Founding Company will be merged with and into a subsidiary of TCMS,
with the subsidiary surviving the transaction. TCMS has received an opinion of
counsel that no Founding Company will recognize income or gain in connection
with the Mergers, which opinion is based on certain assumptions as to factual
matters (which the Company believes are correct). If gain were recognized, the
Company would be liable for federal and state income taxes (without recourse to
others), the amount of which would depend on the difference between the value of
the assets of the relevant Founding Company reduced by the adjusted basis
thereof. Such federal or state income tax liabilities, if imposed, could have a
material adverse effect on the financial condition of the Company.
The closing of each Acquisition is subject to customary conditions
including, among others: the continuing accuracy of the representations and
warranties made by the Founding Companies, their principal shareholders and
TCMS, the performance of each of their respective covenants included in the
agreements relating to the Acquisitions and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
each Founding Company prior to the closing date.
Any Founding Company's acquisition agreement may be terminated under
certain circumstances prior to the closing of the Offering, including: (i) by
the mutual consent of the Board of Directors of TCMS and the owner or owners of
that Founding Company; (ii) by TCMS if the disclosure schedules to the
acquisition agreement are amended to reflect a material adverse change in that
Founding Company; or (iii) if a material breach or default under the agreement
by one party occurs and is not waived. No assurance can be given that the
conditions to the closing of all the Acquisitions will be satisfied or waived or
that each Acquisition will close.
FINANCIAL ADVISORY SERVICES
In February 1997, the Company engaged McFarland, Grossman & Company, Inc.
("MGCO") to provide financial advisory services for a period of six months in
connection with the Acquisitions and related financings. Under the terms of the
engagement letter between the Company and MGCO, as amended on June 25, 1997 (the
"MGCO Engagement Letter"), the Company paid MGCO an initial financial advisory
fee of $15,000, plus monthly fees aggregating $30,000, and reimbursed MGCO for
its out-of-pocket expenses
51
<PAGE> 53
relating to the services provided. In connection with the MGCO Engagement
Letter, the Company issued the MG Warrant to MGCO for $100 in cash. The MG
Warrant provides for the purchase of up to 50,000 shares of Common Stock, at a
per share exercise price equal to the lesser of $8.00 and 70% of the initial
public offering price set forth on the cover page of this Prospectus. The MG
Warrant may be exercised in whole or, from time to time, in part, at any time
during the five-year period beginning on the issuance date of the MG Warrant.
The Company granted certain registration rights to MGCO with respect to the
shares of Common Stock issuable upon exercise of the MG Warrant.
Pursuant to the MGCO Engagement Letter, MGCO will be entitled to receive
the following fees in the future: (i) a $400,000 success fee, payable on closing
of the Acquisitions; (ii) a senior debt placement fee of up to 2% of the Initial
Availability, payable on closing of the Credit Agreement; and (iii) a private
placement fee equal to 5% of the amount of any private placement made by the
Company within two years of August 12, 1997 with any capital source introduced
to the Company by MGCO during the term of the MGCO Engagement Letter, together
with a warrant to purchase an amount equal to 10% of the securities issued in
any such private placement at the issue price in that private placement.
52
<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
GENERAL
TCMS' Charter authorizes the issuance of 25,000,000 shares of capital
stock, consisting of 20,000,000 shares of Common Stock, 3,000,000 shares of
Restricted Common Stock and 2,000,000 shares of Preferred Stock, par value $.001
per share ("Preferred Stock"). At October 27, 1997, 1,256,000 shares of Common
Stock were outstanding, and no shares of either Restricted Common Stock or
Preferred Stock were outstanding. On closing of the Acquisitions and the
Offering, TCMS will have outstanding 8,826,933 shares of Common Stock and no
shares of Preferred Stock or Restricted Common Stock will be outstanding (except
to the extent that shares of Common Stock may be exchanged for shares of
Restricted Common Stock contemporaneously with closing of the Offering. See
"Certain Transactions -- Acquisitions of the Founding Companies"). The following
summary description of certain terms of the capital stock of TCMS is qualified
in its entirety by reference to the Charter, which is included as an exhibit to
the Registration Statement of which this Prospectus is a part.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock have no voting rights.
After the closing of the Offering, the Board of Directors will be elected
annually and will serve one-year terms. Cumulative voting for the election of
directors is not permitted. Any director, or the entire Board of Directors, may
be removed at any time, with cause, by a majority of the aggregate number of
votes which may be cast by the holders of outstanding shares of Common Stock.
Any shares of Restricted Common Stock that may be issued will automatically
convert into Common Stock on a share-for-share basis (i) in the event any person
acquires beneficial ownership of 25% or more of the outstanding shares of Common
Stock of TCMS in or as a result of a transaction or a series of transactions
that shall not have been approved or ratified by at least 80% of the Continuing
Directors (as defined in the Charter), (ii) 18 months after the closing of the
Offering or (iii) in the event a majority of the aggregate number of votes which
may be cast by the holders of outstanding shares of Common Stock approve such
conversion.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock (and Restricted Common Stock if any are issued) are
entitled to participate pro rata in such dividends as may be declared in the
discretion of the Board of Directors out of the funds legally available
therefor. Holders of Common Stock (and Restricted Common Stock if any are
issued) are entitled to share ratably in the net assets of TCMS on liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of any Preferred Stock then outstanding. Holders of Common Stock and
holders of Restricted Common Stock will have no preemptive rights to purchase
shares of stock of TCMS. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of TCMS.
Shares of Restricted Common Stock, if issued, will not be subject to any
redemption provisions, but will be convertible into Common Stock on the
occurrence of certain events as described above. All outstanding shares of
Common Stock are, and the shares of Common Stock to be issued pursuant to the
Offering and the Acquisitions will be, on payment therefor, fully paid and
non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more classes or series. Subject to the provisions of the
Charter and limitations prescribed by law, the Board of Directors is expressly
authorized to adopt resolutions to issue the shares, to fix the number of shares
and to change the number of shares constituting any class or series and to
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation prefer-
53
<PAGE> 55
ences of the shares constituting any series of the Preferred Stock, in each case
without any further action or vote by the stockholders. TCMS has no current
plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of TCMS by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of the management of TCMS. The
issuance of shares of the Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by TCMS may rank prior to the
Common Stock and Restricted Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares of
Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
TCMS is subject to Section 203 of the DGCL which, with certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that stockholder became an interested stockholder,
unless: (i) prior to that date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) on closing of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(a) by persons who are directors and also officers of the corporation and (b) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after that date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock not owned by the
interested stockholder. Under Section 203, the restrictions described above also
do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors who were directors prior to that person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed those directors by a majority of those directors. An
"interested stockholder" is defined as any person that is (a) the owner of 15%
or more of the outstanding voting stock of the corporation or (b) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date it is sought to be determined whether that
person was an interested stockholder.
CERTAIN PROVISIONS OF THE CHARTER AND BYLAWS
Pursuant to the Charter and as permitted by Delaware law, a director of
TCMS is not liable to TCMS or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability in connection with a
breach of duty of loyalty to TCMS or its stockholders, for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, for dividend payments, stock repurchases or redemptions illegal under
Delaware law or any transaction in which that director derived an improper
personal benefit.
Additionally, the Charter provides that directors and officers of TCMS will
be indemnified by TCMS to the fullest extent authorized by Delaware law, as it
now exists or may in the future be amended, against all expenses and liabilities
actually and reasonably incurred in connection with service for or on behalf of
TCMS, and further permits the advancing of expenses incurred in defense of
claims.
54
<PAGE> 56
The Charter provides that any action required or permitted to be taken by
the stockholders of TCMS must be effected at a duly called meeting and may not
be taken or effected by a written consent of stockholders in lieu thereof. The
Charter provides that a special meeting of stockholders may be called only by
the President, the Board of Directors or by such other person or persons as may
be authorized in the Bylaws of TCMS. Those Bylaws provide that only those
matters set forth in the notice of the special meeting may be considered or
acted on at that special meeting. The Charter provides that the Board of
Directors may adopt, amend or repeal the Bylaws of TCMS by the affirmative vote
of a majority of the Board of Directors without the consent or vote of the
stockholders of TCMS; provided, however, that the stockholders of TCMS may
adopt, amend or repeal its Bylaws by the affirmative vote of the holders of at
least a majority of the shares entitled to vote in the election of directors
which are present in person or represented by proxy at a duly constituted
meeting of the stockholders at which a quorum is present.
The Charter contains an "anti-greenmail" mechanism which prohibits the
Company from acquiring any voting securities from any beneficial owner of more
than 10% of the outstanding voting securities of the Company, except for (i)
acquisitions pursuant to a tender offer to all of the holders of the Company's
voting securities at the same price and on the same terms and conditions, (ii)
acquisitions in compliance with Rule 10b-18 under the Securities and Exchange
Act of 1934, as amended, or (iii) acquisitions at a price not exceeding the
"fair market value" (as defined in the Charter) per share.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions and completion of the Offering, 8,826,933
shares of Common Stock will be outstanding. See "Certain
Transactions -- Acquisitions of the Founding Companies." The 5,000,000 shares of
Common Stock offered hereby will be freely tradable unless acquired by
affiliates of TCMS. All the remaining 3,826,933 shares (including the 2,570,933
shares to be issued to affiliates of the Founding Companies) of Common Stock to
be outstanding on the closing of the Acquisitions and the Offering (as well as
all shares issuable pursuant to the MG Warrant and the Lender Warrant) may be
resold publicly only following their effective registration under the Securities
Act or pursuant to an exemption from the registration requirements of that act,
such as Rule 144 thereunder. As described below, certain shareholders of the
Founding Companies will have certain registration rights with respect to the
shares of Common Stock received by them in the Acquisitions.
When the Offering closes, TCMS also will have outstanding (i) options to
purchase up to a total of approximately 526,000 shares of Common Stock, which
are anticipated to be outstanding pursuant to the 1997 Stock Option Plan on the
date the Offering closes, (ii) the MG Warrant (which provides for the issuance
of up to 50,000 shares of Common Stock and grants the holder thereof certain
registration rights) and (iii) the Lender Warrant (which will provide for the
issuance of up to 175,000 shares of Common Stock and will grant the holder
thereof certain registration rights). TCMS intends to file a registration
statement on Form S-8 with the Commission to register the shares issuable
pursuant to its 1997 Stock Option Plan under the Securities Act. After that
registration statement becomes effective, the shares registered thereby
generally will on issuance be available for sale in the open market by holders
who are not affiliates of TCMS and, subject to the volume and other limitations
of Rule 144, by holders who are affiliates of TCMS. See "Management -- 1997
Stock Option Plan."
In general, under Rule 144, if a minimum of one year has elapsed since the
later of the date of acquisition of the restricted securities from TCMS or an
affiliate of TCMS, the holder (or holders whose shares of Common Stock are
aggregated) of such restricted securities, including holders who may be deemed
"affiliates of TCMS," is entitled to sell within any three-month period a number
of shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Common Stock (approximately 88,269 shares on
completion of the Offering) or (ii) the average weekly reported volume of
trading of the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain provisions
55
<PAGE> 57
regarding the manner of sale, notice requirements and the availability of
current public information about TCMS. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the one year holding
period. Under Rule 144(k), if a period of at least two years has elapsed since
the later of the date on which restricted securities were acquired from TCMS or
the date they were acquired from an affiliate of TCMS, a holder of such
restricted securities who is not an affiliate of TCMS at the time of the sale
and has not been such an affiliate for at least three months prior to the sale
is entitled to sell the shares immediately without regard to the volume
limitations and other conditions of Rule 144 described above. The foregoing
summary of Rule 144 is not intended to be a complete description thereof and is
qualified in its entirety by reference thereto. The Commission has proposed
certain amendments to Rule 144 that would, among other things, eliminate the
manner of sale requirements and revise the notice provisions of that rule. The
Commission has also solicited comments on other possible changes to Rule 144,
including possible revisions to the one- and two-year holding periods and volume
limitations described above.
TCMS has entered into registration rights agreements with the shareholders
of each of Woodson, CSI and HBH, who, collectively, will acquire 2,370,933
shares of Common Stock in connection with the Acquisitions. Pursuant to each of
those agreements, at any time after one year from the date of the closing of the
Offering, the former shareholders of each of those companies may make one
request that TCMS file a registration statement registering the resale of the
Common Stock held by them. In addition, pursuant to the registration rights
agreements, each of the former shareholders of Woodson, CSI and HBH will have
the right to include any shares of Common Stock owned by them in certain
registration statements filed by TCMS under the Securities Act. TCMS is
generally required to pay the costs associated with any offering by those
shareholders pursuant to the exercise of their registration rights. The
registration rights agreements provide that the number of shares of Common Stock
that must be registered on behalf of the selling stockholders is subject to
limitation if the managing underwriter or TCMS' financial advisor, as the case
may be, determines that market conditions so require. TCMS will indemnify the
selling stockholders, and those stockholders will indemnify TCMS, against
certain liabilities in respect of any registration statement or offering that
includes shares pursuant to the registration rights agreements.
TCMS and its directors and executive officers, MGCO, J&D, all of TCMS'
other current stockholders and all persons who receive shares of Common Stock in
connection with the Acquisitions (other than Common Stock issuable upon exercise
of the Lender Warrant) have agreed not to offer or sell any of those shares for
a Lockup Period of one year from the date of this Prospectus without the prior
written consent of Jefferies & Company, Inc., except that TCMS may issue Common
Stock in connection with the Acquisitions and, subject to certain conditions, in
connection with future acquisitions, on exercise of the MG Warrant and the
Lender Warrant and pursuant to awards under the 1997 Stock Option Plan.
56
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriters named below (the
"Underwriters"), for whom Jefferies & Company, Inc. and Johnson Rice & Company
L.L.C. are acting as the representatives (the "Representatives"), and the
Underwriters have severally agreed to purchase, the number of shares of Common
Stock set forth opposite their respective names in the table below at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Jefferies & Company, Inc....................................
Johnson Rice & Company L.L.C................................
---------
Total............................................. 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriters
to purchase the shares of Common Stock offered hereby is subject to certain
conditions, including the closing of each of the Acquisitions. The Underwriters
are committed to purchase all of the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below), if any
are purchased.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share to certain other
dealers. After the initial public offering of the Common Stock, the public
offering price, the concession to selected dealers and the reallowance to other
dealers may be changed by the Representatives.
TCMS has granted the Underwriters an option, exercisable for 30 days from
the date of this Prospectus, to purchase up to 750,000 additional shares of
Common Stock at the initial public offering price, less the underwriting
discount. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase additional shares of
Common Stock proportionate to such Underwriter's initial commitment as indicated
in the preceding table. The Underwriters may exercise such right of purchase
only for the purpose of covering over-allotments, if any, made in connection
with the shares of Common Stock offered hereby.
TCMS and its directors and executive officers, MGCO, J&D, all of TCMS'
other current stockholders and all persons who receive shares of Common Stock in
connection with the Acquisitions have agreed not to offer or sell any of those
shares for a period of one year from the date of this Prospectus without the
prior written consent of Jefferies & Company, Inc., except that TCMS may issue
Common Stock in connection with the Acquisitions and, subject to certain
conditions, in connection with future acquisitions, on exercise of the MG
Warrant and the Lender Warrant and pursuant to awards under the 1997 Stock
Option Plan.
The Representatives have informed TCMS that they do not expect the
Underwriters to confirm sales of Common Stock offered by this Prospectus to any
accounts over which they exercise discretionary authority.
At the request of TCMS, the Underwriters have reserved up to 250,000 shares
of the Common Stock offered hereby for sale at the initial public offering price
to employees of the Company and certain other persons designated by TCMS who
have expressed an interest in purchasing shares of Common Stock. The
57
<PAGE> 59
number of shares of Common Stock available to the general public will be reduced
to the extent these persons purchase the reserved shares.
TCMS has agreed to indemnify the Underwriters against certain liabilities
that may be incurred in connection with the offering of the shares of Common
Stock, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Prior to the Offering, there has been no public trading market for the
shares of Common Stock, and there can be no assurance that an active trading
market will develop or be sustained upon the completion of the Offering. The
initial public offering price of the shares of Common Stock will be determined
by negotiations between TCMS and the Representatives. Among the factors that
will be considered in determining such public offering price will be the history
of and the prospects for the industry in which the Founding Companies compete,
an assessment of the Company's management, the past and present operations of
the Founding Companies, the past and present earnings of the Founding Companies
and the trend of their earnings, the general condition of the securities markets
at the time of the Offering, the price-earning ratios and market prices of
publicly traded securities of companies that TCMS and the Representatives
believe to be comparable to TCMS, and other factors deemed to be relevant.
In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, the
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer in distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed shares of Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities
and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed on for the Company by Chamberlain, Hrdlicka, White,
Williams & Martin, Houston, Texas and for the Underwriters by Baker & Botts,
L.L.P., Houston, Texas.
EXPERTS
The audited financial statements of TCMS, Woodson and CSI included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The audited financial statements of HBH, as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996, included
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The audited financial statements of RFCNI included in this Prospectus have
been audited by Darnall, Sikes & Frederick, independent certified public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of such firm as experts in giving such
report.
58
<PAGE> 60
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form S-1 (together with all amendments, schedules and
exhibits thereto, the "Registration Statement") with the Commission under the
Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete,
and in each instance that a reference is made to a contract or other document
filed as an exhibit to the Registration Statement, each such statement is
qualified in all respects by such reference. A copy of the Registration
Statement may be examined without charge at the Commission's principal offices
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at 7 World Trade Center, Suite 1300, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission upon payment of
certain fees prescribed by the Commission. Copies of such materials may also be
obtained over the Internet at http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements examined by an independent public
accounting firm for each fiscal year.
59
<PAGE> 61
TRANSCOASTAL MARINE SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
TransCoastal Marine Services, Inc. Unaudited Pro Forma:
Basis of Presentation..................................... F-2
Unaudited Pro Forma Combined Balance Sheet................ F-3
Unaudited Pro Forma Combined Statements of Operations..... F-4
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-6
TransCoastal Marine Services, Inc.:
Report of Independent Public Accountants.................. F-12
Consolidated Balance Sheets............................... F-13
Consolidated Statements of Operations..................... F-14
Consolidated Statements of Stockholders' Equity
(Deficit).............................................. F-15
Consolidated Statements of Cash Flows..................... F-16
Notes to Consolidated Financial Statements................ F-17
Founding Companies:
The Woodson Companies
Report of Independent Public Accountants............... F-22
Combined Balance Sheets................................ F-23
Combined Statements of Operations...................... F-24
Combined Statements of Shareholders' Equity............ F-25
Combined Statements of Cash Flows...................... F-26
Notes to Combined Financial Statements................. F-27
The CSI Companies
Report of Independent Public Accountants............... F-36
Combined Balance Sheets................................ F-37
Combined Statements of Operations...................... F-38
Combined Statements of Owners' Equity.................. F-39
Combined Statements of Cash Flows...................... F-40
Notes to Combined Financial Statements................. F-41
HBH, Inc.
Independent Auditors' Report........................... F-48
Balance Sheets......................................... F-49
Statements of Operations............................... F-50
Statements of Shareholder's Equity (Deficit)........... F-51
Statements of Cash Flows............................... F-52
Notes to Financial Statements.......................... F-53
The Red Fox Companies of New Iberia, Inc.
Report of Independent Public Accountants............... F-58
Balance Sheets......................................... F-59
Statements of Operations............................... F-60
Statements of Shareholder's Equity..................... F-61
Statements of Cash Flows............................... F-62
Notes to Financial Statements.......................... F-63
</TABLE>
F-1
<PAGE> 62
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the acquisitions by TransCoastal Marine Services, Inc. ("TCMS") of the
outstanding capital stock of The Woodson Companies, The CSI Companies, HBH,
Inc., and the Red Fox Companies of New Iberia, Inc. ("RFCNI") (together, the
"Founding Companies") and certain related real properties. TCMS and the Founding
Companies are hereinafter referred to as the Company. These acquisitions (the
"Acquisitions") will occur concurrently with and as a condition to the closing
of TCMS's initial public offering (the "Offering") and will be accounted for
using the purchase method of accounting, with The Woodson Companies being
reflected as the "accounting acquiror."
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on June 30, 1997. The
unaudited pro forma combined statement of operations gives effect to the
Acquisitions and the Offering as if they had occurred on January 1 of each
period presented.
TCMS has preliminarily analyzed the savings that it expects to realize from
reductions in rent expense resulting from elimination of certain leases with
certain former stockholders of the Founding Companies or their affiliates with
respect to certain real properties being purchased in connection with the
Acquisitions. TCMS cannot currently quantify other potential savings until
completion of the combination of the Founding Companies. It is anticipated that
these savings will be partially offset by the costs related to the Company's new
corporate management and by the costs associated with being a public company;
however, because these costs cannot be accurately quantified at this time, they
have not been included in the pro forma financial information of the Company.
The pro forma adjustments are based on preliminary estimates (primarily of
the aggregate purchase price of the Acquisitions), available information and
certain assumptions that management deems appropriate, but which may be revised
as additional information becomes available. The pro forma financial information
does not purport to represent what the Company's financial position or results
of operations would actually have been if such transactions had in fact occurred
on the dates assumed and are not necessarily representative of the Company's
financial position or results of operations for any future period. Since the
Founding Companies were not under common control or management, historical
combined results may not be comparable to, or indicative of, future performance.
The unaudited pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included in
this Prospectus. See "Risk Factors" included in this Prospectus.
F-2
<PAGE> 63
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE THE
WOODSON CSI PRO FORMA
COMPANIES COMPANIES HBH, INC. RFCNI TCMS ADJUSTMENTS PRO FORMA
--------- --------- --------- ------ ---- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................. $ 1,919 $ 1,332 $ 59 $ 707 $ 1 $ (2,590) $ 1,428
Receivables, net.................. 4,753 4,490 10,225 1,242 -- -- 20,710
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... 1,053 -- 1,539 358 -- -- 2,950
Inventory......................... 364 -- -- -- -- -- 364
Other............................. 284 1,389 564 128 462 732 3,559
------- ------- ------- ------ ---- -------- --------
Total current assets........ 8,373 7,211 12,387 2,435 463 (1,858) 29,011
------- ------- ------- ------ ---- -------- --------
PROPERTY AND EQUIPMENT, net......... 4,348 7,053 8,328 44 -- 43,720 63,493
GOODWILL............................ -- -- -- -- -- 64,649 64,649
OTHER............................... 927 39 157 34 40 3 1,200
------- ------- ------- ------ ---- -------- --------
Total assets................ $13,648 $14,303 $20,872 $2,513 $503 $106,514 $158,353
======= ======= ======= ====== ==== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 3,229 $ 4,116 $11,141 $1,508 $375 $ 1,571 $ 21,940
Notes payable and current
maturities of long-term debt.... 994 1,069 1,477 -- 187 300 4,027
Payable to founding
stockholders.................... -- -- -- -- -- 85,686 85,686
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... 718 -- -- 422 -- -- 1,140
------- ------- ------- ------ ---- -------- --------
Total current liabilities... 4,941 5,185 12,618 1,930 562 87,557 112,793
------- ------- ------- ------ ---- -------- --------
LONG-TERM DEBT...................... -- 4,696 5,267 -- -- 1,691 11,654
DEFERRED INCOME TAXES............... -- 670 -- 8 -- 16,627 17,305
------- ------- ------- ------ ---- -------- --------
Total liabilities........... 4,941 10,551 17,885 1,938 562 105,875 141,752
------- ------- ------- ------ ---- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock...................... 98 264 66 1 1 (426) 4
Additional paid-in capital........ 25 380 808 -- 12 8,723 9,948
Retained earnings (deficit)....... 8,570 5,672 2,113 574 (72) (10,222) 6,635
Treasury stock.................... -- (2,564) -- -- -- 2,564 --
Net unrealized gain on
available-for-sale securities... 14 -- -- -- -- -- 14
------- ------- ------- ------ ---- -------- --------
Total stockholders' equity
(deficit)................. 8,707 3,752 2,987 575 (59) 639 16,601
------- ------- ------- ------ ---- -------- --------
Total liabilities and
stockholders' equity...... $13,648 $14,303 $20,872 $2,513 $503 $106,514 $158,353
======= ======= ======= ====== ==== ======== ========
<CAPTION>
POST-ACQUISITION AS
ADJUSTMENTS ADJUSTED
---------------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................. $ 4,056 $ 5,484
Receivables, net.................. -- 20,710
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... -- 2,950
Inventory......................... -- 364
Other............................. (1,194) 2,365
-------- --------
Total current assets........ 2,862 31,873
-------- --------
PROPERTY AND EQUIPMENT, net......... -- 63,493
GOODWILL............................ -- 64,649
OTHER............................... 1,375 2,575
-------- --------
Total assets................ $ 4,237 $162,590
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ (1,946) $ 19,994
Notes payable and current
maturities of long-term debt.... (2,733) 1,294
Payable to founding
stockholders.................... (85,686) --
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... -- 1,140
-------- --------
Total current liabilities... (90,365) 22,428
-------- --------
LONG-TERM DEBT...................... 26,046 37,700
DEFERRED INCOME TAXES............... -- 17,305
-------- --------
Total liabilities........... (64,319) 77,433
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock...................... 5 9
Additional paid-in capital........ 68,551 78,499
Retained earnings (deficit)....... -- 6,635
Treasury stock.................... -- --
Net unrealized gain on
available-for-sale securities... -- 14
-------- --------
Total stockholders' equity
(deficit)................. 68,556 85,157
-------- --------
Total liabilities and
stockholders' equity...... $ 4,237 $162,590
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-3
<PAGE> 64
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE THE
WOODSON CSI HBH, PRO FORMA
COMPANIES COMPANIES INC. RFCNI TCMS TOTAL ADJUSTMENTS PRO FORMA
--------- --------- ------- ------ ---- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE........................... $17,933 $8,447 $36,873 $9,730 $-- $72,983 $ 239 $ 72,744
COSTS AND EXPENSES:
Cost of revenue................. 13,561 5,264 33,727 8,260 -- 60,812 (239) 60,573
Selling, general and
administrative expenses....... 2,968 2,435 1,000 885 -- 7,288 (357) 6,931
Depreciation and amortization... 562 359 1,482 12 -- 2,415 3,503 5,918
------- ------ ------- ------ ---- ------- ------- ---------
Operating income (loss)... 842 389 664 573 -- 2,468 (3,146) (678)
INTEREST EXPENSE.................. (35) (137) (853) (30) -- (1,055) (3,464) (4,519)
OTHER INCOME (EXPENSE), net....... 443 134 646 (60) -- 1,163 -- 1,163
------- ------ ------- ------ ---- ------- ------- ---------
Income (loss) before
taxes................... 1,250 386 457 483 -- 2,576 (6,610) (4,034)
PROVISION (BENEFIT) FOR INCOME
TAXES........................... 91...... 205 -- 197 -- 493 (1,460) (967)
------- ------ ------- ------ ---- ------- ------- ---------
NET INCOME (LOSS)................. $ 1,159 $ 181 $ 457 $ 286 $-- $ 2,083 $(5,150) $ (3,067)
======= ====== ======= ====== ==== ======= ======= =========
PRO FORMA LOSS PER SHARE.......... $ (.35)
=========
SHARES USED IN COMPUTING PRO FORMA
LOSS PER SHARE.................. 8,850,266
=========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 65
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE THE
WOODSON CSI PRO FORMA
COMPANIES COMPANIES HBH, INC. RFCNI TCMS TOTAL ADJUSTMENTS PRO FORMA
--------- --------- --------- ------ ---- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE................... $18,104 $9,606 $23,850 $4,536 $-- $56,096 $ 1,190 $ 54,906
COSTS AND EXPENSES:
Cost of revenue......... 15,243 5,651 19,394 3,825 -- 44,113 (1,190) 42,923
Selling, general and
administrative
expenses.............. 1,435 1,270 671 674 72 4,122 (179) 3,943
Depreciation and
amortization.......... 455 245 750 8 -- 1,458 2,168 3,626
------- ------ ------- ------ ---- ------- ------- ----------
Operating income
(loss)......... 971 2,440 3,035 29 (72) 6,403 (1,989) 4,414
INTEREST EXPENSE.......... (45) (214) (368) (7) -- (634) (1,625) (2,259)
OTHER INCOME (EXPENSE),
net..................... 560 44 26 (13) -- 617 -- 617
------- ------ ------- ------ ---- ------- ------- ----------
Income (loss)
before taxes... 1,486 2,270 2,693 9 (72) 6,386 (3,614) 2,772
PROVISION (BENEFIT) FOR
INCOME TAXES............ 191 931 -- 2 -- 1,124 308 1,432
------- ------ ------- ------ ---- ------- ------- ----------
NET INCOME (LOSS)......... $ 1,295 $1,339 $ 2,693 $ 7 $(72) $ 5,262 $(3,922) $ 1,340
======= ====== ======= ====== ==== ======= ======= ==========
PRO FORMA INCOME PER
SHARE................... $ 0.15
==========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE................... 8,850,266
==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 66
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL
TCMS was organized in April 1996 to become a fully integrated marine
construction company focusing on the transition zone (marsh and swamp regions
out to water depths of 20 feet) and shallow water (water depths of 20 to 200
feet) regions along the U.S. Gulf Coast. TCMS has conducted no operations to
date and will acquire the Founding Companies concurrently with and as a
condition to the closing of the Offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as of and for the six months ended June 30, 1997, and for the year ended
December 31, 1996. The audited historical financial statements included herein
have been included in accordance with Rule 3-05 of Regulation S-X of the
Securities and Exchange Commission.
2. ACQUISITION OF FOUNDING COMPANIES
Concurrent with and as a condition to the closing of the Offering, TCMS
will acquire all of the outstanding capital stock of the Founding Companies and
related real estate. The Acquisitions will be accounted for using the purchase
method of accounting, with The Woodson Companies being treated as the accounting
acquiror.
The following table sets forth the estimated consideration to be paid in
cash, long-term debt and shares of TCMS common stock ("Common Stock") to the
owners of each of the Founding Companies. In addition, TCMS will be assuming
debt on certain of the Founding Companies. For purposes of computing the
estimated purchase price for accounting purposes, the value of the shares is
determined using an estimate of the fair value. The estimated purchase price for
each Acquisition and related allocations of the excess purchase price are based
on preliminary estimates and, in the case of RFCNI, are subject to certain
purchase price adjustments at and following closing (in thousands, except share
amounts):
<TABLE>
<CAPTION>
ESTIMATED CONSIDERATION
----------------------------------
LONG-TERM SHARES OF DEBT
CASH DEBT COMMON STOCK ASSUMED
------- --------- ------------ -------
<S> <C> <C> <C> <C>
The Woodson Companies....................... $19,836 $ -- 1,237,600 $ --
The CSI Companies........................... 40,000 -- 533,333 5,500
HBH, Inc.................................... 24,350 -- 600,000 6,000
RFCNI....................................... 1,500 3,000 200,000 --
------- ------ --------- -------
Total............................. $85,686 $3,000 2,570,933 $11,500
======= ====== ========= =======
</TABLE>
In connection with the acquisitions of the Founding Companies, the excess
of cost over fair value of net assets acquired will be amortized using the
straight-line method over 40 years. Management of the acquired businesses have
successfully operated the Founding Companies for a number of years and, with the
additional capital provided by TCMS, should be positioned to take advantage of
increased opportunities. TCMS has no reason to expect major changes in the
business conditions in which the acquired Founding Companies operate which might
affect the recoverability of the recorded intangibles. However, in the event
business conditions change, the recoverability will be reevaluated based upon
revised projections of future undiscounted operating income and cash flows and,
if impaired, the balances will be adjusted accordingly.
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS AS OF JUNE 30, 1997
(a) Records the purchase of the Founding Companies by TCMS as described in
Note 2 consisting of $85.7 million in cash, $3.0 million in long-term debt and
2,570,933 shares of Common Stock together with the assumption of $11.5 million
in debt for a total estimated purchase price of $131.0 million, and also records
the
F-6
<PAGE> 67
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
fair value of TCMS' assets and liabilities, resulting in excess purchase price
over the fair value of assets acquired of $64.6 million. Also records the S
corporation distribution for certain Founding Companies of approximately $2.6
million. Records estimated deferred offering costs (excluding underwriting
fees), costs associated with warrants issued and non-employee stock options and
deferred taxes related to S corporations assuming C corporation treatment.
(b) Records the cash proceeds from the issuance of shares of Common Stock
net of estimated Offering costs (based on an assumed initial public offering
price of $15.00 per share). Offering costs primarily consist of underwriting
discounts and commissions, accounting fees, legal fees and printing expenses.
(c) Records the cash portion of the consideration to be paid to the
shareholders of the Founding Companies in connection with the Acquisitions and
the reduction of certain debt obligations with the proceeds from this Offering.
(d) Records $35.0 million of initial borrowings under a new credit
agreement (the "Credit Agreement"), related debt issuance costs (see Note 6) and
related current maturities.
The following tables summarize unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
(A)
<S> <C>
ASSETS
Cash........................................................ $ (2,590)
Other current assets........................................ 732
Property and equipment, net................................. 43,720
Goodwill.................................................... 64,649
Other....................................................... 3
---------
Total assets...................................... $ 106,514
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Accounts payable and accrued liabilities.................. $ (1,571)
Notes payable and current maturities of long-term debt.... (300)
Payable to founding stockholders.......................... (85,686)
---------
Total current liabilities......................... (87,557)
Long-term debt, net of current maturities................... (1,691)
Deferred income taxes....................................... (16,627)
---------
Total liabilities................................. (105,875)
Stockholders' equity --
Common stock.............................................. 426
Additional paid-in capital................................ (8,723)
Retained earnings......................................... 10,222
Treasury stock............................................ (2,564)
---------
Total stockholders' equity........................ 639
---------
Total liabilities and stockholders' equity........ $(106,514)
=========
</TABLE>
F-7
<PAGE> 68
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
POST-ACQUISITION
(B) (C) (D) ADJUSTMENTS
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents..................... $ 67,660 $(97,186) $ 33,582 $ 4,056
Other current assets.......................... (1,194) -- -- (1,194)
Other non current assets...................... -- -- 1,375 1,375
-------- -------- -------- --------
Total assets.................................. $ 66,466 $(97,186) $ 34,957 $ 4,237
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Accounts payable and accrued liabilities...... $ 1,903 $ -- $ 43 $ 1,946
Notes payable and current portion of long-term
debt....................................... 187 2,546 2,733
Payable to founding stockholders.............. -- 85,686 -- 85,686
-------- -------- -------- --------
Total current liabilities............. 2,090 88,232 43 90,365
Long-term debt, net of current maturities....... -- 8,954 (35,000) (26,046)
-------- -------- -------- --------
Total liabilities..................... 2,090 97,186 (34,957) 64,319
Stockholders' equity --
Common stock.................................. (5) -- -- (5)
Additional paid-in capital.................... (68,551) -- -- (68,551)
-------- -------- -------- --------
Total stockholders' equity............ (68,556) -- -- (68,556)
-------- -------- -------- --------
Total liabilities and stockholders'
equity.............................. $(66,466) $ 97,186 $(34,957) $ (4,237)
======== ======== ======== ========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) Reflects the increase in depreciation and amortization and the
reduction in certain related-party rental and lease expenses based upon the
assumed ownership of certain leased property, pursuant to the terms of certain
acquisition agreements. Also reflects a $2.2 million non-cash compensation
charge related to the issuance of 275,000 shares of common stock to management
of TCMS which is offset by a reversal of such charge due to its non-recurring
nature.
(b) Reflects goodwill amortization of $1.6 million relating to the
Acquisitions, using a 40-year estimated life, plus additional depreciation
expense of $1.7 million due to the allocation of a portion of the excess
purchase price to fixed assets.
(c) Reflects the anticipated reduction in interest expense of $1.1 million
due to refinancing the outstanding indebtedness of the Founding Companies in
conjunction with the Acquisitions, net of the additional interest expense of
$4.5 million on the $3.0 million in long-term debt incurred as part of the
Acquisitions and $35.0 million of initial borrowings under the Credit Agreement.
(d) Reflects the incremental provision for federal and state income taxes
for all entities being combined.
(e) Reflects the elimination of intercompany revenues and associated costs
for all entities being combined.
F-8
<PAGE> 69
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes unaudited pro forma combined statement of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
----- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue.............................. $ -- $ -- $ -- $ -- $ 239 $ 239
Costs and expenses:
Cost of revenue.................... -- -- -- -- (239) (239)
Selling, general and administrative
expenses........................ (357) -- -- -- -- (357)
Depreciation and amortization........ 181 3,322 -- -- -- 3,503
----- ------- ------- ------- ------- -------
Operating income (loss)......... 176 (3,322) -- -- -- (3,146)
Interest expense................... -- -- (3,464) -- -- (3,464)
----- ------- ------- ------- ------- -------
Income (loss) before taxes...... 176 (3,322) (3,464) -- -- (6,610)
Provision (benefit) for income
taxes.............................. -- -- -- (1,460) -- (1,460)
----- ------- ------- ------- ------- -------
Net income (loss).................... $ 176 $(3,322) $(3,464) $ 1,460 $ -- $(5,150)
===== ======= ======= ======= ======= =======
</TABLE>
During 1996, The CSI Companies recognized an extraordinary gain of $342,000
related to forgiving certain debt. Due to the nonrecurring nature of this
extraordinary gain, it has not been reflected in the unaudited pro forma
combined statement of operations for the year ended December 31, 1996.
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(a) Reflects the increase in depreciation and amortization and the
reduction in certain related-party rental and lease expenses based upon the
assumed ownership of certain leased property, pursuant to the terms of certain
acquisition agreements. Also reflects a $2.2 million non-cash compensation
charge related to the issuance of 275,000 shares of common stock to management
of the Company which is offset by a reversal of such charge due to its
non-recurring nature.
(b) Reflects goodwill amortization of $0.8 million relating to the
Acquisitions, using a 40-year estimated life, plus additional depreciation
expense of $1.3 million resulting from the allocation of a portion of the excess
purchase price to property and equipment.
(c) Reflects the anticipated reduction in interest expense of $0.6 million
resulting from refinancing the outstanding indebtedness of the Founding
Companies in conjunction with the Acquisitions, net of the additional interest
expense of $2.3 million on the $3.0 million in long-term debt incurred as part
of the Acquisitions and $35.0 million of initial borrowings under the Credit
Agreement.
(d) Reflects the incremental provision for federal and state income taxes
for all entities being combined.
(e) Reflects the elimination of intercompany revenues and associated costs
for all entities being combined.
F-9
<PAGE> 70
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes unaudited pro forma combined statement of
operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
---- ------- ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... $ -- $ -- $ -- $ -- $ 1,190 $ 1,190
Costs and expenses:
Cost of revenue......................... -- -- -- -- (1,190) (1,190)
Selling, general and administrative
expenses............................. (179) -- -- -- -- (179)
Depreciation and amortization........... 91 2,077 -- -- -- 2,168
---- ------- ------- ------ ------- -------
Operating income (loss).............. 88 (2,077) -- -- -- (1,989)
Interest expense........................ -- -- (1,625) -- -- (1,625)
---- ------- ------- ------ ------- -------
Income (loss) before taxes........... 88 (2,077) (1,625) -- -- (3,614)
Provision (benefit) for income taxes...... -- -- -- 308 -- 308
---- ------- ------- ------ ------- -------
Net income (loss)......................... $ 88 $(2,077) $(1,625) $ (308) $ -- $(3,922)
==== ======= ======= ====== ======= =======
</TABLE>
5. PRO FORMA INCOME (LOSS) PER SHARE
The following table summarizes shares used in computing pro forma income
(loss) per share:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
TCMS --
Founders.................................................. 975,000 975,000
Management................................................ 275,000 275,000
Consultants............................................... 6,000 6,000
Founding Companies --
The Woodson Companies..................................... 1,237,600 1,237,600
The CSI Companies......................................... 533,333 533,333
HBH, Inc.................................................. 600,000 600,000
RFCNI..................................................... 200,000 200,000
Offering.................................................... 5,000,000 5,000,000
Effect of assumed exercise of Common Stock purchase warrant
(see Note 6).............................................. 23,333 23,333
--------- ---------
Shares used in computing pro forma income (loss) per
share..................................................... 8,850,266 8,850,266
========= =========
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
simplifies the standards required under current accounting rules for computing
earnings per share and replaces the presentation of primary earnings per share
and fully diluted earnings per share with a presentation of basic earnings per
share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. Diluted EPS is computed similarly to fully diluted earnings
per share under current accounting rules. The implementation of SFAS No. 128 in
1997 is not expected to have a material effect on TCMS's earnings per share as
determined under current accounting rules.
F-10
<PAGE> 71
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUBSEQUENT EVENTS
Common Stock
In March and April 1997, 175,000 and 100,000 shares of Common Stock,
respectively, were sold to management at $.001 per share. As a result, the
Company will record a non-recurring, non-cash compensation charge of $2.2
million effective with the closing of the Offering, representing the difference
between the amount paid for the shares and the estimated fair value of the
shares on the date of sale of such Common Stock. Due to the non-recurring nature
of this item, this amount has been excluded from the pro forma combined
statement of operations.
Common Stock Purchase Warrant
During the first quarter of 1997, the Company entered into an advisory
agreement with an investment banking firm, which was amended in June 1997 to
provide for the sale of a warrant to acquire 50,000 shares of Common Stock (the
"MG Warrant") for $.001 per share. The MG Warrant has an exercise price of the
lesser of $8 per share or 70 percent of the initial price to the public in the
Offering and is exercisable for five years, beginning six months after closing
of the Offering.
Credit Agreement
TCMS anticipates it will enter into the Credit Agreement prior to the
closing of the Offering. Borrowings under the Credit Agreement are intended to
be used to pay part of the cash portion of the aggregate purchase price for the
Founding Companies and general corporate purposes. In connection with the Credit
Agreement, the Company will issue to the lender a warrant to acquire 175,000
shares of Common Stock at an exercise price equal to the initial per share price
to the public in the Offering. The consideration for that warrant will be $1,750
and the warrant is expected to be exercisable for five years from the date of
issuance.
Tax Election
TCMS, The Woodson Companies and HBH, Inc. will review the feasibility of
entering into agreements to make an Internal Revenue Code Section 338(h)(10) tax
election related to the acquisitions of Laine Construction Company and HBH, Inc.
by TCMS. The irrevocable tax election allows the acquiring corporation to treat
the anticipated stock purchases as deemed asset purchases. The election can only
occur with the consent of the selling shareholders. The election provides a
step-up in basis for tax purposes equal to the excess of the sales proceeds plus
any liabilities assumed over the acquired companies' adjusted tax basis.
Accordingly, TCMS would receive a higher depreciable tax basis in the assets
providing significant future tax benefits to TCMS.
F-11
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TransCoastal Marine Services, Inc.:
We have audited the accompanying consolidated balance sheet of TransCoastal
Marine Services, Inc. and subsidiary as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (April 2, 1996) through December 31, 1996. 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.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TransCoastal Marine Services, Inc. and subsidiary as of December 31, 1996, and
the consolidated results of their operations and their cash flows for the period
from inception (April 2, 1996) through December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 11, 1997
F-12
<PAGE> 73
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 1 $ 1
Deferred offering costs................................... -- 462
Other assets.............................................. -- 40
---- -------
Total assets...................................... $ 1 $ 503
==== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Short-term borrowings from related party.................. $ -- $ 187
Accounts payable and accrued expenses..................... -- 375
---- -------
Total liabilities................................. -- 562
---- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value, 2,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $.001 par value, 20,000,000 shares
authorized, 975,000 and 1,253,000 shares issued and
outstanding at December 31, 1996 and June 30, 1997,
respectively........................................... 1 1
Restricted common stock, $.001 par value, 3,000,000 shares
authorized, none issued and outstanding........... -- --
Additional paid-in capital................................ -- 12
Retained deficit.......................................... -- (72)
---- -------
Total stockholders' equity (deficit).............. 1 (59)
---- -------
Total liabilities and stockholders' equity........ $ 1 $ 503
==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 74
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 2, 1996) SIX MONTHS
THROUGH ENDED JUNE 30,
DECEMBER 31, -------------------------
1996 1996 1997
--------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUE................................................. $ -- $ -- $ --
GENERAL AND ADMINISTRATIVE EXPENSES..................... -- -- 72
---- ---- ----
LOSS BEFORE INCOME TAXES................................ -- -- (72)
INCOME TAXES............................................ -- -- --
---- ---- ----
NET LOSS................................................ $ -- $ -- $(72)
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 75
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RESTRICTED
COMMON STOCK COMMON STOCK ADDITIONAL
------------------ -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ---------- ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION (April 2,
1996).......................... -- $ -- -- $ -- $ -- $ -- $ --
SALE OF COMMON STOCK............. 975,000 1 -- -- -- -- 1
--------- ---- --- ------- ---- ---- ----
BALANCE AT DECEMBER 31, 1996..... 975,000 1 -- -- -- -- 1
SALE OF COMMON STOCK............. 278,000 -- -- -- -- -- --
ADDITIONAL PAID-IN CAPITAL....... -- -- -- -- 12 12
NET LOSS (Unaudited)............. -- -- -- -- -- (72) (72)
--------- ---- --- ------- ---- ---- ----
BALANCE AT JUNE 30, 1997
(Unaudited).................... 1,253,000 $ 1 -- $ -- $ 12 $(72) $(59)
========= ==== === ======= ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 76
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 2, 1996) SIX MONTHS
THROUGH ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1997
--------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $ -- $ -- $ (72)
Adjustments to reconcile net loss to net cash used in
operating activities --
Changes in operating assets and liabilities --
Deferred operating costs........................ -- -- (462)
Other assets.................................... -- -- (40)
Accounts payable and accrued expenses........... -- -- 375
---- ----- -----
Net cash used in operating activities........ -- -- (199)
---- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance......................... 1 1 12
Proceeds from short-term borrowings.................. -- -- 187
---- ----- -----
Net cash provided by financing activities.... 1 1 199
---- ----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 1 1 --
CASH AND CASH EQUIVALENTS, beginning of period......... -- -- 1
---- ----- -----
CASH AND CASH EQUIVALENTS, end of period............... $ 1 $ 1 $ 1
==== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 77
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
TransCoastal Marine Services, Inc., a Delaware corporation ("TCMS"),
commenced operations in April 1996. TCMS intends to acquire four businesses (the
"Founding Companies") in separate transactions (collectively, the
"Acquisitions") simultaneously with an initial public offering (the "Offering")
of its common stock (the "Common Stock"). Unless otherwise indicated, all
references herein to the "Company" include the Founding Companies, and
references herein to "TCMS" mean TransCoastal Marine Services, Inc., prior to
the consummation of the Acquisitions.
TCMS operations to date have related to the Offering and the Acquisitions.
All expenditures to date have been funded through loans from J&D Capital
Investments, L.C. ("J&D"). J&D is owned by two of the Company's founders. At
December 31, 1996, no costs had been incurred in connection with the Offering.
At June 30, 1997, approximately $462,000 has been incurred in connection with
the Offering. TCMS has accounted for these costs as deferred offering costs.
TCMS is dependent on the Offering to complete the pending Acquisitions and to
repay J&D. There is no assurance that the pending Acquisitions will be completed
or that the Company will be able to generate future operating revenues.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
TCMS and its wholly owned subsidiary, Red Fox International, Inc., a Louisiana
corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation.
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.
Income Taxes
TCMS accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, the Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized differently
in the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax basis of assets and liabilities
using enacted tax rates and laws in effect in the years in which the differences
are expected to reverse. Deferred tax assets are evaluated for realization based
on a more-likely-than-not criteria in determining if a valuation allowance
should be provided. Income tax expense is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
Recent Accounting Pronouncements
SFAS No. 123, "Accounting for Stock-Based Compensation," allows entities to
choose between a new fair value-based method of accounting for employee stock
options or similar equity instruments and the current intrinsic, value-based
method of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25. Entities electing to remain with the accounting in APB Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair value method of accounting had been applied. TCMS has elected to account
for the issuance of stock options pursuant to APB Opinion No. 25 and will
provide pro forma disclosure of net income and earnings per share, as
applicable, in the notes to future consolidated financial statements.
F-17
<PAGE> 78
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." For the Company, SFAS No. 128 will be effective for
the year ended December 31, 1997. SFAS No. 128 simplifies the standards required
under current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share ("basic EPS") and diluted
earnings per share ("diluted EPS"). Basic EPS excludes dilution and is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if securities and other
contracts to issue common stock were exercised or converted into common stock.
Diluted EPS is computed similarly to fully diluted earnings per share under
current accounting rules. The implementation of SFAS No. 128 is not expected to
have a material effect on the Company's earnings per share as determined under
current accounting rules.
Interim Financial Information
The interim consolidated balance sheet as of June 30, 1997, and statements
of operations for the six months ended June 30, 1996 and 1997, are unaudited,
and certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been omitted. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to fairly present the
consolidated financial position, results of operations and cash flows with
respect to the interim financial statements have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
3. SUMMARY OF FINANCING ARRANGEMENTS
In February 1997, TCMS and J&D entered into an agreement providing for an
unsecured revolving credit facility (the "J&D Loan Agreement"), which was
amended in June 1997 to provide for borrowings up to $1.0 million, with interest
of 10 percent per annum due on the unpaid principal balance outstanding computed
from the date of each advance until maturity. Amounts outstanding under the J&D
Loan Agreement are due and payable on the earlier of June 19, 1998 or 30 days
following the successful completion of the Offering. As of June 30, 1997,
advances of $187,000 were outstanding.
4. SHAREHOLDERS' EQUITY
Preferred Stock
TCMS's Board of Directors is authorized to designate the voting power,
preferences, dividends, liquidation rights, redemption and other features
related to the TCMS's preferred stock. As of December 31, 1996 and June 30,
1997, no TCMS preferred stock had been issued.
Common Stock
TCMS effected a 1,000-for-one stock split in August 1997 of the outstanding
shares of Common Stock. In addition, TCMS increased the number of authorized
shares of Common Stock to 20,000,000 and authorized 3,000,000 shares of
restricted common stock ("Restricted Common Stock"). The effects of the stock
split and the increase in the shares of authorized Common Stock and Restricted
Common Stock have been retroactively reflected on the accompanying balance
sheets and in those notes.
In March and April 1997, 175,000 shares and 100,000 shares of Common Stock,
respectively, were sold to management at $.001 per share. TCMS will record a
non-recurring, non-cash compensation charge of $2.2 million effective with the
closing of the Offering, representing the difference between the amount paid for
the shares and the estimated fair value of the shares on the date of sale of
such Common Stock.
F-18
<PAGE> 79
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1997, TCMS issued 3,000 shares of Common Stock to a consultant for
services performed in connection with the Offering. The $12,200 difference
between the amount paid and the estimated fair market value of the shares on the
date of issue was recorded as deferred offering costs in the second quarter of
1997. In July 1997, an additional 3,000 shares of Common Stock were issued with
the same terms to another consultant for services performed in connection with
the Offering. An additional $32,000 will be recorded as deferred offering costs
in the third quarter of 1997.
Restricted Common Stock
Shares of Restricted Common Stock, if issued, will have no voting rights.
Shares of Restricted Common Stock, if issued, would be convertible into shares
of Common Stock on a share-for-share basis (i) in the event of certain ownership
changes, (ii) 18 months after the Offering or (iii) in the event of approval by
a majority of holders of the Common Stock. As of December 31, 1996 and June 30,
1997, no Restricted Common Stock has been issued.
Employee Stock Option Plan
In August 1997, TCMS' stockholders approved the TCMS 1997 Stock Option Plan
(the "Plan"), which provides for the granting of stock options to directors,
executive officers, certain other employees and certain non-employee consultants
of the Company. The Plan permits the granting of options for up to 750,000
shares of Common Stock. The terms of the option awards will be established by
the compensation committee of the board of directors of TCMS. TCMS has granted
stock options to purchase an estimated 97,000 shares of Common Stock to certain
members of the executive management team of the Company. The number of shares
estimated to be issued is based upon 2.5 times the annual compensation of the
respective executives divided by the initial public offering price. These
options will be exercisable at an exercise price equal to the per share initial
public offering price, vest over a five-year period from the date of grant and
expire 10 years from the date of grant. Additionally, the Company expects to
grant stock options to purchase an estimated 360,000 shares of Common Stock to
certain other members of management and key operating personnel of the Founding
Companies.
5. COMMITMENTS AND CONTINGENCIES
Advisory Agreement
In February 1997, the Company entered into an advisory agreement with a
financial advisory firm (the firm) for a period of six months in connection with
the Acquisitions and related financings. Under the terms of the agreement
between the Company and the firm, as amended on June 25, 1997, the Company paid
the firm an initial financial advisory fee of $15,000, plus monthly fees
aggregating $30,000, and reimbursed the firm for its out-of-pocket expenses
relating to the services provided. The Company also issued a warrant to the firm
for $100 in cash. The warrant provides for the purchase of up to 50,000 shares
of Common Stock, at a per share exercise price equal to the lesser of $8.00 or
70% of the initial public offering price. The warrant may be exercised in whole
or, from time to time, in part, at any time during the five-year period
beginning six months after the Offering closes. In connection with the warrant,
the Company granted certain registration rights to the firm.
The firm will be entitled to receive the following fees in the future: (i)
a $400,000 success fee, payable on closing the Acquisitions; (ii) a senior debt
placement fee of up to 2% of a new credit agreement (the "Credit Agreement")(see
Note 6), payable on closing of the Credit Agreement; and (iii) a private
placement fee equal to five percent of the amount of any private placement made
by the Company within two years of August 12, 1997 with any capital source
introduced to the Company by the firm, together with a warrant to purchase an
amount equal to 10% of the securities issued in any such private placement.
F-19
<PAGE> 80
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consulting Agreements
In February 1997, TCMS entered into a consulting and financial advisory
agreement (the "Consulting Agreement") with J&D. The Consulting Agreement
provides for a monthly fee of $12,500, payable on the closing of the Offering
and terminates on the earlier of the closing of the Offering or December 31,
1997. All amounts incurred through June 30, 1997 were capitalized as deferred
offering costs. On September 24, 1997, TCMS and J&D amended the consulting
agreement, so that, following the completion of the Offering, J&D will provide
the Company financial advisory and related services in connection with its
acquisition program. J&D will receive a consulting fee of $23,500 per month and
non-qualified options under the 1997 Stock Option Plan, to purchase 44,000
shares (assuming an initial public offering price of $15.00 per share) for an
exercise price equal to the initial public offering price per share. These
options will vest at the rate of 20% per year, commencing on the first
anniversary of the closing of the Offering, and will expire at the earlier of
ten years from the date of grant or three months following termination of the
consulting and financial services agreement. In addition, J&D will be eligible
to receive annual performance-based bonuses.
In April 1997, TCMS entered into consulting services agreements with
certain officers of the Company. Pursuant to these agreements, the officers will
provide executive services in connection with the formation of TCMS and the
closing of the Offering. Expenses related to these contract services are
estimated to be approximately $30,000 per month until the date the Offering
closes, at which time these agreements automatically terminate.
Employment Agreements
In August 1997, TCMS entered into employment agreements with three officers
of the Company. Two of the agreements are effective August 1, 1997 and one upon
closing of the Offering. The term of the agreements extends three years
following the closing of the Offering. Additionally, the Company is committed to
offer employment agreements to certain members of management and key operating
personnel of the Founding Companies on similar terms and conditions to existing
agreements.
6. SUBSEQUENT EVENTS
Acquisitions
The Company has entered into definitive agreements to acquire the Founding
Companies and related real estate on the date the Offering closes. The Founding
Companies are The Woodson Companies, The CSI Companies, HBH, Inc. and The Red
Fox Companies of New Iberia, Inc. The aggregate consideration expected to be
paid by TCMS to acquire the Founding Companies is approximately $85,650,000 in
cash, $3,000,000 in debt and 2,570,933 shares of Common Stock (including certain
estimated post-closing adjustments). In addition, the Company will be assuming
debt on certain of the Founding Companies.
Credit Agreement
Prior to the closing of the Offering, TCMS intends to enter into the Credit
Agreement with Joint Energy Development Investments, Limited Partnership, an
affiliate of Enron Capital & Trade Resources Corp. (the "Lender"). TCMS expects
that the Credit Agreement will provide for borrowings up to $75.0 million, with
the initial borrowing availability being $50.0 million (the "Initial
Availability") and the remaining $25.0 million being made available from time to
time and in such amounts as the Lender shall determine in its sole discretion.
The Credit Agreement will be divided into two tranches: (i) a senior secured
revolving credit facility (the "Revolving Credit Facility"), providing for
borrowings of up to $60.0 million ($40.0 million of which will comprise part of
the Initial Availability), and (ii) $15.0 million of senior subordinated term
loan borrowings (the "Term Loan Facility") ($10.0 million of which will comprise
the remainder of the Initial Availability). The Company also expects (i)
borrowings under the Credit Agreement will bear interest at
F-20
<PAGE> 81
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIBOR plus 275 basis points (8.37% at October 3, 1997), payable quarterly, and
(ii) borrowings under the Term Loan Facility will bear interest at LIBOR plus
375 basis points (9.37% at October 3, 1997), payable quarterly. Borrowings under
the Credit Agreement will be secured by liens on substantially all the Company's
assets (including accounts receivable and after-acquired property) and a pledge
of the capital stock of the Founding Companies and each of the Company's other
subsidiaries. Borrowings under the Credit Agreement are expected to be used to
pay a portion of the aggregate purchase price for the Acquisitions and for
general corporate purposes, which may include future acquisitions. The Company
expects that the Credit Agreement will require the Company to comply with
various loan covenants, including (i) maintenance of certain financial ratios;
(ii) restrictions on additional indebtedness; and (iii) restrictions on liens,
guarantees, advances and dividends. The Company anticipates the Credit Agreement
will extend through October 1999 and all outstanding principal and accrued and
unpaid interest under the Revolving Credit Facility and the Term Loan Facility
as of that date will be due and payable on that date. The Company also
anticipates the Credit Agreement will contain mandatory prepayment provisions
requiring prepayment of outstanding borrowings from the issuance of debt or
equity securities for cash and any proceeds from other borrowings. In connection
with the Credit Agreement, the Company will issue to the Lender a warrant to
acquire 175,000 shares of Common Stock at an exercise price equal to the initial
per share price to the public in the Offering. The consideration for that
warrant will be $1,750 and the warrant is expected to be exercisable for five
years from its date of issuance.
Registration Statement
In August 1997, the Company filed a registration statement on Form S-1 for
the Offering. An investment in shares of Common Stock involves a high degree of
risk, including, among others, absence of a combined operating history, risks
relating to the Company's acquisition strategy, risks relating to acquisition
financing, reliance on key personnel and a substantial portion of the proceeds
from the Offering payable to affiliates of the Founding Companies. For a more
thorough discussion of risk factors, see "Risk Factors" included in this
Prospectus.
F-21
<PAGE> 82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Woodson Companies:
We have audited the accompanying combined balance sheets of The Woodson
Companies (as defined in Note 1) as of December 31, 1995 and 1996, and the
related combined statements of operations, shareholders' equity and cash flows
for the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the management of The Woodson Companies.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Woodson
Companies as of December 31, 1995 and 1996, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 18, 1997 (except with respect
to the matter discussed in
Note 12, as to which
the date is July 31, 1997).
F-22
<PAGE> 83
THE WOODSON COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 852 $1,117 $ 1,919
Accounts receivable....................................... 343 103 433
Contracts receivable...................................... 2,871 1,315 4,320
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 45 -- 1,053
Inventory................................................. 179 243 364
Available-for-sale securities, at fair value.............. 1,249 1,603 81
Other current assets...................................... 480 861 203
------ ------ -------
Total current assets.............................. 6,019 5,242 8,373
PROPERTY, PLANT AND EQUIPMENT, net.......................... 1,872 2,956 4,348
OTHER ASSETS:
Notes receivable from related parties..................... 560 657 657
Other..................................................... 556 301 270
------ ------ -------
Total assets...................................... $9,007 $9,156 $13,648
====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Short-term borrowings..................................... $ -- $ 229 $ 994
Notes payable to shareholders............................. -- 450 --
Current maturities of long-term debt...................... 19 -- --
Accounts payable.......................................... 234 510 1,813
Accrued expenses.......................................... 138 250 1,416
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,000 -- 718
------ ------ -------
Total liabilities................................. 1,391 1,439 4,941
------ ------ -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock.............................................. 98 98 98
Additional paid-in capital................................ 25 25 25
Retained earnings......................................... 7,382 7,275 8,570
Net unrealized gain on available-for-sale securities, net
of deferred income taxes............................... 111 319 14
------ ------ -------
Total shareholders' equity........................ 7,616 7,717 8,707
------ ------ -------
Total liabilities and shareholders' equity........ $9,007 $9,156 $13,648
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-23
<PAGE> 84
THE WOODSON COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE...................................... $ 7,786 $18,075 $17,933 $10,689 $18,104
COSTS AND EXPENSES:
Cost of revenue............................ 5,874 12,716 13,561 7,833 15,243
Selling, general and administrative
expenses................................ 3,011 2,672 2,968 1,479 1,435
Depreciation and amortization.............. 728 574 562 291 455
------- ------- ------- ------- -------
Operating income (loss)................. (1,827) 2,113 842 1,086 971
OTHER INCOME (EXPENSE):
Interest income............................ 20 25 86 40 64
Interest expense........................... (101) (109) (35) (6) (45)
Other...................................... 96 69 357 99 496
------- ------- ------- ------- -------
Total other income (expense)....... 15 (15) 408 133 515
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES............ (1,812) 2,098 1,250 1,219 1,486
INCOME TAXES PROVISION (BENEFIT)............. (86) 91 91 17 191
------- ------- ------- ------- -------
NET INCOME (LOSS)............................ $(1,726) $ 2,007 $ 1,159 1,202 1,295
======= ======= ======= ======= =======
PRO FORMA INFORMATION (UNAUDITED) (Note 2)
Income (loss) before income taxes....... $(1,812) $ 2,098 $ 1,250 1,219 1,486
Pro forma income taxes.................. -- 839 500 488 594
------- ------- ------- ------- -------
Pro forma net income (loss)............. $(1,812) $ 1,259 $ 750 731 892
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-24
<PAGE> 85
THE WOODSON COMPANIES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET UNREALIZED
COMMON STOCK ADDITIONAL GAIN (LOSS) ON
----------------- PAID-IN RETAINED AVAILABLE-FOR-SALE
SHARES AMOUNT CAPITAL EARNINGS SECURITIES TOTAL
--------- ------ ---------- -------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993..................... 76,057.50 $98 $25 $ 7,384 $(138) $ 7,369
DIVIDENDS........................................ -- -- -- (193) -- (193)
NET LOSS......................................... -- -- -- (1,726) -- (1,726)
CHANGE IN VALUATION ALLOWANCE FOR NET UNREALIZED
GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES... -- -- -- -- (97) (97)
--------- --- --- ------- ------ -------
BALANCE AT DECEMBER 31, 1994..................... 76,057.50 98 25 5,465 (235) 5,353
DIVIDENDS........................................ -- -- -- (90) -- (90)
NET INCOME....................................... -- -- -- 2,007 -- 2,007
CHANGE IN VALUATION ALLOWANCE FOR NET UNREALIZED
GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES... -- -- -- -- 346 346
--------- --- --- ------- ------ -------
BALANCE AT DECEMBER 31, 1995..................... 76,057.50 98 25 7,382 111 7,616
DIVIDENDS........................................ -- -- -- (1,266) -- (1,266)
NET INCOME....................................... -- -- -- 1,159 -- 1,159
CHANGE IN VALUATION ALLOWANCE FOR NET UNREALIZED
GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES... -- -- -- -- 208 208
--------- --- --- ------- ------ -------
BALANCE AT DECEMBER 31, 1996..................... 76,057.50 98 25 7,275 319 7,717
NET INCOME....................................... -- -- -- 1,295 -- 1,295
CHANGE IN VALUATION ALLOWANCE FOR NET UNREALIZED
GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES... -- -- -- -- (305) (305)
--------- --- --- ------- ------ -------
BALANCE AT JUNE 30, 1997......................... 76,057.50 $98 $25 $ 8,570 $ 14 $ 8,707
========= === === ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-25
<PAGE> 86
THE WOODSON COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,726) $ 2,007 $ 1,159 $1,202 $1,295
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization........................... 728 574 562 291 455
Provision for doubtful accounts......................... 217 4 -- -- --
(Gain) loss on sale of property, plant and equipment.... (68) 98 (340) (101) --
Realized gains on sale of available-for-sale
securities............................................ -- -- -- -- (517)
Dividend income......................................... -- -- (36) (24) --
Deferred income taxes................................... (86) 91 91 17 190
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable................................. 67 (231) 240 288 (330)
Contracts receivable................................ 1,036 (1,349) 1,556 (891) (3,005)
Cost and estimated earnings in excess of billings on
uncompleted contracts............................. (141) 179 45 (328) (1,053)
Inventory........................................... 17 24 (64) (86) (121)
Other current assets................................ (193) 248 71 373 207
Other assets........................................ 75 (9) (15) (20) (2)
Increase (decrease) in --
Accounts payable and accrued expenses............... (708) 176 388 1,108 2,469
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... -- 1,000 (1,000) (550) 718
------- ------- ------- ------ ------
Net cash provided by (used in) operating
activities........................................ (782) 2,812 2,657 1,279 306
------- ------- ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of capital assets...................... 71 182 427 1 239
Capital expenditures...................................... (314) (1,039) (1,801) (562) (994)
Purchase of investments................................... (30) (124) (93) (56) --
Proceeds from sale of investments......................... -- -- 113 -- 2,028
Collections on amounts due from affiliate................. 19 192 -- -- --
(Advances) collections on notes receivable, net........... 5 (45) (392) 25 --
------- ------- ------- ------ ------
Net cash provided by (used in) investing
activities........................................ (249) (834) (1,746) (592) 1,273
------- ------- ------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans against cash surrender value of
officers' life insurance policies....................... 142 -- -- -- --
Proceeds from notes payable............................... 1,206 3,846 615 -- --
Proceeds from issuance of notes payable to shareholders... 1,260 -- 450 -- --
Principal payments on notes payable....................... (733) (4,582) (445) (14) (327)
Principal payments on notes payable to shareholders....... (1,050) (420) -- -- (450)
Payment of dividends to shareholders...................... (193) (90) (1,266) (1,260) --
------- ------- ------- ------ ------
Net cash provided by (used in) financing
activities........................................ 632 (1,246) (646) (1,274) (777)
------- ------- ------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (399) 732 265 (587) 802
CASH AND CASH EQUIVALENTS, beginning of period.............. 519 120 852 852 1,117
------- ------- ------- ------ ------
CASH AND CASH EQUIVALENTS, end of period.................... $ 120 $ 852 $ 1,117 $ 265 $1,919
======= ======= ======= ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest................................................ $ 101 $ 102 $ 35 $ 6 $ 45
Non-cash investing and financing activities:
Purchase of assets through assumption of debt........... -- -- -- -- 1,093
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 87
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Principles of Combination
The accompanying combined financial statements include the accounts of the
following corporations, all headquartered in Lafayette, Louisiana, which are
related by the common ownership of immediate family members:
Woodson Construction Company, Inc. (WCC)
Laine Construction Company, Inc. (Laine)
Kori Corporation (Kori)
EnviroSystems, Inc. (Enviro)
Financial statements for the aforementioned companies (collectively, "The
Woodson Companies" or the "Companies") have been prepared on a combined basis
due to the Companies' common ownership by immediate family members acting as a
control group.
Description of Operations
WCC and Laine are in the business of constructing pipelines for the oil and
gas industry primarily offshore Louisiana, Texas, Mississippi and Alabama. WCC
secures contracts with customers and subcontracts substantially all the work to
Laine, which is owned by several officers of WCC.
Kori manufactures amphibious undercarriages for use primarily in marine
construction in the transition zone (from zero to 20 feet in depth). As an
Original Equipment Manufacturer ("OEM"), Kori supplies amphibious undercarriages
to companies that manufacture and/or distribute excavators..
Enviro performs sight assessments and on-site remediation of
petroleum-based products. Enviro also assists customers in the preparation and
submission of applications for reimbursement to the Louisiana Department of
Environmental Quality. All of Enviro's revenue is derived from sources within
the State of Louisiana.
Although the Companies have experienced growth in revenue over the past few
years, there is an inherent concentration of credit risk associated with
contracts receivable from their major customers. At December 31, 1995 and 1996,
two customers comprised approximately 42 percent and 61 percent, respectively,
of the total contracts receivable balance. As the Companies have historically
funded their operations with cash flows from operations, the combined entity may
be impacted by its dependence on a limited number of customers. Management
believes the risk is mitigated by the long-standing business relationships with
and reputation of the Companies' major customers. Although there is no assurance
with regard to the future business associations between the Companies and their
major customers, management believes the Companies do not have a significant
concentration of risk at December 31, 1995 and 1996. See Note 13 for a summary
of sales to major customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
F-27
<PAGE> 88
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
Cash equivalents consist of highly liquid debt instruments purchased with
original maturities of three months or less.
Inventory
Inventories represent raw materials and production supplies and are stated
at cost using the specific-identification method. Cost is not in excess of
market. At December 31, 1995 and 1996, the amount of inventory (including
materials and work-in-process) held was approximately $179,000 and $243,000,
respectively. Work-in-process inventory historically has not been significant.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line and accelerated
methods based on the estimated useful lives of the assets, which range from five
to 31.5 years. Additions, improvements and renewals significantly adding to the
asset value or extending the life of the asset are capitalized. Ordinary
maintenance and repairs which do not extend the physical or economic lives of
the plant or equipment are charged to expense as incurred (see Note 5 for a
summary of property, plant and equipment).
Revenue Recognition
Revenues from construction contracts, which are typically of short
duration, are recognized on the percentage-of-completion method. Under this
method, the percentage of completion is determined by comparing contract costs
incurred to date with total estimated contract costs. Income is recognized by
applying the percentage complete to the projected total income for each contract
in progress. 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. Revisions in cost and income estimates are reflected
in the accounting period in which the facts requiring revision become known. In
addition, anticipated losses to be incurred on contracts in progress are charged
to income as soon as such losses can be determined.
Fair Value of Financial Instruments
The Woodson Companies consider the fair value of all financial instruments
to not be materially different from their carrying values at each year-end based
on management's estimate of the Companies' ability to borrow funds under terms
and conditions similar to those applicable to the Companies' existing debt.
Income Taxes
The Companies account for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, the Companies recognize deferred tax liabilities and assets
for the expected future tax consequences of events recognized differently in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement carrying amounts and tax basis of assets and liabilities using enacted
tax rates and laws in effect in the years in which the differences are expected
to reverse. Deferred tax assets are evaluated for realization based on a
more-likely-than-not criteria in determining if a valuation allowance should be
provided. Income tax expense is the tax payable for the year and the change
during the year in deferred tax assets and liabilities.
The Woodson Companies' shareholders have elected to have two of the
combined companies (Laine and Enviro) taxed as S Corporations for federal and
state income tax purposes whereby shareholders are liable for individual federal
and state income taxes on their allocated portions of the applicable entity's
taxable income.
F-28
<PAGE> 89
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, the historical financial statements do not include provisions for
income taxes relating to those entities.
Pro forma net income (loss) consists of the historical net income (loss) of
the Companies, including two S Corporations, adjusted for income taxes that
would have been recorded had each company operated as a C Corporation.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Woodson Companies
adopted SFAS No. 121 on January 1, 1996. The impact of adopting this standard
did not have a material impact on the Companies' combined results of operations.
Interim Financial Information
The interim combined balance sheet as of June 30, 1997 and combined
statements of operations for the six months ended June 30, 1996 and 1997 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows with
respect to the interim combined financial statements have been included. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire fiscal year.
3. CONTRACTS AND ACCOUNTS RECEIVABLE
Amounts due on contracts as of the dates shown are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1996
------ ------
<S> <C> <C>
Completed contracts......................................... $ 469 $ 908
Contracts in progress --
Current................................................... 1,496 250
Retainage due within one year............................. 906 157
------ ------
$2,871 $1,315
====== ======
</TABLE>
The portion of the retainage due in excess of one year is not significant.
The Woodson Companies' accounts receivable balances as of December 31, 1995
and 1996 were approximately $343,000 and $103,000, respectively. The Woodson
Companies charge uncollectible receivables (contracts and accounts) to expense
when available information indicates that it is probable that the assets have
been impaired. Bad debt expense amounted to $217,000, $4,000 and $-- for the
years ended December 31, 1994, 1995 and 1996, respectively.
F-29
<PAGE> 90
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to uncompleted contracts as of the dates shown is
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- ------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 5,736 $ --
Estimated profit earned to date............................. 1,270 --
------- ------
7,006 --
Less -- Billings to date.................................... (7,961) --
------- ------
$ (955) $ --
======= ======
</TABLE>
The above amounts are included in the accompanying balance sheets under the
following captions (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- ------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 45 $ --
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (1,000) --
------- ------
$ (955) $ --
======= ======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at the dates shown
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1996
------ ------
<S> <C> <C>
Buildings................................................... $ 750 $ 490
Machinery and equipment..................................... 5,325 5,953
Furniture and fixtures...................................... 594 661
Transportation equipment.................................... 1,520 1,500
------ ------
8,189 8,604
Less -- Accumulated depreciation and amortization........... 6,317 5,648
------ ------
$1,872 $2,956
====== ======
</TABLE>
The Woodson Companies lease certain equipment used in the normal course of
their operations typically under month-to-month lease agreements. During the
years ended December 31, 1994, 1995 and 1996, the Companies expensed $650,000,
$1,783,000 and $1,920,000, respectively, relating to these leases.
6. AVAILABLE-FOR-SALE SECURITIES
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Companies' marketable equity securities are
included in an available-for-sale caption in the accompanying
F-30
<PAGE> 91
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
balance sheets and are carried at market value, with the difference between cost
and market value, net of related tax effects, included as a component of
shareholders' equity computed as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1996
------ ------
<S> <C> <C>
Fair value.................................................. $1,249 $1,603
Cost........................................................ 1,084 1,121
------ ------
Gross unrealized gain..................................... 165 482
Deferred tax effects........................................ 54 163
------ ------
Net unrealized gain....................................... $ 111 $ 319
====== ======
</TABLE>
Subsequent to December 1996, the Companies sold certain marketable equity
securities for net proceeds of $1,578,000. This transaction resulted in a gain
of $516,000, before related tax effects. Additionally, as a result of this sale,
the net unrealized gain on available-for-sale securities, net of deferred income
taxes, will be reduced by $305,000.
7. SUMMARY OF FINANCING ARRANGEMENTS
Short-term borrowings and notes payable to nonaffiliates consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1996
---- -----
<S> <C> <C>
Note payable to an insurance company in monthly installments
of $70,000, including interest at 7.45%, maturing April
15, 1997.................................................. $ -- $ 209
Note payable to an equipment company in monthly installments
of $3,000, including interest, maturing July 9, 1997,
secured by machinery and equipment........................ -- 20
Note payable to contractor in monthly installments of
$2,000, including interest, paid in 1996, secured by
machinery and equipment................................... 19 --
---- -----
Total financing obligations to nonaffiliates...... 19 229
Less -- Current portion..................................... (19) (229)
---- -----
Long-term balance................................. $ -- $ --
==== =====
</TABLE>
8. INCOME TAXES
Federal income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Federal provision (benefit) --
Current................................................... $ -- $-- $--
Deferred.................................................. (86) 91 91
</TABLE>
F-31
<PAGE> 92
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34 percent to income
(loss) before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Provision at the statutory rate............................ $(616) $ 713 $ 425
Increase resulting from --
Permanent differences --
S Corporation nontaxable income....................... 300 (642) (346)
Recognition of valuation allowance on net operating
loss carryforwards.................................. 237 -- --
Expenses not deductible for tax purposes.............. 7 18 5
State income tax and other, net....................... (14) 2 7
----- ----- -----
$ (86) $ 91 $ 91
===== ===== =====
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1995 1996
---- -----
<S> <C> <C>
Tax benefit of net operating loss carryforwards, net of
valuation allowance of $237............................... $272 $ 265
Tax effect on deferred gain on available-for-sale
securities................................................ (54) (163)
Other accrued expenses not deductible for tax purposes...... 84 10
Basis differences on property, plant and equipment.......... 5 (6)
---- -----
Net deferred tax assets........................... $307 $ 106
==== =====
</TABLE>
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets --
Current................................................... $ -- $ --
Long-term................................................. 361 275
---- ----
Total............................................. 361 275
---- ----
Deferred tax liabilities --
Current................................................... -- --
Long-term................................................. 54 169
---- ----
Total............................................. 54 169
---- ----
Net deferred income tax assets.................... $307 $106
==== ====
</TABLE>
9. RELATED-PARTY TRANSACTIONS
On December 31, 1996, the Companies advanced to their shareholders $450,000
pursuant to three promissory notes. The promissory notes are payable to the
Companies on demand, bear interest annually at a rate of 8 percent and are
included in other current assets in the accompanying balance sheets.
During December 1996, the Companies issued three unsecured promissory notes
to their shareholders, payable on demand and bearing interest at 8 percent. The
balance on the notes payable to the shareholders at December 31, 1996, was
$450,000.
F-32
<PAGE> 93
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The companies lease office space from certain of their shareholders. The
amount recorded as expense related to this lease was $142,200 for each of the
three years ended December 31, 1994, 1995 and 1996.
In addition to the above transactions, WCC sold certain buildings, land and
improvements during the years ended December 31, 1995 and 1996 to companies
owned by three of its officers who are also immediate family members of a major
shareholder for a total of $567,000 and $106,000, respectively. WCC realized a
loss on the transaction in the amount of $96,000 and a gain of $100,000 during
the years ended December 31, 1995 and 1996, respectively. These transactions
resulted in notes receivable from related parties as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1995 1996
---- ----
<S> <C> <C>
Notes receivable from related parties, dated December 29,
1995 and January 2, 1996, payable in 30 annual
installments ranging from $2,000 to $9,000, including
principal and interest.................................... $567 $665
Less -- Current portion................................ (7) (8)
---- ----
Long-term receivable.............................. $560 $657
==== ====
</TABLE>
These notes receivable resulted in interest income of $43,000 for the year
ended December 31, 1996.
10. RETIREMENT PLAN
The Woodson Companies Employee Profit Sharing Plan ("the Plan") provides
for contributions of up to 10 percent of the annual compensation of each
participant. The Plan includes employees of at least 21 years of age with one
year of completed service. Participants who became eligible after January 1,
1990 remain nonvested until the completion of five years of service, at which
time the participants become 100 percent vested. The Companies have obtained a
favorable tax determination letter from the Internal Revenue Service with
respect to the Plan.
The Woodson Companies made Plan contributions of $--, $30,000 and $26,000
for the years ended December 31, 1994, 1995 and 1996, respectively.
11. SHAREHOLDERS' EQUITY
The components of capital stock as of December 31, 1995 and 1996 are as
follows (in thousands except share and per-share information):
<TABLE>
<CAPTION>
CLASS OF SHARES SHARES PAR VALUE STATED
COMPANY SHARES AUTHORIZED ISSUED PER SHARE VALUE
------- -------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
WCC ................................ Common 200,000 75,000.00 $1 $75
Laine .............................. Common 500 7.50 $100 1
Kori................................ Common 5,000 750.00 $10 7
Enviro.............................. Common 10,000 300.00 No Par 15
--------- ---
Total capital stock....... 76,057.50 $98
========= ===
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
Insurance
The Woodson Companies are subject to numerous risks and uncertainties
because of the nature and status of their operations. The Woodson Companies
maintain insurance coverage for events and in amounts that they deem
appropriate. With the exception of certain uninsured punitive damage claims
which cannot reasonably be estimated at this time as described under the heading
"Litigation," management believes that uninsured losses, if any, will not be
materially adverse to the Companies' financial position or results of
operations.
The Woodson Companies maintain a self-insurance program for their workers'
compensation claims. The insurance carrier requires the Companies to retain
$81,000 in a money market account and a $37,000 escrow
F-33
<PAGE> 94
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
fund, which the Companies have included in other assets in the accompanying
balance sheets. The program provides for self-insurance coverage of $10,000 per
occurrence, subject to a maximum exposure of $50,000 per year. No expenses were
accrued relative to the self-insurance program for the periods shown in the
statements of operations.
Litigation
The Companies are currently involved in two class action lawsuits for
unspecified personal injury and property damages arising from events in October
1991 and January 1992 during the course of a pipeline installation project for a
third party gas transmission company. One of the class actions, involving
approximately 9,840 class members, entitled Rivera v. United Gas Pipeline Co.,
No. 28738, was instituted against Woodson Construction Company, Inc. on October
29, 1991 in the 40th Judicial District Court, Parish of St. John the Baptist,
State of Louisiana, and the other class action, involving approximately 7,858
class members, entitled Husseiney v. United Gas Pipeline Co., No. 29089, was
instituted on January 27, 1992 against Woodson Construction Company, Inc. in the
40th Judicial District Court, Parish of St. John the Baptist, State of
Louisiana. The claims of 24 representative class members in each case were tried
in 1995, and judgments were rendered against Woodson Construction Company, Inc.,
which were later affirmed by the court of appeal. In the Rivera lawsuit, five of
the 24 representative plaintiffs were awarded compensatory damages of $7,500 in
the aggregate, but punitive damages were denied. In the Husseiney lawsuit,
compensatory damages of $18,589 and punitive damages of $9,500 in the aggregate
were assessed against Woodson Construction Company, Inc. in favor of 16 of the
24 representative plaintiffs. In both lawsuits, the compensatory damages awarded
are expected to be covered by the Companies' insurance, but punitive damage
awards are not expected to be covered by insurance. The compensatory and
punitive damages awarded to the 16 representative class members varied according
to the representatives' proximity to the incident and individual experience with
respect to it. The amount of compensatory and punitive damages applicable to the
remaining 7,834 class members who seek to adjudicate their damage claims will be
litigated on an individual basis. Until those remaining damage claims are
finally adjudicated, settled, dismissed or otherwise terminated, the total
amount of the punitive damages to which the Companies may be subject cannot
reasonably be estimated, and there can be no assurance that it will not be
materially adverse to the Woodson Companies' financial position or results of
operations. In July 1997, all parties involved applied to the Louisiana Supreme
Court for further discretionary review of the existing judgments. The Companies
believe that there are meritorious arguments favorable to their position, but
are unable to predict whether the Louisiana Supreme Court will grant relief from
the judgments.
The Companies are involved in various other lawsuits arising in the
ordinary course of business, some of which involve substantial claims for
damages. While the outcome of these other lawsuits cannot be predicted with
certainty, management believes these other matters will not have a material
adverse effect on the combined financial position or results of operations of
the Companies.
13. SALES TO MAJOR CUSTOMERS
The customer bases for the Companies are primarily concentrated in the oil
and gas industry. The revenue earned from each customer varies from year to year
based on the contracts awarded. Sales to customers comprising 10 percent or more
of the Companies' total revenue are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A................................................. 19.7% 13.7% 10.1%
Customer B................................................. 17.8 -- --
Customer C................................................. -- 32.8 55.0
</TABLE>
F-34
<PAGE> 95
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS
The Woodson Companies and their shareholders expect to enter into
definitive agreements with TransCoastal Marine Services, Inc. ("TCMS"), pursuant
to which all the outstanding shares of the common stock of WCC, Kori and Enviro
will be acquired for TCMS common stock in three separate merger transactions,
and all the outstanding shares of the common stock of Laine will be purchased
for cash and shares of TCMS common stock concurrently with the closing of the
initial public offering (the "Offering") of the common stock of TCMS.
Shortly before the closing of the Offering, the Companies' shareholders
will elect to terminate the status as an S corporation for Laine and Enviro and
those companies will become subject to federal and state income taxes. Prior to
their termination as S corporations, subject to the terms of the acquisition
agreements, the Companies must refrain from declaring or paying any dividends or
Subchapter S distributions to any shareholders, directors, management sales
agents, employees or other personnel, except for dividends and distributions to
shareholders paid or declared in 1997 which in the aggregate do not exceed 43.2%
of the Companies' pretax income during 1997 excluding certain other mutually
agreed-to distributions, through the earlier of September 30, 1997 or the
Closing Date.
F-35
<PAGE> 96
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The CSI Companies:
We have audited the accompanying combined balance sheets of The CSI
Companies (as defined in Note 1), as of December 31, 1995 and 1996, and the
related combined statements of operations, owners' equity and cash flows for
each of the two years in the period ended May 31, 1995, the seven months ended
December 31, 1995, and the year ended December 31, 1996. These financial
statements are the responsibility of the management of The CSI Companies. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The CSI
Companies, as of December 31, 1995 and 1996, and the combined results of their
operations and their cash flows for each of the two years in the period ended
May 31, 1995, the seven months ended December 31, 1995 and the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 18, 1997 (except with
respect to the matter discussed
in Note 10, as to which the date is
July 31, 1997)
F-36
<PAGE> 97
THE CSI COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------- JUNE 30,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 758 $ 571 $ 872
Restricted cash equivalents............................... -- 460 460
Accounts receivable....................................... 2,534 1,368 4,490
Available-for-sale securities, at fair value.............. 2,418 522 151
Receivables from related parties.......................... 282 746 760
Other current assets...................................... 167 708 478
------ ------- -------
Total current assets.............................. 6,159 4,375 7,211
PROPERTY, PLANT AND EQUIPMENT, net.......................... 1,400 3,109 7,053
OTHER ASSETS................................................ 42 18 39
------ ------- -------
Total assets...................................... $7,601 $ 7,502 $14,303
====== ======= =======
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $1,144 $ 355 $ 1,069
Accounts payable.......................................... 718 1,591 140
Accrued expenses.......................................... 192 282 2,780
Income taxes payable...................................... 217 478 1,196
------ ------- -------
Total current liabilities......................... 2,271 2,706 5,185
------ ------- -------
DEFERRED INCOME TAX LIABILITY............................... 630 561 670
LONG-TERM DEBT.............................................. 25 1,738 4,696
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY:
Common stock.............................................. 264 264 264
Additional paid-in capital................................ 380 380 380
Retained earnings......................................... 4,031 4,417 5,672
Treasury stock, at cost, 83.3 shares as of December 31,
1996 and March 31, 1997................................ -- (2,564) (2,564)
------ ------- -------
Total owners' equity.............................. 4,675 2,497 3,752
------ ------- -------
Total liabilities and owners' equity.............. $7,601 $ 7,502 $14,303
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-37
<PAGE> 98
THE CSI COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEVEN MONTHS ENDED
MAY 31 ENDED YEAR ENDED JUNE 30
--------------- DECEMBER 31, DECEMBER 31, ---------------
1994 1995 1995 1996 1996 1997
------ ------ ------------ ------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUE................................ $5,331 $5,226 $6,041 $8,447 $3,815 $9,606
COSTS AND EXPENSES:
Cost of revenue...................... 2,964 3,334 3,010 5,264 2,463 5,651
Selling, general and administrative
expenses.......................... 1,725 2,285 1,282 2,435 1,160 1,270
Depreciation and amortization........ 288 269 177 359 202 245
------ ------ ------ ------ ------ ------
Operating income (loss)........... 354 (662) 1,572 389 (10) 2,440
OTHER INCOME (EXPENSE):
Interest income...................... 84 117 80 159 33 72
Interest expense..................... (14) (5) (11) (137) (28) (214)
Other................................ 73 14 (6) (25) 54 (28)
------ ------ ------ ------ ------ ------
Total other income
(expense).................. 143 126 63 (3) 59 (170)
------ ------ ------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES...... 497 (536) 1,635 386 49 2,270
INCOME TAXES PROVISION (BENEFIT)....... 190 (150) 642 205 84 931
EXTRAORDINARY GAIN..................... -- -- -- 342 342 --
------ ------ ------ ------ ------ ------
NET INCOME (LOSS)...................... $ 307 $ (386) $ 993 $ 523 $ 307 $1,339
====== ====== ====== ====== ====== ======
PRO FORMA INFORMATION (UNAUDITED) (NOTE
2)
Income (loss) before income taxes.... $ 497 $ (536) $1,635 $ 386 $ 49 $2,270
Extraordinary gain................... -- -- -- 342 342 --
Pro forma income taxes............... 222 (125) 684 356 156 940
------ ------ ------ ------ ------ ------
Pro forma net income (loss)............ $ 275 $ (411) $ 951 $ 372 $ 235 $1,330
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE> 99
THE CSI COMPANIES
COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1993.................... 1,166 $264 $380 $3,117 $ -- $ 3,761
NET INCOME................................. -- -- -- 307 -- 307
----- ---- ---- ------ ------- -------
BALANCE AT MAY 31, 1994.................... 1,166 264 380 3,424 -- 4,068
NET LOSS................................... -- -- -- (386) -- (386)
----- ---- ---- ------ ------- -------
BALANCE AT MAY 31, 1995.................... 1,166 264 380 3,038 -- 3,682
NET INCOME................................. -- -- -- 993 -- 993
----- ---- ---- ------ ------- -------
BALANCE AT DECEMBER 31, 1995............... 1,166 264 380 4,031 -- 4,675
DISTRIBUTION TO PARTNER OF
HARGETT INVESTMENTS LLC.................. -- -- -- (137) -- (137)
NET INCOME................................. -- -- -- 523 -- 523
PURCHASE OF TREASURY STOCK................. (83) -- -- -- (2,564) (2,564)
----- ---- ---- ------ ------- -------
BALANCE AT DECEMBER 31, 1996............... 1,083 264 380 4,417 (2,564) 2,497
DISTRIBUTION TO PARTNER OF
HARGETT INVESTMENT LLC................... -- -- -- (84) -- (84)
NET INCOME (Unaudited)..................... -- -- -- 1,339 -- 1,339
----- ---- ---- ------ ------- -------
BALANCE AT JUNE 30, 1997 (Unaudited)....... 1,083 $264 $380 $5,672 $(2,564) $ 3,752
===== ==== ==== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-39
<PAGE> 100
THE CSI COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN SIX MONTHS
YEAR ENDED MONTHS ENDED
MAY 31 ENDED YEAR ENDED JUNE 30
---------------- DECEMBER 31, DECEMBER 31, ------------------
1994 1995 1995 1996 1996 1997
------ ------ ------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 307 $ (386) $ 993 $ 523 $ 307 $ 1,339
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities --
Depreciation and amortization............... 288 269 177 359 202 245
Provision for doubtful accounts............. 41 6 6 24 -- 40
Deferred tax provision (benefit)............ 214 (97) 349 (69) (74) 109
Extraordinary gain.......................... -- -- -- (342) (342) --
(Gain) loss on sale of property, plant and
equipment................................. 61 13 -- 19 6 --
Changes in operating assets and
liabilities --
(Increase) decrease in --
Restricted cash equivalents............. -- -- -- (460) -- --
Accounts receivable..................... (53) 146 (1,872) 1,142 433 (3,162)
Receivables from related parties........ (264) -- (18) (728) (401) (14)
Other current assets.................... 200 (168) 171 (541) (153) 230
Other assets............................ 258 96 (6) 24 41 (21)
Increase (decrease) in --
Accounts payable and accrued expenses... 173 132 307 963 96 1,047
Income taxes payable.................... (24) (52) 291 261 91 717
------ ------ ------- ------- ------- -------
Net cash provided by (used in) in
operating activities.................. 1,201 (41) 398 1,175 206 530
------ ------ ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of capital assets.......... 90 -- -- 3 3 --
Capital expenditures.......................... (142) (408) (238) (2,090) (374) (4,188)
Proceeds from sale (purchase) of investments,
net......................................... (957) (498) (963) 1,896 1,093 371
------ ------ ------- ------- ------- -------
Net cash provided by (used in) investing
activities............................ (1,009) (906) (1,201) (191) 722 (3,817)
------ ------ ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable........... (417) (388) (184) (1,201) (58) (1,344)
Proceeds from issuance of notes payable....... 121 530 40 2,467 1,657 5,016
Distribution to partner of Hargett Investments
LLC......................................... -- -- -- (137) -- (84)
Purchase of treasury stock.................... -- -- -- (2,300) (2,300) --
------ ------ ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................ (296) 142 (144) (1,171) (701) 3,588
------ ------ ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (104) (805) (947) (187) 227 301
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 2,614 2,510 1,705 758 758 571
------ ------ ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period........ $2,510 $1,705 $ 758 $ 571 $ 985 $ 872
====== ====== ======= ======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest.................................... $ 14 $ 5 $ 11 $ 138 $ 28 $ 214
Taxes....................................... -- -- -- 102 -- --
Exchange of receivable from related party for
treasury stock.............................. -- -- -- 264 -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-40
<PAGE> 101
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Principles of Combination
The accompanying combined financial statements include the accounts of the
following companies, all headquartered in Lafayette, Louisiana, which are
related by the common ownership of a major shareholder and immediate family
members:
CSI Hydrostatic Testers, Inc. (CSI) and its wholly owned subsidiary,
Blue-Water Hydro Test
Corporation (Blue-Water)
Hargett Mooring and Marine, Inc. (HMMI)
Hargett Investments LLC (HI)
Financial statements for the aforementioned companies ("The CSI Companies"
or the "Companies") have been prepared on a combined basis due to the Companies'
common ownership.
DESCRIPTION OF OPERATIONS
CSI is primarily engaged in testing offshore oil and gas pipelines and
providing sandblasting and painting services to companies in the oil and gas
industry. CSI's main operating area is in and around the Gulf of Mexico.
Blue-Water had no operations as of December 31, 1996. HMMI is a marine vessel
company, focused on chartering vessels for certain energy-related services. HI's
operations consist of leasing office space to CSI.
Although the Companies have experienced growth in revenue over the past few
years, there is an inherent concentration of credit risk associated with
contracts receivable from their major customers. At December 31, 1995 and 1996,
two customers comprised approximately 55 percent and three customers comprised
approximately 45 percent, respectively, of the total accounts receivable
balance. As the Companies have historically funded their operations with cash
flows from operations, the combined entity may be impacted by its dependence on
a limited number of customers. Management believes the risk is mitigated by the
long-standing business relationship with and reputation of the Companies' major
clients. Although there is no assurance with regard to the future business
associations between the Companies and their major customers, management
believes the Companies do not have a significant concentration of risk at
December 31, 1995 and 1996. See Note 12 for a summary of sales to major
customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid debt instruments purchased with
original maturities of three months or less.
Restricted Cash
Restricted cash represents cash equivalent investments to support letters
of credit established by the Companies in the normal course of business with
certain vendors.
F-41
<PAGE> 102
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line and accelerated
methods based on the estimated useful lives of the assets, which range from
three to 30 years. Additions, improvements and renewals significantly adding to
the asset value or extending the life of the asset are capitalized. 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
The Companies follow the percentage-of-completion method of accounting for
construction contracts which are typically of short duration. Under this method,
the percentage of completion is determined by comparing contract costs incurred
to date with total estimated contract costs. Income is recognized by applying
the percentage complete to the projected total income for each contract in
progress. 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. Revisions in cost and income estimates are reflected
in the accounting period in which the facts requiring revision become known. In
addition, anticipated losses to be incurred on contracts in progress are charged
to income as soon as such losses can be determined. With regard to pipeline
testing services performed, the companies recognize revenues on an as-billed
basis, with an accrual made at each period end for unbilled revenue.
Fair Value of Financial Instruments
The CSI Companies consider the fair value of all financial instruments to
not be materially different from their carrying values at each year-end based on
management's estimate of the Companies' ability to borrow funds under terms and
conditions similar to those applicable to the Companies' existing debt.
Income Taxes
The Companies account for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, the Companies recognize deferred tax liabilities and assets
for the expected future tax consequences of events that have been recognized
differently in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax basis of assets and
liabilities using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse. Deferred tax assets are evaluated for
realization based on a more-likely-than-not criteria in determining if a
valuation allowance should be provided. Income tax expense is the tax payable
for the year and the change during the year in deferred tax assets and
liabilities.
One of the combining entities, HI, is a limited liability corporation. Its
members are liable for individual federal and state income taxes on their
allocated portions of its taxable income. Accordingly, the historical financial
statements do not include provisions for income taxes relating to HI.
Pro forma net income (loss) consists of the historical net income (loss) of
the Companies', including HI, a limited liability corporation, adjusted for
income taxes that would have been recorded had each Company operated as a C
corporation.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Companies adopted SFAS
No. 121 on January 1, 1996. The impact of adopting this standard did not have a
material impact on the combined results of operations.
F-42
<PAGE> 103
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Information
The interim combined balance sheet as of June 30, 1997 and combined
statements of operations for the six months ended June 30, 1996 and 1997 are
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows with
respect to the interim combined financial statements have been included. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire fiscal year.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of the dates shown (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1996
------ ------
<S> <C> <C>
Billed to customers......................................... $2,074 $1,206
Revenues earned not yet billed.............................. 460 162
------ ------
$2,534 $1,368
====== ======
</TABLE>
Bad debt expense amounted to $41,000, $6,000, $6,000 and $24,000 for the
years ended May 31, 1994 and 1995, the seven months ended December 31, 1995 and
the year ended December 31, 1996, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at the dates shown
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
<S> <C> <C>
Land........................................................ $ 258 $ 258
Buildings and improvements.................................. 1,641 1,533
Machinery and equipment..................................... 2,983 3,370
Furniture and fixtures...................................... 464 26
Marine vessels.............................................. 635 2,217
------- -------
5,981 7,404
Less -- Accumulated depreciation and amortization........... (4,581) (4,295)
------- -------
$ 1,400 $ 3,109
======= =======
</TABLE>
The CSI Companies lease certain equipment used in the normal course of
their operations under, typically month-to-month lease agreements. During the
years ended May 31, 1994 and 1995, the seven months ended December 31, 1995 and
the year ended December 31, 1996, the Companies expensed $236,000, $243,000,
$688,000 and $1,019,000, respectively, related to these leases.
5. AVAILABLE-FOR-SALE SECURITIES
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Companies' marketable equity securities are
included in an available-for-sale caption in the accompanying combined balance
sheets and are carried at market value. The difference between cost and market
value is not material.
F-43
<PAGE> 104
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUMMARY OF FINANCING ARRANGEMENTS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
<S> <C> <C>
Note payable to a finance company in monthly installments of
$1,000, including interest at 8.50%, maturing June 1998,
secured by equipment and a personal guarantee by an
officer and shareholder of the Companies.................. $ 36 $ 25
Two notes payable to a financing company in monthly
installments of $27,000 and $26,000, including interest at
8.25% and 7.82%, maturing April 1996 and 1997,
respectively, secured by unearned insurance policy
premiums.................................................. 105 162
Note payable to a bank, due in monthly installments of
$24,000, including interest at 9.25%, maturing April 2003,
secured by equipment and a personal guarantee by an
officer and shareholder of the Companies.................. -- 1,398
Note payable to a trust company............................. 1,028 --
Note payable to a bank, due in monthly installments of
$5,000, including interest at 9.00%, maturing June 2001
with a balloon payment of $475,000, secured by real estate
and a personal guarantee by an officer and shareholder of
the Companies............................................. -- 508
------- -------
Total financing obligations....................... 1,169 2,093
Less -- Current portion of long-term debt................... (1,144) (355)
------- -------
Long-term debt.................................... $ 25 $ 1,738
======= =======
</TABLE>
The note payable to a trust company for $1,028,000 was secured by a
mortgage on certain of the Companies' real estate. The Companies retired the
outstanding balance of that note in 1996 for $680,000. In connection with the
retirement, the Companies recognized an extraordinary gain of $342,000 for the
difference between the outstanding balance on the note at the time of retirement
and the amount paid.
Aggregate annual principal payments on financing obligations outstanding at
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 355
1998........................................................ 211
1999........................................................ 217
2000........................................................ 238
2001........................................................ 703
Thereafter.................................................. 369
------
Total............................................. $2,093
======
</TABLE>
Additionally, in October 1996, the Companies established a $500,000 line of
credit with a bank, bearing interest at 9.5 percent, due on demand or in monthly
payments. The line of credit matures in October 1997 and is secured by equipment
and accounts receivable of the Companies and by the personal guarantee of the
chief executive officer and principal shareholder. As of December 31, 1996, no
amounts had been drawn under the line of credit.
F-44
<PAGE> 105
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS
MAY 31 ENDED YEAR ENDED
------------ DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
---- ----- ------------ ------------
<S> <C> <C> <C> <C>
Federal and state --
Current.................................... $(24) $ (53) $293 $274
Deferred................................... 214 (97) 349 (69)
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34 percent to income
(loss) before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS
MAY 31 ENDED YEAR ENDED
------------ DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
---- ----- ------------ ------------
<S> <C> <C> <C> <C>
Provision at the statutory rate.............. $169 $(182) $556 $248
Increase resulting from --
Permanent differences --
Limited liability company nontaxable
income................................ (21) (25) (18) (136)
State income tax, net................... 17 (11) 57 28
Other................................... 25 68 47 65
---- ----- ---- ----
$190 $(150) $642 $205
==== ===== ==== ====
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
----- -----
<S> <C> <C>
Utilization of operating losses............................. $ -- $ (84)
Bad debt expense............................................ (76) 58
Other accrued expenses not deductible for tax purposes...... 19 59
Basis differences on property, plant and equipment.......... (98) (114)
State taxes................................................. 45 40
Overseas operations......................................... (520) (520)
----- -----
Net deferred tax liability........................ $(630) $(561)
===== =====
</TABLE>
F-45
<PAGE> 106
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets --
Current................................................... $ 39 $147
Long-term................................................. 15 --
---- ----
Total............................................. 54 147
---- ----
Deferred tax liabilities --
Current................................................... 558 488
Long-term................................................. 126 220
---- ----
Total............................................. 684 708
---- ----
Net deferred income tax liability................. $630 $561
==== ====
</TABLE>
8. RETIREMENT PLAN
The Companies maintain an Internal Revenue Code Section 401(k) plan which
covers all qualified employees meeting certain service and age requirements. The
Companies' contribution is discretionary. The Companies contributed $-- and
$18,000 for the seven-month period ended December 31, 1995 and the year ended
December 31, 1996, respectively. The 401(k) plan was discontinued in early 1997.
9. SHAREHOLDERS' EQUITY
The components of shareholders' equity as of December 31, 1995 and 1996,
are as follows (in thousands, except share and per share data) (see Note 1):
<TABLE>
<CAPTION>
CLASS OF SHARES SHARES PAR VALUE STATED
COMPANY OWNERSHIP AUTHORIZED ISSUED PER SHARE VALUE
------- ------------ ---------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
CSI and subsidiary................. Common stock 700 166.67 $50.00 $ 9
HMMI............................... Common stock 999 999.00 No par 255
HI................................. Member units N/A N/A N/A N/A
-------- ----
1,165.67 $264
======== ====
</TABLE>
Total capital related to HI is included in additional paid-in capital in
the accompanying balance sheets.
During 1996, CSI purchased 83 1/3 shares of common stock (one-half of its
outstanding shares) from an officer of CSI for $2,564,000. The purchase price
consisted of $2,300,000 in cash plus the forgiveness of a $264,000 receivable
from the officer. The purchased common stock has been recorded as treasury stock
in the accompanying financial statements.
10. COMMITMENTS AND CONTINGENCIES
Litigation
The CSI Companies are involved in various legal actions incidental to the
ordinary course of business. A former employee brought one such lawsuit against
HMMI in 1991. The former employee alleged personal injury while in the course
and scope of his employment and submitted an opening settlement demand of
$700,000. The case is currently pending trial in state district court. In the
opinion of the Companies' management, after consultation with outside legal
counsel, the ultimate disposition of such proceedings, including the case above,
will not have a material adverse effect on the Companies' financial position or
results of operations.
F-46
<PAGE> 107
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Operating Leases
The Companies currently lease two vehicles under noncancelable operating
leases that provide for two-year terms. Future minimum lease payments under such
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
- -----------
<S> <C> <C>
1997.................................................................. $12
1998.................................................................. 28
---
$40
===
</TABLE>
Rental expense for the vehicle leases as described above and various other
leases for the years ended May 31, 1994 and 1995, the seven months ended
December 31, 1995 and the year ended December 31, 1996 was $--, $25,000, $17,000
and $17,000, respectively.
11. SALES TO MAJOR CUSTOMERS
The customer bases for the Companies are primarily concentrated in the oil
and gas industry. The revenue earned from each customer varies from year to year
based on the contracts awarded. Sales to customers comprising 10 percent or more
of the Companies' total revenue are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS
MAY 31 ENDED YEAR ENDED
----------- DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
---- ---- ------------ ------------
<S> <C> <C> <C> <C>
Customer A..................................... 29% 26% --% --%
Customer B..................................... 14 10 -- --
Customer C..................................... 16 17 -- --
Customer D..................................... 11 -- -- --
Customer E..................................... -- -- 22 --
Customer F..................................... -- -- -- 12
Customer G..................................... -- -- -- 21
Customer H..................................... -- -- -- 20
</TABLE>
12. SUBSEQUENT EVENTS
Definitive Agreement
The CSI Companies and their shareholders expect to enter into a definitive
agreement with TransCoastal Marine Service, Inc. ("TCMS"), pursuant to which all
the outstanding shares of common stock and limited liability company interests
in the Companies will be acquired for cash and shares of TCMS common stock
concurrently with the consummation of the initial public offering of the common
stock of TCMS.
Vessel Acquisition
In March 1997, the Companies purchased a marine vessel for $3.5 million
financed with a $3.5 million term note bearing interest at 10.7 percent. The
note is secured by a mortgage on the marine vessel and a personal guarantee of
an officer and shareholder of the Companies, is due in 59 monthly installments
of $59,000 and matures in 2002 with a $1,318,000 balloon payment on maturity.
The vessel was purchased for the purpose of expanding the capabilities of the
Companies' offshore pipeline testing operations.
F-47
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
Board of Directors
HBH, Inc.
Belle Chasse, Louisiana
We have audited the accompanying balance sheets of HBH, Inc. as of December
31, 1995 and 1996, and the related statements of operations, shareholder's
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HBH, Inc. as of December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 27, 1997
(May 7, 1997 as to Note 6)
F-48
<PAGE> 109
HBH, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 24 $ 44 $ 59
Accounts receivable, net.................................. 6,044 8,553 10,225
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. -- -- 1,539
Prepaid expenses.......................................... 180 405 519
Current portion of notes receivable from shareholder...... 218 -- 37
Other current assets...................................... 45 252 8
------- ------- -------
Total current assets.............................. 6,511 9,254 12,387
PROPERTY, PLANT AND EQUIPMENT, net.......................... 9,293 8,748 8,328
OTHER ASSETS:
Notes receivable from shareholder......................... 885 194 157
------- ------- -------
Total assets...................................... $16,689 $18,196 $20,872
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving line of credit.................................. $ 2,200 $ 1,476 $ 500
Current maturities of long-term debt...................... 812 940 977
Accounts payable.......................................... 7,215 7,986 8,942
Accrued expenses.......................................... 1,087 908 2,199
Billings in excess of costs and estimated losses on
uncompleted contracts.................................. 306 1,397 --
------- ------- -------
Total current liabilities......................... 11,620 12,707 12,618
LONG-TERM DEBT, less current maturities..................... 5,521 5,060 4,632
SUBORDINATED DEBT........................................... -- 635 635
DEFERRED GAIN ON SALE OF PROPERTY AND EQUIPMENT............. 508 -- --
------- ------- -------
Total liabilities................................. 17,649 18,402 17,885
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock, no par value, 3,000 shares authorized, 882
shares issued and outstanding at stated value.......... 66 66 66
Additional paid-in capital................................ 8 308 808
Retained earnings (accumulated deficit)................... (1,034) (580) 2,113
------- ------- -------
Total shareholder's equity (deficit).............. (960) (206) 2,987
------- ------- -------
Total liabilities and shareholder's equity
(deficit)....................................... $16,689 $18,196 $20,872
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 110
HBH, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE.......................................... $15,261 $14,771 $36,873 $19,062 $23,850
COSTS AND EXPENSES:
Cost of revenue................................ 12,585 16,803 33,727 16,343 19,394
Selling, general and administrative expense.... 929 867 1,000 484 671
Depreciation................................... 503 871 1,482 719 750
------- ------- ------- ------- -------
14,017 18,541 36,209 17,546 20,815
------- ------- ------- ------- -------
Operating income (loss)..................... 1,244 (3,770) 664 1,516 3,035
OTHER INCOME (EXPENSE):
Interest income................................ 132 113 45 28 7
Interest expense............................... (85) (288) (853) (436) (368)
Gain on sale of property, plant and
equipment................................... 37 33 601 517 19
------- ------- ------- ------- -------
Total other income (expense)........... 84 (142) (207) 109 (342)
------- ------- ------- ------- -------
INCOME (LOSS).................................... $ 1,328 $(3,912) $ 457 $ 1,625 $ 2,693
======= ======= ======= ======= =======
PRO FORMA INFORMATION (UNAUDITED) (Note 2)
Historical net income (loss)................... $ 1,328 $(3,912) $ 457 $ 1,625 $ 2,693
Pro forma income tax provision (benefit)....... 500 (1,460) 170 600 1,000
------- ------- ------- ------- -------
Pro forma net income (loss).................... $ 828 $(2,452) $ 287 $ 1,025 $ 1,693
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 111
HBH, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994.......................... 882 $66 $ 8 $ 2,430 $ 2,504
DIVIDENDS........................................... -- -- -- (599) (599)
NET INCOME.......................................... -- -- -- 1,328 1,328
--- --- ---- ------- -------
BALANCE AT DECEMBER 31, 1994........................ 882 66 8 3,159 3,233
DIVIDENDS........................................... -- -- -- (281) (281)
NET LOSS............................................ -- -- -- (3,912) (3,912)
--- --- ---- ------- -------
BALANCE AT DECEMBER 31, 1995........................ 882 66 8 (1,034) (960)
CAPITAL CONTRIBUTIONS............................... -- -- 300 -- 300
DIVIDENDS........................................... -- -- -- (3) (3)
NET INCOME.......................................... -- -- -- 457 457
--- --- ---- ------- -------
BALANCE AT DECEMBER 31, 1996........................ 882 66 308 (580) (206)
CAPITAL CONTRIBUTIONS (Unaudited)................... -- -- 500 -- 500
NET INCOME (Unaudited).............................. -- -- -- 2,693 2,693
--- --- ---- ------- -------
BALANCE AT JUNE 30, 1997 (Unaudited)................ 882 $66 $808 $ 2,113 $ 2,987
=== === ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 112
HBH, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ 1,328 $(3,912) $ 457 $ 1,625 $ 2,693
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 503 871 1,482 719 750
(Gain) on sale of property, plant and
equipment................................. (37) (33) (601) (517) (19)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable..................... (3,797) (1,401) (2,509) (178) (1,672)
Costs and estimated earnings (losses) in
excess of billings on uncompleted
contracts............................. 155 -- -- (169) (1,539)
Other current assets.................... (20) (52) (432) 64 130
Increase (decrease) in:
Accounts payable and accrued expenses... 2,130 4,872 594 (147) 2,247
Billings in excess of costs and
estimated earnings (losses) on
uncompleted
contracts............................. -- 306 1,090 (306) (1,397)
------- ------- -------- ------- -------
Net cash provided by (used in) operating
activities............................ 262 651 81 1,091 1,193
------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and
equipment.................................... 8 11 221 49 34
Additions of property, plant and equipment..... (971) (7,859) (1,066) (575) (345)
Collection of notes receivable from
shareholder.................................. 181 201 909 657 --
------- ------- -------- ------- -------
Net cash provided by (used in) investing
activities............................ (782) (7,647) 64 131 (311)
------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit................... 875 2,900 28,958 10,707 20,175
Payments on line of credit..................... (725) (850) (29,682) (10,626) (21,151)
Proceeds from subordinated debt................ -- -- 635 635 --
Proceeds from notes payable to others.......... 219 5,534 532 500 82
Principal payments on notes payable to
others....................................... (267) (371) (865) (429) (473)
Capital contributions.......................... -- -- 300 300 500
Payment of dividends to shareholder............ (599) (281) (3) (3) --
------- ------- -------- ------- -------
Net cash provided by (used in) financing
activities............................ (497) 6,932 (125) 1,084 (867)
------- ------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH.................. (1,017) (64) 20 2,306 15
CASH, beginning of period........................ 1,105 88 24 24 44
------- ------- -------- ------- -------
CASH, end of period.............................. $ 88 $ 24 $ 44 $ 2,330 $ 59
======= ======= ======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest..................................... $ 84 $ 286 $ 842 $ 429 $ 378
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 113
HBH, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
HBH, Inc. (the "Company"), is wholly owned by the Estate of H.D. Hughes.
The Company is engaged in the marine pipeline and oilfield construction business
in the central area of the Gulf of Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 assets and 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.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid debt instruments purchased with
original maturities of three months or less.
Accounts Receivable
The Company provides its services to a limited number of customers. At
December 31, 1996, five customers accounted for approximately 19%, 18%, 14%, 14%
and 13% of accounts receivable, respectively.
Accounts receivable are reduced by any allowance for doubtful accounts as
considered necessary. The need for an allowance is determined by management
based on an evaluation of individual accounts. Historical chargeoffs have not
been significant.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method based on
the estimated useful lives of the assets, which range from 3 to 10 years for
machinery and equipment and other assets. Additions, improvements and renewals
significantly adding to the asset value or extending the life of the asset are
capitalized. Ordinary maintenance and repairs not extending the physical or
economic lives of the plant or equipment are charged to expense as incurred.
Revenue Recognition
The Company follows the percentage-of-completion method of accounting for
major (generally over $100,000) construction contracts which are typically of
short duration. Under this method, the percentage of completion is determined by
comparing contract costs incurred to date with total estimated contract costs.
Income is recognized by applying the percentage complete to the projected total
income for each contract in progress. 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. Revisions in
cost and income estimates are reflected in the accounting period in which the
facts requiring the revision become known. In addition, anticipated losses to be
incurred on contracts in progress are charged to income as soon as losses can be
determined.
Revenue is recognized on minor construction contracts using the
completed-contract method whereby billings and costs are accumulated during the
period of construction but profits are not recorded until completion of the
contracts. This method approximates the percentage of completion method because
of the short-term nature of the minor contracts.
Revenues from day-rate contracts are recognized currently as the work is
performed.
F-53
<PAGE> 114
HBH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The Company considers the fair value of all financial instruments to be a
reasonable approximation of their carrying values since financial instruments
such as cash, accounts receivable, accounts payable and accrued expenses have a
short duration and interest on debt is generally either at a floating rate or at
a rate which approximates current market.
Income Taxes
The Company has elected to be taxed for federal and state income tax
purposes under Subchapter S of the Internal Revenue Code. Any current taxable
income or loss of the Company is allocated to the shareholder who is responsible
for the taxes thereon.
The Company generally has paid dividends to its shareholder at the same
time that he was required to make income tax payments based on his taxable
income which included the results of the Company's operations.
Pro forma net income (loss) consists of the Company's historical income
(loss) as an S Corporation, adjusted for income taxes that would have been
recorded had the Company operated as a C Corporation.
Impairment of Long-Lived Assets
In March 1995, the Financing Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the Company's results
of operations.
Interim Financial Information
The interim financial statements as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 are unaudited, and certain information and footnote
disclosures, normally included in annual financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
3. ACCOUNTS AND CONTRACTS RECEIVABLE
Amounts due on contracts as of the dates shown are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1996
------ ------
<S> <C> <C>
Completed contracts......................................... $1,430 $5,366
Contracts in progress:
Current................................................... 4,045 2,929
Retainage due within one year............................. 569 258
Less -- allowance for doubtful accounts..................... -- --
------ ------
$6,044 $8,553
====== ======
</TABLE>
F-54
<PAGE> 115
HBH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The portion of the retainage due in excess of one year is not significant.
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to uncompleted contracts as of the date shown is
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 8,848 $ 2,688
Estimated losses on uncompleted contracts................... (3,548) (898)
------- -------
5,300 1,790
Less -- Billings to date.................................... (5,606) (3,187)
------- -------
$ (306) $(1,397)
======= =======
</TABLE>
The above amounts are included in the accompanying balance sheets under the
caption of billings in excess of costs and estimated losses on uncompleted
contracts.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at the dates shown
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
<S> <C> <C>
Buildings................................................... $ 32 $ 32
Machinery and equipment..................................... 15,396 16,129
Furniture and fixtures...................................... 80 93
Transportation equipment.................................... 736 710
------- -------
16,244 16,964
Less -- Accumulated depreciation and amortization........... (6,951) (8,216)
------- -------
$ 9,293 $ 8,748
======= =======
</TABLE>
6. SUMMARY OF FINANCING ARRANGEMENTS
The Company's revolving line of credit is payable to a bank and bears
interest at prime plus 0.75% (9% at December 31, 1996) and is due April 17,
1997. The agreement provides for maximum borrowings of $3,000,000. The Company's
agreement in connection with the line of credit payable to a bank contains
certain covenants with respect to the minimum amount of tangible net worth, the
maximum ratio of debt to equity and a minimum quarterly amount of net earnings.
The Company was not in compliance with these covenants at December 31, 1996.
These requirements were waived through the new maturity date of the note which
has been extended until June 16, 1997 (see Note 9).
F-55
<PAGE> 116
HBH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1996
------ ------
<S> <C> <C>
Note payable to a bank, bearing interest at 9.25%, payable
in monthly installments of principal and interest of
approximately $74,000 with the unpaid balance due October
31, 2000.................................................. $5,358 $4,952
Note payable to a finance company, bearing interest at 6.79%
to 8.55%, due at various dates through 1998 and 2001...... 691 847
Various installment notes payable, bearing interest rates
ranging from 9.0% to 11.2%, due at various dates through
1998...................................................... 130 104
Note payable to a finance company, bearing interest at
6.63%, payable in monthly installments through July
1998...................................................... 153 97
------ ------
6,332 6,000
Less current portion........................................ (811) (940)
------ ------
$5,521 $5,060
====== ======
</TABLE>
Substantially all of the Company's assets are pledged as collateral on the
long-term debt. The notes payable to the banks are guaranteed by the Company's
shareholder.
As of December 31, 1996, aggregate annual principal payments on the
revolving line of credit and long-term debt are payable as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- ------------------------
<S> <C> <C>
1997............................................................... $2,416
1998............................................................... 788
1999............................................................... 659
2000............................................................... 3,583
2001............................................................... 30
------
$7,476
======
</TABLE>
7. RELATED-PARTY TRANSACTIONS
Amounts due from the Company's sole shareholder in the form of notes
receivable amounted to $194,000 at December 31, 1996 and $1,103,000 at December
31, 1995, at various interest rates ranging up to 9%. Interest income on these
notes was approximately $44,000 for the year ended December 31, 1996, $101,000
for the year ended December 31, 1995 and $117,000 for the year ended December
31, 1994.
Land and buildings were sold to the Company's sole shareholder in October
1983. The excess of the sales price over the carrying value of the property was
deferred and was being recognized as payments were received on the note. During
1996, the remaining balance of the note was collected and the remaining gain of
$508,000 was recognized as income. The Company is leasing this property from the
shareholder on a month-to-month basis. Rent expense amounted to $167,000 for
each of 1996, 1995 and 1994.
The subordinated debt is due to the shareholder and is subordinate to the
revolving line of credit. The note bears interest at 9.45 percent, and interest
only is due in monthly installments through June 11, 2001, at which time the
terms of repayment of interest and principal are to be renegotiated.
The Company has guaranteed a note payable to a bank by the Company's sole
shareholder with a balance of $1,104,000 at December 31, 1996.
F-56
<PAGE> 117
HBH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid consulting, debt guarantee and other fees to the Company's
sole shareholder through December 31, 1996. These fees aggregated $233,000 for
each of 1996, 1995 and 1994.
8. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings arising in the ordinary
course of business and is not aware of any litigation threatened against it that
could have a material effect on the financial statements.
9. SUBSEQUENT EVENTS (UNAUDITED)
In June 1997, the maturity date of the revolving line of credit was
extended until June 16, 1998.
The Company and its shareholder have entered into a definitive agreement
(being held in escrow subject to the satisfaction of certain conditions) with
TransCoastal Marine Services, Inc. ("TCMS"), pursuant to which all the
outstanding shares of the Company's common stock will be sold to TCMS for cash
and shares of TCMS common stock concurrently with the consummation of the
initial public offering (the "Offering") of the common stock of TCMS.
A sale of the stock as described above would automatically terminate the
Company's status as an S corporation. Under the terms of the definitive
agreement, the Company has agreed to restrictions upon dividends or S
corporation distributions.
10. SALES TO MAJOR CUSTOMERS
The customer base for the Company is primarily concentrated in the oil and
gas industry. The revenue earned from each customer varies from year to year
based on the contracts awarded. Sales to customers comprising 10 percent or more
of the Company's total revenue are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Customer A................................................ $ -- $2,155 $17,862
Customer B................................................ 6,440 3,434 5,533
Customer C................................................ -- 3,194 --
Customer D................................................ -- 1,981 --
Customer E................................................ 3,030 -- --
</TABLE>
******
F-57
<PAGE> 118
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Red Fox Companies of New Iberia, Inc.:
We have audited the accompanying balance sheets of The Red Fox Companies of
New Iberia, Inc., as of December 31, 1995 and 1996, and the related statements
of operations, shareholder's equity and cash flows for the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Red Fox Companies of New
Iberia, Inc., as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
DARNALL, SIKES & FREDERICK
Lafayette, Louisiana
June 6, 1997
F-58
<PAGE> 119
THE RED FOX COMPANIES OF NEW IBERIA, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 752 $ 89 $ 707
Contracts receivable...................................... 511 910 1,242
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 345 243 358
Deferred tax asset........................................ -- -- 22
Other current assets...................................... 37 82 106
------ ------ ------
Total current assets.............................. 1,645 1,324 2,435
PROPERTY, PLANT AND EQUIPMENT, net.......................... 59 38 44
AMOUNTS DUE FROM OFFICERS................................... 78 -- 34
------ ------ ------
Total assets...................................... $1,782 $1,362 $2,513
====== ====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $1,040 $ 570 $ 302
Accrued expenses.......................................... 216 130 1,206
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. -- 5 422
Deferred income taxes..................................... 66 81 --
------ ------ ------
Total current liabilities......................... 1,322 786 1,930
LOANS PAYABLE TO RELATED PARTIES............................ 43 -- --
DEFERRED INCOME TAXES....................................... 3 8 8
------ ------ ------
Total liabilities................................. 1,368 794 1,938
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value, 1,000 shares authorized, 100
shares issued and outstanding.......................... 1 1 1
Retained earnings......................................... 413 567 574
------ ------ ------
Total shareholder's equity........................ 414 568 575
------ ------ ------
Total liabilities and shareholder's equity........ $1,782 $1,362 $2,513
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 120
THE RED FOX COMPANIES OF NEW IBERIA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------- ---------------
1994 1995 1996 1996 1997
------ ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE.............................................. $5,611 $10,497 $9,730 $3,159 $4,536
COSTS AND EXPENSES:
Cost of revenue.................................... 4,715 9,426 8,260 2,708 3,825
Selling, general and administrative expenses....... 650 698 885 363 674
Depreciation and amortization...................... 16 15 12 8 8
------ ------- ------ ------ ------
Operating income (loss) 230 358 573 80 29
OTHER INCOME (EXPENSE):
Interest expense................................... (70) (8) (30) (20) (7)
Other.............................................. (32) (80) (60) (21) (13)
------ ------- ------ ------ ------
Total other expense........................ (102) (88) (90) (41) (20)
------ ------- ------ ------ ------
INCOME BEFORE INCOME TAXES........................... 128 270 483 39 9
PROVISION FOR INCOME TAXES........................... 50 117 197 9 2
------ ------- ------ ------ ------
NET INCOME........................................... $ 78 $ 153 $ 286 $ 30 $ 7
====== ======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 121
THE RED FOX COMPANIES OF NEW IBERIA, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- -----
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993................................ 100 $1 $ 182 $ 183
NET INCOME.................................................. -- -- 78 78
--- -- ----- -----
BALANCE AT DECEMBER 31, 1994................................ 100 1 260 261
NET INCOME.................................................. -- -- 153 153
--- -- ----- -----
BALANCE AT DECEMBER 31, 1995................................ 100 1 413 414
DIVIDENDS................................................... -- -- (132) (132)
NET INCOME.................................................. -- -- 286 286
--- -- ----- -----
BALANCE AT DECEMBER 31, 1996................................ 100 1 567 568
NET INCOME (Unaudited)...................................... -- -- 7 7
--- -- ----- -----
BALANCE AT June 30, 1997 (Unaudited)........................ 100 $1 $ 574 $ 575
=== == ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 122
THE RED FOX COMPANIES OF NEW IBERIA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------ -------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 78 $ 153 $ 286 $ 30 $ 7
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation.................................... 16 15 12 8 6
Loss on sale of property, plant and equipment... 4 -- -- -- --
Changes in operating assets and liabilities --
(Increase) decrease in --
Contracts receivable....................... 18 24 (399) (25) (332)
Costs and estimated earnings in excess of
billings on uncompleted contracts........ (169) (137) 102 162 (115)
Other current assets....................... -- (34) (45) (45) (24)
Increase (decrease) in --
Accounts payable and accrued expenses...... 211 852 (557) (816) 808
Billings in excess of costs and estimated
earnings on uncompleted contracts........ -- -- 5 -- 417
Deferred income taxes...................... 50 3 20 (3) (103)
----- ----- ----- ----- -----
Net cash provided by (used in) operating
activities............................... 208 876 (576) (689) 664
----- ----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and
equipment....................................... 2 -- -- -- --
Capital expenditures............................... (9) (35) (28) (4) (12)
Payments from shareholder and related parties...... -- -- 115 -- --
(Payments to) advances from shareholder and related
parties......................................... (57) (21) -- (14) (34)
----- ----- ----- ----- -----
Net cash provided by (used in) investing
activities............................... (64) (56) 87 (18) (46)
----- ----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to shareholder and
related parties................................. 221 -- -- -- --
Principal payments on notes payable to others...... (197) (28) -- -- --
Principal payments on notes payable to shareholder
and related parties............................. -- (208) (42) (4) --
Payment of dividends to shareholder................ -- -- (132) -- --
----- ----- ----- ----- -----
Net cash provided by (used in) financing
activities............................... 24 (236) (174) (4) --
----- ----- ----- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 168 584 (663) (711) 618
CASH AND CASH EQUIVALENTS, beginning of period....... -- 168 752 752 89
----- ----- ----- ----- -----
CASH AND CASH EQUIVALENTS, end of period............. $ 168 $ 752 $ 89 $ 41 $ 707
===== ===== ===== ===== =====
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used for --
Interest........................................ $ 70 $ 8 $ 30 $ 20 $ 7
Income taxes.................................... -- 98 140 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 123
THE RED FOX COMPANIES OF NEW IBERIA, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
The Red Fox Companies of New Iberia, Inc. (the "Company") is primarily
engaged in the fabrication and refurbishment of (i) structural components of
fixed platforms for use in the development of oil and gas, and (ii) structural
components, primarily deck structures, for offshore drilling rigs and barge
drilling rigs. RFCNI also fabricates marine sewage treatment units that are
installed on offshore platforms and drilling rigs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid debt instruments purchased with
original maturities of three months or less.
Contracts Receivable
The Company provides for doubtful accounts using the direct write-off
method. In the Company's case, use of this method does not result in a material
difference from the valuation method required by generally accepted accounting
principles.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation expense is
computed using the straight-line method based on the estimated useful lives of
the assets, which range from five to seven years. Additions, improvements and
renewals significantly adding to the asset value or extending the life of the
asset are capitalized. Ordinary maintenance and repairs not extending the
physical or economic lives of the plant or equipment are charged to expense as
incurred.
Revenue Recognition
Revenue from construction contracts, which are typically of short duration,
are recognized on the percentage-of-completion method. Under this method, the
percentage of completion is determined by comparing contract costs incurred to
date with total estimated contract costs. Income is recognized by applying the
percentage complete to the projected total income for each contract in progress.
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. Revisions in cost and income estimates are reflected in the
accounting period in which the facts that require revision become known. In
addition, anticipated losses to be incurred on contracts in progress are charged
to income as soon as such losses can be determined.
The asset caption entitled "Costs and estimated earnings in excess of
billings on uncompleted contracts" represents revenue recognized in excess of
amounts billed. The liability caption entitled "Billings in excess of costs and
estimated earnings on uncompleted contracts" represents billings in excess of
revenue recognized.
Fair Value of Financial Instruments
The Company considers the fair value of all financial instruments to not be
materially different from their carrying values at December 31, 1995 and 1996.
F-63
<PAGE> 124
THE RED FOX COMPANIES OF NEW IBERIA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, the Company recognized deferred tax liabilities and assets
for the expected future tax consequences of events that have been recognized
differently in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax basis of assets and
liabilities using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse. Deferred tax assets are evaluated for
realization based on a more-likely-than-not criteria in determining if a
valuation allowance should be provided. Income tax expense is the tax payable
for the year and the change during the year in deferred tax assets and
liabilities.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company adopted SFAS No.
121 on January 1, 1996. The impact of adopting this standard did not have a
material impact on the results of operations.
Interim Financial Information
The interim balance sheet as of June 30, 1997 and statements of operations
for the six months ended June 30, 1996 and 1997 are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
financial statements have been included. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
3. ACCOUNTS AND CONTRACTS RECEIVABLE
Amounts due on contracts as of the dates shown are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1995 1996
---- ----
<S> <C> <C>
Completed contracts......................................... $487 $616
Contracts in progress....................................... 24 294
---- ----
$511 $910
==== ====
</TABLE>
F-64
<PAGE> 125
THE RED FOX COMPANIES OF NEW IBERIA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to uncompleted contracts as of the dates shown is
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
----- ------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 654 $3,508
Estimated profit earned to date............................. 114 266
Accrued loss on uncompleted contracts....................... (152) --
----- ------
616 3,774
Less -- Billings to date.................................... 271 3,536
----- ------
$ 345 $ 238
===== ======
</TABLE>
The above amounts are included in the accompanying balance sheets under the
following captions (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------
1995 1996
---- ----
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $345 $243
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... -- (5)
---- ----
$345 $238
==== ====
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at the dates shown
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------
1995 1996
---- ----
<S> <C> <C>
Buildings................................................... $-- $ 4
Machinery and equipment..................................... 15 29
Transportation equipment.................................... 75 28
--- ---
90 61
Less -- Accumulated depreciation............................ (31) (23)
--- ---
$59 $38
=== ===
</TABLE>
6. INCOME TAXES
Federal income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal --
Current................................................... $-- $101 $155
Deferred.................................................. 50 3 20
</TABLE>
F-65
<PAGE> 126
THE RED FOX COMPANIES OF NEW IBERIA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34 percent to income
(loss) before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Provision at the statutory rate............................. $44 $92 $164
Increase resulting from state income tax, net............... 5 11 22
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
----- ----
<S> <C> <C>
Accrued losses on uncompleted contracts..................... $ 51 $ --
Uncompleted contracts....................................... (117) (81)
Basis differences on property, plant and equipment.......... (3) (8)
----- ----
Net deferred tax liabilities...................... $ (69) $(89)
===== ====
</TABLE>
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets, current................................ $ 51 $ --
---- ----
Deferred tax liabilities --
Current................................................... 117 81
Long-term................................................. 3 8
---- ----
Total............................................. 120 89
---- ----
Net deferred income tax liabilities............... $(69) $(89)
==== ====
</TABLE>
7. RELATED-PARTY TRANSACTIONS
The following transactions occurred between the Company and certain related
parties:
a. Loans receivable from Company officers at December 31, 1995 and 1996
were $78,000 and $--, respectively. These loans were unsecured and
provided no set repayment terms.
b. Loans due from or payable to a party related to the Company's president
at December 31, 1995 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
LOANS LOANS
RECEIVABLE PAYABLE
---------- -------
<S> <C> <C>
December 31, 1995........................................... $-- $43
December 31, 1996........................................... 17 --
</TABLE>
These loans were unsecured and noninterest-bearing. There were also no set
repayment terms.
F-66
<PAGE> 127
THE RED FOX COMPANIES OF NEW IBERIA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
c. Lease agreements between the Company and related parties as of December
31, 1994, 1995 and 1996 consisted of the following:
(1) The Company leases real estate from a party related to the
Company's president. The annual rent paid by the Company for 1994, 1995 and
1996 was $30,000, $30,000 and $30,000, respectively. In addition, rent for
the year ending December 31, 1997 in the amount of $27,000 was prepaid.
(2) The Company leases vehicles from a party related to the Company's
president. Rental amounts paid for vehicles in 1994, 1995 and 1996 were
$--, $7,000 and $25,000, respectively.
(3) The Company leases a vehicle from its president. The associated
rental amounts paid by the Company for 1994, 1995 and 1996 were $20,000,
$44,000 and $38,000, respectively.
d. The Company had sales to a company owned by a party related to the
Company's president during the year ended December 31, 1996 totaling $162,000.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain equipment used in the normal course of its
operations under month-to-month lease agreements cancelable only by the Company.
The Company leases automobiles under operating leases which are
noncancelable for the first 24 months and, in certain cases, the first 48
months. Thereafter, the leases are on a month-to-month basis.
The Company leases office space under an operating lease which is
noncancelable for the first 120 months.
Approximate annual minimum lease payments under operating leases as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 45
1998........................................................ 45
1999........................................................ 38
2000........................................................ 31
2001........................................................ 30
Thereafter.................................................. 135
----
$324
====
</TABLE>
The Company expensed amounts related to these leases as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Building.................................................... $ 34 $ 38 $ 48
Vehicles.................................................... 12 28 49
Equipment................................................... 205 291 273
</TABLE>
F-67
<PAGE> 128
THE RED FOX COMPANIES OF NEW IBERIA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. SALES TO MAJOR CUSTOMERS
The customer base for the Company is primarily concentrated in the oil and
gas industry. The revenue earned from each customer varies from year to year
based on the contracts awarded. Sales to customers comprising 10 percent or more
of the Company's total revenue are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Customer A.................................................. 25.0% 76.3% --%
Customer B.................................................. 11.8 -- 10.9
Customer C.................................................. 11.5 -- --
Customer D.................................................. -- -- 49.4
</TABLE>
10. SUBSEQUENT EVENTS
The Company expects to enter into a definitive agreement with TransCoastal
Marine Services, Inc. ("TCMS"), pursuant to which all the outstanding shares of
the Company's common stock will be acquired for notes and shares of TCMS common
stock concurrently with the closing of the initial public offering of the common
stock of TCMS.
F-68
<PAGE> 129
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
DESCRIBED IN THIS PROSPECTUS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION, IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 9
The Company............................... 14
Use of Proceeds........................... 16
Dividend Policy........................... 16
Capitalization............................ 17
Dilution.................................. 18
Selected Financial Information............ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 21
Business.................................. 33
Management................................ 43
Security Ownership of Certain Beneficial
Owners and Management................... 48
Certain Transactions...................... 49
Description of Capital Stock.............. 53
Shares Eligible for Future Sale........... 55
Underwriting.............................. 57
Legal Matters............................. 58
Experts................................... 58
Additional Information.................... 59
Index to Financial Statements............. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
5,000,000 SHARES
[TRANSCOASTAL MARINE SERVICES, INC. LOGO]
COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.
JOHNSON RICE &
COMPANY L.L.C.
, 1997
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses (other than
underwriting discounts and commissions) payable by the Registrant in connection
with the issuance and distribution of the securities being registered. All
amounts are estimates except for the fees payable to the SEC.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 27,879
NASD Filing Fee............................................. 9,700
NASDAQ Listing Fee.......................................... 36,875
Legal Fees and Expenses..................................... 400,000
Accounting Fees and Expenses................................ 400,000
Blue sky fees and expenses (including counsel fees)......... 5,000
Printing Costs.............................................. 225,000
Consulting fees............................................. 112,000
Transfer Agent and Registrar fees and expenses.............. 10,000
Miscellaneous............................................... 73,546
----------
Total............................................. $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the Company
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of the Company or is or
was serving at the request of the Company as a director, officer or employee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
II-1
<PAGE> 131
Under Section 6(b) of the Underwriting Agreement filed as Exhibit 1.1 to
this Registration Statement, the Underwriters have agreed to indemnify, under
certain conditions, the Company, its officers and directors, and persons who
control the Company, within the meaning of the Securities Act of 1933, as
amended, against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities
by TCMS that were not registered under the Securities Act of 1933. The
description presented below gives effect to TCMS' 1,000-to-1 stock split on
August 8, 1997.
On March 24, 1997, TCMS issued and sold shares of Common Stock in the
amounts indicated in exchange for the indicated number of shares of common stock
of Red Fox International, Inc., a Louisiana corporation ("RFI Shares"): G. Darcy
Klug -- 300,000 shares in exchange for 300 RFI Shares; J&D Capital Investments,
L.C. -- 600,000 shares in exchange for 600 RFI Shares; and Beldon E. Fox,
Jr. -- 75,000 shares in exchange for 75 RFI Shares.
On March 24, 1997, TCMS issued and sold shares of Common Stock as follows:
Johnnie W. Domingue -- 75,000 shares for $75; Bill E. Stallworth -- 100,000
shares for $100.
On April 2, 1997, TCMS issued and sold 3,000 shares of Common Stock to
Stanley E. Rauhut for $3.
On April 25, 1997, TCMS issued and sold 100,000 shares of Common Stock to
Thad Smith for $100.
On July 15, 1997, TCMS issued and sold 3,000 shares of Common Stock to
Patrick Collins for $3.
The aggregate consideration TCMS will pay to acquire the Founding Companies
and certain related real estate consists of (i) approximately $85.7 million in
cash, (ii) $3.0 million in 8% notes payable over a ten-year term ending in 2007,
and (iii) 2,570,933 shares of Common Stock. TCMS will also assume up to $11.5
million of indebtedness of the Founding Companies and then repay or refinance
substantially all that indebtedness at or shortly after the closing of the
Acquisitions. In addition, the acquisition agreements for the RFCNI and CSI
Acquisitions provide for post-closing adjustments, which are to be determined
based on a multiple of estimated EBITDA of RFCNI and one of the entities
comprising CSI, payable in a combination of cash and shares of Common Stock. In
consideration for the acquisition of the Founding Companies, TCMS will issue and
sell the following securities: (i) 1,237,600 shares of Common Stock to four
shareholders of Woodson pursuant to a stock purchase agreement and three merger
agreements, each dated August 29, 1997; (ii) 533,333 shares of Common Stock to
three shareholders of CSI (one of which, Daniel N. Hargett, Sr., will become a
director of TCMS as of the closing of the Offering) pursuant to a stock purchase
agreement dated August 29, 1997; (iii) 600,000 shares of Common Stock to the
sole shareholder of HBH pursuant to a stock purchase agreement dated August 20,
1997, and (iv) 200,000 shares of Common Stock and a $3.0 million, 8% ten-year
promissory note payable by TCMS to the sole shareholder of RFCNI pursuant to a
merger agreement dated August 27, 1997.
The sales and issuances of the securities referenced above are exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
transactions not involving any public offering, with the recipients representing
their intentions to acquire the securities for their own accounts and not with a
view to the distribution thereof. In each case TCMS took steps to ensure that
the purchaser was acquiring securities for purposes of investment and not with a
view to distribution, including execution of an agreement by each purchaser
concerning such purchaser's investment intent. With regard to the sale of
securities to shareholders of the Founding Companies, TCMS believes that each
shareholder is an accredited investor and that such investor received full
disclosure of all material facts through a private offering memorandum provided
by TCMS.
See "Certain Transactions" for a discussion of the issuance of shares of
Common Stock in connection with the Acquisitions.
II-2
<PAGE> 132
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <S>
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Amended and Restated Certificate of Incorporation of
TCMS.
*3.2 -- Bylaws of TCMS.
*4.1 -- Form of Certificate representing Common Stock.
*4.2 -- Form of Share Exchange Agreement among TCMS, J&D Capital
Investments, L.C., James B. Thompson and Beldon E. Fox,
Jr.
*4.3 -- Form of Secured Promissory Note to be issued in the
acquisition of RFCNI.
*5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin.
*8.1 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of Woodson Construction Company, Inc.
*8.2 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of Kori Corporation.
*8.3 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of EnviroSystems, Inc.
*8.4 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of The Red Fox Companies of New Iberia, Inc.
*10.1 -- TCMS 1997 Stock Option Plan.
*10.2 -- Employment Agreement dated as of August 6, 1997, between
TCMS and Bill E. Stallworth.
*10.3 -- Employment Agreement dated as of August 6, 1997, between
TCMS and Thad Smith.
*10.4 -- Employment Agreement dated as of August 6, 1997, between
TCMS and Johnnie W. Domingue.
*10.5 -- Stock Repurchase Agreement dated as of March 24, 1997,
between TCMS and Bill E. Stallworth.
*10.6 -- Stock Repurchase Agreement dated as of April 25, 1997,
between TCMS and Thad Smith.
*10.7 -- Stock Repurchase Agreement dated as of March 24, 1997,
between TCMS and Johnnie W. Domingue.
*10.8 -- Form of Employment Agreement between HBH, Inc. and H.
Daniel Hughes II.
*10.9 -- Form of Employment Agreement between CSI Hydrostatic
Testers, Inc. and Daniel N. Hargett, Sr.
*10.10 -- Agreement for Consulting Services dated April 14, 1997,
between TCMS and Stallworth, Frankhouser & Associates, as
amended August 6, 1997.
*10.11 -- Employment Letter dated April 21, 1997, between TCMS and
Johnnie W. Domingue, as amended August 6, 1997.
*10.12 -- Form of warrant issued to McFarland, Grossman & Company,
Inc.
*10.13 -- Purchase and Sale Agreement dated as of August 28, 1997,
by and among TCMS, Laine Construction Company, Inc.,
Paula Woodson, Linda Woodson and Cheryl Woodson.
</TABLE>
II-3
<PAGE> 133
<TABLE>
<C> <S>
*10.14 -- Agreement and Plan of Merger dated as of August 28, 1997,
by and among TCMS, Woodson Acquisition Corp., Woodson
Construction Company, Inc. and Louis Woodson.
*10.15 -- Agreement and Plan of Merger dated August 28, 1997, by
and among TCMS, Kori Acquisition Corp., Kori Corporation,
Paula Woodson, Linda Woodson and Cheryl Woodson.
*10.16 -- Agreement and Plan of Merger dated as of August 28, 1997,
by and among TCMS, Enviro Acquisition Corp.,
Envirosystems, Inc., Paula Woodson, Linda Woodson and
Cheryl Woodson.
*10.17 -- Purchase and Sale Agreement dated as of August 28, 1997,
among TCMS, CSI Hydrostatic Testers, Inc., Hargett
Mooring and Marine, Inc., Daniel N. Hargett, Sr., Yvette
Hargett and Richard Hargett.
*10.18 -- Purchase and Sale Agreement dated as of August 20, 1997,
by and among TCMS, HBH, Inc. and the Succession of
Herbert D. Hughes.
*10.19 -- Agreement and Plan of Merger dated as of August 27, 1997,
by and among TCMS, RNI Acquisition Corp., The Red Fox
Companies of New Iberia, Inc. and The Beldon E. Fox, Sr.
Grandchildren's Trust No. 1.
*10.20 -- Form of Agreement to Purchase and Sell dated as of August
28, 1997, by and among TCMS and Linda Woodson, Cheryl
Woodson and Paula Woodson.
*10.21 -- Agreement to Purchase and Sell dated as of August 20,
1997, by and between TCMS and the Succession of Herbert
D. Hughes.
*10.22 -- Leasehold Purchase Agreement dated as of August 11, 1997,
by and between TCMS and The Beldon E. Fox, Sr.
Grandchildren's Trust No. 1.
*10.23 -- Amendment and Restated Consulting and Financial Advisory
Services Agreement dated September 24, 1997, between TCMS
and J&D Capital Investments, L.C.
10.24 -- Form of Senior Revolving Credit Agreement by and among
TCMS and Joint Energy Development Investments, Limited
Partnership, and the Lenders Signatory thereto.
10.25 -- Form of Subordinated Credit Agreement by and among TCMS
and Joint Energy Development Investments, Limited
Partnership, and the Lenders Signatory thereto.
10.26 -- Form of Warrant Agreement by and between TCMS and Joint
Energy Development Investments, Limited Partnership.
*21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Darnall, Sikes & Frederick.
23.3 -- Consent of Arthur Andersen LLP.
*23.4 -- Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
*23.5 -- Consent of H. Daniel Hughes II to be named as a director.
*23.6 -- Consent of Daniel N. Hargett, Sr. to be named as a
director.
*23.7 -- Consent of Nathan M. Avery to be named as a director.
*24.1 -- Power of Attorney included in Part II of the Registration
Statement.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
II-4
<PAGE> 134
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) That for the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-5
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas on October 28, 1997.
TRANSCOASTAL MARINE SERVICES, INC.
By: /s/ JOHNNIE W. DOMINGUE
----------------------------------
Johnnie W. Domingue, Senior Vice
President, Chief Financial
Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated as of October 28, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
BILL E. STALLWORTH* Chairman of the Board of Directors, and
- -------------------------------------------------------- Chief Executive Officer (Principal
Bill E. Stallworth Executive Officer)
THAD SMITH* President, Chief Operating Officer and
- -------------------------------------------------------- Director
Thad Smith
/s/ JOHNNIE W. DOMINGUE Senior Vice President, Chief Financial
- -------------------------------------------------------- Officer, Treasurer and Secretary
Johnnie W. Domingue (Principal Financial and Accounting
Officer)
JEAN SAVOY* Director
- --------------------------------------------------------
Jean Savoy
PATRICK B. COLLINS* Director
- --------------------------------------------------------
Patrick B. Collins
CLIFFORD E. MCFARLAND* Director
- --------------------------------------------------------
Clifford E. McFarland
D. GLENN RICHARDSON* Director
- --------------------------------------------------------
D. Glenn Richardson
*By: /s/ JOHNNIE W. DOMINGUE
---------------------------------------------------
Johnnie W. Domingue
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 136
INDEX TO EXHIBITS
<TABLE>
<S> <S>
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Amended and Restated Certificate of Incorporation of
TCMS.
*3.2 -- Bylaws of TCMS.
*4.1 -- Form of Certificate representing Common Stock.
*4.2 -- Form of Share Exchange Agreement among TCMS, J&D Capital
Investments, L.C., James B. Thompson and Beldon E. Fox,
Jr.
*4.3 -- Form of Secured Promissory Note to be issued in the
acquisition of RFCNI.
*5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin.
*8.1 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of Woodson Construction Company, Inc.
*8.2 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of Kori Corporation.
*8.3 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of EnviroSystems, Inc.
*8.4 -- Form of Opinion of Chamberlain, Hrdlicka, White, Williams
& Martin regarding certain tax matters concerning the
acquisition of The Red Fox Companies of New Iberia, Inc.
*10.1 -- TCMS 1997 Stock Option Plan.
*10.2 -- Employment Agreement dated as of August 6, 1997, between
TCMS and Bill E. Stallworth.
*10.3 -- Employment Agreement dated as of August 6, 1997, between
TCMS and Thad Smith.
*10.4 -- Employment Agreement dated as of August 6, 1997, between
TCMS and Johnnie W. Domingue.
*10.5 -- Stock Repurchase Agreement dated as of March 24, 1997,
between TCMS and Bill E. Stallworth.
*10.6 -- Stock Repurchase Agreement dated as of April 25, 1997,
between TCMS and Thad Smith.
*10.7 -- Stock Repurchase Agreement dated as of March 24, 1997,
between TCMS and Johnnie W. Domingue.
*10.8 -- Form of Employment Agreement between HBH, Inc. and H.
Daniel Hughes II.
*10.9 -- Form of Employment Agreement between CSI Hydrostatic
Testers, Inc. and Daniel N. Hargett, Sr.
*10.10 -- Agreement for Consulting Services dated April 14, 1997,
between TCMS and Stallworth, Frankhouser & Associates, as
amended August 6, 1997.
*10.11 -- Employment Letter dated April 21, 1997, between TCMS and
Johnnie W. Domingue, as amended August 6, 1997.
*10.12 -- Form of warrant issued to McFarland, Grossman & Company,
Inc.
*10.13 -- Purchase and Sale Agreement dated as of August 28, 1997,
by and among TCMS, Laine Construction Company, Inc.,
Paula Woodson, Linda Woodson and Cheryl Woodson.
</TABLE>
<PAGE> 137
<TABLE>
<C> <S>
*10.14 -- Agreement and Plan of Merger dated as of August 28, 1997,
by and among TCMS, Woodson Acquisition Corp., Woodson
Construction Company, Inc. and Louis Woodson.
*10.15 -- Agreement and Plan of Merger dated August 28, 1997, by
and among TCMS, Kori Acquisition Corp., Kori Corporation,
Paula Woodson, Linda Woodson and Cheryl Woodson.
*10.16 -- Agreement and Plan of Merger dated as of August 28, 1997,
by and among TCMS, Enviro Acquisition Corp.,
Envirosystems, Inc., Paula Woodson, Linda Woodson and
Cheryl Woodson.
*10.17 -- Purchase and Sale Agreement dated as of August 28, 1997,
among TCMS, CSI Hydrostatic Testers, Inc., Hargett
Mooring and Marine, Inc., Daniel N. Hargett, Sr., Yvette
Hargett and Richard Hargett.
*10.18 -- Purchase and Sale Agreement dated as of August 20, 1997,
by and among TCMS, HBH, Inc. and the Succession of
Herbert D. Hughes.
*10.19 -- Agreement and Plan of Merger dated as of August 27, 1997,
by and among TCMS, RNI Acquisition Corp., The Red Fox
Companies of New Iberia, Inc. and The Beldon E. Fox, Sr.
Grandchildren's Trust No. 1.
*10.20 -- Form of Agreement to Purchase and Sell dated as of August
28, 1997, by and among TCMS and Linda Woodson, Cheryl
Woodson and Paula Woodson.
*10.21 -- Agreement to Purchase and Sell dated as of August 20,
1997, by and between TCMS and the Succession of Herbert
D. Hughes.
*10.22 -- Leasehold Purchase Agreement dated as of August 11, 1997,
by and between TCMS and The Beldon E. Fox, Sr.
Grandchildren's Trust No. 1.
*10.23 -- Amendment and Restated Consulting and Financial Advisory
Services Agreement dated September 24, 1997, between TCMS
and J&D Capital Investments, L.C.
10.24 -- Form of Senior Revolving Credit Agreement by and among
TCMS and Joint Energy Development Investments, Limited
Partnership, and the Lenders Signatory thereto.
10.25 -- Form of Subordinated Credit Agreement by and among TCMS
and Joint Energy Development Investments, Limited
Partnership, and the Lenders Signatory thereto.
10.26 -- Form of Warrant Agreement by and between TCMS and Joint
Energy Development Investments, Limited Partnership.
*21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Darnall, Sikes & Frederick.
23.3 -- Consent of Arthur Andersen LLP.
*23.4 -- Consent of Chamberlain, Hrdlicka, White, Williams &
Martin (included in Exhibit 5.1).
*23.5 -- Consent of H. Daniel Hughes II to be named as a director.
*23.6 -- Consent of Daniel N. Hargett, Sr. to be named as a
director.
*23.7 -- Consent of Nathan M. Avery to be named as a director.
*24.1 -- Power of Attorney included in Part II of the Registration
Statement.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
DRAFT
October 27, 1997
SENIOR REVOLVING CREDIT AGREEMENT
Dated as of October 28, 1997
Among
TRANSCOASTAL MARINE SERVICES, INC.
as Borrower,
JOINT ENERGY DEVELOPMENT INVESTMENTS,
LIMITED PARTNERSHIP
as Agent,
and
THE LENDERS SIGNATORY HERETO
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above...................................1
Section 1.02 Certain Defined Terms.................................1
Section 1.03 Accounting Terms and Determinations..................13
ARTICLE II
COMMITMENTS
Section 2.01 Loans................................................14
Section 2.02 Borrowings, Continuations and Conversions............14
Section 2.03 Changes of Commitments...............................15
Section 2.04 Fees.................................................16
Section 2.05 Several Obligations..................................16
Section 2.06 Notes................................................17
Section 2.07 Prepayments..........................................17
Section 2.08 Lending Offices......................................17
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans...................................18
Section 3.02 Interest.............................................18
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments.............................................19
Section 4.02 Pro Rata Treatment...................................19
Section 4.03 Computations.........................................19
Section 4.04 Non-receipt of Funds by the Agent....................19
Section 4.05 Set-off; Sharing of Payments, Etc....................20
Section 4.06 Taxes................................................21
ARTICLE V
<PAGE> 3
CAPITAL ADEQUACY
Section 5.01 Additional Costs.....................................22
Section 5.02 Limitation on Eurodollar Loans.......................24
Section 5.03 Illegality...........................................24
Section 5.04 Base Rate Loans Pursuant to Sections 5.01,
5.02 and 5.03........................................24
Section 5.05 Compensation.........................................24
Section 5.06 Replacement Lenders..............................25
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding......................................26
Section 6.02 Initial and Subsequent Loans.........................28
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 Corporate Existence..................................28
Section 7.02 Financial Condition..................................29
Section 7.03 Litigation...........................................29
Section 7.04 No Breach............................................29
Section 7.05 Authority............................................29
Section 7.06 Approvals............................................30
Section 7.07 Use of Loans.........................................30
Section 7.08 ERISA................................................30
Section 7.09 Taxes................................................31
Section 7.10 Titles, etc..........................................31
Section 7.11 No Material Misstatements............................32
Section 7.12 Investment Company Act...............................32
Section 7.13 Public Utility Holding Company Act...................32
Section 7.14 Subsidiaries.........................................32
Section 7.15 Location of Business and Offices.....................32
Section 7.16 Defaults.............................................32
Section 7.17 Environmental Matters................................32
Section 7.18 Compliance with the Law..............................34
Section 7.19 Insurance............................................34
Section 7.20 Hedging Agreements...................................34
Section 7.21 Restriction on Liens.................................34
Section 7.22 Material Agreements..................................34
Section 7.23 Registration Statement...............................35
Section 7.24 Public Offering and Founding Companies...........35
-i-
<PAGE> 4
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 Financial Statements.................................35
Section 8.02 Litigation...........................................37
Section 8.03 Maintenance, Etc.....................................37
Section 8.04 Environmental Matters................................38
Section 8.05 Further Assurances...................................38
Section 8.06 Performance of Obligations...........................38
Section 8.07 ERISA Information and Compliance.....................38
Section 8.08 Mortgaged Property...................................39
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 Debt.................................................39
Section 9.02 Liens................................................40
Section 9.03 Investments, Loans and Advances......................40
Section 9.04 Dividends, Distributions and Redemptions.............42
Section 9.05 Sales and Leasebacks.................................42
Section 9.06 Nature of Business...................................42
Section 9.07 Limitation on Leases.................................42
Section 9.08 Mergers, Etc.........................................42
Section 9.09 Proceeds of Notes....................................42
Section 9.10 ERISA Compliance.....................................43
Section 9.11 Sale or Discount of Receivables......................44
Section 9.12 Capital (including maintenance) Expenditures.........44
Section 9.13 Debt to Total Capitalization..........................44
Section 9.14 Fixed Charge Coverage Ratio...........................44
Section 9.15 Debt to EBITDA Coverage Ratio........................44
Section 9.16 Sale of Properties...................................44
Section 9.17 Environmental Matters................................44
Section 9.18 Transactions with Affiliates.........................45
Section 9.19 Subsidiaries.........................................45
Section 9.20 Negative Pledge Agreements...........................45
Section 9.21 Hedging Agreements...................................45
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default...................................45
Section 10.02 Remedies............................................47
-ii-
<PAGE> 5
ARTICLE XI
THE AGENT
Section 11.01 Appointment, Powers and Immunities..................48
Section 11.02 Reliance by Agent...................................48
Section 11.03 Defaults............................................49
Section 11.04 Rights as a Lender..................................49
Section 11.05 INDEMNIFICATION.....................................49
Section 11.06 Non-Reliance on Agent and other Lenders.............49
Section 11.07 Action by Agent.....................................50
Section 11.08 Resignation or Removal of Agent.....................50
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver..............................................51
Section 12.02 Notices.............................................51
Section 12.03 Payment of Expenses, Indemnities, etc...............51
Section 12.04 Amendments, Etc.....................................53
Section 12.05 Successors and Assigns..............................54
Section 12.06 Assignments and Participations......................54
Section 12.07 Invalidity..........................................55
Section 12.08 Counterparts........................................55
Section 12.09 References..........................................55
Section 12.10 Survival............................................55
Section 12.11 Captions............................................56
Section 12.12 NO ORAL AGREEMENTS..................................56
Section 12.13 GOVERNING LAW; EXCLUSIVE METHOD; JURISDICTION.......56
Section 12.14 Interest............................................58
Section 12.15 Confidentiality.....................................59
Section 12.16 Effectiveness.......................................59
Annex I - List of Commitments
Exhibit A - Form of Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Legal Opinion of _____________________
Exhibit E - List of Security Instruments
Exhibit F - Form of Assignment Agreement
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
-iii-
<PAGE> 6
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
[Schedule 7.__ - Hedging Agreements]
[Schedule 7.__ - Material Agreements]
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
-iv-
<PAGE> 7
THIS SENIOR REVOLVING CREDIT AGREEMENT dated as of October
___, 1997 is among: TRANSCOASTAL MARINE SERVICES, INC., a corporation formed
under the laws of the State of Delaware (the "Borrower"); each of the lenders
that is a signatory hereto or which becomes a signatory hereto as provided in
Section 12.06 (individually, together with its successors and assigns, a
"Lender" and, collectively, the "Lenders"); and JOINT ENERGY DEVELOPMENT
INVESTMENTS, LIMITED PARTNERSHIP, a limited partnership formed under the laws of
the State of Delaware, as agent for the Lenders (in such capacity, the "Agent").
R E C I T A L S
A. The Borrower has requested that the Lenders provide certain loans
to the Borrower; and
B. The Lenders have agreed to make such loans subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement,
the terms "Agent," "Borrower," "Lender" and "Lenders," shall have the meanings
indicated above.
Section 1.02 Certain Defined Terms. As used herein, the
following terms shall have the following meanings (all terms defined in this
Article I or in other provisions of this Agreement in the singular to have the
same meanings when used in the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term
in Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term in
Section 5.04.
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control with
such first Person, (ii) any director or officer of such first Person or
of any Person referred to in clause (i) above and (iii) if any Person
in clause (i) above is an individual, any member of the immediate
family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more
members of such immediate family and any Person who is controlled by
any such member or trust. For purposes of this definition, any Person
which owns directly or indirectly 25% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation or 25% or more of the partnership or other
ownership interests of any other Person (other than as a limited
partner of such other
-1-
<PAGE> 8
Person) will be deemed to "control" (including, with its correlative
meanings, "controlled by" and "under common control with") such
corporation or other Person.
"Agreement" shall mean this Senior Revolving Credit Agreement,
as the same may from time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03(a).
"Aggregate Maximum Credit Amounts" at any time shall equal the
sum of the Maximum Credit Amounts of the Lenders ($60,000,000), as the
same may be reduced pursuant to Section 2.03(b).
"Applicable Lending Office" shall mean, for each Lender and
for each Type of Loan, the lending office of such Lender (or an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other offices of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify
to the Agent and the Borrower as the office by which its Loans of such
Type are to be made and maintained.
"Applicable Margin" shall mean (i) 1/4 of 1% per annum with
respect to Base Rate Loans; and (ii) two and three-fourths of one
percent (2.75%) per annum with respect to Eurodollar Loans.
"Assignment" shall have the meaning assigned such term in
Section 12.06(b).
"Available Amount" shall be the amount determined pursuant to
Section 2.03(b).
"Base Rate" shall mean, with respect to any Base Rate Loan,
for any day, the higher of (i) the Federal Funds Rate for any such day
plus 1/2 of 1% per annum or (ii) the Prime Rate for such day. Each
change in any interest rate provided for herein based upon the Base
Rate resulting from a change in the Base Rate shall take effect at the
time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in New York, New
York and, where such term is used in the definition of "Quarterly Date"
or if such day relates to a borrowing or continuation of, a payment or
prepayment of principal of or interest on, or a conversion of or into,
or the Interest Period for, a Eurodollar Loan or a notice by the
Borrower with respect to any such borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day
on which dealings in Dollar deposits are carried out in the London
interbank market.
-2-
<PAGE> 9
"Closing Date" shall mean October 28, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to
make Loans up to the lesser of such Lender's Maximum Credit Amount or
the Lender's Percentage Share of the amount equal to the then effective
Available Amount.
"Consolidated Net Income" shall mean with respect to the
Borrower and its Consolidated Subsidiaries, for any period, the
aggregate of the net income (or loss) of the Borrower and its
Consolidated Subsidiaries after allowances for taxes for such period,
determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any
Person in which the Borrower or any Consolidated Subsidiary has an
interest (which interest does not cause the net income of such other
Person to be consolidated with the net income of the Borrower and its
Consolidated Subsidiaries in accordance with GAAP), except to the
extent of the amount of dividends or distributions actually paid in
such period by such other Person to the Borrower or to a Consolidated
Subsidiary, as the case may be; (ii) the net income (but not loss) of
any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by
that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary, or
is otherwise restricted or prohibited in each case determined in
accordance with GAAP; (iii) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to
the date of such transaction; (iv) any extraordinary gains or losses,
including gains or losses attributable to Property sales not in the
ordinary course of business; and (v) the cumulative effect of a change
in accounting principles and any gains or losses attributable to
writeups or writedowns of assets.
"Consolidated Subsidiaries" shall mean each Subsidiary of the
Borrower (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in
accordance with GAAP.
"Debt" shall mean, for any Person the sum of the following
(without duplication): (i) all obligations of such Person for borrowed
money or evidenced by bonds, debentures, notes or other similar
instruments (including principal, interest, fees and charges); (ii) all
obligations of such Person (whether contingent or otherwise) in respect
of bankers' acceptances, letters of credit, surety or other bonds
(other than performance bonds with respect to construction contracts
purchased in the normal course of business and upon which no claim has
been made) and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services
(other than for borrowed money); (iv) all obligations under
-3-
<PAGE> 10
leases which shall have been, or should have been, in accordance with
GAAP, recorded as capital leases in respect of which such Person is
liable (whether contingent or otherwise); (v) all obligations under
leases which require such Person or its Affiliate to make payments over
the term of such lease, including payments at termination, which are
substantially equal to at least eighty percent (80%) of the purchase
price of the Property subject to such lease plus interest as an imputed
rate of interest; (vi) all Debt (as described in the other clauses of
this definition) and other obligations of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such
Person; (vii) all Debt (as described in the other clauses of this
definition) and other obligations of others guaranteed by such Person
or in which such Person otherwise assures a creditor against loss of
the debtor or obligations of others; (viii) all obligations or
undertakings of such Person to maintain or cause to be maintained the
financial position or covenants of others or to purchase the Debt or
Property of others; (ix) obligations to deliver goods or services in
consideration of advance payments ; (x) obligations to pay for goods or
services that must be paid whether or not such goods or services are
actually received or utilized by such Person; (xi) any capital stock of
such Person in which such Person has a mandatory obligation to redeem
such stock; (xii) any Debt of a Special Entity for which such Person is
liable either by agreement or because of a Governmental Requirement;
and (xiv) all obligations of such Person under Hedging Agreements.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of Default.
"Discretionary Amount" at any time shall equal an amount not
to exceed $20,000,000.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDA" shall mean, for any period, the sum of Consolidated
Net Income for such period plus the following expenses or charges to
the extent deducted from Consolidated Net Income in such period:
interest, taxes, depreciation, depletion and amortization, minus all
non cash income added to Consolidated Net Income in such period.
"Effective Date" shall have the meaning assigned such term in
Section 12.16.
"Environmental Laws" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any
and all jurisdictions in which the Borrower or any Subsidiary is
conducting or at any time has conducted business, or where any Property
of the Borrower or any Subsidiary is located, including without
limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act,
as amended, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water
Pollution Control Act, as amended, the Occupational Safety and Health
Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking
-4-
<PAGE> 11
Water Act, as amended, the Toxic Substances Control Act, as amended,
the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have
the meanings specified in RCRA; provided, however, that (i) in the
event either OPA, CERCLA or RCRA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply
subsequent to the effective date of such amendment and (ii) to the
extent the laws of the state in which any Property of the Borrower or
any Subsidiary is located establish a meaning for "oil," "hazardous
substance," "release," "solid waste" or "disposal" which is broader
than that specified in either OPA, CERCLA or RCRA, such broader meaning
shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any Subsidiary
would be deemed to be a "single employer" within the meaning of section
4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414
of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) the
withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of
intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan.
"Eurodollar Loans" shall mean Loans the interest rates on
which are determined on the basis of rates referred to in the
definition of "Fixed Eurodollar Rate".
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age
pension or public liability obligations not yet due or which are being
contested in good faith by appropriate action and for which adequate
-5-
<PAGE> 12
reserves have been maintained in accordance with GAAP; (iii)
operators', vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction or other like Liens
arising by operation of law in the ordinary course of business or
statutory landlord's liens, each of which is in respect of obligations
that have not been outstanding more than 90 days or which are being
contested in good faith by appropriate proceedings and for which
adequate reserves have been maintained in accordance with GAAP; (iv)
encumbrances (other than to secure the payment of borrowed money or the
deferred purchase price of Property or services), easements,
restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any rights of way or other Property of the Borrower or
any Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribu tion lines for the removal of gas, oil,
coal or other minerals or timber, and other like purposes, or for the
joint or common use of real estate, rights of way, facilities and
equipment, and defects, irregularities, zoning restrictions and
deficiencies in title of any rights of way or other Property which in
the aggregate do not materially impair the use of such rights of way or
other Property for the purposes of which such rights of way and other
Property are held by the Borrower or any Subsidiary or materially
impair the value of such Property subject thereto; (v) deposits of cash
or securities to secure the performance of bids, trade contracts,
leases, statutory obligations and other obligations of a like nature
incurred in the ordinary course of business; and (vi) Liens permitted
by the Security Instruments.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal
to the weighted average of the rates on overnight federal funds
transactions with a member of the Federal Reserve System arranged by
federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day, provided
that (i) if the date for which such rate is to be determined is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on
the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the
average rate charged to the Agent on such day on such transactions as
determined by the Agent.
"Fee Letter" shall mean that certain letter agreement from the
Agent to the Borrower dated of even date with this Agreement concerning
certain fees in connection with this Agreement and any agreements or
instruments executed in connection therewith, as the same may be
amended or replaced from time to time.
"Financial Statements" shall mean the financial statement or
statements of the Borrower and the Founding Companies described or
referred to in Section 7.02.
"Fixed Eurodollar Rate" shall mean, for any Interest Period
for each Eurodollar Loan, an interest rate per annum equal to the rate
of interest per annum reported, on the date two Business Days prior to
the first day of such Interest Period, on Telerate Access Service Page
3750 (British Bankers Association Interest
-6-
<PAGE> 13
Settlement Rates) provided by Telerate Systems Incorporated (or if such
Page shall cease to be publicly available, as reported by Reuters or
any other publicly available source of similar market data selected by
the Agent) as the London Interbank Offered Rate for U.S. Dollar
deposits having a term comparable to such Interest Period.
"Fixed Rate" shall mean, with respect to any Eurodollar Loan,
a rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by the Agent to be equal to the quotient of (i) the
Fixed Eurodollar Rate for such Loan for the Interest Period for such
Loan divided by (ii) 1 minus the Reserve Requirement for such Loan for
such Interest Period.
"Founding Companies" shall mean Woodson Construction Company
(together with three affiliated companies, Kori Corporation, Laine
Construction Company, Inc. and EnviroSystems, Inc.), CSI Hydrostatic
Testers, Inc. (together with its subsidiary and affiliate Hargett
Mooring and Marine, Inc., and Hargett Investments, L.L.C.), HBH, Inc.
and The Red Fox Companies of New Iberia, Inc.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction over
any such Person or such Person's Property, and any court, agency,
department, commission, board, bureau or instrumentality of any of them
including monetary authorities which exercises valid jurisdiction over
any such Person or such Person's Property. Unless otherwise specified,
all references to Governmental Authority herein shall mean a
Governmental Authority having jurisdiction over, where applicable, the
Borrower, its Subsidiaries or any of their Property or the Agent, any
Lender or any Applicable Lending Office.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or
other directive or requirement (whether or not having the force of
law), including, without limitation, Environmental Laws, energy
regulations and occupational, safety and health standards or controls,
of any Governmental Authority.
"Guarantor" shall mean each Subsidiary now or hereafter
executing a Guaranty Agreement.
"Guaranty Agreement" shall mean each guaranty agreement, in
form and substance reasonably satisfactory to the Agent, now or
hereafter executed by a Subsidiary in favor of the Agent and the
Lenders, as the same may be amended or modified from time to time.
-7-
<PAGE> 14
"Hedging Agreements" shall mean any commodity, interest rate
or currency swap, cap, floor, collar, forward agreement or other
exchange or protection agreements or any option with respect to any
such transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender,
the maximum nonusurious interest rate, if any, that at any time or from
time to time may be contracted for, taken, reserved, charged or
received on the Notes or on other Indebtedness under laws applicable to
such Lender which are presently in effect or, to the extent allowed by
law, under such applicable laws which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable
laws now allow.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower to the Agent and/or Lenders in connection with
the Loan Documents now or hereafter arising between the Borrower and
any Lender and permitted by the terms of this Agreement and all
renewals, extensions and/or rearrangements of any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 12.03(b).
"Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or inquiries),
claims, demands and causes of action made or threatened against a
Person and, in connection therewith, all losses, liabilities, damages
(including, without limitation, consequential damages) or reasonable
costs and expenses of any kind or nature whatsoever incurred by such
Person whether caused by the sole or concurrent negligence of such
Person seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans
pursuant to Section 6.01 hereof.
"Intercreditor and Subordination Agreement" shall mean that
certain Intercreditor and Subordination Agreement of even date herewith
between the Borrower, the Agent, the Lenders, the agent under the
Subordinated Credit Agreement and the lenders under the Subordinated
Credit Agreement, as such agreement may be amended or modified from
time to time.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the period commencing on the date such Eurodollar Loan is made
and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Borrower may select as
provided in Section 2.02 (or such longer period as may be requested by
the Borrower and agreed to by the Majority Lenders), except that each
Interest Period which commences on the last Business Day of a calendar
month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last
Business Day of
-8-
<PAGE> 15
the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after the Termination Date; (ii) each Interest
Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on
the next preceding Business Day); and (iii) no Interest Period shall
have a duration of less than one month and, if the Interest Period for
any Eurodollar Loans would otherwise be for a shorter period, such
Loans shall not be available hereunder.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute or
contract, and whether such obligation or claim is fixed or contingent,
and including but not limited to (i) the lien or security interest
arising from a mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this Agreement,
the Borrower or any Subsidiary shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale
agreement, or leases under a financing lease or other arrangement
pursuant to which title to the Property has been retained by or vested
in some other Person in a transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes and the
Security Instruments.
"Loans" shall mean the loans as provided for by Section
2.01(a).
"Majority Lenders" shall mean, at any time while no Loans are
outstanding, Lenders having at least sixty-six and two-thirds percent
(66-2/3%) of the Aggregate Commitments and, at any time while Loans are
outstanding, Lenders holding at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding aggregate principal amount of the Loans
(without regard to any sale by a Lender of a participation in any Loan
under Section 12.06(c)).
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations or affairs of the Borrower and any of its Subsidiaries or
from the facts represented or warranted in any Loan Document, or (ii)
the ability of the Borrower and any of its Subsidiaries to carry out
their business as at the Closing Date or as proposed as of the Closing
Date to be conducted or meet their obligations under the Loan Documents
on a timely basis.
-9-
<PAGE> 16
"Maximum Credit Amount" shall mean, as to each Lender, the
amount set forth opposite such Lender's name on Annex I under the
caption "Maximum Credit Amounts" (as the same may be reduced pursuant
to Section 2.03(c) hereof pro rata to each Lender based on its
Percentage Share) as modified from time to time to reflect any
assignments permitted by Section 12.06(b).
"Mortgaged Property" shall mean the Property owned by the
Borrower and which is subject to the Liens existing and to exist under
the terms of the Security Instruments.
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
"Notes" shall mean the Notes provided for by Section 2.06,
together with any and all renewals, extensions for any period,
increases, rearrangements, substitutions or modifications thereof.
"Other Taxes" shall have the meaning assigned such term in
Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as
indicated on Annex I hereto, as modified from time to time to reflect
any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (i) is currently or hereafter
sponsored, maintained or contributed to by the Borrower, any Subsidiary
or an ERISA Affiliate or (ii) was at any time during the preceding six
calendar years sponsored, maintained or contributed to, by the
Borrower, any Subsidiary or an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other amount payable by the Borrower under this
Agreement or any Note, a rate per annum during the period commencing on
the date of an Event of Default until such amount is paid in full or
all Events of Default are cured or waived equal to 3% per annum above
the Base Rate as in effect from time to time plus the Applicable Margin
(if any), but in no event to exceed the Highest Lawful Rate provided
that, for a Eurodollar Loan, the "Post-Default Rate" for such principal
shall be, for the period commencing on the date of the Event of Default
and ending on the earlier to occur of the last day of the Interest
Period therefor or the date all Events of Default are
-10-
<PAGE> 17
cured or waived, 3% per annum above the interest rate for such Loan as
provided in Section 3.02(ii), but in no event to exceed the Highest
Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
set out in the Wall Street Journal under "Money Rates" as the Prime
Rate (being the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks) or, if not so published, any
substantially comparable Prime Rate quoted in the Wall Street Journal,
but if no such rate is posted then the rate of interest from time to
time announced publicly by The Chase Manhattan Bank at the principal
office in New York, New York as its prime commercial lending rate. Such
rate is a general reference rate of interest, it being understood that
many of the bank's or banks' commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best
rate actually charged to any customer and that any such banks may make
various commercial or other loans at rates of interest having no
relationship to such rate.
"Principal Office" shall mean the principal office of the
Agent, presently located at 1400 Smith Street, Houston, Texas 77002 or
such other location as designated by the Agent from time to time.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each March, June,
September, and December, in each year, the first of which shall be
December 31, 1997; provided, however, that if any such day is not a
Business Day, such Quarterly Date shall be the next succeeding Business
Day.
"Registration Statement" shall mean that certain Registration
Statement of the Borrower on Form S-1 filed with the SEC on August 29,
1997, as amended on October 8, 1997.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as the same
may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such date of
any interpretations, directives or requests applying to a class of
lenders (including such Lender or its Applicable Lending Office) of or
under any Governmental Requirement (whether or not having the force of
law) by any Governmental Authority charged with the interpretation or
administration thereof.
"Required Payment" shall have the meaning assigned such term
in Section 4.04.
-11-
<PAGE> 18
"Reserve Requirement" shall mean, for any Interest Period for
any Eurodollar Loan, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation
D by member banks of the Federal Reserve System in New York City with
deposits exceeding one billion Dollars against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason
of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the Fixed Eurodollar Rate for
Eurodollar Loans is to be determined as provided in the definition of
"Fixed Eurodollar Rate" or (ii) any category of extensions of credit or
other assets which include a Eurodollar Loan.
"Responsible Officer" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such Person
and, with respect to financial matters, the term "Responsible Officer"
shall include the Chief Financial Officer of such Person. Unless
otherwise specified, all references to a Responsible Officer herein
shall mean a Responsible Officer of the Borrower.
"Rolling Period" shall mean each four-quarter period, ending
on a Quarterly Date.
"SEC" shall mean the Securities and Exchange Commission or
any successor Governmental Authority.
"Security Instruments" shall mean, the Fee Letter, the
agreements or instruments described or referred to in Exhibit E, the
Intercreditor and Subordination Agreement and any and all other
agreements or instruments now or hereafter executed and delivered by
the Borrower or any other Person (other than participation or similar
agreements between any Lender and any other lender or creditor with
respect to any Indebtedness pursuant to this Agreement) in connection
with, or as security for the payment or performance of the Notes, this
Agreement, as such agreements may be amended, supplemented or restated
from time to time.
"Special Entity" shall mean any joint venture, limited
liability company or partnership, general or limited partnership or any
other type of partnership or company other than a corporation in which
the Borrower or one or more of its other Subsidiaries is a member,
owner, partner or joint venturer and owns, directly or indirectly, at
least a majority of the equity of such entity or controls such entity,
but excluding any tax partnerships that are not classified as
partnerships under state law. For purposes of this definition, any
Person which owns directly or indirectly an equity investment in
another Person which allows the first Person to manage or elect
managers who manage the normal activities of such second Person will be
deemed to "control" such second Person (e.g. a sole general partner
controls a limited partnership).
-12-
<PAGE> 19
"Subordinated Credit Agreement" shall mean that certain
Subordinated Credit Agreement of even date herewith between the
Borrower and Joint Energy Development Investments, Limited Partnership
providing for loans up to but not to exceed $15,000,000.
"Subordinated Debt" shall mean indebtedness of the Borrower
not to exceed a principal amount of $15,000,000 under and pursuant to
the terms of the Subordinated Credit Agreement and subordinated
pursuant to the Intercreditor and Subordination Agreement.
"Subordinated Liens" shall mean Liens on assets of the
Borrower and/or its Subsidiaries securing the Subordinated Debt which
are expressly second and inferior to the Liens securing the
Indebtedness and subordinated pursuant to the Intercreditor and
Subordination Agreement.
"Subsidiary" shall mean (i) any corporation of which at least
a majority of the outstanding shares of stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled
by the Borrower or one or more of its Subsidiaries or by the Borrower
and one or more of its Subsidiaries, (ii) any Special Entity and (iii)
each Founding Company prior to the date it becomes a Subsidiary. Unless
otherwise indicated herein, each reference to the term "Subsidiary"
shall mean a Subsidiary of the Borrower.
"Taxes" shall have the meaning assigned such term in Section
4.06(a).
"Termination Date" shall mean, unless the Commitments are
sooner terminated pursuant to Sections 2.03(b) or 10.02 hereof, October
28, 1999.
"Total Capitalization" shall mean Debt of the Borrower plus
the net worth of the Borrower determined in accordance with GAAP.
"Type" shall mean, with respect to any Loan, a Base Rate Loan
or a Eurodollar Loan.
"Wholly-Owned Subsidiary" shall mean, as to the Borrower, any
Subsidiary of which all of the outstanding shares of stock having by
the terms thereof ordinary voting power to elect the board of directors
of such corporation, other than directors' qualifying shares, are owned
or controlled by the Borrower or one or more of the Wholly-Owned
Subsidiaries or by the Borrower and one or more of the Wholly-Owned
Subsidiaries.
Section 1.03 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to
-13-
<PAGE> 20
accounting matters hereunder shall be made, and all financial statements and
certificates and reports as to financial matters required to be furnished to the
Agent or the Lenders hereunder shall be prepared, in accordance with GAAP,
applied on a basis consistent with the audited financial statements of the
Borrower referred to in Section 7.02 (except for changes concurred with by the
Borrower's independent public accountants).
ARTICLE II
COMMITMENTS
Section 2.01 Loans.
(a) Loans. Each Lender severally agrees, on the terms of this
Agreement, to make Loans to the Borrower during the period from and
including (i) the Closing Date or (ii) such later date that such Lender
becomes a party to this Agreement as provided in Section 12.06(b), to
but excluding, the Termination Date in an aggregate principal amount at
any one time outstanding up to but not exceeding the amount of such
Lender's Commitment as then in effect; provided, however, that the
aggregate principal amount of all such Loans by all Lenders hereunder
at any one time outstanding shall not exceed the Aggregate Commitments.
Subject to the terms of this Agreement, during the period from the
Closing Date to but excluding, the Termination Date, the Borrower may
borrow, repay and reborrow the amount described in this Section
2.01(a).
(b) Limitation on Types of Loans. Subject to the other terms
and provisions of this Agreement, at the option of the Borrower, the
Loans may be Base Rate Loans or Eurodollar Loans; provided that,
without the prior written consent of the Majority Lenders, no more than
five (5) Eurodollar Loans may be outstanding at any time to any Lender.
Section 2.02 Borrowings, Continuations and Conversions.
(a) Borrowings. The Borrower shall give the Agent (which shall
promptly notify the Lenders) advance notice as hereinafter provided of
each borrowing hereunder, which shall specify the aggregate amount of
such borrowing, the Type and the date (which shall be a Business Day)
of the Loans to be borrowed and (in the case of Eurodollar Loans) the
duration of the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings shall be in
amounts of at least $1,000,000 or the remaining balance of the
Aggregate Commitments, if less, or any whole multiple of $1,000,000 in
excess thereof, and all Eurodollar Loans shall be in amounts of at
least $1,000,000 or any whole multiple of $1,000,000 in excess thereof.
(c) Notices. All borrowings, continuations and conversions
shall require advance written notice to the Agent (which shall promptly
notify the Lenders) in the form of Exhibit B hereto (or telephonic
notice promptly confirmed by such a written notice), which in each case
shall be irrevocable, from the Borrower to be received by the Agent not
later than 11:00 a.m. Houston, Texas time at least one Business Day
prior to the date of each Base Rate
-14-
<PAGE> 21
Loan borrowing and three Business Days prior to the date of each
Eurodollar Loan borrowing, continuation or conversion. Without in any
way limiting the Borrower's obligation to confirm in writing any
telephonic notice, the Agent may act without liability upon the basis
of telephonic notice believed by the Agent in good faith to be from the
Borrower prior to receipt of written confirmation. In each such case,
the Borrower hereby waives the right to dispute the Agent's record of
the terms of such telephonic notice except in the case of gross
negligence or willful misconduct by the Agent.
(d) Continuation Options. Subject to the provisions made in
this Section 2.02(d), the Borrower may elect to continue all or any
part of any Eurodollar Loan beyond the expiration of the then current
Interest Period relating thereto by giving advance notice as provided
in Section 2.02(c) to the Agent (which shall promptly notify the
Lenders) of such election, specifying the amount of such Loan to be
continued and the Interest Period therefor. In the absence of such a
timely and proper election, the Borrower shall be deemed to have
elected to convert such Eurodollar Loan to a Base Rate Loan pursuant to
Section 2.02(e). All or any part of any Eurodollar Loan may be
continued as provided herein, provided that (i) any continuation of any
such Loan shall be (as to each Loan as continued for an applicable
Interest Period) in amounts of at least $1,000,000 or any whole
multiple of $1,000,000 in excess thereof and (ii) no Default shall have
occurred and be continuing. If a Default shall have occurred and be
continuing, each Eurodollar Loan shall be converted to a Base Rate Loan
on the last day of the Interest Period applicable thereto.
(e) Conversion Options. The Borrower may elect to convert all
or any part of any Eurodollar Loan on the last day of the then current
Interest Period relating thereto to a Base Rate Loan by giving advance
notice to the Agent (which shall promptly notify the Lenders) of such
election. Subject to the provisions made in this Section 2.02(e), the
Borrower may elect to convert all or any part of any Base Rate Loan at
any time and from time to time to a Eurodollar Loan by giving advance
notice as provided in Section 2.02(c) to the Agent (which shall
promptly notify the Lenders) of such election. All or any part of any
outstanding Loan may be converted as provided herein, provided that (i)
any conversion of any Base Rate Loan into a Eurodollar Loan shall be
(as to each such Loan into which there is a conversion for an
applicable Interest Period) in amounts of at least $1,000,000 or any
whole multiple of $1,000,000 in excess thereof and (ii) no Default
shall have occurred and be continuing. If a Default shall have occurred
and be continuing, no Base Rate Loan may be converted into a Eurodollar
Loan.
(f) Advances. Not later than 11:00 a.m. Houston, Texas time on
the date specified for each borrowing hereunder, each Lender shall make
available the amount of the Loan to be made by it on such date to the
Agent, to an account which the Agent shall specify, in immediately
available funds, for the account of the Borrower. The amounts so
received by the Agent shall, subject to the terms and conditions of
this Agreement, be made available to the Borrower by depositing the
same, in immediately available funds, in an account of the Borrower,
designated by the Borrower and maintained at the Principal Office.
Section 2.03 Changes of Commitments.
-15-
<PAGE> 22
(a) The Aggregate Commitments shall at all times be equal to
the lesser of (i) the Aggregate Maximum Credit Amounts after
adjustments resulting from reductions pursuant to Section 2.03(c)
hereof or (ii) the Available Amount as determined from time to time.
(b) The Available Amount as of the Effective Date shall be
$40,000,000. From time to time the Borrower may request an increase in
the Available Amount by written notice to the Agent whereupon the Agent
will notify the Lenders of such request. Any such increase shall
require the consent of all the Lenders, which consent shall be within
their sole and absolute discretion. If all the Lenders have not given
their consent to the requested increase within ten (10) Business Days
of the Agent's receipt of such request, such request shall be deemed
denied. In no event shall the aggregate of any such increases exceed
the Discretionary Amount.
(c) The Borrower shall have the right to terminate or to
reduce the amount of either the Aggregate Maximum Credit Amounts at any
time or from time to time upon not less than three (3) Business Days'
prior notice to the Agent (which shall promptly notify the Lenders) of
each such termination or reduction, which notice shall specify the
effective date thereof and the amount of any such reduction (which
shall not be less than $5,000,000 or any whole multiple of $1,000,000
in excess thereof) and shall be irrevocable and effective only upon
receipt by the Agent.
(d) The Aggregate Maximum Credit Amounts once terminated or
reduced may not be reinstated.
Section 2.04 Fees.
(a) The Borrower shall pay to the Agent for the account of
each Lender a commitment fee on the daily average unused amount of the
Aggregate Commitments for the period from and including the Closing
Date up to but excluding the earlier of the date the Aggregate
Commitments are terminated or the Termination Date at a rate per annum
equal to three-eights of one percent (.375%). Accrued commitment fees
shall be payable quarterly in arrears on each Quarterly Date and on the
earlier of the date the Aggregate Commitments are terminated or the
Termination Date.
(b) The Borrower shall pay to the Agent for its account such
other fees as are set forth in the Fee Letter on the dates specified
therein to the extent not paid prior to the Closing Date.
Section 2.05 Several Obligations. The failure of any Lender to
make any Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make its Loan on such date, but no Lender
shall be responsible for the failure of any other Lender to make a Loan to be
made by such other Lender.
Section 2.06 Notes. The Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit A hereto, dated (i) the Closing Date or (ii) the effective date of an
Assignment pursuant to Section 12.06(b), payable to the order
-16-
<PAGE> 23
of such Lender in a principal amount equal to its Aggregate Commitment as in
effect and otherwise duly completed and such substitute Notes as required by
Section 12.06(b). The date, amount, Type, interest rate and Interest Period of
each Loan made by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Notes, and, prior
to any transfer, may be endorsed by such Lender on a schedule attached to such
Notes or any continuation thereof or on any separate record maintained by such
Lender. Failure to make any such notation or to attach a schedule shall not
affect any Lender's or the Borrower's rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its Note.
Section 2.07 Prepayments.
(a) The Borrower may prepay the Base Rate Loans upon not less
than one (1) Business Day's prior notice to the Agent (which shall
promptly notify the Lenders), which notice shall specify the prepayment
date (which shall be a Business Day) and the amount of the prepayment
(which shall be at least $1,000,000 or the remaining aggregate
principal balance outstanding on the Notes) and shall be irrevocable
and effective only upon receipt by the Agent, provided that interest on
the principal prepaid, accrued to the prepayment date, shall be paid on
the prepayment date. The Borrower may prepay Eurodollar Loans on the
same condition as for Base Rate Loans and in addition such prepayments
of Eurodollar Loans shall be subject to the terms of Section 5.05 and
shall be in an amount equal to all of the Eurodollar Loans for the
Interest Period prepaid.
(b) The Borrower's receipt of all net cash proceeds from the
issuance of any equity (subsequent to the Borrower's initial public
offering), the placement of any public or private debt instruments or
any other borrowing in excess of $_____________ shall be used to prepay
all amounts outstanding under the Aggregate Commitments.
(c) Commencing with the fiscal quarter ending March 31, 1998,
if the Debt to EBITDA Coverage Ratio defined in Section 9.15 is greater
than 2.5 to 1.0, then the Borrower shall within ten (10) days of
receipt of written notice thereof prepay the Loans in an aggregate
principal amount necessary to bring the ratio back to 2.5 to 1.0.
(d) Prepayments permitted or required under this Section 2.07
shall be without premium or penalty, except as required under Section
5.05 for prepayment of Eurodollar Loans. Any prepayments on the Loans
may be reborrowed subject to the then effective Aggregate Commitments.
Section 2.08 Lending Offices. The Loans of each Type made by
each Lender shall be made and maintained at such Lender's Applicable Lending
Office for Loans of such Type.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. The Borrower will pay to
the Agent, for the account of each Lender, the principal payments required by
this Section 3.01. On the Termination
-17-
<PAGE> 24
Date the Borrower shall repay the outstanding aggregate principal and accrued
and unpaid interest under the Notes.
Section 3.02 Interest. The Borrower will pay to the Agent, for
the account of each Lender, interest on the unpaid principal amount of each Loan
made by such Lender for the period commencing on the date such Loan is made to
but excluding the date such Loan shall be paid in full, at the following rates
per annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as in
effect from time to time) plus the Applicable Margin (as in effect from
time to time), but in no event to exceed the Highest Lawful Rate; and
(ii) if such a Loan is a Eurodollar Loan, for each Interest
Period relating thereto, the Fixed Rate for such Loan plus the
Applicable Margin (as in effect from time to time), but in no event to
exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Agent, for the
account of each Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by such Lender, and (to the fullest extent permitted
by law) on any other amount payable by the Borrower hereunder, under any Loan
Document or under any Note held by such Lender to or for account of such Lender,
for the period commencing on the date of an Event of Default until the same is
paid in full or all Events of Default are cured or waived.
Accrued interest on Base Rate Loans shall be payable on each Quarterly
Date commencing on December 31, 1997, and accrued interest on each Eurodollar
Loan shall be payable on the last day of the Interest Period therefor and, if
such Interest Period is longer than three months at three-month intervals
following the first day of such Interest Period, except that interest payable at
the Post-Default Rate shall be payable from time to time on demand and interest
on any Eurodollar Loan that is converted into a Base Rate Loan (pursuant to
Section 5.04) shall be payable on the date of conversion (but only to the extent
so converted).
Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall notify the Lenders to which such
interest is payable and the Borrower thereof. Each determination by the Agent of
an interest rate or fee hereunder shall, except in cases of manifest error, be
final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided
herein, all payments of principal, interest and other amounts to be made by the
Borrower under the Loan Documents shall be made in Dollars, in immediately
available funds, to the Agent at such account as the Agent shall specify by
notice to the Borrower from time to time, not later than 11:00 a.m. New York
time on the date on which such payments shall become due (each such payment made
after such time on such
-18-
<PAGE> 25
due date to be deemed to have been made on the next succeeding Business Day).
Such payments shall be made without (to the fullest extent permitted by
applicable law) defense, set-off or counterclaim. Each payment received by the
Agent under this Agreement or any Note for account of a Lender shall be paid
promptly to such Lender in immediately available funds. Except as provided in
clause (ii) of the definition of "Interest Period", if the due date of any
payment under this Agreement or any Note would otherwise fall on a day which is
not a Business Day such date shall be extended to the next succeeding Business
Day and interest shall be payable for any principal so extended for the period
of such extension. At the time of each payment to the Agent of any principal of
or interest on any borrowing, the Borrower shall notify the Agent of the Loans
to which such payment shall apply. In the absence of such notice the Agent may
specify the Loans to which such payment shall apply, but to the extent possible
such payment or prepayment will be applied first to the Loans comprised of Base
Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent
otherwise provided herein each Lender agrees that: (i) each borrowing from the
Lenders under Section 2.01 and each continuation and conversion under Section
2.02 shall be made from the Lenders pro rata in accordance with their Percentage
Share, each payment of commitment fee or other fees under Section 2.04(a) shall
be made for account of the Lenders pro rata in accordance with their Percentage
Share, and each termination or reduction of the amount of the Aggregate Maximum
Credit Amounts under Section 2.03(c) shall be applied to the Commitment of each
Lender, pro rata according to the amounts of its respective Commitment; (ii)
each payment of principal of Loans by the Borrower shall be made for account of
the Lenders pro rata in accordance with the respective unpaid principal amount
of the Loans held by the Lenders; and (iii) each payment of interest on Loans by
the Borrower shall be made for account of the Lenders pro rata in accordance
with the amounts of interest due and payable to the respective Lenders.
Section 4.03 Computations. Interest on Eurodollar Loans and
fees shall be computed on the basis of a year of 360 days and actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which such interest is payable, unless such calculation would exceed
the Highest Lawful Rate, in which case interest shall be calculated on the per
annum basis of a year of 365 or 366 days, as the case may be. Interest on Base
Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
Section 4.04 Non-receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Lender or the Borrower prior to the date on
which such notifying party is scheduled to make payment to the Agent (in the
case of a Lender) of the proceeds of a Loan to be made by it hereunder or (in
the case of the Borrower) a payment to the Agent for account of one or more of
the Lenders hereunder (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt, that it does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient(s)
on such date and, if such Lender or the Borrower (as the case may be) has not in
fact made the Required Payment to the Agent, the recipient(s) of such payment
shall, on demand, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until
-19-
<PAGE> 26
but excluding the date the Agent recovers such amount at a rate per annum which,
for any Lender as recipient, will be equal to the Federal Funds Rate, and for
the Borrower as recipient, will be equal to the Base Rate plus the Applicable
Margin.
Section 4.05 Set-off; Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim a
Lender may otherwise have, each Lender shall have the right and be
entitled (after consultation with the Agent), at its option, to offset
balances held by it or by any of its Affiliates for account of the
Borrower or any Subsidiary at any of its offices, in Dollars or in any
other currency, against any principal of or interest on any of such
Lender's Loans, or any other amount payable to such Lender hereunder,
which is not paid when due (regardless of whether such balances are
then due to the Borrower), in which case it shall promptly notify the
Borrower and the Agent thereof, provided that such Lender's failure to
give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or
interest on any Loan made by it to the Borrower under this Agreement
through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise, and, as a result of such
payment, such Lender shall have received a greater percentage of the
principal or interest then due hereunder by the Borrower to such Lender
than the percentage received by any other Lenders, it shall promptly
(i) notify the Agent and each other Lender thereof and (ii) purchase
from such other Lenders participations in (or, if and to the extent
specified by such Lender, direct interests in) the Loans made by such
other Lenders (or in interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of
such excess payment (net of any expenses which may be incurred by such
Lender in obtaining or preserving such excess payment) pro rata in
accordance with the unpaid principal and/or interest on the Loans held
by each of the Lenders. To such end all the Lenders shall make
appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Lender so
purchasing a participation (or direct interest) in the Loans made by
other Lenders (or in interest due thereon, as the case may be) may
exercise all rights of set-off, banker's lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender
were a direct holder of Loans in the amount of such participation.
Nothing contained herein shall require any Lender to exercise any such
right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a set-off to which this Section 4.05 applies,
such Lender shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with the rights of
the Lenders entitled under this Section 4.05 to share the benefits of
any recovery on such secured claim.
Section 4.06 Taxes.
-20-
<PAGE> 27
(a) Payments Free and Clear. Any and all payments by the
Borrower hereunder shall be made, in accordance with Section 4.01, free
and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender
and the Agent, taxes imposed on its income, and franchise or similar
taxes imposed on it, by (i) any jurisdiction (or political subdivision
thereof) of which the Agent or such Lender, as the case may be, is a
citizen or resident or in which such Lender has an Applicable Lending
Office, (ii) the jurisdiction (or any political subdivision thereof) in
which the Agent or such Lender is organized, or (iii) any jurisdiction
(or political subdivision thereof) in which such Lender or the Agent is
presently doing business in which taxes are imposed solely as a result
of doing business in such jurisdiction (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders or the Agent (i) the sum payable shall
be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable
under this Section 4.06) such Lender or the Agent (as the case may be)
shall receive an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other Governmental Authority in accordance
with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted
by applicable law, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with
respect to, this Agreement, any Assignment or any Security Instrument
(hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT
FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT
LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL
AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH
LENDER OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS
THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT
SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE
PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH
LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH
INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE
ANY LENDER OR THE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND
THEREFOR. IF ANY LENDER OR THE AGENT RECEIVES A REFUND OR CREDIT IN
RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR THE AGENT
HAS RECEIVED PAYMENT FROM THE BORROWER, IT SHALL PROMPTLY NOTIFY THE
BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED
AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST
BY THE BORROWER (OR
-21-
<PAGE> 28
PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR
SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH
REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY
INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE
REQUEST OF SUCH LENDER OR THE AGENT, AGREES TO RETURN SUCH REFUND OR
CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR
THE AGENT IN THE EVENT SUCH LENDER OR THE AGENT IS REQUIRED TO REPAY
SUCH REFUND OR CREDIT.
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 Additional Costs.
(a) Eurodollar Regulations, etc. The Borrower shall pay
directly to each Lender from time to time such amounts as such Lender
may determine to be necessary to compensate such Lender for any costs
which it determines are attributable to its making or maintaining of
any Eurodollar Loans hereunder or its obligation to make any Eurodollar
Loans hereunder, or any reduction in any amount receivable by such
Lender hereunder in respect of any of such Eurodollar Loans or such
obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any
amounts payable to such Lender under this Agreement or any Note in
respect of any of such Eurodollar Loans (other than taxes imposed on
the overall net income of such Lender or of its Applicable Lending
Office for any of such Eurodollar Loans by the jurisdiction in which
such Lender has its principal office or Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit, minimum capital,
capital ratio or similar requirements (other than the Reserve
Requirement utilized in the determination of the Fixed Rate for such
Loan) relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of such Lender (including any of
such Eurodollar Loans or any deposits referred to in the definition of
"Fixed Eurodollar Rate" in Section 1.02 hereof), or the Commitment or
Loans of such Lender or the Eurodollar interbank market; or (iii)
imposes any other condition affecting this Agreement or any Note (or
any of such extensions of credit or liabilities) or such Lender's
Commitment or Loans. Each Lender will notify the Agent and the Borrower
of any event occurring after the Closing Date which will entitle such
Lender to compensation pursuant to this Section 5.01(a) as promptly as
practicable after it obtains knowledge thereof and determines to
request such compensation, and will designate a different Applicable
Lending Office for the Loans of such Lender affected by such event if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, provided that such Lender shall have no
obligation to so designate an Applicable Lending Office located in the
United States. If any Lender requests compensation from the Borrower
under this Section 5.01(a), the Borrower may, by notice to such Lender,
suspend the obligation of such Lender to make additional Loans of the
Type with respect to which such compensation is requested until the
-22-
<PAGE> 29
Regulatory Change giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.04 shall be applicable).
(b) Regulatory Change. Without limiting the effect of the
provisions of Section 5.01(a), in the event that, by reason of any
Regulatory Change or any other circumstances arising after the Closing
Date affecting such Lender, the Eurodollar interbank market or such
Lender's position in such market, any Lender either (i) incurs
Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest
rate on Eurodollar Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Lender which
includes Eurodollar Loans or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may
hold, then, if such Lender so elects by notice to the Borrower, the
obligation of such Lender to make additional Eurodollar Loans shall be
suspended until such Regulatory Change or other circumstances ceases to
be in effect (in which case the provisions of Section 5.04 shall be
applicable).
(c) Capital Adequacy. Without limiting the effect of the
foregoing provisions of this Section 5.01 (but without duplication),
the Borrower shall pay directly to any Lender from time to time on
request such amounts as such Lender may reasonably determine to be
necessary to compensate such Lender or its parent or holding company
for any costs which it determines are attributable to the maintenance
by such Lender or its parent or holding company (or any Applicable
Lending Office), pursuant to any Governmental Requirement following any
Regulatory Change, of capital in respect of its Commitment, its Notes
or its Loans, such compensation to include, without limitation, an
amount equal to any reduction of the rate of return on assets or equity
of such Lender or its parent or holding company (or any Applicable
Lending Office) to a level below that which such Lender or its parent
or holding company (or any Applicable Lending Office) could have
achieved but for such Governmental Requirement. Such Lender will notify
the Borrower that it is entitled to compensation pursuant to this
Section 5.01(c) as promptly as practicable after it determines to
request such compensation.
(d) Compensation Procedure. Any Lender notifying the Borrower
of the incurrence of additional costs under this Section 5.01 shall in
such notice to the Borrower and the Agent set forth in reasonable
detail the basis and amount of its request for compensation.
Determinations and allocations by each Lender for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to Section
5.01(a) or (b), or of the effect of capital maintained pursuant to
Section 5.01(c), on its costs or rate of return of maintaining Loans or
its obligation to make Loans, or on amounts receivable by it in respect
of Loans, and of the amounts required to compensate such Lender under
this Section 5.01, shall be conclusive and binding for all purposes,
provided that such determinations and allocations are made on a
reasonable basis. Any request for additional compensation under this
Section 5.01 shall be paid by the Borrower within thirty (30) days of
the receipt by the Borrower of the notice described in this Section
5.01(d).
-23-
<PAGE> 30
Section 5.02 Limitation on Eurodollar Loans. Anything herein
to the contrary notwithstanding, if, on or prior to the determination of any
Fixed Eurodollar Rate for any Interest Period:
(i) the Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates
for the relevant deposits referred to in the definition of "Fixed
Eurodollar Rate" in Section 1.02 are not being provided in the relevant
amounts or for the relevant maturities for purposes of determining
rates of interest for Eurodollar Loans as provided herein; or
(ii) the Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Fixed Eurodollar Rate" in Section
1.02 upon the basis of which the rate of interest for Eurodollar Loans
for such Interest Period is to be determined are not sufficient to
adequately cover the cost to the Lenders of making or maintaining
Eurodollar Loans;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder, then such Lender shall promptly notify the Borrower thereof and
such Lender's obligation to make Eurodollar Loans shall be suspended until such
time as such Lender may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02
and 5.03. If the obligation of any Lender to make Eurodollar Loans shall be
suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all
Affected Loans which would otherwise be made by such Lender shall be made
instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or
Section 5.03 has occurred and such Lender so requests by notice to the Borrower,
all Affected Loans of such Lender then outstanding shall be automatically
converted into Base Rate Loans on the date specified by such Lender in such
notice) and, to the extent that Affected Loans are so made as (or converted
into) Base Rate Loans, all payments of principal which would otherwise be
applied to such Lender's Affected Loans shall be applied instead to its Base
Rate Loans.
Section 5.05 Compensation. The Borrower shall pay to each
Lender within thirty (30) days of receipt of written request of such Lender
(which request shall set forth, in reasonable detail, the basis for requesting
such amounts and which shall be conclusive and binding for all purposes provided
that such determinations are made on a reasonable basis), such amount or amounts
as shall compensate it for any loss, cost, expense or liability which such
Lender determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar Loan
properly made by such Lender or the Borrower for any reason (including,
without limitation,
-24-
<PAGE> 31
the acceleration of the Loans pursuant to Section 10.02) on a date
other than the last day of the Interest Period for such Loan; or
(ii) any failure by the Borrower for any reason (including but
not limited to, the failure of any of the conditions precedent
specified in Article VI to be satisfied) to borrow, continue or convert
a Eurodollar Loan from such Lender on the date for such borrowing,
continuation or conversion specified in the relevant notice given
pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender).
Section 5.06 Replacement Lenders.
(a) If any Lender has notified the Borrower and the Agent of
its incurring additional costs under Section 5.01, then the Borrower may, unless
such Lender has notified the Borrower and the Agent that the circumstances
giving rise to such notice no longer apply, terminate, in whole but not in part,
the Commitment of such Lender (other than the Agent) (the "Terminated Lender")
at any time upon five (5) Business Days' prior written notice to the Terminated
Lender and the Agent (such notice referred to herein as a "Notice of
Termination").
(b) In order to effect the termination of the Commitment of
the Terminated Lender, the Borrower shall: (i) obtain an agreement with one or
more Lenders to increase their Commitment or Commitments and/or (ii) request any
one or more other banking institutions to become parties to this Agreement in
place and instead of such Terminated lender and agree to accept a Commitment or
Commitments; provided, however, that such one or more other banking institutions
are reasonably acceptable to the Agent and become parties by executing an
Assignment (the Lenders or other banking institutions that agree to accept in
whole or in part the Commitment of the Terminated Lender being referred to
herein as the "Replacement Lenders"), such that the aggregate increased and/or
accepted Commitments of the Replacement Lenders under clauses (i) and (ii) above
equal the Commitment of the Terminated Lender.
(c) The Notice of Termination shall include the name of the
Terminated Lender, the date the termination will occur (the "Lender Termination
Date"), and the Replacement Lender or Replacement Lenders to which the
Terminated Lender will assign its Commitment and, if there will be more than one
Replacement Lender, the portion of the Terminated Lender's Commitment to be
assigned to each Replacement Lender.
-25-
<PAGE> 32
(d) On the Lender Termination Date, (i) the Terminated Lender
shall by execution and delivery of an Assignment assign its Commitment to the
Replacement Lender or Replacement Lenders (pro rata, if there is more than one
Replacement Lender, in proportion to the portion of the Terminated Lender's
Commitment to be assigned to each Replacement Lender) indicated in the Notice of
Termination and shall assign to the Replacement Lender or Replacement Lenders
each of its Loans (if any) then outstanding pro rata as aforesaid, (ii) the
Terminated lender shall endorse its Note, payable without recourse,
representation or warranty to the order of the Replacement Lender or Replacement
Lenders (pro rata as aforesaid), (iii) the Replacement Lender or Replacement
Lenders shall purchase the Note held by the Terminated Lender (pro rata as
aforesaid) at a price equal to the unpaid principal amount thereof plus interest
and facility and other fees accrued and unpaid to the Lender Termination Date,
and (iv) the Replacement Lender or Replacement Lenders will thereupon (pro rata
as aforesaid) succeed to and be substituted in all respects for the Terminated
Lender with like effect as if becoming a Lender pursuant to the terms of Section
12.06(b), and the Terminated Lender will have the rights and benefits of an
assignor under Section 12.06(b). To the extent not in conflict, the terms of
Section 12.06(b) shall supplement the provisions of this Section 5.06(d). For
each assignment made under this Section 5.06, the Replacement Lender shall pay
to the Agent the processing fee provided for in Section 12.06(b). The Borrower
will be responsible for the payment of any breakage costs associated with
termination and Replacement Lenders, as set forth in Section 5.05.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial Funding is
subject to the receipt by the Agent and the Lenders of all fees payable pursuant
to Section 2.04 on or before the Closing Date and the receipt by the Agent of
the following documents and satisfaction of the other conditions provided in
this Section 6.01, each of which shall be satisfactory to the Agent in form and
substance:
(a) A certificate of the Secretary or an Assistant Secretary
of the Borrower and of each Subsidiary setting forth (i) resolutions of
its board of directors with respect to the authorization of the
Borrower and of each Subsidiary to execute and deliver the Loan
Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the Borrower and
of each Subsidiary (y) who are authorized to sign the Loan Documents to
which Borrower is a party and (z) who will, until replaced by another
officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices
and other communications in connection with this Agreement and the
transactions contemplated hereby, (iii) specimen signatures of the
authorized officers, and (iv) the articles or certificate of
incorporation and bylaws of the Borrower and of each Subsidiary,
certified as being true and complete. The Agent and the Lenders may
conclusively rely on such certificate until the Agent receives notice
in writing from the Borrower to the contrary.
-26-
<PAGE> 33
(b) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of the
Borrower and of each Subsidiary.
(c) A compliance certificate which shall be substantially in
the form of Exhibit C, duly and properly executed by a Responsible
Officer and dated as of the Closing Date.
(d) The Notes, duly completed and executed.
(e) The Security Instruments, including those described on
Exhibit E, duly completed and executed in sufficient number of
counterparts for recording, if necessary.
(f) The opinions of the following special counsel to the
Borrower and each Guarantor, each in form and substance satisfactory to
the Agent:
(i) Chamberlain, Hrdlicka, White, Williams & Martin
(ii) D'Amato & Lynch
(iii) Baldwin & Haspel, L.L.C.
(iv) Carreira-Pitti, P.C.
(g) A certificate of insurance coverage of the Borrower and of
each Subsidiary evidencing that the Borrower and each Subsidiary is
carrying insurance in accordance with Section 7.19 hereof.
(h) Completion, satisfactory to the Agent, of due diligence of
the Borrower and the Founding Companies, which shall include, without
limitation, the status of title to the Borrower's and each Subsidiary's
Properties.
(i) The Agent shall be satisfied with the environmental
condition of the Founding Companies' Properties.
(j) Completion of an initial public offering by the Borrower
of its common stock pursuant to the Registration Statement which
results in no less than $75,000,000 gross cash proceeds to the
Borrower.
(k) Listing of the common stock of the Borrower on the NASDAQ
NMS or any exchange acceptable to the Agent.
(l) Completion of the Borrower's acquisition of Founding
Companies as contemplated in the Registration Statement, prior to or
contemporaneously with the Initial Funding.
(m) The Agent shall have been furnished with appropriate UCC
search certificates reflecting that upon the filing of all financing
statements required to perfect the security interests granted by the
Security Instruments and relevant UCC termination statements furnished
at Closing there will be no prior liens or security interests.
-27-
<PAGE> 34
(n) The Agent shall have been furnished evidence of proper
perfection of each mortgage on a documented vessel and that such
mortgage is a first priority.
(o) The Agent shall have been furnished mortgagees title
policies regarding real property.
(p) Subordinated Debt in the principal amount of $10,000,000
shall be simultaneously made available pursuant to the Subordinated
Credit Agreement.
(q) Such other documents as the Agent or any Lender or special
counsel to the Agent may reasonably request.
Section 6.02 Initial and Subsequent Loans. The obligation of
the Lenders to make Loans to the Borrower upon the occasion of each borrowing
hereunder (including the Initial Funding) is subject to the further conditions
precedent that, as of the date of such Loans and after giving effect thereto:
(i) no Default shall have occurred and be continuing; (ii) no Material Adverse
Effect shall have occurred; and (iii) the representations and warranties made by
the Borrower in Article VII and in the Security Instruments shall be true on and
as of the date of the making of such Loans with the same force and effect as if
made on and as of such date and following such new borrowing, except to the
extent such representations and warranties are expressly limited to an earlier
date or the Majority Lenders may expressly consent in writing to the contrary.
Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Borrower otherwise notifies
the Agent prior to the date of and immediately following such borrowing as of
the date thereof).
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and the Lenders that
(each representation and warranty herein is given as of the Closing Date and
shall be deemed repeated and reaffirmed on the dates of each borrowing as
provided in Section 6.02):
Section 7.01 Corporate Existence. Each of the Borrower and
each Subsidiary: (i) is a corporation duly organized, legally existing and in
good standing under the laws of the jurisdiction of its incorporation; (ii) has
all requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is qualified
to do business in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify would have a Material Adverse Effect.
Section 7.02 Financial Condition. The audited balance sheets
of each of Founding Companies and their respective subsidiaries and affiliates
and the related statements of operations, shareholders' equity and cash flow,
with the opinion of their respective independent auditor thereon
-28-
<PAGE> 35
contained in the Registration Statement and the unaudited pro forma combined
balance sheet of the Borrower and the Founding Companies and the related
statements of operations contained in the Registration Statement are complete
and correct and fairly present the consolidated financial condition of the
Borrower and each of the Founding Companies as at said dates and the results of
its operations for the fiscal year and the six-month period on said dates, all
in accordance with GAAP, as applied on a consistent basis (subject, in the case
of the interim financial statements, to normal year-end adjustments). Neither
the Borrower nor any Founding Company has on the Closing Date any material Debt,
contingent liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the Financial
Statements or in Schedule 7.02. Since December 31, 1996, there has been no
change or event having a Material Adverse Effect. Since the date of the
Financial Statements, neither the business nor the Properties of the Borrower or
any Founding Company have been materially and adversely affected as a result of
any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or
other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, permits or concessions by any Governmental Authority,
riot, activities of armed forces or acts of God or of any public enemy.
Section 7.03 Litigation. Except as disclosed to the Lenders in
Schedule 7.03 hereto, at the Closing Date there is no litigation, legal,
administrative or arbitral proceeding, investigation or other action of any
nature pending or, to the knowledge of the Borrower threatened against or
affecting the Borrower or any Subsidiary which involves the possibility of any
judgment or liability against the Borrower or any Subsidiary not fully covered
by insurance (except for normal deductibles).
Section 7.04 No Breach. Neither the execution and delivery of
the Loan Documents, nor compliance with the terms and provisions hereof will
conflict with or result in a breach of, or require any consent which has not
been obtained as of the Closing Date under, the respective charter or by-laws of
the Borrower or any Subsidiary, or any Governmental Requirement or any agreement
or instrument to which the Borrower or any Subsidiary is a party or by which it
is bound or to which it or its Properties are subject, or constitute a default
under any such agreement or instrument, or result in the creation or imposition
of any Lien upon any of the revenues or assets of the Borrower or any Subsidiary
pursuant to the terms of any such agreement or instrument other than the Liens
created by the Loan Documents.
Section 7.05 Authority. The Borrower and each Subsidiary have
all necessary corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents to which it is a party; and the execution,
delivery and performance by the Borrower and each Subsidiary of the Loan
Documents to which it is a party, have been duly authorized by all necessary
corporate action on its part; and the Loan Documents constitute the legal, valid
and binding obligations of the Borrower and each Subsidiary, enforceable in
accordance with their terms.
Section 7.06 Approvals. No authorizations, approvals or
consents of, and no filings or registrations with, any Governmental Authority
are necessary for the execution, delivery or performance by the Borrower or any
Subsidiary of the Loan Documents or for the validity or enforceability thereof,
except for the recording and filing of the Security Instruments as required by
this Agreement.
-29-
<PAGE> 36
Section 7.07 Use of Loans. The proceeds of the Loans shall be
used to finance (to the extent not covered by the net proceeds from the initial
public offering of Borrower's common stock referred to in Section 6.01(j)
above), in part, Borrower's acquisition of the Founding Companies, to provide
working capital, to repay certain outstanding indebtedness of the Founding
Companies and to finance future acquisitions to the extent permitted under
Section 9.03(i) hereof. The Borrower is not engaged principally, or as one of
its important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
(within the meaning of Regulation G, U or X of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan hereunder will
be used to buy or carry any margin stock.
Section 7.08 ERISA.
(a) The Borrower, each Subsidiary and each ERISA Affiliate
have complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
(b) Each Plan is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which could
result in imposition on the Borrower, any Subsidiary or any ERISA
Affiliate (whether directly or indirectly) of (i) either a civil
penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii)
breach of fiduciary duty liability damages under section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or any
trust created under any such Plan has been terminated since September
2, 1974. No liability to the PBGC (other than for the payment of
current premiums which are not past due) by the Borrower, any
Subsidiary or any ERISA Affiliate has been or is expected by the
Borrower, any Subsidiary or any ERISA Affiliate to be incurred with
respect to any Plan. No ERISA Event with respect to any Plan has
occurred.
(e) Full payment when due has been made of all amounts which
the Borrower, any Subsidiary or any ERISA Affiliate is required under
the terms of each Plan or applicable law to have paid as contributions
to such Plan, and no accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not
waived, exists with respect to any Plan.
(f) The actuarial present value of the benefit liabilities
under each Plan which is subject to Title IV of ERISA does not, as of
the end of the Borrower's most recently ended fiscal year, exceed the
current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such
benefit liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of ERISA.
-30-
<PAGE> 37
(g) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains, or contributes to an employee welfare
benefit plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by the Borrower,
a Subsidiary or any ERISA Affiliate in its sole discretion at any time
without any material liability.
(h) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains or contributes to, or has at any time in
the preceding six calendar years, sponsored, maintained or contributed
to, any Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA
Affiliate is required to provide security under section 401(a)(29) of
the Code due to a Plan amendment that results in an increase in current
liability for the Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09, the
Borrower and each Subsidiary has filed all United States Federal income tax
returns and all other tax returns which are required to be filed by it and have
paid all material taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Subsidiary. The charges, accruals and
reserves on the books of the Borrower and the Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Borrower, adequate. No
tax lien has been filed and, to the knowledge of the Borrower, no claim is being
asserted with respect to any such tax, fee or other charge.
Section 7.10 Titles, etc.
(a) Except as set out in Schedule 7.10, the Borrower and each
Subsidiary has good and defensible title to its material (individually
or in the aggregate) Properties, free and clear of all Liens except
Liens permitted by Section 9.02.
(b) All leases and agreements necessary for the conduct of the
business of the Borrower and the Subsidiaries are valid and subsisting,
in full force and effect and there exists no default or event or
circumstance which with the giving of notice or the passage of time or
both would give rise to a default under any such lease or leases, which
would affect in any material respect the conduct of the business of the
Borrower and the Subsidiaries.
(c) The rights, Properties and other assets presently owned,
leased or licensed by the Borrower and the Subsidiaries including,
without limitation, all easements and rights of way, include all
rights, Properties and other assets necessary to permit the Borrower
and the Subsidiaries to conduct their business in all material respects
in the same manner as its business has been conducted prior to the
Closing Date.
(d) All of the assets and Properties of the Borrower and the
Subsidiaries which are reasonably necessary for the operation of its
business are in good working condition and are maintained in accordance
with prudent business standards.
Section 7.11 No Material Misstatements. No written
information, statement, exhibit, certificate, document or report furnished to
the Agent and the Lenders (or any of them) by the
-31-
<PAGE> 38
Borrower or any Subsidiary in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statement contained therein not materially
misleading in the light of the circumstances in which made and with respect to
the Borrower and the Subsidiaries taken as a whole. There is no fact peculiar to
the Borrower or any Subsidiary which has a Material Adverse Effect or in the
future is reasonably likely to have (so far as the Borrower can now foresee) a
Material Adverse Effect and which has not been set forth in this Agreement or
the other documents, certificates and statements furnished to the Agent by or on
behalf of the Borrower or any Subsidiary prior to, or on, the Closing Date in
connection with the transactions contemplated hereby.
Section 7.12 Investment Company Act. Neither the Borrower nor
any Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 Public Utility Holding Company Act. Neither the
Borrower nor any Subsidiary is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries. Except as set forth on Schedule
7.14, the Borrower has no Subsidiaries.
Section 7.15 Location of Business and Offices. The Borrower's
principal place of business and chief executive offices are located at the
address stated on the signature page of this Agreement. The principal place of
business and chief executive office of each Subsidiary are located at the
addresses stated on Schedule 7.14.
Section 7.16 Defaults. Neither the Borrower nor any Subsidiary
is in default nor has any event or circumstance occurred which, but for the
expiration of any applicable grace period or the giving of notice, or both,
would constitute a default under any material agreement or instrument to which
the Borrower or any Subsidiary is a party or by which the Borrower or any
Subsidiary is bound which default would have a Material Adverse Effect. No
Default hereunder has occurred and is continuing.
Section 7.17 Environmental Matters. Except (i) as provided in
Schedule 7.17 or (ii) as would not have a Material Adverse Effect (or with
respect to (c), (d) and (e) below, where the failure to take such actions would
not have a Material Adverse Effect):
(a) Neither any Property of the Borrower or any Subsidiary nor
the operations conducted thereon violate any order or requirement of
any court or Governmental Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of the
Borrower or any Subsidiary nor the operations currently conducted
thereon or, to the best knowledge of the Borrower, by any prior owner
or operator of such Property or operation, are in violation of or
subject to any existing, pending or threatened action, suit,
investigation, inquiry or
-32-
<PAGE> 39
proceeding by or before any court or Governmental Authority or to any
remedial obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed in connection with the
operation or use of any and all Property of the Borrower and each
Subsidiary, including without limitation past or present treatment,
storage, disposal or release of a hazardous substance or solid waste
into the environment, have been duly obtained or filed, and the
Borrower and each Subsidiary are in compliance with the terms and
conditions of all such notices, permits, licenses and similar
authorizations;
(d) All hazardous substances, solid waste, and oil and gas
exploration and production wastes, if any, generated at any and all
Property of the Borrower or any Subsidiary have in the past been
transported, treated and disposed of in accordance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to
public health or welfare or the environment, and, to the best knowledge
of the Borrower, all such transport carriers and treatment and disposal
facilities have been and are operating in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to
public health or welfare or the environment, and are not the subject of
any existing, pending or threatened action, investigation or inquiry by
any Governmental Authority in connection with any Environmental Laws;
(e) The Borrower has taken all steps reasonably necessary to
determine and has determined that no hazardous substances, solid waste,
or oil and gas exploration and production wastes, have been disposed of
or otherwise released and there has been no threatened release of any
hazardous substances on or to any Property of the Borrower or any
Subsidiary except in compliance with Environmental Laws and so as not
to pose an imminent and substantial endangerment to public health or
welfare or the environment;
(f) To the extent applicable, all Property of the Borrower and
each Subsidiary currently satisfies all design, operation, and
equipment requirements imposed by the OPA or scheduled as of the
Closing Date to be imposed by OPA during the term of this Agreement,
and the Borrower does not have any reason to believe that such
Property, to the extent subject to OPA, will not be able to maintain
compliance with the OPA requirements during the term of this Agreement;
and
(g) Neither the Borrower nor any Subsidiary has any known
contingent liability in connection with any release or threatened
release of any oil, hazardous substance or solid waste into the
environment.
Section 7.18 Compliance with the Law. Neither the Borrower nor
any Subsidiary has violated any Governmental Requirement or failed to obtain any
license, permit, franchise or other governmental authorization necessary for the
ownership of any of its Properties or the conduct of its business, which
violation or failure has not been cured or barred by statute and would have (in
the event such violation or failure were asserted by any Person through
appropriate action) a Material Adverse Effect.
-33-
<PAGE> 40
Section 7.19 Insurance. Schedule 7.19 attached hereto contains
an accurate and complete description of all material policies of fire,
liability, workmen's compensation and other forms of insurance owned or held by
the Borrower and each Subsidiary. All such policies are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the date of the closing have been paid, and no notice of cancellation
or termination has been received with respect to any such policy. Such policies
are sufficient for compliance with all requirements of law and of all agreements
to which the Borrower or any Subsidiary is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage in at least such
amounts and against at least such risks (but including in any event public
liability) as are usually insured against in the same general area by companies
engaged in the same or a similar business for the assets and operations of the
Borrower and each Subsidiary; will remain in full force and effect through the
respective dates set forth in Schedule 7.19 without the payment of additional
premiums; and will not in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement. Schedule 7.19
identifies all material risks, if any, which the Borrower and the Subsidiaries
and their respective Board of Directors or officers have designated as being
self insured. Neither the Borrower nor any Subsidiary has been refused any
insurance with respect to its assets or operations, nor has its coverage been
limited below usual and customary policy limits, by an insurance carrier to
which it has applied for any such insurance or with which it has carried
insurance during the last three years.
Section 7.20 Hedging Agreements. Schedule 7.20 sets forth, as
of the Closing Date, a true and complete list of all Hedging Agreements
(including commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery of oil, gas
or other commodities) of the Borrower and each Subsidiary, the material terms
thereof (including the type, term, effective date, termination date and notional
amounts or volumes), the net mark to market value thereof, all credit support
agreements relating thereto (including any margin required or supplied), and the
counterparty to each such agreement.
Section 7.21 Restriction on Liens. Neither the Borrower nor
any of the Subsidiaries is a party to any agreement or arrangement (other than
this Agreement and the Security Instruments), or subject to any order, judgment,
writ or decree, which either restricts or purports to restrict its ability to
grant Liens to other Persons on or in respect of their respective assets of
Properties.
Section 7.22 Material Agreements. Set forth on Schedule 7.22
hereto is a complete and correct list of all material agreements, leases,
indentures, purchase agreements, obligations in respect of letters of credit,
guarantees, joint venture agreements, and other instruments in effect or to be
in effect following the Closing Date (other than Hedging Agreements) providing
for, evidencing, securing or otherwise relating to any Debt of the Borrower or
any of the Subsidiaries, and all obligations of the Borrower or any of the
Subsidiaries to issuers of surety or appeal bonds issued for account of the
Borrower or any such Subsidiary, and such list correctly sets forth the names of
the debtor or lessee and creditor or lessor with respect to the Debt or lease
obligations outstanding or to be outstanding and the property subject to any
Lien securing such Debt or lease obligation.
Section 7.23 Registration Statement. The Registration
Statement contains nomaterial misstatement of fact or omitted to state a
material fact or any fact necessary to make the
-34-
<PAGE> 41
statement contained therein not materially misleading in the light of the
circumstances in which made and with respect to the Borrower and the Founding
Companies taken as a whole.
Section 7.24 Public Offering and Founding Companies. The
Borrower shall have completed the initial public offering of its common stock
pursuant to the Registration Statement resulting in no less than $75,000,000
gross proceeds to the Borrower and shall have completed the acquisition of the
Founding Companies as contemplated by the Registration Statement prior to or
contemporaneously with the Initial Funding under Section 6.01 hereof.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of all Indebtedness
hereunder, all interest thereon and all other amounts payable by the Borrower
hereunder:
Section 8.01 Financial Statements. The Borrower shall deliver,
or shall cause to be delivered, to the Agent with sufficient copies of each for
the Lenders:
(a) As soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, the audited consolidated
and unaudited consolidating statements of income, stockholders' equity,
changes in financial position and cash flow of the Borrower and its
Consolidated Subsidiaries for such fiscal year, and the related audited
consolidated and unaudited consolidating balance sheets of the Borrower
and its Consolidated Subsidiaries as at the end of such fiscal year,
and setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, and accompanied by the related
opinion of independent public accountants of recognized national
standing acceptable to the Agent which opinion shall state that said
financial statements fairly present the consolidated and consolidating
financial condition and results of operations of the Borrower and its
Consolidated Subsidiaries as at the end of, and for, such fiscal year
and that such financial statements have been prepared in accordance
with GAAP except for such changes in such principles with which the
independent public accountants shall have concurred and such opinion
shall not contain a "going concern" or like qualification or exception,
and a certificate of such accountants stating that, in making the
examination necessary for their opinion, they obtained no knowledge,
except as specifically stated, of any Default.
(b) As soon as available and in any event within 45 days after
the end of each of the first three fiscal quarterly periods of each
fiscal year of the Borrower, consolidated and consolidating statements
of income, stockholders' equity, changes in financial position and cash
flow of the Borrower and its Consolidated Subsidiaries for such period
and for the period from the beginning of the respective fiscal year to
the end of such period, and the related consolidated and consolidating
balance sheets as at the end of such period, and setting forth in each
case in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, accompanied by the
certificate of a Responsible Officer,
-35-
<PAGE> 42
which certificate shall state that said financial statements fairly
present the consolidated and consolidating financial condition and
results of operations of the Borrower and its Consolidated Subsidiaries
in accordance with GAAP, as at the end of, and for, such period
(subject to normal year-end audit adjustments).
(c) Promptly after the Borrower knows that any Default or any
Material Adverse Effect has occurred, a notice of such Default or
Material Adverse Effect, describing the same in reasonable detail and
the action the Borrower proposes to take with respect thereto.
(d) Promptly upon receipt thereof, a copy of each other report
or letter submitted to the Borrower or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower and the Subsidiaries, and a
copy of any response by the Borrower or any Subsidiary of the Borrower,
or the Board of Directors of the Borrower or any Subsidiary of the
Borrower, to such letter or report.
(e) Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by the Borrower to
stockholders generally and each regular or periodic report and any
registration statement or written communication (other than transmittal
letters) in respect thereof filed by the Borrower with or received by
the Borrower in connection therewith from any securities exchange or
the SEC or any successor agency.
(f) Promptly after the furnishing thereof, copies of any
statement, report or notice furnished to or any Person pursuant to the
terms of any indenture, loan or credit or other similar agreement,
other than this Agreement and not otherwise required to be furnished to
the Lenders pursuant to any other provision of this Section 8.01.
(g) From time to time such other information regarding the
business, affairs or financial condition of the Borrower or any
Subsidiary (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under
ERISA) as any Lender or the Agent may reasonably request.
(h) Promptly upon their becoming available, monthly updates to
the Borrower's annual budget and within 45 days after the end of each
month, variance analyses.
The Borrower will furnish to the Agent, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate
substantially in the form of Exhibit C hereto executed by a Responsible Officer
(i) certifying as to the matters set forth therein and stating that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail), and (ii) setting forth in
reasonable detail the computations necessary to determine whether the Borrower
is in compliance with Sections 9.13, 9.14 and 9.15 as of the end of the
respective fiscal quarter or fiscal year.
Section 8.02 Litigation. The Borrower shall promptly give to
the Agent notice of all legal or arbitral proceedings, and of all proceedings
before any Governmental Authority affecting the Borrower or any Subsidiary,
except proceedings which, if adversely determined, would not have a Material
Adverse Effect. The Borrower will, and will cause each of the Subsidiaries to,
promptly
-36-
<PAGE> 43
notify the Agent and each of the Lenders of any claim, judgment, Lien or other
encumbrance affecting any Property of the Borrower or any Subsidiary if the
value of the claim, judgment, Lien, or other encumbrance affecting such Property
shall exceed $500,000.
Section 8.03 Maintenance, Etc.
(a) The Borrower shall and shall cause each Subsidiary to:
preserve and maintain its corporate existence and all of its material
rights, privileges and franchises; keep books of record and account in
which full, true and correct entries will be made of all dealings or
transactions in relation to its business and activities; comply with
all Governmental Requirements to the extent such failure to comply with
such requirements would have a Material Adverse Effect; pay and
discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property
prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained; upon reasonable notice, permit
representatives of the Agent or any Lender, during normal business
hours and in a manner so as not to unduly disrupt Borrower's (or
Subsidiary's, as the case may be) normal business operations, to
examine, copy and make extracts from its books and records, to inspect
its Properties, and to discuss its business and affairs with its
officers, all to the extent reasonably requested by such Lender or the
Agent (as the case may be); and keep, or cause to be kept, insured by
financially sound and reputable insurers all Property of a character
usually insured by Persons engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such Persons and carry such
other insurance as is usually carried by such Persons including,
without limitation, environmental risk insurance to the extent
reasonably available.
(b) Contemporaneously with the delivery of the financial
statements required by Section 8.01(a) to be delivered for each year,
the Borrower will furnish or cause to be furnished to the Agent and the
Lenders a certificate of insurance coverage from the insurer in form
and substance satisfactory to the Agent and, if requested, will furnish
the Agent and the Lenders copies of the applicable policies.
(c) The Borrower will and will cause each Subsidiary to
operate its Properties or cause such Properties to be operated in a
careful and efficient manner in accordance with the practices of the
industry and in compliance with all applicable contracts and agreements
and in compliance in all material respects with all Governmental
Requirements.
Section 8.04 Environmental Matters.
(a) The Borrower will and will cause each Subsidiary to
establish and implement such procedures as may be reasonably necessary
to continuously determine and assure that any failure of the following
does not have a Material Adverse Effect: (i) all Property of the
Borrower and the Subsidiaries and the operations conducted thereon and
other activities of the Borrower and the Subsidiaries are in compliance
with and do not violate the requirements of any Environmental Laws,
(ii) no oil, hazardous substances or solid wastes are disposed
-37-
<PAGE> 44
of or otherwise released on or to any Property owned by any such party
except in compliance with Environmental Laws, (iii) no hazardous
substance will be released on or to any such Property in a quantity
equal to or exceeding that quantity which requires reporting pursuant
to Section 103 of CERCLA, and (iv) no oil, oil and gas exploration and
production wastes or hazardous substance is released on or to any such
Property so as to pose an imminent and substantial endangerment to
public health or welfare or the environment.
(b) The Borrower will promptly notify the Agent and the
Lenders in writing of any threatened action, investigation or inquiry
by any Governmental Authority of which the Borrower has knowledge in
connection with any Environmental Laws, excluding routine testing and
corrective action.
Section 8.05 Further Assurances. The Borrower will and will
cause each Subsidiary to cure promptly any defects in the creation and issuance
of the Notes and the execution and delivery of the Security Instruments and this
Agreement. The Borrower at its expense will and will cause each Subsidiary to
promptly execute and deliver to the Agent upon request all such other documents,
agreements and instruments to comply with or accomplish the covenants and
agreements of the Borrower or any Subsidiary, as the case may be, in the
Security Instruments and this Agreement, or to further evidence and more fully
describe the collateral intended as security for the Notes, or to correct any
omissions in the Security Instruments, or to state more fully the security
obligations set out herein or in any of the Security Instruments, or to perfect,
protect or preserve any Liens created pursuant to any of the Security
Instruments, or to make any recordings, to file any notices or obtain any
consents, all as may be necessary or appropriate in connection therewith.
Section 8.06 Performance of Obligations. The Borrower will pay
the Notes according to the reading, tenor and effect thereof; and the Borrower
will and will cause each Subsidiary to do and perform every act and discharge
all of the obligations to be performed and discharged by them under the Security
Instruments and this Agreement, at the time or times and in the manner
specified.
Section 8.07 ERISA Information and Compliance. The Borrower
will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to
promptly furnish to the Agent with sufficient copies to the Lenders (i) promptly
after the filing thereof with the United States Secretary of Labor, the Internal
Revenue Service or the PBGC, copies of each annual and other report with respect
to each Plan or any trust created thereunder, (ii) immediately upon becoming
aware of the occurrence of any ERISA Event or of any "prohibited transaction,"
as described in section 406 of ERISA or in section 4975 of the Code, in
connection with any Plan or any trust created thereunder, a written notice
signed by a Responsible Officer specifying the nature thereof, what action the
Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take
with respect thereto, and, when known, any action taken or proposed by the
Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto, and (iii) immediately upon receipt thereof, copies of any notice of the
PBGC's intention to terminate or to have a trustee appointed to administer any
Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower
will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full
and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any lien, all of the contribution
and funding requirements of section 412 of the Code (determined without
-38-
<PAGE> 45
regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.
Section 8.08 Mortgaged Property. The Borrower will cause the
Security Instruments delivered at the Initial Funding to cover substantially all
of its property and the property of its Subsidiaries and when and, if the
Borrower or any Subsidiary requires additional properties, including additional
Subsidiaries to the extent permitted hereunder, it shall grant or cause such
Subsidiaries to grant Security Instruments in form and substance satisfactory to
the Agent covering substantially all of such newly acquired Properties.
ARTICLE IX
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder,
without the prior written consent of the Majority Lenders:
Section 9.01 Debt. Neither the Borrower nor any Subsidiary
will incur, create, assume or suffer to exist any Debt, except:
(a) the Notes or other Indebtedness arising under the Loan
Documents or any guaranty of or suretyship arrangement for the Notes or
other Indebtedness arising under the Loan Documents;
(b) Debt of the Borrower existing on the Closing Date which is
reflected in the Financial Statements or is disclosed in Schedule 9.01,
and any renewals or extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of
Property or services) from time to time incurred in the ordinary course
of business which, if greater than 90 days past the invoice or billing
date, are being contested in good faith by appropriate proceedings if
reserves adequate under GAAP shall have been established therefor;
(d) Debt under capital leases existing on the date hereof and
reflected on Schedule 9.01 hereof and additional capital leases (as
required to be reported on the financial statements of the Borrower
pursuant to GAAP) not to exceed $ ; and
(e) Subordinated Debt.
Section 9.02 Liens. Neither the Borrower nor any Subsidiary
will create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
-39-
<PAGE> 46
(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
(c) Liens securing leases allowed under Section 9.01(d) but
only on the Property under lease;
(d) Subordinated Liens.
(e) Liens disclosed on Schedule 9.02.
Section 9.03 Investments, Loans and Advances. Neither the
Borrower nor any Subsidiary will make or permit to remain outstanding any loans
or advances to or investments in any Person, except that the foregoing
restriction shall not apply to:
(a) investments, loans or advances reflected in the
Financial Statements or which are disclosed to the Lenders in
Schedule 9.03;
(b) accounts receivable arising in the ordinary course
of business;
(c) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency
thereof, in each case maturing within one year from the date of
creation thereof;
(d) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by Standard & Poors
Corporation or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, in cluding certificates of deposit issued by,
any Lender or any office located in the United States of any other bank
or trust company which is organized under the laws of the United States
or any state thereof, has capital, surplus and undivided profits
aggregating at least $100,000,000.00 (as of the date of such Lender's
or bank or trust company's most recent financial reports) and has a
short term deposit rating of no lower than A2 or P2, as such rating is
set forth from time to time, by Standard & Poors Corporation or Moody's
Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively in
investments described in Section 9.03(c), 9.03(d) or 9.03(e);
(g) investments, loans or advances made by the Borrower in or
to the Guarantors; and
(h) other investments, loans or advances not to exceed
$2,000,000 in any calendar year.
-40-
<PAGE> 47
(i) In addition to the foregoing, the Borrower may make
investments other than those described above and in connection
therewith request Loans hereunder of unused Available Amounts, if any,
provided, such Loans and investments shall be made only upon the
consent of all Lenders, such consent to be in each Lender's sole and
absolute discretion. In connection with any such request for investment
and/or Loan:
(a) The Borrower shall have provided to the Agent
schedules of the Property to be acquired together with title
information covering the Property to be acquired, reasonably
satisfactory to the Agent.
(b) The Borrower shall have provided to the Agent
environmental reports and other environmental diligence
materials covering the Property to be acquired, reasonably
satisfactory to the Lenders.
(c) The Borrower shall have provided to the Agent
other due diligence materials covering the Property to be
acquired reasonably satisfactory to the Lenders and the
Lenders shall have completed their due diligence review of
such matters as they shall deem appropriate, including a
review of each of the purchase agreements relating to the
acquisitions, and all other documents relating thereto, the
Properties to be acquired and operations thereof, compliance
with Environmental Laws, and any available reports related
thereto, and the results of such due diligence review shall be
satisfactory to the Lenders.
(d) The Borrower shall have subjected all of the
Properties to be acquired to a valid and enforceable first
priority liens and security interests securing the
Indebtedness and provided to the Agent evidence reasonably
satisfactory to the Lenders, including legal opinions, that
the Lenders have received valid and enforceable Liens on the
Property to be acquired, that all security documents,
certificates of title, stock powers and notices related
thereto shall have been duly delivered to the appropriate
offices for filing or recording, and that the Agent shall have
received confirmations of receipt thereof by the appropriate
filing or recording offices.
(e) The Borrower shall have provided appraisals of
the Properties to be acquired prepared by independent third
parties and in a form reasonably acceptable to the Agent.
(f) The Borrower shall have provided to the Agent the
most recent financial statements of the companies that relate
to the Properties to be acquired but in no event shall such
statements be dated prior to ninety days before the closing
date of the respective acquisition.
Section 9.04 Dividends, Distributions and Redemptions. The
Borrower will not declare or pay any dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding, return any
capital to its stockholders or make any distribution of its assets to its
stockholders without the prior written consent of the Lenders, provided that, so
long as no
-41-
<PAGE> 48
Default or Event of Default has occurred and is continuing the Borrower may
declare and deliver stock dividends.
Section 9.05 Sales and Leasebacks. Neither the Borrower nor
any Subsidiary will enter into any arrangement, directly or indirectly, with any
Person whereby the Borrower or any Subsidiary shall sell or transfer any of its
Property, whether now owned or hereafter acquired, and whereby the Borrower or
any Subsidiary shall then or thereafter rent or lease as lessee such Property or
any part thereof or other Property which the Borrower or any Subsidiary intends
to use for substantially the same purpose or purposes as the Property sold or
transferred.
Section 9.06 Nature of Business. Neither the Borrower nor any
Subsidiary will allow any material change to be made in the character of its
business.
Section 9.07 Limitation on Leases. Except for leases described
on Schedule 9.07 hereto, neither the Borrower nor any Subsidiary will create,
incur, assume or suffer to exist any obligation for the payment of rent or hire
of Property of any kind whatsoever (real or personal including capital leases),
under leases or lease agreements which would cause the aggregate amount of all
payments made by the Borrower and the Subsidiaries pursuant to all such leases
or lease agreements to exceed $100,000 in any period of twelve consecutive
calendar months during the life of such leases.
Section 9.08 Mergers, Etc. Neither the Borrower nor any
Subsidiary will merge into or with or consolidate with any other Person, or
sell, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its Property or assets to any other
Person. Except that if (i) the Borrower gives prior written notice to the Agent
and (ii) no Default or Event of Default has occurred or is continuing or will
result from the action proposed to be taken, then any Subsidiary of the Borrower
may merge or consolidate with the Borrower or with any other Subsidiary of the
Borrower or sell, lease or otherwise dispose of (at fair market value) all or
any substantial part of its Property or assets to the Borrower or to any other
Subsidiary of the Borrower.
Section 9.09 Proceeds of Notes. The Borrower will not permit
the proceeds of the Notes to be used for any purpose other than those permitted
by Section 7.07. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulation G, U or X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect.
Section 9.10 ERISA Compliance. The Borrower will not at any
time:
(a) Engage in, or permit any Subsidiary or ERISA Affiliate to
engage in, any transaction in connection with which the Borrower, any
Subsidiary or any ERISA Affiliate could be subjected to either a civil
penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed by Chapter 43 of Subtitle D of the Code;
-42-
<PAGE> 49
(b) Terminate, or permit any Subsidiary or ERISA Affiliate to
terminate, any Plan in a manner, or take any other action with respect
to any Plan, which could result in any liability to the Borrower, any
Subsidiary or any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA Affiliate
to fail to make, full payment when due of all amounts which, under the
provisions of any Plan, agreement relating thereto or applicable law,
the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as
contributions thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA
Affiliate to permit to exist, any accumulated funding deficiency within
the meaning of Section 302 of ERISA or section 412 of the Code, whether
or not waived, with respect to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate to
permit, the actuarial present value of the benefit liabilities under
any Plan maintained by the Borrower, any Subsidiary or any ERISA
Affiliate which is regulated under Title IV of ERISA to exceed the
current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such
benefit liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to, or
permit any Subsidiary or ERISA Affiliate to contribute to or assume an
obligation to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate to
acquire, an interest in any Person that causes such Person to become an
ERISA Affiliate with respect to the Borrower, any Subsidiary or any
ERISA Affiliate if such Person sponsors, maintains or con tributes to,
or at any time in the six-year period preceding such acquisition has
sponsored, maintained, or contributed to, (1) any Multiemployer Plan,
or (2) any other Plan that is subject to Title IV of ERISA under which
the actuarial present value of the benefit liabilities under such Plan
exceeds the current value of the assets (computed on a plan termination
basis in accordance with Title IV of ERISA) of such Plan allocable to
such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to
incur, a liability to or on account of a Plan under sections 515, 4062,
4063, 4064, 4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute to, or
permit any Subsidiary or ERISA Affiliate to contribute to or assume an
obligation to contribute to, any employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any
such plan maintained to provide benefits to former employees of such
entities, that may not be terminated by such entities in their sole
discretion at any time without any material liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to
amend, a Plan resulting in an increase in current liability such that
the Borrower, any Subsidiary or any
-43-
<PAGE> 50
ERISA Affiliate is required to provide security to such Plan under
section 401(a)(29) of the Code.
Section 9.11 Sale or Discount of Receivables. Neither the
Borrower nor any Subsidiary will discount or sell (with or without recourse) any
of its notes receivable or accounts receivable.
Section 9.12 Capital (including maintenance) Expenditures. The
Borrower will not make any expenditures for fixed or capital assets (including
expenditures for repair and maintenance of equipment) if, after giving effect
thereto, the aggregate of all such expenditures would exceed $5,000,000 during
any fiscal year and provided any such expenditures in excess of $2,000,000 shall
require the prior written approval of the majority Lenders.
Section 9.13 Debt to Total Capitalization. The Borrower will
not permit the ratio of its Debt to Total Capitalization to be greater than 0.4
to 1.0 at any time.
Section 9.14 Fixed Charge Coverage Ratio. The Borrower will
not permit its Fixed Charge Coverage Ratio as of the end of any Quarterly Period
commencing with the quarter ending March 31, 1998) to be less than 1.75 to 1.0.
For the purposes of this Section 9.14, "Fixed Charge Coverage Ratio" shall mean
the ratio of (i) net income as determined in accordance with GAAP plus non-cash
charges less non-cash revenues plus interest expense plus lease expense to (ii)
interest expense plus scheduled amortization of all Debt plus lease expense.
Section 9.15 Debt to EBITDA Coverage Ratio. The Borrower will
not permit its Debt to EBITDA Coverage Ratio for the Rolling Period ending on
any Quarterly Period (commencing with the quarter ending March 31, 1998) to be
greater than 3.00 to 1.00 for such period. For the purposes of this Section
9.15, "Debt to EBITDA Coverage Ratio" shall mean the ratio of (i) all Debt to
(ii) EBITDA provided, however, for the Rolling Periods ending March 31, 1998 and
June, 30, 1998 (and at the discretion of the Majority Lenders any other Rolling
Period) the calculation shall include, pro forma, the historical consolidated
EBITDA for the Borrower and its consolidated Subsidiaries for the relevant
period prior to Borrower's acquisition of such Subsidiaries.
Section 9.16 Sale of Properties. Without prior written consent
of the Lenders, the Borrower will not, and will not permit any Subsidiary to,
sell, assign, convey or otherwise transfer any of its Property, provided that
any such prior written notice of proposed transfers shall be required only for
sales exceeding $5,000,000 in the aggregate during the period from the Closing
Date up to the Termination Date.
Section 9.17 Environmental Matters. Neither the Borrower nor
any Subsidiary will cause or permit any of its Property to be in violation of,
or do anything or permit anything to be done which will subject any such
Property to any remedial obligations under any Environmental Laws, assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such Property where such
violations or remedial obligations would have a Material Adverse Effect.
-44-
<PAGE> 51
Section 9.18 Transactions with Affiliates. Neither the
Borrower nor any Subsidiary will enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate unless such transactions are otherwise
permitted under this Agreement, are in the ordinary course of its business and
are upon fair and reasonable terms no less favorable to it than it would obtain
in a comparable arm's length transaction with a Person not an Affiliate.
Section 9.19 Subsidiaries. The Borrower shall not, and shall
not permit any Subsidiary to, create any additional Subsidiaries. The Borrower
shall not and shall not permit any Subsidiary to sell or to issue any stock or
ownership interest of a Subsidiary except to the Borrower and except in
compliance with Section 9.03.
Section 9.20 Negative Pledge Agreements. Neither the Borrower
nor any Subsidiary will create, incur, assume or suffer to exist any contract,
agreement or understanding (other than this Agreement, the Security Instruments
and the Subordinated Liens and Subordinated Credit Agreement) which in any way
prohibits or restricts the granting, conveying, creation or imposition of any
Lien on any of its Property or restricts any Subsidiary from paying dividends to
the Borrower, or which requires the consent of or notice to other Persons in
connection therewith.
Section 9.21 Hedging Agreements. Neither the Borrower nor any
Subsidiary will enter into any Hedging Agreement without written approval of the
Lenders.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the
following events shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or prepayment
when due of any principal of or interest on any Loan or any fees or
other amount payable by it hereunder or under any Security Instrument
and such default, other than a default of a payment or prepayment of
principal (which shall have no cure period), shall continue unremedied
for a period of 3 Business Days; or
(b) the Borrower or any Subsidiary shall default in the
payment when due of any principal of or interest on any of its other
Debt aggregating $250,000 or more, or any event specified in any note,
agreement, indenture or other document evidencing or relating to any
such Debt shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the
holder or holders of such Debt (or a trustee or agent on behalf of such
holder or holders) to cause, such Debt to become due prior to its
stated maturity; or
(c) any representation, warranty or certification made or
deemed made herein or in any Security Instrument by the Borrower or any
Subsidiary, or any certificate furnished
-45-
<PAGE> 52
to any Lender or the Agent pursuant to the provisions hereof or any
Security Instrument, shall prove to have been false or misleading as of
the time made or furnished in any material respect; or
(d) the Borrower shall default in the performance of any of
its obligations under Article IX or any other Article of this Agreement
other than under Article VIII; or the Borrower shall default in the
performance of any of its obligations under Article VIII or any
Security Instrument (other than the payment of amounts due which shall
be governed by Section 10.01(a)) and such default shall continue
unremedied for a period of thirty (30) days after the earlier to occur
of (i) notice thereof to the Borrower by the Agent or any Lender
(through the Agent), or (ii) the Borrower otherwise becoming aware of
such default; or
(e) the Borrower shall admit in writing its inability to, or
be generally unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Federal Bankruptcy
Code (as now or hereafter in effect), (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, liquidation or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Federal Bankruptcy Code, or (vi) take any
corporate action for the purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution
or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a trustee, receiver, custodian, liquidator or the
like of the Borrower of all or any substantial part of its assets, or
(iii) similar relief in respect of the Borrower under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 days; or (iv) an order for relief against the
Borrower shall be entered in an involuntary case under the Federal
Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess
of $250,000 in the aggregate shall be rendered by a court against the
Borrower or any Subsidiary and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution
thereof shall not be procured, within thirty (30) days from the date of
entry thereof and the Borrower or such Subsidiary shall not, within
said period of 30 days, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or
(i) the Security Instruments after delivery thereof shall for
any reason, except to the extent permitted by the terms thereof, cease
to be in full force and effect and valid,
-46-
<PAGE> 53
binding and enforceable in accordance with their terms, or cease to
create a valid and perfected Lien of the priority required thereby on
any of the collateral purported to be covered thereby, except to the
extent permitted by the terms of this Agreement, or the Borrower shall
so state in writing; or
(j) the Borrower discontinues its usual business or suffers to
exist any material change in its ownership, control or management such
that any Person other than current stockholders shall own or control in
excess of 30% of the voting common stock of the Borrower; or
(k) any Guarantor takes, suffers or permits to exist any of
the events or conditions referred to in paragraphs (e), (f), (g) or (h)
hereof or if any provision of any guaranty agreement related thereto
shall for any reason cease to be valid and binding on Guarantor or if
Guarantor shall so state in writing; or
(l) any Subsidiary takes, suffers or permits to exist any of
the events or conditions referred to in paragraphs (e), (f), (g) or (h)
hereof.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one referred
to in clauses (e), (f) or (g) of Section 10.01 or in clauses (k) or (l)
to the extent it relates to clauses (e), (f) or (g), the Agent, upon
request of the Majority Lenders, shall, by notice to the Borrower,
cancel the Commitments and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Borrower hereunder and under the Notes to be
forthwith due and payable, whereupon such amounts shall be immediately
due and payable without presentment, demand, protest, notice of intent
to accelerate, notice of acceleration or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in clauses
(k) or (l) to the extent it relates to clauses (e), (f) or (g), the
Commitments shall be automatically canceled and the principal amount
then outstanding of, and the accrued interest on, the Loans and all
other amounts payable by the Borrower hereunder and under the Notes
shall become automatically immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
(c) All proceeds received after maturity of the Notes, whether
by acceleration or otherwise shall be applied first to reimbursement of
expenses and indemnities provided for in this Agreement and the
Security Instruments; second to accrued interest on the Notes; third to
fees; fourth pro rata to principal outstanding on the Notes and other
Indebtedness; and any excess shall be paid to the Borrower or as
otherwise required by any Governmental Requirement.
-47-
<PAGE> 54
ARTICLE XI
THE AGENT
Section 11.01 Appointment, Powers and Immunities. Each Lender
hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under the Security Instruments with such powers as are
specifically delegated to the Agent by the terms of this Agreement and the
Security Instruments, together with such other powers as are reasonably
incidental thereto. The Agent (which term as used in this sentence and in
Section 11.05 and the first sentence of Section 11.06 shall include reference to
its Affiliates and its and its Affiliates' officers, directors, employees,
attorneys, accountants, experts and agents): (i) shall have no duties or
responsibilities except those expressly set forth in the Loan Documents, and
shall not by reason of the Loan Documents be a trustee or fiduciary for any
Lender; (ii) makes no representation or warranty to any Lender and shall not be
responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement, or for the value, validity, effectiveness, genuineness, execution,
effectiveness, legality, enforceability or sufficiency of this Agreement, any
Note or any other document referred to or provided for herein or for any failure
by the Borrower or any other Person (other than the Agent) to perform any of its
obligations hereunder or thereunder or for the existence, value, perfection or
priority of any collateral security or the financial or other condition of the
Borrower, the Subsidiaries or any other obligor or guarantor; (iii) except
pursuant to Section 11.07 shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; and (iv) shall not be
responsible for any action taken or omitted to be taken by it hereunder or under
any other document or instrument referred to or provided for herein or in
connection herewith including its own ordinary negligence, except for its own
gross negligence or willful misconduct. The Agent may employ agents,
accountants, attorneys and experts and shall not be responsible for the
negligence or misconduct of any such agents, accountants, attorneys or experts
selected by it in good faith or any action taken or omitted to be taken in good
faith by it in accordance with the advice of such agents, accountants, attorneys
or experts. The Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with
the Agent. The Agent is authorized to release any collateral that is permitted
to be sold or released pursuant to the terms of the Loan Documents.
Section 11.02 Reliance by Agent. The Agent shall be entitled
to rely upon any certification, notice or other communication (including any
thereof by telephone, telex, telecopier, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.
Section 11.03 Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans or of fees) unless the Agent has received
notice from a Lender or the Borrower specifying such Default and stating that
such notice is a "Notice of Default." In the event that the Agent receives such
a notice of the occurrence of a Default, the Agent shall give prompt notice
thereof to the Lenders. In the
-48-
<PAGE> 55
event of a payment Default, the Agent shall give each Lender prompt notice of
each such payment Default.
Section 11.04 Rights as a Lender. With respect to its
Commitments and the Loans made by it, the Agent (and any successor) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent
(and any successor) and its Affiliates may (without having to account therefor
to any Lender) accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Borrower (and any of its
Affiliates) as if it were not acting as an agent, and the Agent and its
Affiliates may accept fees and other consideration from the Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY
THE AGENT RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE INDEMNITY
MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR
REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE
OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR
ARISING OUT OF: (I) THIS AGREEMENT, THE SECURITY INSTRUMENTS OR ANY OTHER
DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED
HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY
DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT,
ANY SECURITY INSTRUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF
THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT
NEGLIGENCE OF THE AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE
FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE AGENT.
Section 11.06 Non-Reliance on Agent and other Lenders. Each
Lender acknowledges and agrees that it has, independently and without reliance
on the Agent or any other Lender, and based on such documents and information as
it has deemed appropriate, made its own credit analysis of the Borrower and its
decision to enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement.
The Agent shall not be required to keep itself informed as to the performance or
observance by the Borrower of this Agreement, the Notes, the Security
Instruments or any other document referred to or provided for herein or to
inspect the properties or books of the Borrower. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Agent or any of its
Affiliates. In this
-49-
<PAGE> 56
regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this
transaction as special counsel to the Agent only, except to the extent otherwise
expressly stated in any legal opinion or any Loan Document. Each Lender will
consult with its own legal counsel to the extent that it deems necessary in
connection with the Loan Documents and the matters contemplated therein.
Section 11.07 Action by Agent. Except for action or other
matters expressly required of the Agent hereunder, the Agent shall in all cases
be fully justified in failing or refusing to act hereunder unless it shall (i)
receive written instructions from the Majority Lenders (or all of the Lenders as
expressly required by Section 12.04) specifying the action to be taken, and (ii)
be indemnified to its satisfaction by the Lenders against any and all liability
and expenses which may be incurred by it by reason of taking or continuing to
take any such action. The instructions of the Majority Lenders (or all of the
Lenders as expressly required by Section 12.04) and any action taken or failure
to act pursuant thereto by the Agent shall be binding on all of the Lenders. If
a Default has occurred and is continuing, the Agent shall take such action with
respect to such Default as shall be directed by the Majority Lenders (or all of
the Lenders as required by Section 12.04) in the written instructions (with
indemnities) described in this Section 11.07, provided that, unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lenders.
In no event, however, shall the Agent be required to take any action which
exposes the Agent to personal liability or which is contrary to this Agreement
and the Security Instruments or applicable law.
Section 11.08 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving notice thereof to the Lenders and the Borrower, and
the Agent may be removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon
the acceptance of such appointment hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article XI and Section 12.03 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver. No failure on the part of the Agent or
any Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
-50-
<PAGE> 57
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Section 12.02 Notices. All notices and other communications
provided for herein and in the other Loan Documents (including, without
limitation, any modifications of, or waivers or consents under, this Agreement
or the other Loan Documents) shall be given or made by telex, telecopy, courier
or U.S. Mail or in writing and telexed, telecopied, mailed or delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or in the Loan Documents or, as to any party, at such
other address as shall be designated by such party in a notice to each other
party. Except as otherwise provided in this Agreement or in the other Loan
Documents, all such communications shall be deemed to have been duly given when
transmitted, if transmitted before 1:00 p.m. local time on a Business Day
(otherwise on the next succeeding Business Day) by telex or telecopier and
evidence or confirmation of receipt is obtained, or personally delivered or, in
the case of a mailed notice, three (3) Business Days after the date deposited in
the mails, postage prepaid, in each case given or addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, etc. The
Borrower agrees:
(a) whether or not the transactions hereby contemplated are
consummated, pay all reasonable expenses of the Agent in the
administration (both before and after the execution hereof and
including advice of counsel as to the rights and duties of the Agent
and the Lenders with respect thereto) of, and in connection with the
negotiation, syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights under,
enforcement of, and refinancing, renegotiation or restructuring of, the
Loan Documents and any amendment, waiver or consent relating thereto
(including, without limitation, travel, photocopy, mailing, courier,
telephone and other similar expenses of the Agent, the cost of
environmental audits, surveys and appraisals at reasonable intervals,
the reasonable fees and disbursements of counsel and other outside
consultants for the Agent and, in the case of enforcement, the
reasonable fees and disbursements of counsel for the Agent and any of
the Lenders); and promptly reimburse the Agent for all amounts
expended, advanced or incurred by the Agent or the Lenders to satisfy
any obligation of the Borrower under this Agreement or any Security
Instrument, including without limitation, all costs and expenses of
foreclosure;
(b) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF THEIR
AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS
("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND
PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY
MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF
THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A
RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR
PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE LOANS, (II)
THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III)
THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND THE SUBSIDIARIES,
(IV) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY SECURITY INSTRUMENT OR THIS AGREEMENT, OR WITH ANY
-51-
<PAGE> 58
GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR
ANY BREACH OF ANY WARRANTY OF THE BORROWER [OR ANY GUARANTOR] SET FORTH
IN ANY OF THE LOAN DOCUMENTS, (VI) ANY ASSERTION THAT THE LENDERS WERE
NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY
INSTRUMENTS OR (VII) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING,
WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL
AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING,
DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING
(INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND
INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY
NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY
MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY
LENDER AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE AGENT OR
LENDER OR BY REASON OF THE BREACH OF CONTRACT, GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST
RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND
LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY
OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A
RESULT OF THE BREACH OR NONCOMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY
WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY
SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME,
COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE,
STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF
THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR
(V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION
WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY
LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR
ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY
FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION
OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be
indemnified without the consent of the indemnitor, such consent not to
be unreasonably withheld; provided, that the indemnitor may not
reasonably withhold consent to any settlement that an Indemnified Party
proposes, if the indemnitor does not have the financial ability to pay
all its obligations outstanding and asserted against the indemnitor at
that time, including the maximum potential claims against the
Indemnified Party to be indemnified pursuant to this Section 12.03.
-52-
<PAGE> 59
(e) In the case of any indemnification hereunder, the Agent or
Lender, as appropriate shall give notice to the Borrower of any such
claim or demand being made against the Indemnified Party and the
Borrower shall have the non-exclusive right to join in the defense
against any such claim or demand provided that if the Borrower provides
a defense, the Indemnified Party shall bear its own cost of defense
unless there is a conflict between the Borrower and such Indemnified
Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED
PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND
OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN
AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES
OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY
IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO
THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT
OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION
OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION
OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER
THAN THE BREACH OF CONTRACT, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
THE INDEMNIFIED PARTY.
(g) The Borrower's obligations under this Section 12.03 shall
survive any termination of this Agreement and the payment of the Notes
and shall continue thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this Section
12.03 within thirty (30) days of the receipt by the Borrower of notice
of the amount due.
Section 12.04 Amendments, Etc. Any provision of this Agreement
or any Security Instrument may be amended, modified or waived with the
Borrower's and the Majority Lenders' prior written consent; provided that (i) no
amendment, modification or waiver which extends the final maturity of the Loans,
increases the Aggregate Commitments, forgives the principal amount of any
Indebtedness outstanding under this Agreement, releases any guarantor of the
Indebtedness or releases all or substantially all of the collateral, reduces the
interest rate applicable to the Loans or the fees payable to the Lenders
generally, affects Sections 2.03(a) or (b), this Section 12.04 or Section
12.06(a) or modifies the definition of "Majority Lenders" shall be effective
without consent of all Lenders; (ii) no amendment, modification or waiver which
increases Aggregate Commitments of any Lender shall be effective without the
consent of such Lender; and (iii) no amendment, modification or waiver which
modifies the rights, duties or obligations of the Agent shall be effective
without the consent of the Agent.
Section 12.05 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
-53-
<PAGE> 60
Section 12.06 Assignments and Participations.
(a) The Borrower may not assign its rights or obligations
hereunder or under the Notes without the prior consent of all of the
Lenders and the Agent.
(b) Any Lender may, upon the written consent of the Agent and
the Borrower (which consent will not be unreasonably withheld), assign
to one or more assignees all or a portion of its rights and obligations
under this Agreement pursuant to an Assignment Agreement substantially
in the form of Exhibit F (an "Assignment") provided, however, that (i)
any such assignment shall be in the amount of at least $5,000,000 or
such lesser amount to which the Borrower has consented and (ii) the
assignee or assignor shall pay to the Agent a processing and
recordation fee of $5,000 for each assignment. Any such assignment will
become effective upon the execution and delivery to the Agent of the
Assignment and the consent of the Agent. Promptly after receipt of an
executed Assignment, the Agent shall send to the Borrower a copy of
such executed Assignment. Upon receipt of such executed Assignment, the
Borrower, will, at its own expense, execute and deliver new Notes to
the assignor and/or assignee, as appropriate, in accordance with their
respective interests as they appear. Upon the effectiveness of any
assignment pursuant to this Section 12.06(b), the assignee will become
a "Lender," if not already a "Lender," for all purposes of this
Agreement and the Security Instruments. The assignor shall be relieved
of its obligations hereunder to the extent of such assignment (and if
the assigning Lender no longer holds any rights or obligations under
this Agreement, such assigning Lender shall cease to be a "Lender"
hereunder except that its rights under Sections 4.06, 5.01, 5.05 and
12.03 shall not be affected). The Agent will prepare on the last
Business Day of each month during which an assignment has become
effective pursuant to this Section 12.06(b), a new Annex I giving
effect to all such assignments effected during such month, and will
promptly provide the same to the Borrower and each of the Lenders.
(c) Each Lender may transfer, grant or assign participations
in all or any part of such Lender's interests hereunder pursuant to
this Section 12.06(c) to any Person, provided that: (i) such Lender
shall remain a "Lender" for all purposes of this Agreement and the
transferee of such participation shall not constitute a "Lender"
hereunder; and (ii) no participant under any such participation shall
have rights to approve any amendment to or waiver of any of the Loan
Documents except to the extent such amendment or waiver would (x)
forgive any principal owing on any Indebtedness or extend the final
maturity of the Loans, (y) reduce the interest rate (other than as a
result of waiving the applicability of any post-default increases in
interest rates) or fees applicable to any of the Commitments or Loans
in which such participant is participating, or postpone the payment of
any thereof, or (z) release any guarantor of the Indebtedness or
release all or substantially all of the collateral (except as provided
in the Loan Documents) supporting any of the Commitments or Loans in
which such participant is participating. In the case of any such
participation, the participant shall not have any rights under this
Agreement or any of the Security Instruments (the participant's rights
against the granting Lender in respect of such participation to be
those set forth in the agreement with such Lender creating such
participation), and all amounts payable by the Borrower hereunder shall
be determined as if such Lender had not sold such participation,
provided that such participant shall be entitled to receive additional
-54-
<PAGE> 61
amounts under Article V on the same basis as if it were a Lender and be
indemnified under Section 12.03 as if it were a Lender. In addition,
each agreement creating any participation must include an agreement by
the participant to be bound by the provisions of Section 12.15.
(d) The Lenders may furnish any information concerning the
Borrower in the possession of the Lenders from time to time to
assignees and participants (including prospective assignees and
participants); provided that, such Persons agree to be bound by the
provisions of Section 12.15 hereof.
(e) Notwithstanding anything in this Section 12.06 to the
contrary, any Lender may assign and pledge its Note to any Federal
Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any operating circular issued by such Federal
Reserve System and/or such Federal Reserve Bank. No such assignment
and/or pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
(f) Notwithstanding any other provisions of this Section
12.06, no transfer or assignment of the interests or obligations of any
Lender or any grant of participations therein shall be permitted if
such transfer, assignment or grant would require the Borrower to file a
registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any state.
Section 12.07 Invalidity. In the event that any one or more of
the provisions contained in any of the Loan Documents shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the
Notes, this Agreement or any Security Instrument.
Section 12.08 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 12.09 References. The words "herein," "hereof,"
"hereunder" and other words of similar import when used in this Agreement refer
to this Agreement as a whole, and not to any particular article, section or
subsection. Any reference herein to a Section shall be deemed to refer to the
applicable Section of this Agreement unless otherwise stated herein. Any
reference herein to an exhibit or schedule shall be deemed to refer to the
applicable exhibit or schedule attached hereto unless otherwise stated herein.
Section 12.10 Survival. The obligations of the parties under
Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the
repayment of the Loans and the termination of the Commitments. To the extent
that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Indebtedness so satisfied shall be revived and continue as if such
payment or proceeds had not been received and the Agent's and the Lenders'
Liens, security interests, rights, powers and remedies under this Agreement and
each Security
-55-
<PAGE> 62
Instrument shall continue in full force and effect. In such event, each Security
Instrument shall be automatically reinstated and the Borrower shall take such
action as may be reasonably requested by the Agent and the Lenders to effect
such reinstatement.
Section 12.11 Captions. Captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY
THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL
OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPO
RANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; EXCLUSIVE METHOD; JURISDICTION.
(A) THIS AGREEMENT AND THE NOTES (INCLUDING, BUT NOT LIMITED
TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
(B) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THE NOTES OR OTHER LOAN DOCUMENTS, INCLUDING ANY CLAIM OR CONTROVERSY
OF ANY KIND BASED ON OR ARISING IN TORT, SHALL BE DETERMINED
EXCLUSIVELY BY BINDING ARBITRATION IN ACCORDANCE WITH THE U.S. FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, APPLICABLE STATE LAW), THE RULES
OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES
AND THE RULES SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE
RULES SET FORTH IN SECTION 12.13(C) BELOW SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THE NOTES OR THE OTHER LOAN DOCUMENTS MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF
ANY CONTROVERSY OR CLAIM TO WHICH EITHER THE NOTES OR ANY LOAN DOCUMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(C) THE ARBITRATION SHALL BE CONDUCTED IN NEW YORK CITY, NEW
YORK AND ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION. THE
ARBITRATION SHALL BE CONDUCTED IN THE ENGLISH LANGUAGE. ALL ARBITRATION
HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL, ONLY UPON A SHOWING OF
CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR AN
ADDITIONAL 60 DAYS. THE ARBITRATOR SHALL NOT HAVE ANY AUTHORITY TO
AWARD PUNITIVE, CONSEQUENTIAL, OR INCIDENTAL DAMAGES.
-56-
<PAGE> 63
(D) THE PROVISIONS OF THIS SECTION SHALL SURVIVE ANY
TERMINATION, AMENDMENT, OR EXPIRATION OF THE LOAN DOCUMENTS EVIDENCING
THE TRANSACTIONS. EACH PARTY AGREES TO KEEP ALL DISPUTES AND
ARBITRATION PROCEEDINGS STRICTLY CONFIDENTIAL, EXCEPT FOR DISCLOSURES
OF INFORMATION REQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE
PARTIES OR BY APPLICABLE LAW OR REGULATION.
(E) SUBJECT TO CLAUSES (B) AND (C) ABOVE, ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT AND EACH LENDER HEREBY
ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH OF THE BORROWER, THE AGENT AND EACH LENDER
HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS
SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE
PARTIES FROM OBTAINING JURISDICTION OVER OTHER PARTIES IN ANY COURT
OTHERWISE HAVING JURISDICTION.
(F) THE BORROWER HEREBY IRREVOCABLY DESIGNATES [CT CORPORATION
LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019], AS THE DESIGNEE,
APPOINTEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF
THE BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS. IT
IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT WILL BE
PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE BORROWER AT ITS ADDRESS
SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF THE BORROWER TO
RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS SAID ADDRESS, SUCH
SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
(G) SUBJECT TO CLAUSES (B) AND (C) ABOVE, NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE BORROWER, THE AGENT OR ANY LENDER OR ANY HOLDER
OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN
ANY OTHER JURISDICTION, INCLUDING WITHOUT LIMITATION, THE COMMENCEMENT
OF ENFORCEMENT PROCEEDINGS UNDER THE SECURITY INSTRUMENTS IN ALL
APPLICABLE JURISDICTIONS.
-57-
<PAGE> 64
(H) EACH OF THE BORROWER AND EACH LENDER HEREBY (I)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY SECURITY INSTRUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED
BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES,
OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY
PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT
SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT, THE SECURITY INSTRUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.13.
Section 12.14 Interest. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of New York or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be cancelled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be cancelled automatically by such Lender as
of the date of such acceleration or prepayment and, if theretofore paid, shall
be credited by such Lender on the principal amount of the Indebtedness (or, to
the extent that the principal amount of the Indebtedness shall have been or
would thereby be paid in full, refunded by such Lender to the Borrower). All
sums paid or agreed to be paid to any Lender for the use, forbearance or
detention of sums due hereunder shall, to the extent permitted by law applicable
to such Lender, be amortized, prorated, allocated and spread throughout the full
term of the Loans evidenced by the Notes until payment in full so that the rate
or amount of interest on account of any Loans hereunder does not exceed the
maximum amount allowed by such applicable law. If at any time and from time to
time (i) the amount of interest payable to any Lender on any date shall be
computed at the Highest Lawful Rate applicable to such Lender pursuant to this
Section 12.15 and (ii) in respect of any subsequent interest computation period
the amount of interest otherwise payable to such Lender would be less than the
amount of interest payable to such Lender computed at the Highest Lawful Rate
applicable
-58-
<PAGE> 65
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.14.
Section 12.15 Confidentiality. In the event that the Borrower
provides to the Agent or the Lenders written confidential information belonging
to the Borrower, if the Borrower shall denominate such information in writing as
"confidential", the Agent and the Lenders shall thereafter maintain such
information in confidence in accordance with the standards of care and diligence
that each utilizes in maintaining its own confidential information. This
obligation of confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of the public
domain without the Agent or the Lenders breaching their obligation of confidence
to the Borrower, (iii) are previously known by the Agent or the Lenders from
some source other than the Borrower, (iv) are hereafter developed by the Agent
or the Lenders without using the Borrower's information, (v) are hereafter
obtained by or available to the Agent or the Lenders from a third party who owes
no obligation of confidence to the Borrower with respect to such information or
through any other means other than through disclosure by the Borrower, (vi) are
disclosed with the Borrower's consent, (vii) must be disclosed either pursuant
to any Governmental Requirement or to Persons regulating the activities of the
Agent or the Lenders, or (viii) as may be required by law or regulation or order
of any Governmental Authority in any judicial, arbitration or governmental
proceeding. Further, the Agent or a Lender may disclose any such information to
any other Lender, any independent petroleum engineers or consultants, any
independent certified public accountants, any legal counsel employed by such
Person in connection with this Agreement or any Security Instrument, including
without limitation, the enforcement or exercise of all rights and remedies
thereunder, or any assignee or participant (including prospective assignees and
participants) in the Loans; provided, however, that the Agent or the Lenders
shall receive a confidentiality agreement from the Person to whom such
information is disclosed such that said Person shall have the same obligation to
maintain the confidentiality of such information as is imposed upon the Agent or
the Lenders hereunder. Notwithstanding anything to the contrary provided herein,
this obligation of confidence shall cease three (3) years from the date the
information was furnished, unless the Borrower requests in writing at least
thirty (30) days prior to the expiration of such three year period, to maintain
the confidentiality of such information for an additional three year period. The
Borrower waives any and all other rights it may have to confidentiality as
against the Agent and the Lenders arising by contract, agreement, statute or law
except as expressly stated in this Section 12.15.
Section 12.16 Effectiveness. This Agreement shall be
effective on the Closing Date (the "Effective Date").
-59-
<PAGE> 66
The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER: ANSCOASTAL MARINE SERVICES,
INC.
By:_____________________________
Name:
Title:
Address for Notices:
3535 Briarpark, Suite 210
Houston, Texas 77042
Telecopier No.:
Telephone No.:
Attention:
-60-
<PAGE> 67
LENDER AND AGENT: JOINT ENERGY DEVELOPMENT
INVESTMENTS, LIMITED PARTNERSHIP
By:_____________________________
Name:
Title:
Lending Office for Base Rate Loans:
================================
--------------------------------
Lending Office for Eurodollar Loans:
================================
--------------------------------
Address for Notices:
1400 Smith Street
28th Floor
Houston, Texas 77002
Attention: Shirley Hudler
-61-
<PAGE> 1
DRAFT
October 25, 1997
SUBORDINATED CREDIT AGREEMENT
Dated as of October 28, 1997
Among
TRANSCOASTAL MARINE SERVICES, INC.
as Borrower,
JOINT ENERGY DEVELOPMENT INVESTMENTS,
LIMITED PARTNERSHIP
as Agent,
and
THE LENDERS SIGNATORY HERETO
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above...................................1
Section 1.02 Certain Defined Terms.................................1
Section 1.03 Accounting Terms and Determinations..................13
ARTICLE II
COMMITMENTS
Section 2.01 Loans................................................14
Section 2.02 Borrowings, Continuations and Conversions............14
Section 2.03 Changes of Commitments...............................15
Section 2.04 Fees.................................................16
Section 2.05 Several Obligations..................................16
Section 2.06 Notes................................................16
Section 2.07 Prepayments..........................................16
Section 2.08 Lending Offices......................................17
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans...................................17
Section 3.02 Interest.............................................17
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments.............................................18
Section 4.02 Pro Rata Treatment...................................19
Section 4.03 Computations.........................................19
Section 4.04 Non-receipt of Funds by the Agent....................19
Section 4.05 Set-off; Sharing of Payments, Etc....................19
Section 4.06 Taxes................................................20
ARTICLE V
<PAGE> 3
CAPITAL ADEQUACY
Section 5.01 Additional Costs.....................................22
Section 5.02 Limitation on Eurodollar Loans.......................23
Section 5.03 Illegality...........................................24
Section 5.04 Base Rate Loans Pursuant to Sections 5.01,
5.02 and 5.03........................................24
Section 5.05 Compensation.........................................24
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding......................................25
Section 6.02 Initial and Subsequent Loans.........................26
ARTICLE VII THROUGH ARTICLE XII TO BE SAME AS IN THE SENIOR CREDIT
AGREEMENT EXCEPT SECTION 10.01(B) WHICH WILL BE MODIFIED AS
ATTACHED
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default...................................28
Annex I - List of Commitments
Exhibit A - Form of Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Legal Opinion of _____________________
Exhibit E - List of Security Instruments
Exhibit F - Form of Assignment Agreement
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
[Schedule 7.__ - Hedging Agreements]
[Schedule 7.__ - Material Agreements]
Schedule 9.01 - Debt
-i-
<PAGE> 4
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
-ii-
<PAGE> 5
THIS SUBORDINATED CREDIT AGREEMENT dated as of October ___,
1997 is among: TRANSCOASTAL MARINE SERVICES, INC., a corporation formed under
the laws of the State of Delaware (the "Borrower"); each of the lenders that is
a signatory hereto or which becomes a signatory hereto as provided in Section
12.06 (individually, together with its successors and assigns, a "Lender" and,
collectively, the "Lenders"); and JOINT ENERGY DEVELOPMENT INVESTMENTS, LIMITED
PARTNERSHIP, a limited partnership formed under the laws of the State of
Delaware, as agent for the Lenders (in such capacity, the "Agent").
R E C I T A L S
A. The Borrower has requested that the Lenders provide certain loans
to the Borrower; and
B. The Lenders have agreed to make such loans subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement,
the terms "Agent," "Borrower," "Lender" and "Lenders," shall have the meanings
indicated above.
Section 1.02 Certain Defined Terms. As used herein, the
following terms shall have the following meanings (all terms defined in this
Article I or in other provisions of this Agreement in the singular to have the
same meanings when used in the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term
in Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term
in Section 5.04.
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control with
such first Person, (ii) any director or officer of such first Person or
of any Person referred to in clause (i) above and (iii) if any Person
in clause (i) above is an individual, any member of the immediate
family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more
members of such immediate family and any Person who is controlled by
any such member or trust. For purposes of this definition, any Person
which owns directly or indirectly 10% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation or 10% or more of the partnership or other
ownership interests of any other Person (other than as a limited
partner of such other
-1-
<PAGE> 6
Person) will be deemed to "control" (including, with its correlative
meanings, "controlled by" and "under common control with") such
corporation or other Person.
"Agreement" shall mean this Subordinated Credit Agreement, as
the same may from time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03(a).
"Aggregate Maximum Credit Amounts" at any time shall equal the
sum of the Maximum Credit Amounts of the Lenders ($15,000,000), as the
same may be reduced pursuant to Section 2.03(b).
"Applicable Lending Office" shall mean, for each Lender and
for each Type of Loan, the lending office of such Lender (or an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other offices of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify
to the Agent and the Borrower as the office by which its Loans of such
Type are to be made and maintained.
"Applicable Margin" shall mean (i) 1/2 of 1% per annum with
respect to Base Rate Loans; and (ii) three and three-fourths of one
percent (3.75%) per annum with respect to Eurodollar Loans.
"Assignment" shall have the meaning assigned such term in
Section 12.06(b).
"Available Amount" shall be the amount determined pursuant to
Section 2.03(b).
"Base Rate" shall mean, with respect to any Base Rate Loan,
for any day, the higher of (i) the Federal Funds Rate for any such day
plus 1/2 of 1% or (ii) the Prime Rate for such day. Each change in any
interest rate provided for herein based upon the Base Rate resulting
from a change in the Base Rate shall take effect at the time of such
change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in New York, New
York and, where such term is used in the definition of "Quarterly Date"
or if such day relates to a borrowing or continuation of, a payment or
prepayment of principal of or interest on, or a conversion of or into,
or the Interest Period for, a Eurodollar Loan or a notice by the
Borrower with respect to any such borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day
on which dealings in Dollar deposits are carried out in the London
interbank market.
-2-
<PAGE> 7
"Closing Date" shall mean October 28, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to
make Loans up to the lesser of such Lender's Maximum Credit Amount or
the Lender's Percentage Share of the amount equal to the then effective
Available Amount.
"Consolidated Net Income" shall mean with respect to the
Borrower and its Consolidated Subsidiaries, for any period, the
aggregate of the net income (or loss) of the Borrower and its
Consolidated Subsidiaries after allowances for taxes for such period,
determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any
Person in which the Borrower or any Consolidated Subsidiary has an
interest (which interest does not cause the net income of such other
Person to be consolidated with the net income of the Borrower and its
Consolidated Subsidiaries in accordance with GAAP), except to the
extent of the amount of dividends or distributions actually paid in
such period by such other Person to the Borrower or to a Consolidated
Subsidiary, as the case may be; (ii) the net income (but not loss) of
any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by
that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary, or
is otherwise restricted or prohibited in each case determined in
accordance with GAAP; (iii) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to
the date of such transaction; (iv) any extraordinary gains or losses,
including gains or losses attributable to Property sales not in the
ordinary course of business; and (v) the cumulative effect of a change
in accounting principles and any gains or losses attributable to
writeups or writedowns of assets.
"Consolidated Subsidiaries" shall mean each Subsidiary of the
Borrower (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in
accordance with GAAP.
"Debt" shall mean, for any Person the sum of the following
(without duplication): (i) all obligations of such Person for borrowed
money or evidenced by bonds, debentures, notes or other similar
instruments (including principal, interest, fees and charges); (ii) all
obligations of such Person (whether contingent or otherwise) in respect
of bankers' acceptances, letters of credit, surety or other bonds and
similar instruments; (iii) all obligations of such Person to pay the
deferred purchase price of Property or services (other than for
borrowed money); (iv) all obligations under leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital
leases in respect of which such Person is liable
-3-
<PAGE> 8
(whether contingent or otherwise); (v) all obligations under leases
which require such Person or its Affiliate to make payments over the
term of such lease, including payments at termination, which are
substantially equal to at least eighty percent (80%) of the purchase
price of the Property subject to such lease plus interest as an imputed
rate of interest; (vi) all Debt (as described in the other clauses of
this definition) and other obligations of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such
Person; (vii) all Debt (as described in the other clauses of this
definition) and other obligations of others guaranteed by such Person
or in which such Person otherwise assures a creditor against loss of
the debtor or obligations of others; (viii) all obligations or
undertakings of such Person to maintain or cause to be maintained the
financial position or covenants of others or to purchase the Debt or
Property of others; (ix) obligations to deliver goods or services in
consideration of advance payments ; (x) obligations to pay for goods or
services whether or not such goods or services are actually received or
utilized by such Person; (xi) any capital stock of such Person in which
such Person has a mandatory obligation to redeem such stock; (xii) any
Debt of a Special Entity for which such Person is liable either by
agreement or because of a Governmental Requirement; and (xiv) all
obligations of such Person under Hedging Agreements.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of Default.
"Discretionary Amount" at any time shall equal an amount not
to exceed $5,000,000.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDA" shall mean, for any period, the sum of Consolidated
Net Income for such period plus the following expenses or charges to
the extent deducted from Consolidated Net Income in such period:
interest, taxes, depreciation, depletion and amortization, minus all
non cash income added to Consolidated Net Income in such period.
"Effective Date" shall have the meaning assigned such term in
Section 12.17.
"Environmental Laws" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any
and all jurisdictions in which the Borrower or any Subsidiary is
conducting or at any time has conducted business, or where any Property
of the Borrower or any Subsidiary is located, including without
limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act,
as amended, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water
Pollution Control Act, as amended, the Occupational Safety and Health
Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the
Toxic Substances Control Act, as amended, the
-4-
<PAGE> 9
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have
the meanings specified in RCRA; provided, however, that (i) in the
event either OPA, CERCLA or RCRA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply
subsequent to the effective date of such amendment and (ii) to the
extent the laws of the state in which any Property of the Borrower or
any Subsidiary is located establish a meaning for "oil," "hazardous
substance," "release," "solid waste" or "disposal" which is broader
than that specified in either OPA, CERCLA or RCRA, such broader meaning
shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any Subsidiary
would be deemed to be a "single employer" within the meaning of section
4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414
of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) the
withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of
intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan.
"Eurodollar Loans" shall mean Loans the interest rates on
which are determined on the basis of rates referred to in the
definition of "Fixed Eurodollar Rate".
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age
pension or public liability obligations not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (iii)
operators', vendors',
-5-
<PAGE> 10
carriers', warehousemen's, repairmen's, mechanics', workmen's,
materialmen's, construction or other like Liens arising by operation of
law in the ordinary course of business or statutory landlord's liens,
each of which is in respect of obligations that have not been
outstanding more than 90 days or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have
been maintained in accordance with GAAP; (iv) encumbrances (other than
to secure the payment of borrowed money or the deferred purchase price
of Property or services), easements, restrictions, servitudes, permits,
conditions, covenants, exceptions or reservations in any rights of way
or other Property of the Borrower or any Subsidiary for the purpose of
roads, pipelines, transmission lines, transportation lines, distribu
tion lines for the removal of gas, oil, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real
estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any
rights of way or other Property which in the aggregate do not
materially impair the use of such rights of way or other Property for
the purposes of which such rights of way and other Property are held by
the Borrower or any Subsidiary or materially impair the value of such
Property subject thereto; (v) deposits of cash or securities to secure
the performance of bids, trade contracts, leases, statutory obligations
and other obligations of a like nature incurred in the ordinary course
of business; and (vi) Liens permitted by the Security Instruments.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal
to the weighted average of the rates on overnight federal funds
transactions with a member of the Federal Reserve System arranged by
federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day, provided
that (i) if the date for which such rate is to be determined is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on
the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the
average rate charged to the Agent on such day on such transactions as
determined by the Agent.
"Fee Letter" shall mean that certain letter agreement from the
Agent to the Borrower dated of even date with this Agreement concerning
certain fees in connection with this Agreement and any agreements or
instruments executed in connection therewith, as the same may be
amended or replaced from time to time.
"Financial Statements" shall mean the financial statement or
statements of the Borrower and the Founding Companies described or
referred to in Section 7.02.
"Fixed Eurodollar Rate" shall mean, for any Interest Period
for each Eurodollar Loan, an interest rate per annum equal to the rate
of interest per annum reported, on the date two Business Days prior to
the first day of such Interest Period, on Telerate Access Service Page
3750 (British Bankers Association Interest Settlement Rates) provided
by Telerate Systems Incorporated (or if such Page shall
-6-
<PAGE> 11
cease to be publicly available, as reported by Reuters or any other
publicly available source of similar market data selected by the Agent)
as the London Interbank Offered Rate for U.S. Dollar deposits having a
term comparable to such Interest Period.
"Fixed Rate" shall mean, with respect to any Eurodollar Loan,
a rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by the Agent to be equal to the quotient of (i) the
Fixed Eurodollar Rate for such Loan for the Interest Period for such
Loan divided by (ii) 1 minus the Reserve Requirement for such Loan for
such Interest Period.
"Founding Companies" shall mean Woodson Construction Company
(together with three affiliated companies, ___________, __________ and
_______________), CSI Hydrostatic Testers, Inc. (together with its
subsidiary and affiliate _______________ and ______________), HBH, Inc.
and The Red Fox Companies of New Iberia, Inc.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction over
any such Person or such Person's Property, and any court, agency,
department, commission, board, bureau or instrumentality of any of them
including monetary authorities which exercises valid jurisdiction over
any such Person or such Person's Property. Unless otherwise specified,
all references to Governmental Authority herein shall mean a
Governmental Authority having jurisdiction over, where applicable, the
Borrower, its Subsidiaries or any of their Property or the Agent, any
Lender or any Applicable Lending Office.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or
other directive or requirement (whether or not having the force of
law), including, without limitation, Environmental Laws, energy
regulations and occupational, safety and health standards or controls,
of any Governmental Authority.
"Guarantor" shall mean each Subsidiary now or hereafter
executing a Guaranty Agreement.
"Guaranty Agreement" shall mean each guaranty agreement, in
form and substance reasonably satisfactory to the Agent, now or
hereafter executed by a Subsidiary in favor of the Agent and the
Lenders, as the same may be amended or modified from time to time.
-7-
<PAGE> 12
"Hedging Agreements" shall mean any commodity, interest rate
or currency swap, cap, floor, collar, forward agreement or other
exchange or protection agreements or any option with respect to any
such transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender,
the maximum nonusurious interest rate, if any, that at any time or from
time to time may be contracted for, taken, reserved, charged or
received on the Notes or on other Indebtedness under laws applicable to
such Lender which are presently in effect or, to the extent allowed by
law, under such applicable laws which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable
laws now allow.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower to the Agent and/or Lenders in connection with
the Loan Documents now or hereafter arising between the Borrower and
any Lender and permitted by the terms of this Agreement and all
renewals, extensions and/or rearrangements of any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 12.03(b).
"Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or inquiries),
claims, demands and causes of action made or threatened against a
Person and, in connection therewith, all losses, liabilities, damages
(including, without limitation, consequential damages) or reasonable
costs and expenses of any kind or nature whatsoever incurred by such
Person whether caused by the sole or concurrent negligence of such
Person seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans
pursuant to Section 6.01 hereof.
"Intercreditor and Subordination Agreement" shall mean that
certain Intercreditor and Subordination Agreement of even date herewith
between the Borrower, the Agent, the Lenders, the agent under the
Senior Revolving Credit Agreement and the lenders under the Senior
Revolving Credit Agreement, as such agreement may be amended or
modified from time to time.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the period commencing on the date such Eurodollar Loan is made
and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Borrower may select as
provided in Section 2.02 (or such longer period as may be requested by
the Borrower and agreed to by the Majority Lenders), except that each
Interest Period which commences on the last Business Day of a calendar
month (or on any day for which there is no numerically corresponding
day
-8-
<PAGE> 13
in the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after the Termination Date; (ii) each Interest
Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on
the next preceding Business Day); and (iii) no Interest Period shall
have a duration of less than one month and, if the Interest Period for
any Eurodollar Loans would otherwise be for a shorter period, such
Loans shall not be available hereunder.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute or
contract, and whether such obligation or claim is fixed or contingent,
and including but not limited to (i) the lien or security interest
arising from a mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this Agreement,
the Borrower or any Subsidiary shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale
agreement, or leases under a financing lease or other arrangement
pursuant to which title to the Property has been retained by or vested
in some other Person in a transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes and the
Security Instruments.
"Loans" shall mean the loans as provided for by Section
2.01(a).
"Majority Lenders" shall mean, at any time while no Loans are
outstanding, Lenders having at least sixty-six and two-thirds percent
(66-2/3%) of the Aggregate Commitments and, at any time while Loans are
outstanding, Lenders holding at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding aggregate principal amount of the Loans
(without regard to any sale by a Lender of a participation in any Loan
under Section 12.06(c)).
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations or affairs of the Borrower and any of its Subsidiaries or
from the facts represented or warranted in any Loan Document or (ii)
the ability of the Borrower and any of its Subsidiaries to carry out
their business as at the Closing Date or as proposed as of the Closing
Date to be conducted or meet their obligations under the Loan Documents
on a timely basis.
-9-
<PAGE> 14
"Maximum Credit Amount" shall mean, as to each Lender, the
amount set forth opposite such Lender's name on Annex I under the
caption "Maximum Credit Amounts" (as the same may be reduced pursuant
to Section 2.03(c) hereof pro rata to each Lender based on its
Percentage Share) as modified from time to time to reflect any
assignments permitted by Section 12.06(b).
"Mortgaged Property" shall mean the Property owned by the
Borrower and which is subject to the Liens existing and to exist under
the terms of the Security Instruments.
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
"Notes" shall mean the Notes provided for by Section 2.06,
together with any and all renewals, extensions for any period,
increases, rearrangements, substitutions or modifications thereof.
"Other Taxes" shall have the meaning assigned such term in
Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as
indicated on Annex I hereto, as modified from time to time to reflect
any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (i) is currently or hereafter
sponsored, maintained or contributed to by the Borrower, any Subsidiary
or an ERISA Affiliate or (ii) was at any time during the preceding six
calendar years sponsored, maintained or contributed to, by the
Borrower, any Subsidiary or an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other amount payable by the Borrower under this
Agreement or any Note, a rate per annum during the period commencing on
the date of an Event of Default until such amount is paid in full or
all Events of Default are cured or waived equal to 3% per annum above
the Base Rate as in effect from time to time plus the Applicable Margin
(if any), but in no event to exceed the Highest Lawful Rate provided
that, for a Eurodollar Loan, the "Post-Default Rate" for such principal
shall be, for the period commencing on the date of the Event of Default
and ending on the earlier to occur of the last day of the Interest
Period therefor or the date all Events of Default are
-10-
<PAGE> 15
cured or waived, 3% per annum above the interest rate for such Loan as
provided in Section 3.02(ii), but in no event to exceed the Highest
Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
announced publicly by The Chase Manhattan Bank at the principal office
in New York, New York as its prime commercial lending rate. Such rate
is set by the Agent as a general reference rate of interest, taking
into account such factors as the Agent may deem appropriate, it being
understood that many of the Agent's commercial or other loans are
priced in relation to such rate, that it is not necessarily the lowest
or best rate actually charged to any customer and that the Agent may
make various commercial or other loans at rates of interest having no
relationship to such rate.
"Principal Office" shall mean the principal office of the
Agent, presently located at 1400 Smith Street, Houston, Texas 77002 or
such other location as designated by the Agent from time to time.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each March, June,
September, and October, in each year, the first of which shall be
December 12, 1997; provided, however, that if any such day is not a
Business Day, such Quarterly Date shall be the next succeeding Business
Day.
"Registration Statement" shall mean that certain Registration
Statement of the Borrower on Form S-1 filed with the SEC on August 29,
1997, as amended on October 8, 1997.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as the same
may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such date of
any interpretations, directives or requests applying to a class of
lenders (including such Lender or its Applicable Lending Office) of or
under any Governmental Requirement (whether or not having the force of
law) by any Governmental Authority charged with the interpretation or
administration thereof.
"Required Payment" shall have the meaning assigned such term
in Section 4.04.
"Reserve Requirement" shall mean, for any Interest Period for
any Eurodollar Loan, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained
-11-
<PAGE> 16
during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one
billion Dollars against "Eurocurrency liabilities" (as such term is
used in Regulation D). Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by
reference to which the Fixed Eurodollar Rate for Eurodollar Loans is to
be determined as provided in the definition of "Fixed Eurodollar Rate"
or (ii) any category of extensions of credit or other assets which
include a Eurodollar Loan.
"Responsible Officer" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such Person
and, with respect to financial matters, the term "Responsible Officer"
shall include the Chief Financial Officer of such Person. Unless
otherwise specified, all references to a Responsible Officer herein
shall mean a Responsible Officer of the Borrower.
"SEC" shall mean the Securities and Exchange Commission or
any successor Governmental Authority.
"Security Instruments" shall mean, the Fee Letter, the
agreements or instruments described or referred to in Exhibit E, the
Intercreditor and Subordination Agreement and any and all other
agreements or instruments now or hereafter executed and delivered by
the Borrower or any other Person (other than participation or similar
agreements between any Lender and any other lender or creditor with
respect to any Indebtedness pursuant to this Agreement) in connection
with, or as security for the payment or performance of the Notes, this
Agreement, as such agreements may be amended, supplemented or restated
from time to time.
"Special Entity" shall mean any joint venture, limited
liability company or partnership, general or limited partnership or any
other type of partnership or company other than a corporation in which
the Borrower or one or more of its other Subsidiaries is a member,
owner, partner or joint venturer and owns, directly or indirectly, at
least a majority of the equity of such entity or controls such entity,
but excluding any tax partnerships that are not classified as
partnerships under state law. For purposes of this definition, any
Person which owns directly or indirectly an equity investment in
another Person which allows the first Person to manage or elect
managers who manage the normal activities of such second Person will be
deemed to "control" such second Person (e.g. a sole general partner
controls a limited partnership).
"Senior Credit Agreement" shall mean that certain Senior
Credit Agreement of even date herewith between the Borrower and Joint
Energy Development Investments, Limited Partnership providing for loans
up to but not to exceed $60,000,000.
-12-
<PAGE> 17
"Senior Debt" shall mean indebtedness of the Borrower not to
exceed a principal amount of $60,000,000 under and pursuant to the
terms of the Senior Credit Agreement.
"Senior Liens" shall mean Liens on assets of the Borrower
and/or its Subsidiaries securing the Senior Debt which are expressly
first and superior to the Liens securing the Indebtedness.
"Subsidiary" shall mean (i) any corporation of which at least
a majority of the outstanding shares of stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled
by the Borrower or one or more of its Subsidiaries or by the Borrower
and one or more of its Subsidiaries, (ii) any Special Entity and (iii)
each Founding Company prior to the date it becomes a Subsidiary. Unless
otherwise indicated herein, each reference to the term "Subsidiary"
shall mean a Subsidiary of the Borrower.
"Taxes" shall have the meaning assigned such term in Section
4.06(a).
"Termination Date" shall mean, unless the Commitments are
sooner terminated pursuant to Section 10.02 hereof, one day after the
Termination Date defined in the Senior Credit Agreement.
"Total Capitalization" shall mean Debt of the Borrower plus
the net worth of the Borrower determined in accordance with GAAP.
"Type" shall mean, with respect to any Loan, a Base Rate Loan
or a Eurodollar Loan.
"Warrants" shall mean ______________________________.
"Wholly-Owned Subsidiary" shall mean, as to the Borrower, any
Subsidiary of which all of the outstanding shares of stock having by
the terms thereof ordinary voting power to elect the board of directors
of such corporation, other than directors' qualifying shares, are owned
or controlled by the Borrower or one or more of the Wholly-Owned
Subsidiaries or by the Borrower and one or more of the Wholly-Owned
Subsidiaries.
Section 1.03 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished to the Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the audited financial
-13-
<PAGE> 18
statements of the Borrower referred to in Section 7.02 (except for changes
concurred with by the Borrower's independent public accountants).
ARTICLE II
COMMITMENTS
Section 2.01 Loans.
(a) Loans. Each Lender severally agrees, on the terms of this
Agreement, to make Loans to the Borrower during the period from and
including (i) the Closing Date or (ii) such later date that such Lender
becomes a party to this Agreement as provided in Section 12.06(b), to
but excluding, the Termination Date in an aggregate principal amount up
to but not exceeding the amount of such Lender's Commitment as then in
effect; provided, however, that the aggregate principal amount of all
such Loans by all Lenders hereunder at any one time outstanding shall
not exceed the Aggregate Commitments. Subject to the terms of this
Agreement, during the period from the Closing Date to but excluding,
the Termination Date, the Borrower may borrow and repay, but may not
reborrow the amount described in this Section 2.01(a).
(b) Limitation on Types of Loans. Subject to the other terms
and provisions of this Agreement, at the option of the Borrower, the
Loans may be Base Rate Loans or Eurodollar Loans; provided that,
without the prior written consent of the Majority Lenders, no more than
five (5) Eurodollar Loans may be outstanding at any time to any Lender.
Section 2.02 Borrowings, Continuations and Conversions.
(a) Borrowings. The Borrower shall give the Agent (which shall
promptly notify the Lenders) advance notice as hereinafter provided of
each borrowing hereunder, which shall specify the aggregate amount of
such borrowing, the Type and the date (which shall be a Business Day)
of the Loans to be borrowed and (in the case of Eurodollar Loans) the
duration of the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings shall be in
amounts of at least $1,000,000 or the remaining balance of the
Aggregate Commitments, if less, or any whole multiple of $1,000,000 in
excess thereof, and all Eurodollar Loans shall be in amounts of at
least $1,000,000 or any whole multiple of $1,000,000 in excess thereof.
(c) Notices. All borrowings, continuations and conversions
shall require advance written notice to the Agent (which shall promptly
notify the Lenders) in the form of Exhibit B hereto (or telephonic
notice promptly confirmed by such a written notice), which in each case
shall be irrevocable, from the Borrower to be received by the Agent not
later than 11:00 a.m. Houston, Texas time at least one Business Day
prior to the date of each Base Rate Loan borrowing and three Business
Days prior to the date of each Eurodollar Loan borrowing, continuation
or conversion. Without in any way limiting the Borrower's obligation to
confirm in writing any telephonic notice, the Agent may act without
liability
-14-
<PAGE> 19
upon the basis of telephonic notice believed by the Agent in good faith
to be from the Borrower prior to receipt of written confirmation. In
each such case, the Borrower hereby waives the right to dispute the
Agent's record of the terms of such telephonic notice except in the
case of gross negligence or willful misconduct by the Agent.
(d) Continuation Options. Subject to the provisions made in
this Section 2.02(d), the Borrower may elect to continue all or any
part of any Eurodollar Loan beyond the expiration of the then current
Interest Period relating thereto by giving advance notice as provided
in Section 2.02(c) to the Agent (which shall promptly notify the
Lenders) of such election, specifying the amount of such Loan to be
continued and the Interest Period therefor. In the absence of such a
timely and proper election, the Borrower shall be deemed to have
elected to convert such Eurodollar Loan to a Base Rate Loan pursuant to
Section 2.02(e). All or any part of any Eurodollar Loan may be
continued as provided herein, provided that (i) any continuation of any
such Loan shall be (as to each Loan as continued for an applicable
Interest Period) in amounts of at least $1,000,000 or any whole
multiple of $1,000,000 in excess thereof and (ii) no Default shall have
occurred and be continuing. If a Default shall have occurred and be
continuing, each Eurodollar Loan shall be converted to a Base Rate Loan
on the last day of the Interest Period applicable thereto.
(e) Conversion Options. The Borrower may elect to convert all
or any part of any Eurodollar Loan on the last day of the then current
Interest Period relating thereto to a Base Rate Loan by giving advance
notice to the Agent (which shall promptly notify the Lenders) of such
election. Subject to the provisions made in this Section 2.02(e), the
Borrower may elect to convert all or any part of any Base Rate Loan at
any time and from time to time to a Eurodollar Loan by giving advance
notice as provided in Section 2.02(c) to the Agent (which shall
promptly notify the Lenders) of such election. All or any part of any
outstanding Loan may be converted as provided herein, provided that (i)
any conversion of any Base Rate Loan into a Eurodollar Loan shall be
(as to each such Loan into which there is a conversion for an
applicable Interest Period) in amounts of at least $1,000,000 or any
whole multiple of $1,000,000 in excess thereof and (ii) no Default
shall have occurred and be continuing. If a Default shall have occurred
and be continuing, no Base Rate Loan may be converted into a Eurodollar
Loan.
(f) Advances. Not later than 11:00 a.m. Houston, Texas time on
the date specified for each borrowing hereunder, each Lender shall make
available the amount of the Loan to be made by it on such date to the
Agent, to an account which the Agent shall specify, in immediately
available funds, for the account of the Borrower. The amounts so
received by the Agent shall, subject to the terms and conditions of
this Agreement, be made available to the Borrower by depositing the
same, in immediately available funds, in an account of the Borrower,
designated by the Borrower and maintained at the Principal Office.
Section 2.03 Changes of Commitments.
(a) The Aggregate Commitments shall at all times be equal to
the lesser of (i) the Aggregate Maximum Credit Amounts after
adjustments resulting from reductions pursuant to Section 2.03(c)
hereof or (ii) the Available Amount as determined from time to time.
-15-
<PAGE> 20
(b) The Available Amount as of the Effective Date shall be
$10,000,000. From time to time the Borrower may request an increase in
the Available Amount by written notice to the Agent whereupon the Agent
will notify the Lenders of such request. Any such increase shall
require the consent of all the Lenders, which consent shall be within
their sole and absolute discretion. If all the Lenders have not given
their consent to the requested increase within ten (10) Business Days
of the Agent's receipt of such request, such request shall be deemed
denied. In no event shall the aggregate of any such increases exceed
the Discretionary Amount.
Section 2.04 Fees.
(a) The Borrower shall pay to the Agent for the account of
each Lender a commitment fee on the daily average unused amount of the
Aggregate Commitments for the period from and including the Closing
Date up to but excluding the Termination Date at a rate per annum equal
to one half of one percent (.5%). Accrued commitment fees shall be
payable quarterly in arrears on each Quarterly Date and on the
Termination Date.
(b) The Borrower shall pay to the Agent for its account such
other fees as are set forth in the Fee Letter on the dates specified
therein to the extent not paid prior to the Closing Date.
[(c) Duration Fee - to come]
Section 2.05 Several Obligations. The failure of any Lender to
make any Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make its Loan on such date, but no Lender
shall be responsible for the failure of any other Lender to make a Loan to be
made by such other Lender.
Section 2.06 Notes. The Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit A hereto, dated (i) the Closing Date or (ii) the effective date of an
Assignment pursuant to Section 12.06(b), payable to the order of such Lender in
a principal amount equal to its Aggregate Commitment as in effect and otherwise
duly completed and such substitute Notes as required by Section 12.06(b). The
date, amount, Type, interest rate and Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Notes, and, prior to any transfer,
may be endorsed by such Lender on a schedule attached to such Notes or any
continuation thereof or on any separate record maintained by such Lender.
Failure to make any such notation or to attach a schedule shall not affect any
Lender's or the Borrower's rights or obligations in respect of such Loans or
affect the validity of such transfer by any Lender of its Note.
Section 2.07 Prepayments.
(a) Subject to the Intercreditor and Subordination Agreement,
the Borrower may prepay the Base Rate Loans upon not less than one (1)
Business Day's prior notice to the Agent (which shall promptly notify
the Lenders), which notice shall specify the prepayment
-16-
<PAGE> 21
date (which shall be a Business Day) and the amount of the prepayment
(which shall be at least $1,000,000 or the remaining aggregate
principal balance outstanding on the Notes) and shall be irrevocable
and effective only upon receipt by the Agent, provided that interest on
the principal prepaid, accrued to the prepayment date, shall be paid on
the prepayment date. The Borrower may prepay Eurodollar Loans on the
same condition as for Base Rate Loans and in addition such prepayments
of Eurodollar Loans shall be subject to the terms of Section 5.05 and
shall be in an amount equal to all of the Eurodollar Loans for the
Interest Period prepaid.
(b) The Borrower's receipt of all net cash proceeds from the
issuance of any equity (subsequent to the Borrower's initial public
offering), the placement of any public or private debt instruments or
any other borrowing in excess of $____________ shall be used to prepay
all amounts outstanding under the Aggregate Commitments.
[(c) Commencing with the fiscal quarter ending March 31, 1998,
if the Debt to EBITDA Coverage Ratio defined in Section 9.15 is greater
than 2.5 to 1.0, then the Borrower shall within ten (10) days of
receipt of written notice thereof prepay the Loans in an aggregate
principal amount necessary to bring the ratio back to 2.5 to 1.0.]
(d) Prepayments permitted or required under this Section 2.07
shall be without premium or penalty, except as required under Section
5.05 for prepayment of Eurodollar Loans. Any prepayments on the Loans
may be reborrowed subject to the then effective Aggregate Commitments.
Section 2.08 Lending Offices. The Loans of each Type made by
each Lender shall be made and maintained at such Lender's Applicable Lending
Office for Loans of such Type.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. The Borrower will pay to the
Agent, for the account of each Lender, the principal payments required by this
Section 3.01. On the Termination Date the Borrower shall repay the outstanding
aggregate principal and accrued and unpaid interest under the Notes. All
payments hereunder are subject to the terms and provisions of the Intercreditor
and Subordination Agreement.
Section 3.02 Interest. The Borrower will pay to the Agent, for
the account of each Lender, interest on the unpaid principal amount of each Loan
made by such Lender for the period commencing on the date such Loan is made to
but excluding the date such Loan shall be paid in full, at the following rates
per annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as in
effect from time to time) plus the Applicable Margin (as in effect from
time to time), but in no event to exceed the Highest Lawful Rate; and
-17-
<PAGE> 22
(ii) if such a Loan is a Eurodollar Loan, for each Interest
Period relating thereto, the Fixed Rate for such Loan plus the
Applicable Margin (as in effect from time to time), but in no event to
exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Agent, for the
account of each Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by such Lender, and (to the fullest extent permitted
by law) on any other amount payable by the Borrower hereunder, under any Loan
Document or under any Note held by such Lender to or for account of such Lender,
for the period commencing on the date of an Event of Default until the same is
paid in full or all Events of Default are cured or waived.
Accrued interest on Base Rate Loans shall be payable on each Quarterly
Date commencing on December 31, 1997, and accrued interest on each Eurodollar
Loan shall be payable on the last day of the Interest Period therefor and, if
such Interest Period is longer than three months at three-month intervals
following the first day of such Interest Period, except that interest payable at
the Post-Default Rate shall be payable from time to time on demand and interest
on any Eurodollar Loan that is converted into a Base Rate Loan (pursuant to
Section 5.04) shall be payable on the date of conversion (but only to the extent
so converted).
Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall notify the Lenders to which such
interest is payable and the Borrower thereof. Each determination by the Agent of
an interest rate or fee hereunder shall, except in cases of manifest error, be
final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided
herein, all payments of principal, interest and other amounts to be made by the
Borrower under the Loan Documents shall be made in Dollars, in immediately
available funds, to the Agent at such account as the Agent shall specify by
notice to the Borrower from time to time, not later than 11:00 a.m. New York
time on the date on which such payments 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). Such payments shall be made without (to the fullest
extent permitted by applicable law) defense, set-off or counterclaim. Each
payment received by the Agent under this Agreement or any Note for account of a
Lender shall be paid promptly to such Lender in immediately available funds.
Except as provided in clause (ii) of the definition of "Interest Period", if the
due date of any payment under this Agreement or any Note would otherwise fall on
a day which is not a Business Day such date shall be extended to the next
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension. At the time of each payment to the
Agent of any principal of or interest on any borrowing, the Borrower shall
notify the Agent of the Loans to which such payment shall apply. In the absence
of such notice the Agent may specify the Loans to which such payment shall
apply, but to the extent possible such payment or prepayment will be applied
first to the Loans comprised of Base Rate Loans.
-18-
<PAGE> 23
Section 4.02 Pro Rata Treatment. Except to the extent
otherwise provided herein each Lender agrees that: (i) each borrowing from the
Lenders under Section 2.01 and each continuation and conversion under Section
2.02 shall be made from the Lenders pro rata in accordance with their Percentage
Share, each payment of commitment fee or other fees under Section 2.04(a) shall
be made for account of the Lenders pro rata in accordance with their Percentage
Share, and each termination or reduction of the amount of the Aggregate Maximum
Credit Amounts under Section 2.03(c) shall be applied to the Commitment of each
Lender, pro rata according to the amounts of its respective Commitment; (ii)
each payment of principal of Loans by the Borrower shall be made for account of
the Lenders pro rata in accordance with the respective unpaid principal amount
of the Loans held by the Lenders; and (iii) each payment of interest on Loans by
the Borrower shall be made for account of the Lenders pro rata in accordance
with the amounts of interest due and payable to the respective Lenders.
Section 4.03 Computations. Interest on Eurodollar Loans and
fees shall be computed on the basis of a year of 360 days and actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which such interest is payable, unless such calculation would exceed
the Highest Lawful Rate, in which case interest shall be calculated on the per
annum basis of a year of 365 or 366 days, as the case may be. Interest on Base
Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
Section 4.04 Non-receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Lender or the Borrower prior to the date on
which such notifying party is scheduled to make payment to the Agent (in the
case of a Lender) of the proceeds of a Loan to be made by it hereunder or (in
the case of the Borrower) a payment to the Agent for account of one or more of
the Lenders hereunder (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt, that it does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient(s)
on such date and, if such Lender or the Borrower (as the case may be) has not in
fact made the Required Payment to the Agent, the recipient(s) of such payment
shall, on demand, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until but excluding the date the
Agent recovers such amount at a rate per annum which, for any Lender as
recipient, will be equal to the Federal Funds Rate, and for the Borrower as
recipient, will be equal to the Base Rate plus the Applicable Margin.
Section 4.05 Set-off; Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim a
Lender may otherwise have, each Lender shall have the right and be
entitled (after consultation with the Agent), at its option, to offset
balances held by it or by any of its Affiliates for account of the
Borrower or any Subsidiary at any of its offices, in Dollars or in any
other currency, against any principal of or interest on any of such
Lender's Loans, or any other amount payable to such Lender hereunder,
which is not paid when due (regardless of whether such balances are
then due to the Borrower), in which
-19-
<PAGE> 24
case it shall promptly notify the Borrower and the Agent thereof,
provided that such Lender's failure to give such notice shall not
affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or
interest on any Loan made by it to the Borrower under this Agreement
through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise, and, as a result of such
payment, such Lender shall have received a greater percentage of the
principal or interest then due hereunder by the Borrower to such Lender
than the percentage received by any other Lenders, it shall promptly
(i) notify the Agent and each other Lender thereof and (ii) purchase
from such other Lenders participations in (or, if and to the extent
specified by such Lender, direct interests in) the Loans made by such
other Lenders (or in interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of
such excess payment (net of any expenses which may be incurred by such
Lender in obtaining or preserving such excess payment) pro rata in
accordance with the unpaid principal and/or interest on the Loans held
by each of the Lenders. To such end all the Lenders shall make
appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Lender so
purchasing a participation (or direct interest) in the Loans made by
other Lenders (or in interest due thereon, as the case may be) may
exercise all rights of set-off, banker's lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender
were a direct holder of Loans in the amount of such participation.
Nothing contained herein shall require any Lender to exercise any such
right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a set-off to which this Section 4.05 applies,
such Lender shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with the rights of
the Lenders entitled under this Section 4.05 to share the benefits of
any recovery on such secured claim.
Section 4.06 Taxes.
(a) Payments Free and Clear. Any and all payments by the
Borrower hereunder shall be made, in accordance with Section 4.01, free
and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender
and the Agent, taxes imposed on its income, and franchise or similar
taxes imposed on it, by (i) any jurisdiction (or political subdivision
thereof) of which the Agent or such Lender, as the case may be, is a
citizen or resident or in which such Lender has an Applicable Lending
Office, (ii) the jurisdiction (or any political subdivision thereof) in
which the Agent or such Lender is organized, or (iii) any jurisdiction
(or political subdivision thereof) in which such Lender or the Agent is
presently doing business in which taxes are imposed solely as a result
of doing business in such jurisdiction (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders or the Agent (i) the sum payable shall
be increased by the amount
-20-
<PAGE> 25
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section
4.06) such Lender or the Agent (as the case may be) shall receive an
amount equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable
law.
(b) Other Taxes. In addition, to the fullest extent permitted
by applicable law, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with
respect to, this Agreement, any Assignment or any Security Instrument
(hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT
FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT
LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL
AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH
LENDER OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS
THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT
SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE
PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH
LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH
INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE
ANY LENDER OR THE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND
THEREFOR. IF ANY LENDER OR THE AGENT RECEIVES A REFUND OR CREDIT IN
RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR THE AGENT
HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE
BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED
AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST
BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS
REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY
AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT
INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT
THE BORROWER, UPON THE REQUEST OF SUCH LENDER OR THE AGENT, AGREES TO
RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER
CHARGES) TO SUCH LENDER OR THE AGENT IN THE EVENT SUCH LENDER OR THE
AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT.
ARTICLE V
CAPITAL ADEQUACY
-21-
<PAGE> 26
Section 5.01 Additional Costs.
(a) Eurodollar Regulations, etc. The Borrower shall pay
directly to each Lender from time to time such amounts as such Lender
may determine to be necessary to compensate such Lender for any costs
which it determines are attributable to its making or maintaining of
any Eurodollar Loans hereunder or its obligation to make any Eurodollar
Loans hereunder, or any reduction in any amount receivable by such
Lender hereunder in respect of any of such Eurodollar Loans or such
obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any
amounts payable to such Lender under this Agreement or any Note in
respect of any of such Eurodollar Loans (other than taxes imposed on
the overall net income of such Lender or of its Applicable Lending
Office for any of such Eurodollar Loans by the jurisdiction in which
such Lender has its principal office or Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit, minimum capital,
capital ratio or similar requirements (other than the Reserve
Requirement utilized in the determination of the Fixed Rate for such
Loan) relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of such Lender (including any of
such Eurodollar Loans or any deposits referred to in the definition of
"Fixed Eurodollar Rate" in Section 1.02 hereof), or the Commitment or
Loans of such Lender or the Eurodollar interbank market; or (iii)
imposes any other condition affecting this Agreement or any Note (or
any of such extensions of credit or liabilities) or such Lender's
Commitment or Loans. Each Lender will notify the Agent and the Borrower
of any event occurring after the Closing Date which will entitle such
Lender to compensation pursuant to this Section 5.01(a) as promptly as
practicable after it obtains knowledge thereof and determines to
request such compensation, and will designate a different Applicable
Lending Office for the Loans of such Lender affected by such event if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, provided that such Lender shall have no
obligation to so designate an Applicable Lending Office located in the
United States. If any Lender requests compensation from the Borrower
under this Section 5.01(a), the Borrower may, by notice to such Lender,
suspend the obligation of such Lender to make additional Loans of the
Type with respect to which such compensation is requested until the
Regulatory Change giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.04 shall be applicable).
(b) Regulatory Change. Without limiting the effect of the
provisions of Section 5.01(a), in the event that, by reason of any
Regulatory Change or any other circumstances arising after the Closing
Date affecting such Lender, the Eurodollar interbank market or such
Lender's position in such market, any Lender either (i) incurs
Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest
rate on Eurodollar Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Lender which
includes Eurodollar Loans or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may
hold, then, if such Lender so elects by notice to the Borrower, the
obligation of such Lender to make additional Eurodollar Loans shall be
suspended until such Regulatory Change or
-22-
<PAGE> 27
other circumstances ceases to be in effect (in which case the
provisions of Section 5.04 shall be applicable).
(c) Capital Adequacy. Without limiting the effect of the
foregoing provisions of this Section 5.01 (but without duplication),
the Borrower shall pay directly to any Lender from time to time on
request such amounts as such Lender may reasonably determine to be
necessary to compensate such Lender or its parent or holding company
for any costs which it determines are attributable to the maintenance
by such Lender or its parent or holding company (or any Applicable
Lending Office), pursuant to any Governmental Requirement following any
Regulatory Change, of capital in respect of its Commitment, its Notes
or its Loans, such compensation to include, without limitation, an
amount equal to any reduction of the rate of return on assets or equity
of such Lender or its parent or holding company (or any Applicable
Lending Office) to a level below that which such Lender or its parent
or holding company (or any Applicable Lending Office) could have
achieved but for such Governmental Requirement. Such Lender will notify
the Borrower that it is entitled to compensation pursuant to this
Section 5.01(c) as promptly as practicable after it determines to
request such compensation.
(d) Compensation Procedure. Any Lender notifying the Borrower
of the incurrence of additional costs under this Section 5.01 shall in
such notice to the Borrower and the Agent set forth in reasonable
detail the basis and amount of its request for compensation.
Determinations and allocations by each Lender for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to Section
5.01(a) or (b), or of the effect of capital maintained pursuant to
Section 5.01(c), on its costs or rate of return of maintaining Loans or
its obligation to make Loans, or on amounts receivable by it in respect
of Loans, and of the amounts required to compensate such Lender under
this Section 5.01, shall be conclusive and binding for all purposes,
provided that such determinations and allocations are made on a
reasonable basis. Any request for additional compensation under this
Section 5.01 shall be paid by the Borrower within thirty (30) days of
the receipt by the Borrower of the notice described in this Section
5.01(d).
Section 5.02 Limitation on Eurodollar Loans. Anything herein
to the contrary notwithstanding, if, on or prior to the determination of any
Fixed Eurodollar Rate for any Interest Period:
(i) the Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates
for the relevant deposits referred to in the definition of "Fixed
Eurodollar Rate" in Section 1.02 are not being provided in the relevant
amounts or for the relevant maturities for purposes of determining
rates of interest for Eurodollar Loans as provided herein; or
(ii) the Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Fixed Eurodollar Rate" in Section
1.02 upon the basis of which the rate of interest for Eurodollar Loans
for such Interest Period is to be determined are not sufficient to
adequately cover the cost to the Lenders of making or maintaining
Eurodollar Loans;
-23-
<PAGE> 28
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder, then such Lender shall promptly notify the Borrower thereof and
such Lender's obligation to make Eurodollar Loans shall be suspended until such
time as such Lender may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02
and 5.03. If the obligation of any Lender to make Eurodollar Loans shall be
suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all
Affected Loans which would otherwise be made by such Lender shall be made
instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or
Section 5.03 has occurred and such Lender so requests by notice to the Borrower,
all Affected Loans of such Lender then outstanding shall be automatically
converted into Base Rate Loans on the date specified by such Lender in such
notice) and, to the extent that Affected Loans are so made as (or converted
into) Base Rate Loans, all payments of principal which would otherwise be
applied to such Lender's Affected Loans shall be applied instead to its Base
Rate Loans.
Section 5.05 Compensation. The Borrower shall pay to each
Lender within thirty (30) days of receipt of written request of such Lender
(which request shall set forth, in reasonable detail, the basis for requesting
such amounts and which shall be conclusive and binding for all purposes provided
that such determinations are made on a reasonable basis), such amount or amounts
as shall compensate it for any loss, cost, expense or liability which such
Lender determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar Loan
properly made by such Lender or the Borrower for any reason (including,
without limitation, the acceleration of the Loans pursuant to Section
10.02) on a date other than the last day of the Interest Period for
such Loan; or
(ii) any failure by the Borrower for any reason (including but
not limited to, the failure of any of the conditions precedent
specified in Article VI to be satisfied) to borrow, continue or convert
a Eurodollar Loan from such Lender on the date for such borrowing,
continuation or conversion specified in the relevant notice given
pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
-24-
<PAGE> 29
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender).
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial Funding is
subject to the receipt by the Agent and the Lenders of all fees payable pursuant
to Section 2.04 on or before the Closing Date and the receipt by the Agent of
the following documents and satisfaction of the other conditions provided in
this Section 6.01, each of which shall be satisfactory to the Agent in form and
substance:
(a) A certificate of the Secretary or an Assistant Secretary
of the Borrower and of each Subsidiary setting forth (i) resolutions of
its board of directors with respect to the authorization of the
Borrower and of each Subsidiary to execute and deliver the Loan
Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the Borrower and
of each Subsidiary (y) who are authorized to sign the Loan Documents to
which Borrower is a party and (z) who will, until replaced by another
officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices
and other communications in connection with this Agreement and the
transactions contemplated hereby, (iii) specimen signatures of the
authorized officers, and (iv) the articles or certificate of
incorporation and bylaws of the Borrower and of each Subsidiary,
certified as being true and complete. The Agent and the Lenders may
conclusively rely on such certificate until the Agent receives notice
in writing from the Borrower to the contrary.
(b) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of the
Borrower and of each Subsidiary.
(c) A compliance certificate which shall be substantially in
the form of Exhibit C, duly and properly executed by a Responsible
Officer and dated as of the Closing Date.
(d) The Notes, duly completed and executed.
(e) The Security Instruments, including those described on
Exhibit E, duly completed and executed in sufficient number of
counterparts for recording, if necessary.
(f) The opinions of the following special counsel to the
Borrower and each Guarantor, each in form and substance satisfactory to
the Agent:
(i) Chamberlain, Hrdlicka, White, Williams &
Martin
(ii) [New York counsel]
(iii) [Louisiana counsel]
-25-
<PAGE> 30
(iv) [Panamanian counsel]
(g) A certificate of insurance coverage of the Borrower and of
each Subsidiary evidencing that the Borrower and each Subsidiary is
carrying insurance in accordance with Section 7.19 hereof.
(h) Completion, satisfactory to the Agent, of due diligence of
the Borrower and the Founding Companies, which shall include, without
limitation, the status of title to the Borrower's and each Subsidiary's
Properties.
(i) The Agent shall be satisfied with the environmental
condition of the Founding Companies' Properties.
(j) Completion of an initial public offering by the Borrower
of its common stock pursuant to the Registration Statement which
results in no less than $75,000,000 gross cash proceeds to the
Borrower.
(k) Listing of the common stock of the Borrower on the NASDAQ
NMS or any exchange acceptable to the Agent.
(l) Completion of the Borrower's acquisition of Founding
Companies as contemplated in the Registration Statement.
(m) [Warrants]
(n) The Agent shall have been furnished with appropriate UCC
search certificates reflecting the filing of all financing statements
required to perfect the security interests granted by the Security
Instruments and reflecting no prior liens or security interests other
than the Senior Liens.
(o) The Agent shall have been furnished evidence of proper
perfection of each mortgage on a documented vessel and that such
mortgage is subject only to the Senior Liens.
(p) The Agent shall have been furnished title policies
regarding real property.
(q) Senior Debt in the principal amount of $40,000,000 shall
be simultaneously funded pursuant to the Senior Credit Agreement.
(r) Such other documents as the Agent or any Lender or special
counsel to the Agent may reasonably request.
Section 6.02 Initial and Subsequent Loans. The obligation of
the Lenders to make Loans to the Borrower upon the occasion of each borrowing
hereunder (including the Initial Funding) is subject to the further conditions
precedent that, as of the date of such Loans and after giving effect thereto:
(i) no Default shall have occurred and be continuing; (ii) no Material Adverse
Effect shall have occurred; and (iii) the representations and warranties made by
the Borrower in
-26-
<PAGE> 31
Article VII and in the Security Instruments shall be true on and as of the date
of the making of such Loans with the same force and effect as if made on and as
of such date and following such new borrowing, except to the extent such
representations and warranties are expressly limited to an earlier date or the
Majority Lenders may expressly consent in writing to the contrary. Each request
for a borrowing by the Borrower hereunder shall constitute a certification by
the Borrower to the effect set forth in the preceding sentence (both as of the
date of such notice and, unless the Borrower otherwise notifies the Agent prior
to the date of and immediately following such borrowing as of the date thereof).
ARTICLE VII THROUGH ARTICLE XII TO BE SAME AS IN THE
SENIOR CREDIT AGREEMENT EXCEPT SECTION 10.01(B) WHICH WILL BE MODIFIED AS
ATTACHED
-27-
<PAGE> 32
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the
following events shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or prepayment
when due of any principal of or interest on any Loan or any fees or
other amount payable by it hereunder or under any Security Instrument
and such default, other than a default of a payment or prepayment of
principal (which shall have no cure period), shall continue unremedied
for a period of 3 Business Days; or
(b) the Borrower or any Subsidiary shall default in the
payment when due of any principal of or interest on any of its other
Debt aggregating $250,000 or more, or any event specified in any note,
agreement, indenture or other document evidencing or relating to any
such Debt (other than the Senior Credit Agreement and the loan
documents executed in connection therewith) shall occur if the effect
of such event is to cause, or (with the giving of any notice or the
lapse of time or both) to permit the holder or holders of such Debt (or
a trustee or agent on behalf of such holder or holders) to cause, such
Debt to become due prior to its stated maturity; or
(c) any representation, warranty or certification made or
deemed made herein or in any Security Instrument by the Borrower or any
Subsidiary, or any certificate furnished to any Lender or the Agent
pursuant to the provisions hereof or any Security Instrument, shall
prove to have been false or misleading as of the time made or furnished
in any material respect; or
(d) the Borrower shall default in the performance of any of
its obligations under Article IX or any other Article of this Agreement
other than under Article VIII; or the Borrower shall default in the
performance of any of its obligations under Article VIII or any
Security Instrument (other than the payment of amounts due which shall
be governed by Section 10.01(a)) and such default shall continue
unremedied for a period of thirty (30) days after the earlier to occur
of (i) notice thereof to the Borrower by the Agent or any Lender
(through the Agent), or (ii) the Borrower otherwise becoming aware of
such default; or
(e) the Borrower shall admit in writing its inability to, or
be generally unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Federal Bankruptcy
Code (as now or hereafter in effect), (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, liquidation or composition or readjustment
of debts,
-28-
<PAGE> 33
(v) fail to controvert in a timely and appropriate manner, or acquiesce
in writing to, any petition filed against it in an involuntary case
under the Federal Bankruptcy Code, or (vi) take any corporate action
for the purpose of effecting any of the foregoing; or
-29-
<PAGE> 1
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of October ___, 1997, between
TRANSCOASTAL MARINE SERVICES, INC., a Delaware corporation (the "Company"), and
JOINT ENERGY DEVELOPMENT INVESTMENTS, Limited Partnership, a limited partnership
organized under the laws of the state of Delaware ("Purchaser" and, together
with any transferee of Warrants or Warrant Shares, the "Warrant Holders(s)").
WHEREAS, Company and the Purchaser have entered into a certain
Subordinated Credit Agreement (the "Credit Agreement") dated of even date
herewith; and
WHEREAS, the Company proposes to issue to Purchaser for a purchase
price of $1,750.00 common stock purchase warrants (the "Warrants") to purchase
up to 175,000 shares (the "Warrant Shares"), of the Company's common stock, par
value $.001 per share (the "Common Stock"), each Warrant entitling the holder
thereof to purchase one Ordinary Share.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue and
deliver the Warrants to Purchaser, or to an affiliate thereof designated by
Purchaser, on the Closing Date referred to in the Credit Agreement (the "Closing
Date") for an aggregate purchase price of $1,750.00. The aggregate number of
Warrants to be issued and delivered shall be 175,000. The Warrants shall be
exercisable in full or from time to time in part on or after the Closing Date.
The text of each Warrant, the purchase form and each assignment form to be
printed on the reverse thereof shall be substantially as set forth in the
Warrant Certificate attached as Exhibit A hereto. The Warrants shall be executed
on behalf of the Company by the manual or facsimile signature of the present or
any future Chairman of the Board, President or Chief Financial Officer of the
Company, attested by the manual or facsimile signature of the present or future
Secretary or an Assistant Secretary of the Company. A Warrant bearing the manual
or facsimile signature of individuals who were at any time the proper officers
of the Company shall bind the Company notwithstanding that such individuals or
any of them shall have ceased to hold such offices prior to the delivery of such
Warrant or did not hold such offices on the date of this Warrant Agreement.
Warrants shall be dated as of the date of execution thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(A) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant Agreement, to
grant, issue and deliver the Warrants and to authorize and reserve for
Exhibit B-1
<PAGE> 2
issuance and, upon payment from time to time of the Exercise Price, to
issue and deliver the shares of Common Stock or other securities
issuable upon exercise of the Warrants. This Warrant Agreement has been
duly executed and delivered by the Company.
(B) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There
have been reserved for issuance, and the Company shall at all times
keep reserved, out of the authorized and unissued shares of Common
Stock, a number of shares sufficient to provide for the exercise of the
rights of purchase represented by the Warrants, and such shares, when
issued upon receipt of payment therefor or upon a net exercise in
accordance with the terms of the Warrants and of this Warrant
Agreement, will be legally and validly issued, fully paid and
non-assessable and will be free of any preemptive rights of
shareholders or any restrictions.
3. CONDITIONS TO PURCHASE. Purchaser's obligations hereunder shall be
subject to satisfaction of the following conditions on the Closing Date referred
to in the Credit Agreement:
(a) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Warrant Agreement and
the Warrants and all other legal matters relating to this Warrant
Agreement, the Warrants and the transactions contemplated hereby shall
be satisfactory in all respects to Vinson & Elkins L.L.P., counsel for
Purchaser, in their reasonable judgment, and the Company shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass judgment upon such matters.
(b) There shall have been duly tendered to Purchaser or upon
the order of Purchaser a certificate or certificates representing the
Warrants.
(c) Each of the "Conditions Precedent" set forth in Article VI
of the Credit Agreement shall have been satisfied.
4. REGISTRATION. The Warrants shall be numbered and shall be registered
on the books of the Company (the "Warrant Register") as they are issued. The
Warrants shall be registered initially in such names and such denominations as
Purchaser has specified to the Company.
5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon
transfer set forth in this Warrant Agreement, each Warrant certificate may be
exchanged at the option of the Warrant Holder thereof for another certificate or
certificates of different denominations entitling the Warrant Holder thereof to
purchase upon surrender to the Company or its duly authorized agent a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle such Warrant Holder to purchase. Any Warrant Holder
desiring to exchange a Warrant certificate or certificates shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate or certificates to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested. Any Warrant
issued upon exchange, transfer or partial exercise of the
Exhibit B-2
<PAGE> 3
Warrants shall be the valid obligation of the Company, evidencing the same
generic rights and entitled to the same generic benefits under this Warrant
Agreement as the Warrants surrendered for such exchange, transfer or exercise.
6. TRANSFER OF WARRANTS.
Subject to the provisions of Section 14 hereof, the Warrants shall be
transferrable only on the Warrant Register upon delivery to the Company of the
Warrant certificate or certificates duly endorsed by the Warrant Holder or by
his duly authorized attorney-in-fact or legal representative, or accompanied by
proper evidence of succession, assignment or authority to transfer. In all cases
of transfer by an attorney-in-fact, the original power of attorney, duly
approved, or an official copy thereof, duly certified, shall be deposited with
the Company. In case of transfer by executors, administrators, guardians or
other legal representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto.
7. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Each Warrant entitles the Warrant Holder thereof to purchase one
share of Common Stock during the time period and subject to the conditions set
forth in the respective Warrant Certificates at an exercise price of $_____ per
share, subject to adjustment in accordance with Section 12 hereof (the "Exercise
Price"). Each Warrant terminates on the fifth anniversary of the Closing Date
(the "Expiration Date").
(b) The Exercise Price and the number of shares issuable upon exercise
of Warrants are subject to adjustment upon the occurrence of certain events,
pursuant to the provisions of Section 12 of this Warrant Agreement. Subject to
the provisions of this Warrant Agreement, each Warrant Holder shall have the
right, which may be exercised as expressed in such Warrants, to purchase from
the Company (and the Company shall issue and sell to such Warrant Holder) the
number of fully paid and nonassessable shares of Common Stock specified in such
Warrants, upon surrender to the Company, or its duly authorized agent, of such
Warrants, and upon payment to the Company of the Exercise Price, as adjusted in
accordance with the provisions of Section 12 of this Warrant Agreement or upon a
net exercise pursuant to this subsection of this Warrant Agreement, for the
number of shares in respect of which such Warrants are then exercised. The
Warrant Holder may (i) pay the Exercise Price in cash, by certified or official
bank check payable to the order of the Company, or by the surrender to the
Company of securities of the Company having a Market Price equal to the Exercise
Price or by the surrender to the Company of indebtedness owed by the Company
pursuant to the Credit Agreement (in which case the Company will accept such
specified unpaid principal amount in full payment, as if such payment had been
made in cash) or (ii) make an exercise of Warrants for "Net Warrant Shares." The
number of Net Warrant Shares will be determined as described by the following
formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS" is the number of Warrant
Shares issuable upon exercise of the Warrants or portion of Warrants
Exhibit B-3
<PAGE> 4
in question. "MP" is the Market Price of the Common Stock on the last trading
day preceding the date of the request to exercise the Warrants. "Market Price"
shall mean the then current market price per share of Common Stock, as
determined in paragraph 12.1(e). "EP" shall mean the Exercise Price.
Upon such surrender of Warrants, and payment of the Exercise Price,
with cash or securities, or upon a net exercise as aforesaid, the Company at its
expense shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Warrant Holder and in such name or names as the
Warrant Holder may designate, a certificate or certificates for the number of
full shares of Common Stock so purchased upon the exercise of such Warrants,
together with cash, as provided in Section 12 of this Warrant Agreement, in
respect of any fraction of a share of such stock otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued,
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares, as of the date of the surrender of such
Warrants and payment of the Exercise Price or receipt of shares by net exercise
as aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the Warrant Holders thereof, either in full or
from time to time in part and, in the event that any Warrant is exercised in
respect of less than all of the shares purchasable on such exercise at any time
prior to the Expiration Date, a new certificate evidencing the remaining Warrant
or Warrants will be issued.
8. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants that
if any share of Common Stock required to be reserved for purposes of exercise or
conversion of Warrants require, under any U.S. federal or state or other law or
applicable governing rule or regulation of any securities exchange, registration
with or approval of any governmental authority, or listing on any such
securities exchange, before such shares may be issued upon exercise, the Company
will use its best efforts to cause such shares to be duly registered, approved
or listed on the relevant national securities exchange, as the case may be.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants and any securities issued pursuant to Section 12 hereof; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any transfer involved in the issue or delivery of
any Warrants or certificates for Warrant Shares and any securities issued
pursuant to Section 12 hereof in a name other than that of the Warrant Holder of
such Warrants.
10. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest.
11. RESERVATION OF WARRANT SHARES; PURCHASE AND CANCELLATION OF
WARRANTS. The Company shall at all times reserve, out of the authorized and
unissued shares of Common Stock, a number of shares sufficient to provide for
the exercise of the rights of purchase represented by the
Exhibit B-4
<PAGE> 5
Warrants, and the transfer agent for the Common Stock ("Transfer Agent") and
every subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company will keep a copy of this Warrant Agreement on file
with the Transfer Agent and with every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Company will supply the Transfer Agent
and any such subsequent transfer agent with duly executed stock certificates for
such purpose and will itself provide or otherwise make available any cash which
may be issuable as provided by Section 13 of this Warrant Agreement. The Company
will furnish to the Transfer Agent and any such subsequent transfer agent a copy
of all notices of adjustments, and certificates related thereto, transmitted to
each Warrant Holder pursuant to Section 12.3 hereof. All warrants surrendered in
the exercise of the rights thereby evidenced shall be canceled, and such
canceled Warrants shall constitute sufficient evidence of the number of shares
of stock which have been issued upon the exercise of such Warrants (subject to
adjustment as herein provided). No shares of stock shall be subject to
reservation in respect of the Warrants subsequent to the Expiration Date except
to the extent necessary to comply with the terms of this Warrant Agreement.
12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined.
12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend to
holders of Common Stock in shares of Common Stock or make a
distribution to holders of Common Stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, (iii) combine
its outstanding shares of Common Stock into a smaller number
of shares of Common Stock or (iv) issue by reclassification of
its shares of Common Stock other securities of the Company
(including any such reclassification in connection with a
consolidation or merger in which the Company is the surviving
corporation), the number of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be
adjusted so that the Warrant Holder shall be entitled to
receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have
been entitled to receive after the happening of any of the
events described above, had such Warrant been exercised
immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date,
if any, for such event.
Exhibit B-5
<PAGE> 6
(b) In case the Company shall issue rights, options
or warrants to holders of its outstanding Common Stock,
without any charge to such holders, entitling them to
subscribe for or purchase shares of Common Stock at a price
per share which is lower at the record date mentioned below
than the greater of (a) the Exercise Price or (b) the then
current market price per share of Common Stock (as determined
in accordance with paragraph (e) below) (the "Greater Price"),
then in each such case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares
theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of shares which
the aggregate offering price of the total number of shares of
common stock so offered would purchase at the Greater Price.
Such adjustment shall be made whenever such rights, options or
warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such rights, options or warrants.
(c) In case the Company shall distribute to holders
of its shares of Common Stock evidences of its indebtedness or
assets (including cash dividends or other cash distributions)
or rights, options or warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase
shares of Common Stock (excluding those referred to in
paragraph (b) above), then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon the exercise of
each Warrant by a fraction, of which the numerator shall be
the then current market price per share of Common Stock (as
determined in accordance with paragraph (e) below) on the date
of such distribution, and of which the denominator shall be
the then current market price per share of Common Stock, less
the then fair value (as determined in good faith by the Board
of Directors of the Company) of the portion of the assets or
evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share
of Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the
date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such
distribution.
In the event of distribution by the Company to
holders of its shares of Common Stock of stock of a subsidiary
or securities convertible into or exercisable for such stock,
then in lieu of an adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant, the Warrant
Holder, upon the
Exhibit B-6
<PAGE> 7
exercise thereof at any time after such distribution, shall be
entitled to receive from the Company, such subsidiary or both,
as the Company shall determine, the stock or other securities
to which such Warrant Holder would have been entitled if such
Warrant Holder had exercised such Warrant immediately prior
thereto, all subject to further adjustment as provided in this
subsection 12.1; provided, however, that no adjustment in
respect of dividends or interest on such stock or other
securities shall be made during the term of a Warrant or upon
the exercise of a Warrant.
(d) In case the Company shall sell and issue shares
of Common Stock (other than pursuant to rights, options,
warrants, or convertible securities initially issued before
the date of this Agreement) or rights, options, warrants or
convertible securities containing the right to subscribe for
or purchase shares of Common Stock (excluding shares, rights,
options, warrants or convertible securities issued in any of
the transactions described in paragraphs (a), (b) or (c)
above) at a price per share of Common Stock (determined, in
the case of such rights, options, warrants, or convertible
securities, by dividing (w) the total of the amount received
or receivable by the Company (determined as provided below) in
consideration of the sale and issuance of such rights,
options, warrants or convertible securities, by (x) the total
number of shares of Common Stock covered by such rights,
options, warrants or convertible securities) lower than the
Greater Price in effect immediately prior to such sale and
issuance, then the number of Warrant Shares thereafter
purchasable upon the exercise of the Warrants shall be
determined by multiplying the number of Warrant Shares
theretofore purchasable upon exercise by a fraction, of which
the numerator shall be the number of shares of Common Stock
outstanding on the date of issuance of such shares, rights,
options, warrants or convertible securities plus the number of
additional shares of Common Stock sold or subject to issuance
pursuant to such rights, options, warrants or convertible
securities, and of which the denominator shall be the number
of shares of Common Stock outstanding on the date of issuance
of such shares, rights, options, warrants or convertible
securities plus the number of shares of Common Stock which the
aggregate consideration received or receivable (determined as
provided below) for such sale or issuance would purchase at
the Greater Price. Such adjustment shall be made successively
whenever such an issuance is made. For the purposes of such
adjustments, the consideration received or receivable by the
Company for rights, options, warrants or convertible
securities shall be deemed to be the consideration received by
the Company for such rights, options, warrants or convertible
securities, plus the minimum consideration or premiums stated
in such rights, options, warrants or convertible securities to
be paid for the shares of Common Stock covered thereby. In
case the Company shall sell and issue shares of Common Stock,
or rights, options, warrants or convertible securities
containing the right to subscribe for or purchase shares of
Common Stock, for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in
determining the "price per share of Common Stock" and the
"consideration received or receivable by the Company" for
purposes of the first
Exhibit B-7
<PAGE> 8
sentence of this paragraph (d), the Board of Directors shall
determine, in good faith, the fair value of said property.
(e) For the purpose of any computation under
paragraphs (b), (c) and (d) of this Section, the current
market price per share of Common Stock at any date shall be
the average of the daily closing prices of the Company's
Common Stock, for [the 20 consecutive trading days ending on
the trading day prior to the date of such computation]. The
closing price for each day shall be the last such reported
sales price regular way or, in case no such reported sale
takes place on such day, the average of the closing bid and
asked prices regular way for such day, in each case on the
principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if not
listed or admitted to trading, the average of the closing bid
and asked prices of the Common Stock in the over-the-counter
market as reported by NASDAQ or any comparable system. In the
absence of one or more such quotations, the Board of Directors
of the Company shall determine the current market price, in
good faith, on the basis of such quotations as it considers
appropriate. Notwithstanding the foregoing, for the purpose of
any calculation under paragraph (d) above with respect to any
issuance of options under the Company's employee or director
compensation stock option plans as in effect or as adopted by
the Board of Directors of the Company on the date hereof, the
term "current market price", in such instances, shall mean the
fair market price on the date of the issuance of any such
option determined in accordance with the Company's employee
compensation stock option plans as in effect or adopted by the
Board of Directors of the Company on the date hereof.
(f) In any case in which this Section 12.1 shall
require that any adjustment in the number of Warrant Shares be
made effective as of immediately after a record date for a
specified event, the Company may elect to defer until the
occurrence of the event the issuing to the holder of any
Warrant exercised after that record date the shares of Common
Stock and other securities of the Company, if any, issuable
upon the exercise of any Warrant over and above the shares of
Common Stock and other securities of the Company, if any,
issuable upon the exercise of any Warrant prior to such
adjustment; provided, however, that the Company shall deliver
to such Warrant Holder a due bill or other appropriate
instrument evidencing the holder's right to receive such
additional shares or securities upon the occurrence of the
event requiring such adjustment.
(g) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one percent
(1%) in the number of Warrant Shares purchasable upon the
exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (g) are not
required to be made shall be carried forward
Exhibit B-8
<PAGE> 9
and taken into account in any subsequent adjustment. All
calculations shall be made to the nearest one-thousandth of
a share.
(h) Whenever the number of Warrant Shares purchasable
upon the exercise of each Warrant is adjusted, as herein
provided, the Warrant Price payable upon the exercise of each
Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, of which
the numerator shall be the number of Warrant Shares
purchasable upon the exercise of such Warrant immediately
prior to such adjustment, and of which the denominator shall
be the number of Warrant Shares purchasable immediately after
such adjustment.
(i) No adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant need be made
under paragraphs (b), (c) and (d) if the Company issues or
distributes to each Warrant Holder the rights, options,
warrants, or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those
paragraphs which each Warrant Holder would have been entitled
to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect
thereto.
(j) For the purpose of this Section 12.1, the terms
"shares of Common Stock" shall mean (i) the class of stock
designated as the Common Stock of the Company at the date of
this Agreement, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value
to no par value, or from no par value to par value. In the
event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the Warrant Holders shall
become entitled to purchase any securities of the Company
other than shares of Common Stock, thereafter the number of
such other securities so purchasable upon exercise of each
Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in paragraphs (a)
through (i), inclusive, above, and the provisions of Section 7
and Section 12.2 through 12.5, inclusive, with respect to the
Warrant Shares, shall apply on like terms to any such other
securities.
(k) Upon the expiration of any rights, options,
warrants or conversion or exchange privileges, if any thereof
shall not have been exercised, the Warrant Price and the
number of shares of Common Stock purchasable upon the exercise
of each warrant shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (A) the only shares of
Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange rights and (B)
such shares of Common Stock, if any, were issued or sold for
the consideration
Exhibit B-9
<PAGE> 10
actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights,
options, warrants or conversion or exchange rights whether or
not exercised; provided, however, that no such readjustment
shall have the effect of increasing the Warrant Price or
decreasing the number of Warrant Shares by an amount in excess
of the amount of the adjustment initially made with respect to
the issuance, sale or grant of such rights, options, warrants
or conversion or exchange rights.
12.2. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at
its option, at any time during the term of the Warrants, reduce the
then current Exercise Price to any amount determined appropriate by the
Board of Directors of the Company.
12.3. NOTICE OF ADJUSTMENT. When the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Exercise Price of
such Warrant Shares is adjusted, as herein provided, the Company shall
promptly mail by first class, postage prepaid, to each Warrant Holder
notice of such adjustment or adjustments and a certificate of a firm of
independent public accountants selected by the Board of Directors of
the Company (who may be the regular accountants employed by the
Company) setting forth the number of Warrant Shares purchasable upon
the exercise of each Warrant and the Exercise Price of such Warrant
Shares after such adjustment and setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by
which such adjustment was made. Such certificate, absent manifest
error, shall be conclusive evidence of the correctness of such
adjustment.
12.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or
merger of the Company into another person or in case of any sale,
transfer or lease to another person of all of or substantially all the
assets of the Company, the Company or such successor or purchaser, as
the case may be, shall execute with each Warrant Holder an agreement
that each Warrant Holder shall have the right thereafter upon payment
of the Exercise Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares
and other securities and property which the Warrant Holder would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such Warrant been
exercised immediately prior to such action. Such agreement shall
provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 12. The
provisions of this Section 12.4 shall similarly apply to successive
consolidations, mergers, sales, transfers or leases.
12.5. STATEMENT ON WARRANTS. Even though Warrants heretofore
or hereafter issued may continue to express the same price and number
and kind of shares as are stated in the Warrants initially issuable
pursuant to this Warrant Agreement; the parties understand and agree
that such Warrants will represent rights consistent with any
adjustments in the
Exhibit B-10
<PAGE> 11
Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants.
13. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the same time by the same Warrant
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrant (or specified portion, thereof), the
Company shall pay an amount in cash equal to the closing price for one share of
the Common Stock on the trading day immediately preceding the date the Warrant
is presented for exercise, multiplied by such fraction.
14. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Purchaser represents
and warrants to the Company that it will not dispose of the Warrant or Warrant
Shares except pursuant to (i) an effective registration statement, or (ii) an
applicable exemption from registration under the Securities Act of 1933 (the
"Act"). In connection with any sale by Purchaser pursuant to clause (ii) of the
preceding sentence, it shall furnish to the Company an opinion of counsel
reasonably satisfactory to the Company to the effect that such exemption from
registration is available in connection with such sale.
15. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to a
stop-transfer order and the certificate or certificates therefor shall bear the
following legend by which each Warrant Holder shall be bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON
STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION
STATEMENT, OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933. ANY SALE PURSUANT TO CLAUSE (II) OF THE
PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE."
The Warrant Shares or other securities issued upon exercise of the
Warrants shall, unless issued pursuant to an effective registration statement,
be subject to a stop-transfer order and the certificate or certificates
evidencing any such Warrant Shares or securities shall bear the following legend
by which the Warrant Holder thereof shall be bound:
"THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
Exhibit B-11
<PAGE> 12
TO (I) AN EFFECTIVE REGISTRATION STATEMENT, OR (II) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY SALE
PURSUANT TO CLAUSE (II) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED
BY AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH EXEMPTION FROM
REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE."
16. REGISTRATION. The following provisions govern the registration of
the Company's securities:
(a) Definitions. As used herein, the following terms have the
following meanings:
"HOLDERS" means all of the holders of Registrable Shares.
"REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by filing a registration statement in
compliance with the Securities Act and the declaration or
ordering by the SEC of effectiveness of such registration
statement, or the equivalent actions under the laws of another
jurisdiction.
"REGISTRABLE SHARES" means all Common Stock issuable or issued
upon the exercise of warrants issued by the Company on October
___, 1997, for the purchase of 175,000 shares of Common Stock
, (including, without limitation, the Warrant Shares), and all
Common Stock issued by the Company in respect of all of the
foregoing shares.
(b) Incidental Registration. If the Company at any time
proposes to register any of its securities for sale by the Company or
any other person or entity, other than in a registration on Form S-4 or
Form S-8, it shall give notice to the Holders of such intention. Upon
the written request of any Holder given within twenty (20) days after
receipt of any such notice, the Company shall include in such
registration all of the Registrable Shares indicated in such request,
so as to permit the disposition of the shares so registered.
Notwithstanding any other provision of this Section 16, if the managing
underwriter advises the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, then
there shall be excluded from such registration and underwriting to the
extent necessary to satisfy such limitation, Registrable Shares (pro
rata to the respective number of Registrable Shares required by the
holders thereof to be included in the registration). In the event the
registration involves an underwriting, the rights of the Holders
hereunder shall be conditional upon the underwriter's determination as
to marketing factors requiring the limitations of such right, and the
underwriter may preclude from the offering any or all securities which
could have otherwise been included in the offering.
Exhibit B-12
<PAGE> 13
(c) Expenses. All expenses incurred in connection with any
registration under Section 16(b) hereunder shall be borne by the
Company; provided, however, that each of the Holders participating in
such registration shall pay its pro rata portion of the fees, discounts
or commissions payable to any underwriter and the expenses of such
Holder's separate legal counsel.
(d) Indemnities. In the event of any registered offering of
Common Stock pursuant to this Section 16:
(1) The Company will indemnify and hold harmless, to
the fullest extent permitted by law, any Holder and any
underwriter for such Holder, and each person, if any, who
controls the Holder or such underwriter, from and against any
and all losses, damages, claims, liabilities, joint or
several, costs and expenses (including any amounts paid in any
settlement effected with the Company's consent) to which the
Holder or any such underwriter or controlling person may
become subject under applicable law or otherwise, insofar as
such losses, damages, claims, liabilities (or actions or
proceedings in respect thereof), costs or expenses arise out
of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or included in the prospectus, as
amended or supplemented, or (ii) the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances in which they are made, not
misleading, and the Company will reimburse the Holder, such
underwriter and each such controlling person of the Holder or
the underwriter, promptly upon demand, for any reasonable
legal or any other expenses incurred by them in connection
with investigating, preparing to defend or defending against
or appearing as a third-party witness in connection with such
loss, claim, damage, liability, action or proceeding;
provided, however, that the Company will not be liable in any
such case to the extent that any such loss, damage, liability,
cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished in
writing by a Holder, to such underwriter or such controlling
persons specifically for inclusion therein; provided, further,
that this indemnity shall not be deemed to relieve all
underwriter of any of its due diligence obligations; provided,
further, that the indemnity agreement contained in this
subsection 16(d)(1) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of
the Company, which consent shall not be unreasonably withheld.
Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the
selling share Holder, the underwriter or any controlling
person of the sell share Holder or the underwriter, and
regardless of any sale in connection with such offering by the
selling share Holder. Such indemnity shall survive the
transfer of securities by a selling share Holder.
Exhibit B-13
<PAGE> 14
(2) Each Holder participating in a registration
hereunder will indemnify and hold harmless the Company, any
underwriter for the Company, and each person, if any, who
controls the Company or such underwriter, from and against any
and all losses, damages, claims, liabilities, costs or
expenses (including any amounts paid in any settlement
effected with the selling share Holder's consent) to which the
Company or any such controlling person and/or any such
underwriter may become subject under applicable law or
otherwise, insofar as such losses, damages, claims,
liabilities (or actions or proceedings in respect thereof),
costs or expenses arise out of or are based on (i) any untrue
or alleged untrue statement of any material fact contained in
the registration statement or included in the prospectus, as
amended or supplemented, or (ii) the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances in which they were made, not
misleading, and each such Holder will reimburse the Company,
any underwriter and each such controlling person of the
Company or any underwriter, promptly upon demand, for any
reasonable legal or other expenses incurred by them in
connection with investigating, preparing to defend or
defending against or appearing as a third-party witness in
connection with such loss, claim, damage, liability, action or
proceeding; in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was so made in strict
conformity with written information furnished in a certificate
by such Holder specifically for inclusion therein. The
foregoing indemnity agreement is subject to the condition that
insofar as it relates to any such untrue statement (or alleged
untrue statement) or omission (or alleged omission) made in
the preliminary prospectus but eliminated or remedied in the
amended prospectus at the time the registration statement
becomes effective or in the Final Prospectus, such indemnity
agreement shall not inure to the benefit of the Company and
(ii) any underwriter, if a liability, claim or damage at or
prior to the time such furnishing is required by the
Securities Act; provided, further, that this indemnity shall
not be deemed to relieve any underwriter of any of its due
diligence obligations; provided, further, that the indemnity
agreement contained in this subsection 16(d)(2) shall not
apply to amounts paid in settlement of any such claim, loss,
damage, liability, or action if such settlement is effected
without the consent of the Holders, as the case may be, which
consent shall not be unreasonably withheld. In no event shall
the liability of Holder exceed the gross proceeds received by
such Holder from the offering.
(3) Promptly after receipt by an indemnified party
pursuant to the provisions of Sections 16(d)(1) or (2) of
notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified
party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said Sections
16(d)(1) or (2), promptly notify the indemnifying party of the
commencement thereof; but the omission to notify the
indemnifying party will not relieve it from any liability
which it may have to any indemnified party
Exhibit B-14
<PAGE> 15
otherwise than to the extent the party to be notified is
actually prejudiced thereby. In case such action is brought
against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any action include both the
indemnified party and the indemnifying party and there is a
conflict of interests which would prevent counsel for the
indemnifying party from also representing the indemnified
party, the indemnified party or parties shall have the right
to select one separate counsel to participate in the defense
of such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified
party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said Sections 16(d)(1) or
(2) for any legal or other expense subsequently incurred by
such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed counsel
in accordance with the provision of the preceding sentence,
(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after the
notice of the commencement of the action and within 15 days
after written notice of the indemnified party's intention to
employ separate counsel pursuant to the previous sentence, or
(iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the
indemnifying party. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
(4) If recovery is not available under the foregoing
indemnification provisions, for any reason other than as
specified therein, the parties entitled to indemnification by
the terms thereof shall be entitled to contribution to
liabilities and expenses as more fully set forth in an
underwriting agreement to be executed in connection with such
registration. In determining the amount of contribution to
which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to
information concerning the matter with respect to which the
claim was asserted, the opportunity to correct and prevent any
statement or omission, and any other equitable considerations
appropriate under the circumstances; provided that no party
shall be required to contribute an amount in excess of the
amount it would have been required to pay pursuant to the
foregoing indemnification provisions if they had been
available.
Exhibit B-15
<PAGE> 16
(e) Obligations of the Company. Whenever required under this
Section 16 to effect the registration of any Registrable Shares, the
Company shall, as expeditiously as possible:
(1) prepare and file within the SEC a registration
statement with respect to such Registrable Shares and use its
best efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority
of the Registrable Shares registered thereunder, keep such
registration statement effective for a period of up to nine
months or, if sooner, until the distribution contemplated in
the Registration Statement has been completed.
(2) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Shares
covered by such registration statement.
(3) furnish to the Holder such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to
facilitate the disposition of Registrable Shares owned by
them.
(4) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter of such offering. Each Holder participating in
such underwriting shall also enter into and perform its
obligations under such an agreement.
(5) notify each Holder of Registrable Shares covered
by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act of
the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material act or omits to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(6) cause all Registrable Shares registered pursuant
hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.
(7) provide a transfer agent and registrar for all
Registrable Shares registered pursuant hereunder and a CUSIP
number for all such Registrable Shares in each case not later
than the effective date of such registration.
Exhibit B-16
<PAGE> 17
(8) furnish, at the request of any Holder requesting
registration of Registrable Shares pursuant to this Section,
on the date that such Registrable Shares are delivered to the
underwriters for sale in connection with a registration
pursuant to this Section 16, if such securities are being sold
through underwriters, or, if such securities are not being
sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective,
(i) an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of
Registrable Shares and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in
form and substance as is customarily given by independent
certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of
Registrable Shares.
(f) Assignment of Registration Rights. Any of the Holders may
assign its rights to cause the Company to register Shares pursuant to
this Section 16 to a transferee of all or any part of its Registrable
Shares. The transferor shall, within 20 days after such transfer,
furnish the Company with written notice of the name and address of such
transferee and the securities with respect to which such registration
rights are being assigned.
17. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing
contained in this Warrant Agreement or in any of the Warrants shall be construed
as conferring upon the Warrant Holders or their transferees the right to vote or
to receive dividends or to consent or to receive notice as stockholders in
respect of any meeting of stockholders for the election of directors of the
Company or any other matter, or any rights whatsoever as stockholders of the
Company. If, however, at any time prior to the expiration of the Warrants and
prior to their exercise, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend) to the holders of its shares of Common
Stock; or
(b) the Company shall offer to the holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe to or purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease or all or substantially all of its property, assets, and
business as an entirety) shall be proposed,
then in any one or more of said events the Company shall give notice in writing
of such event to the Warrant Holders as provided in Section 20 hereof, with such
notice to be completed at least 15 days
Exhibit B-17
<PAGE> 18
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the stockholders entitled to such dividend,
distribution, or subscription rights, or for the determination of stockholders
entitled to vote on such proposed dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to provide or receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any action
taken in connection with such dividend, distribution or subscription rights, or
such proposed dissolution, liquidation or winding up.
18. NOTICES. Any notice pursuant to this Warrant Agreement to be given
or made by the holder of any Warrant or Warrant Shares to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed as follows:
TransCoastal Marine Services, Inc.
3534 Briarpark, Suite 210
Houston, Texas 77042
Attn: ______________________
Notices or demands authorized by this Warrant Agreement to be given or made to
or on the Warrant Holder of any Warrant or Warrant Shares shall be sufficiently
given or made (except as otherwise provided in this Warrant Agreement) if sent
by registered mail, return receipt requested, postage prepaid, addressed to such
Warrant Holder at the address of such Warrant Holder as shown on the Warrant
Register or the Company's Common Stock Transfer Register, as the case may be.
19. GOVERNING LAW; DISPUTES. THIS WARRANT AGREEMENT, THE WARRANTS AND
ALL RELATED DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. ANY DISPUTE HEREUNDER
OR UNDER THE WARRANTS OR RELATED DOCUMENTS SHALL BE DETERMINED EXCLUSIVELY IN
ACCORDANCE WITH SECTION 8.7 OF THE CREDIT AGREEMENT.
20. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Holders may
from time to time supplement or amend this Warrant Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Holder may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interests of the Warrant Holders. Any amendment to this
Warrant Agreement may be effected with the consent of Warrant Holders of at
least a majority of the total then outstanding Warrants (for this purpose
Warrant Shares shall be deemed to be Warrants in the proportion that Warrant
Shares are then issuable upon the exercise of Warrants); provided that, any
amendment which shall have the effect of materially adversely affecting the
interests of any Warrant Holder shall not be effective with respect to such
Warrant Holder if such Warrant Holder shall not have consented thereto.
Exhibit B-18
<PAGE> 19
21. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of the Company and all covenants and agreements
made herein shall survive the execution and delivery of this Warrant Agreement
and the Warrants and shall remain in force and effect until the Expiration Date
of all Warrants.
22. SUCCESSORS. All representations and warranties of the Company and
all covenants and agreements of this Warrant Agreement by or for the benefit of
the Company or the Warrant Holders shall bind and inure to the benefit of their
respective successors and assigns hereunder.
23. MERGER OR CONSOLIDATION OF THE COMPANY. So long as this Warrant
Agreement remains in effect, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement executed and delivered to the Warrant Holders, the due and punctual
performance and observance of each and every covenant and condition of this
Warrant Agreement to be performed and observed by the Company.
24. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant
Agreement shall be construed to give to any person or corporation other than the
Company and the Warrant Holders, any legal or equitable right, remedy or claim
under this Warrant Agreement, but this Warrant Agreement shall be for the sole
and exclusive benefit of the Company and the holders of the Warrants and Warrant
Shares.
25. CAPTIONS. The captions of the sections and subsections of this
Warrant Agreement have been inserted for convenience and shall have no
substantive effect.
26. COUNTERPARTS. This Warrant Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
Exhibit B-19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed on the day, month and year first above written.
TRANSCOASTAL MARINE SERVICES,
INC.
By:
Name:
Title:
Exhibit B-20
<PAGE> 21
PURCHASER JOINT ENERGY DEVELOPMENT
INVESTMENTS, LIMITED
PARTNERSHIP
By:
Name:
Title:
Exhibit B-21
<PAGE> 22
EXHIBIT A
TO
WARRANT AGREEMENT
(FORM OF WARRANT CERTIFICATE)
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK OR OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. ANY SALE PURSUANT
TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION
FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND THE COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
No. UD-1 Warrants _____________ Warrants
VOID AFTER 5:00 P.M. NEW YORK TIME
ON OCTOBER __, 2002
TRANSCOASTAL MARINE SERVICES, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received ______________________, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time from 9:00 A.M., New York time, on [October
___, 1997, until 5:00 P.M., New York time on October ___, 2002,] one fully paid
and nonassessable share of Common Stock (subject to adjustment), par value $.001
per share (the "Common Stock"), of TRANSCOASTAL MARINE SERVICES, INC., a
Delaware corporation(the "Company"), at the exercise price of US$____ per share,
subject to adjustment as described in the Warrant Agreement referred to below
(the "Exercise Price"). The Warrant Holder may pay the Exercise Price in cash,
or by certified or official bank check or by reduction of the outstanding
principal amount under the Credit Agreement, or make a net exercise for Net
Warrant Shares as described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated October
___, 1997 (the "Warrant Agreement"), between the Company and Joint Energy
Development Investments, Limited Partnership, which Warrant Agreement is hereby
incorporated herein by reference and made a part hereof and to which
Exhibit B-22
<PAGE> 23
Warrant Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Company and the Warrant Holders of the Warrant Certificates. Copies of the
Warrant Agreement are on file at the principal office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, and until such transfer on such books, the Company may
treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of Common Stock as the Warrants evidenced by the Warrant Certificate or
Warrant Certificates surrendered entitled to such Warrant Holder to purchase. If
this Warrant Certificate shall be exercised in part, the Warrant Holder shall be
entitled to receive upon surrender hereof, another Warrant Certificate or
Warrant Certificates for the number of whole Warrants not exercised.
No fractional Common Stock will be issued upon the exercise of any
Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a shareholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Exhibit B-23
<PAGE> 24
IN WITNESS WHEREOF, TRANSCOASTAL MARINE SERVICES, INC. has caused
the signature of its President and Secretary to be printed hereon.
TRANSCOASTAL MARINE SERVICES, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
ATTEST:
- ------------------------------------
[Name: ]
[Secretary]
Exhibit B-24
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-34603 of TransCoastal Marine Services, Inc. on Form S-1 of our report dated
March 27, 1997 (May 7, 1997 as to Note 6), appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
October 28, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Darnall, Sikes & Frederick
(A Corporation of Certified Public
Accountants)
Lafayette, Louisiana
October 28, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
October 28, 1997
