<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
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)
JOHNNIE W. DOMINGUE
TRANSCOASTAL MARINE SERVICES, INC.
4506 SOUTH LEWIS STREET 3535 BRIARPARK, SUITE 210
NEW IBERIA, LOUISIANA 70562 HOUSTON, TEXAS 77042
(318) 896-7900 (713) 784-7429
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area
principal executive offices) code, of agent for service)
copies to:
ROBERT J. VIGUET, JR. TED W. PARIS
CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & MARTIN BAKER & BOTTS, L.L.P.
1200 SMITH STREET, SUITE 1400 3000 ONE SHELL PLAZA
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 of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and the list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share............................ -- -- $73,600,000 $22,303
=================================================================================================================
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
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 AUGUST 29, 1997
PROSPECTUS
4,000,000 SHARES
TRANSCOASTAL MARINE SERVICES, INC.
COMMON STOCK
------------------------
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. TCMS has applied to have the Common Stock 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 $ to $
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 CERTAIN
MATTERS 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 $ .
(3) TCMS has granted the Underwriters a 30-day option to purchase up to an
additional 600,000 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
[GRAPHICS]
[DESCRIPTION OF MAP AND PICTURES OF COMPANY-OWNED EQUIPMENT AND VESSELS]
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."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Concurrently with and as a condition to the closing of the Offering,
TransCoastal Marine Services, Inc. will acquire, in separate transactions
(collectively, the "Acquisitions"), in exchange for cash and shares of its
Common Stock, four 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; (ii) assumes an initial public offering price of $ 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 August 8, 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 $ per share. Unless
otherwise indicated by the context, all references herein to Common Stock
include both Common Stock, par value $.001 per share, and Restricted Common
Stock, par value $.001 per share ("Restricted Common Stock"), of the Company.
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.
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.
The Company believes consolidating the operations of the Founding Companies
will generate substantial operating efficiencies and expand the geographic reach
and market coverage of their 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
3
<PAGE> 5
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.
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.
4
<PAGE> 6
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.
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.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by TCMS................. 4,000,000 shares
Common Stock outstanding after the
Offering(1)................................ 7,829,333 shares
Use of Proceeds.............................. The net proceeds from the Offering will be
used, together with financing under a new
$35.0 million term loan (the "Term Loan") and
the issuance of $15.0 million of subordinated
debt (the "Subordinated Debt"), to pay the
cash portion of the aggregate purchase price
for the Acquisitions, to repay indebtedness
of TCMS and the Founding Companies, to pay
certain costs related to the Offering and the
Acquisitions, and for other general corporate
purposes, which may include future
acquisitions. See "Use of Proceeds."
Proposed 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, including 975,000 shares
of Restricted Common Stock, (ii) 2,573,333 shares to be issued as
consideration in the Acquisitions and (iii) the 4,000,000 shares being
offered hereby. Such share number does not include (i) approximately 457,000
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 or (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 obtaining the Term Loan. 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 $ per share. See "Management -- 1997
Stock Option Plan" and "Certain Transactions -- Organization of the
Company," "-- Acquisitions of the Founding Companies" and "-- Financial
Advisory Services."
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 funding under the Term Loan and the issuance of $15.0 million
of Subordinated Debt 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)........ 6,958 3,957
Depreciation and amortization(3)....................... 5,811 3,573
Operating income (loss)................................ (598) 4,453
Interest expense(4).................................... (4,772) (2,386)
Other income, net...................................... 1,163 617
Provision (benefit) for income taxes................... (1,181) 1,325
Net income (loss)...................................... $ (3,026) $ 1,359
========== ==========
Pro forma income (loss) per share...................... $ (.39) $ .17
Shares used in computing pro forma income (loss) per
share(5)............................................ 7,852,666 7,852,666
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
AS
ADJUSTED(1)
--------------
(IN THOUSANDS)
<S> <C>
Balance Sheet Information:
Working capital........................................... $ 7,806
Property, plant and equipment, net........................ 65,525
Total assets.............................................. 150,803
Long-term debt, including Subordinated Debt, net of
current maturities..................................... 50,367
Stockholders' equity...................................... 57,036
</TABLE>
- ---------------
(1) The pro forma combined statement of operations information assumes the
Offering, the Acquisitions, the funding under the Term Loan, the issuance of
the Subordinated Debt 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) $330,000 for the year ended
December 31, 1996; and (ii) $165,000 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 $50.2 million of goodwill to be recorded as a
result of the Acquisitions and additional depreciation expense due to the
allocation of $45.8 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 the Term Loan, the Subordinated Debt
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, including 975,000 shares
of Restricted Common Stock, (ii) 2,573,333 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 4,000,000 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),
and the six months ended June 30, 1996 and 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>
SIX MONTHS ENDED
JUNE 30
------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Woodson(1):
Revenue................................ $ 7,786 $18,075 $17,933 $10,689 $18,104
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
CSI(2):
Revenue................................ $ 5,331 $ 5,226 $ 8,447 $ 3,815 $ 9,606
Cost of revenue........................ 2,964 3,334 5,264 2,463 5,651
Selling, general and administrative
expenses............................ 1,725 2,285 2,435 1,160 1,270
Depreciation and amortization.......... 288 269 359 202 245
Operating income (loss)................ 354 (662) 389 (10) 2,440
HBH(1):
Revenue................................ $15,261 $14,771 $36,873 $19,062 $23,850
Cost of revenue........................ 12,585 16,803 33,727 16,343 19,394
Selling, general and administrative
expenses............................ 929 867 1,000 484 671
Depreciation and amortization.......... 503 871 1,482 719 750
Operating income (loss)................ 1,244 (3,770) 664 1,516 3,035
RFCNI(1):
Revenue................................ $ 5,611 $10,497 $ 9,730 $ 3,159 $ 4,536
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....................... 230 358 573 80 29
</TABLE>
- ---------------
(1) Results for fiscal years ended December 31, 1994, 1995 and 1996.
(2) Results 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, but not limited to,
risks relating to industry conditions, general economic conditions and other
factors discussed in this Prospectus (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."
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. The pro forma combined historical financial
results of the Founding Companies presented in this Prospectus reflect periods
when the Founding Companies and TCMS were not under common control or management
and may not be indicative of the Company's future operating results and
financial condition. 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. The
Company's executive management team has only recently been assembled, and no
assurance can be given that the Company's 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."
9
<PAGE> 11
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. While the Company believes the near-term outlook for its
business is good, given the cyclical nature of the marine construction industry,
demand declines may occur in the future. In the event of a substantial or
prolonged decline in demand, the Company could be materially and adversely
affected. See "-- Cyclical Industry; Dependence on Oil and Gas Industry,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Industry Overview."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions and the Offering, 7,829,333 shares of Common
Stock will be outstanding. The 4,000,000 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 may be resold publicly only following their effective registration
under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant
to an exemption from the registration requirements of that act, such as Rule 144
thereunder. Sales made pursuant to Rule 144 must comply with its applicable
volume limitations and other requirements. 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 an estimated total of 457,000 shares of Common Stock, anticipated
to be outstanding pursuant to the 1997 Stock Option Plan as of 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 with respect to those shares) and (iii) the Subordinated Debt, a portion
of which will be convertible into 350,140 shares of Common Stock. 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 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."
TCMS and its directors and executive officers, J&D Capital Investments,
L.C. (which is majority owned by G. Darcy Klug, a founder of the Company), 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 (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 and pursuant to awards under the 1997 Stock Option
Plan.
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. 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. The timing, size and success of the Company's acquisition efforts
and the associated capital commitments cannot be readily predicted. 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. 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
10
<PAGE> 12
operational or financial difficulties. 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 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. In addition, there
can be no assurance the Founding Companies or other businesses acquired in the
future will achieve anticipated earnings. See "Business -- Business Strategy."
The Company's acquisition strategy will require substantial capital. The
Company intends to finance future acquisitions with future free cash flow,
through issuances of shares of Common Stock or debt securities, including
convertible debt securities, and through borrowings under its credit facilities.
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. 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.
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. 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."
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
11
<PAGE> 13
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
Company's fabrication operations involve certain operating hazards that can
cause personal injury or loss of life, severe damage to and destruction of
property and equipment and suspension of operations. 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 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.
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. 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 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."
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, 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
12
<PAGE> 14
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.
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, the Company's
founders, executive officers and directors and the persons receiving shares of
Common Stock in connection with the Acquisitions will beneficially own
approximately 3,829,333 shares of Common Stock (or 48.9% of the outstanding
shares of Common Stock). Of this amount, 975,000 shares will be shares of
Restricted Common Stock, the holders of which are not entitled to vote on the
election of any members of the Board of Directors of TCMS (the "Board of
Directors"), or on any other matter on which the Company's stockholders are
entitled to vote, until the occurrence of certain events or the expiration of 18
months after the closing of the Offering. See "Description of Capital
Stock -- Common Stock and Restricted Common Stock." However, even excluding the
shares of Restricted Common Stock, these stockholders will control in the
aggregate approximately 41.6% 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."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES OF FOUNDING COMPANIES
Of the estimated net proceeds of the Offering and the net funds to be
provided under the Term Loan and the Subordinated Debt, approximately $85.7
million will be paid as the cash portions of the purchase prices for the
Acquisitions and the related real estate. Some of the recipients of these funds
will become directors or executive officers of the Company or will be holders of
more than five percent of the shares of Common Stock outstanding when the
Acquisitions and the Offering close. Additionally, J&D Capital Investments, L.C.
has agreed to advance to TCMS such funds as are necessary (up to $1.0 million)
to effect the Acquisitions and the Offering pursuant to a bridge loan agreement
(the "J&D Loan Agreement"), and those advances will be repaid from the proceeds
of the Offering, together with interest at the rate of 10.0% per annum. See "Use
of Proceeds" and "Certain Transactions."
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<PAGE> 15
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. TCMS has
applied to have the Common Stock 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. 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
$ per share and may experience further dilution in that value from
issuances of Common Stock in the future. See "Dilution."
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<PAGE> 16
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) 2,573,333 shares of Common
Stock. The Company will also assume up to $11.0 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 earnings before interest, taxes, depreciation and amortization
("EBITDA") for RFCNI and one of the entities comprising CSI, payable in a
combination of cash and shares of Common Stock. Based on a preliminary
determination,
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<PAGE> 17
the Company currently estimates that no additional consideration will be payable
as a result of these post-closing adjustments.
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."
TCMS is a Delaware corporation. Its corporate offices are located at 4506
South Lewis Street, New Iberia, Louisiana 70562, and its telephone number is
(318) 896-7900.
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<PAGE> 18
USE OF PROCEEDS
TCMS estimates its net proceeds from the Offering will be approximately
$55.2 million (approximately $63.7 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 the $35.0 million funding under the Term Loan and the issuance of
$15.0 million of Subordinated Debt to (i) pay the $85.7 million cash portion of
the aggregate purchase price for the Acquisitions, (ii) repay up to $11.0
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 $0.7 million to MGCO,
(v) pay debt costs related to the Term Loan and Subordinated Debt of $1.0
million and (vi) for general corporate purposes, which may include future
acquisitions.
TCMS intends to enter into a credit agreement with certain financial
institutions providing for the Term Loan and a revolving credit facility
providing for borrowings of up to $15.0 million (the "Revolving Credit
Facility"). TCMS expects the Term Loan will be secured by liens on substantially
all the Company's existing property, plant and equipment and the Revolving
Credit Facility will be secured by the Company's accounts receivable. TCMS has
initiated discussions with financial institutions to establish the terms of the
Term Loan and Revolving Credit Facility and, on the basis of those discussions,
expects those facilities to be in place prior to the closing of the Offering.
The Company also anticipates issuing the Subordinated Debt prior to the closing
of the Offering. 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 or 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 Term Loan, the Revolving Credit Facility and the
Subordinated Debt 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."
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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 funding under the
Term Loan and the issuance of $15.0 million of Subordinated Debt, 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 $ 3,627
Notes payable to founding stockholders(2)................... 85,650 --
------- --------
Total short-term debt............................. $89,677 $ 3,627
======= ========
Long-term debt, including Subordinated Debt, net of current
maturities................................................ $11,154 $ 50,367
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; 2,854,333 issued and outstanding, pro
forma; and 6,854,333 issued and outstanding, as
adjusted............................................... 3 7
Restricted Common Stock, $.001 par value, 3,000,000 shares
authorized; 975,000 issued and outstanding, pro forma
and as adjusted........................................ 1 1
Additional paid-in capital................................ (4,636) 50,594
Retained earnings......................................... 6,420 6,420
Net unrealized gain on available for sale securities, net
of deferred income taxes............................... 14 14
------- --------
Total stockholders' equity........................... 1,802 57,036
------- --------
Total capitalization.............................. $12,956 $107,403
======= ========
</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.
(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 the financings under the Term Loan and
through the issuance of the Subordinated Debt.
18
<PAGE> 20
DILUTION
The deficit in pro forma net tangible book value of the Company as of June
30, 1997 was approximately $(48.4) million, or approximately $(12.63) 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 amount
by which 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 funding under the Term Loan and
the issuance of $15.0 million of Subordinated Debt, as described in "Use of
Proceeds," the Company's pro forma net tangible book value as of June 30, 1997
would have been approximately $6.9 million, or approximately $0.88 per share.
This represents an immediate increase in pro forma net tangible book value of
approximately $13.51 per share to existing stockholders and an immediate
dilution of approximately $ 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............. $
Pro forma net tangible book value per share before the
Offering.................................................. $(12.63)
Increase in pro forma net tangible book value per share
attributable to new investors............................. 13.51
-------
Pro forma net tangible book value per share after the
Offering.................................................. 0.88
------
Dilution per share to new investor(s)....................... $
======
</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 $ 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.......... 3,829,333 48.9% $ (1) % $
New investors.................. 4,000,000 51.1%
--------- ----- ------- -----
Total................ 7,829,333 100.0% $ 100.0%
========= ===== ======= =====
</TABLE>
- ---------------
(1) Total consideration paid by existing stockholders represents the combined
shareholders' equity of the Founding Companies before the Offering, adjusted
to reflect the cash portion of the consideration payable to the shareholders
of the Founding Companies in connection with the Acquisitions. See "Use of
Proceeds" and "Capitalization."
19
<PAGE> 21
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 funding under the Term
Loan and the issuance of $15.0 million of Subordinated Debt 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
------- ------- ------- ------- ------- ------- -------
HISTORICAL STATEMENT OF OPERATIONS DATA: (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
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(5):
Revenue................................................... $ 72,744 $ 54,906
Cost of revenue........................................... 60,573 42,923
Selling, general and administrative expenses(6)........... 6,958 3,957
Depreciation and amortization(7).......................... 5,811 3,573
Operating income (loss)................................... (598) 4,453
Interest expense(8)....................................... (4,772) (2,386)
Other income, net......................................... 1,163 617
Provision (benefit) for income taxes...................... (1,181) 1,325
Net income (loss)......................................... $ (3,026) $ 1,359
========== ==========
Pro forma income (loss) per share......................... $ (.39) $ .17
Shares used in computing pro forma income (loss) per
share(9)................................................ 7,852,666 7,852,666
</TABLE>
<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 $ 7,806
Property, plant and equipment, net............ 2,745 2,669 2,252 1,872 2,956 4,348 65,525
Total assets.................................. 9,956 8,764 6,997 9,007 9,156 13,648 150,803
Long-term debt, including Subordinated Debt,
net of current maturities................... 79 48 19 -- -- -- 50,367
Shareholders' equity.......................... 7,775 7,370 5,646 7,616 7,717 8,707 57,036
</TABLE>
20
<PAGE> 22
- ---------------
(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, the funding under the Term Loan, the issuance of
the Subordinated Debt 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) $330,000 for the year ended
December 31, 1996 and (ii) $165,000 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 $50.2 million of goodwill to be recorded as a
result of the Acquisitions and additional depreciation expense due to the
allocation of $45.8 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 the Term Loan and the Subordinated
Debt 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, including 975,000 shares
of Restricted Common Stock, (ii) 2,573,333 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 4,000,000 shares being
offered hereby.
21
<PAGE> 23
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 complete 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
22
<PAGE> 24
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 Restricted Common Stock and 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, $50.2 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 income statement over a 40-year period.
The annual pro forma impact of this amortization expense, which is generally
non-deductible for tax purposes, is $1.3 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 effect 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.
23
<PAGE> 25
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 sub-contract 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.
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 sub-contract 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.
24
<PAGE> 26
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 $9.3 million. On a pro forma
basis, after giving effect to the Offering and the application of the proceeds
therefrom together with the proceeds from borrowings under the Term Loan and the
issuance of the Subordinated Debt, the Company would have had combined working
capital of $7.8 million and long-term debt, net of current maturities, of $50.4
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 $0.9 million and long-term debt of
$7.6 million.
TCMS intends to enter into a credit agreement with certain financial
institutions providing for the Term Loan and the Revolving Credit Facility. TCMS
expects that the Term Loan will provide financing of $35.0 million and that the
Revolving Credit Facility will provide for borrowings of up to $15.0 million. It
is expected that the Term Loan will be secured by liens on substantially all the
Company's existing property, plant and equipment and that the Revolving Credit
Facility will be secured by the Company's accounts receivable. The financing
under the Term Loan will be used to pay a portion of the aggregate purchase
price for the Acquisitions and, together with borrowings under the Revolving
Credit Facility, for general corporate purposes, which may include future
acquisitions. The Company expects that the Term Loan and Revolving Credit
Facility will require the Company to comply with various loan covenants
including (i) maintenance of certain financial ratios; (ii) limitations on
additional indebtedness; and (iii) limitations on liens, guarantees, advances
and dividends. The Company anticipates the Term Loan will provide for monthly
repayments, based on a 15-year amortization, with a final maturity in 2007. The
Company expects to fund those repayments, as well as the repayment of any
borrowings under the Revolving Credit Facility, through cash flows from
operations.
The Company also anticipates issuing $15.0 million principal amount of
Subordinated Debt prior to the closing of the Offering. The Company expects the
Subordinated Debt will be repaid within two years of issuance through cash flows
from operations. In the event cash flows from operations are insufficient to
repay the Subordinated Debt in its entirety at maturity, the Company would seek
to refinance that indebtedness.
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 Revolving Credit Facility.
25
<PAGE> 27
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.
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.
26
<PAGE> 28
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 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.
27
<PAGE> 29
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 33.2 2,285 44.6 2,435 29.3 1,160 30.4 1,270 13.2
Depreciation and
amortization.............. 288 4.6 269 4.3 359 3.7 202 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.
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.
28
<PAGE> 30
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 liquidity and capital resources
CSI used $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 $1.8 million and
repayments of $0.4 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, all of which is classified as current because the notes are
due on demand.
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>
29
<PAGE> 31
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 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.
30
<PAGE> 32
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 of 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 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.
31
<PAGE> 33
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.
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.
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.
The Company believes consolidating the operations of the Founding Companies
will generate substantial operating efficiencies and expand the geographic reach
and market coverage of their 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 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
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<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 from 1,097 Mbpd
(thousand barrels per day) in 1996 to 1,932 Mbpd by 2000, and a 25% 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.
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<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 175 x 40 x 13 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 110 x 24 x 9 Hydrostatic testing and diving support; with
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 90 persons
BH-300.......... Anchor Barge 185 x 45 x 9 Pipe laying (2"-36" diameter pipe) in 5() to 40()
water depths; 6-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
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<PAGE> 38
the Term Loan. 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
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
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<PAGE> 39
portion of revenue in subsequent fiscal years. 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 involve
different vessels and equipment, as well as different technical expertise, the
Company does not presently intend to compete in those markets.
The Company also competes with numerous competitors in connection with its
hydrostatic testing and commission services and fabrication operations.
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<PAGE> 40
BACKLOG
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 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
39
<PAGE> 41
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, 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 have been opposed by
environmental groups and, in certain areas, has been restricted. To the extent
laws are enacted or other governmental actions are taken that prohibit or
restrict offshore construction and drilling or impose environmental protection
requirements that result in increased costs to the oil and gas industry in
general and the offshore construction industry in particular, the business and
prospects of the Company could be adversely affected.
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 arising from
events in October 1991 and January 1992 during the course of a pipeline
installation project for a third party gas transmission company. The claims of
representative class members in both cases were tried in 1995, and judgments
were rendered against the Company, which were later affirmed by the court of
appeal. In both lawsuits, the compensatory damages awarded are expected to be
covered by the Company's insurance. In one of the cases, punitive damages were
awarded to certain of the representative class members. On the basis of those
punitive damage awards, the Company estimates that their uninsured exposure for
punitive damages to the entire class may be approximately $2.5 million. In July
1997, all parties involved applied to the Louisiana Supreme Court for further
discretionary review of the judgments. The Company believes that there are
meritorious defenses to
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<PAGE> 42
these claims, 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 lawsuits cannot be predicted with certainty, management
believes these 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.
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.
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<PAGE> 43
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
</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.
Mr. 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 and construction industries including serving from
1956 to 1986 in various capacities with Brown & Root, Inc. ("Brown & Root"),
where his last positions were Executive Vice President and President of Brown &
Root International. He also served on the Board of Directors of Brown & Root.
Since 1986, Mr. Stallworth has operated a consulting practice providing services
to oil and gas and construction companies. 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. Thad "Bo" Smith has served as President and Chief Operating Officer of
TCMS since August 1997. Mr. Smith has over 29 years of experience in the oil and
gas and construction industries. From January 1997 to August 1997, he has 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. 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 & 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.
Mr. H. Daniel Hughes II will become a director of TCMS on the closing of
the Offering. Mr. Hughes joined HBH in 1991 as Vice President. He held positions
in related entities since 1981. In 1993, Mr. Hughes was promoted to President of
HBH.
42
<PAGE> 44
Mr. 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.
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 and Hargett will
serve as members of the Executive Committee. Messrs. and will
serve as members of the Company's Audit Committee and Messrs. and
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, 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 $35,000 under an employment
memorandum executed on April 21, 1997 between TCMS and Mr. Domingue and has
compensated Messrs. Stallworth and Smith to date under a consulting agreement
between the Company and Stallworth, Frankhouser & Associates, a Houston-based
consulting firm. See "Certain Transactions." In addition, 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 twelve 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.
43
<PAGE> 45
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 $ , 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.
44
<PAGE> 46
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 August 12, 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
AUGUST 12, OWNED AFTER
1997(1) OFFERING(1)
------------------- -------------------
NUMBER OF NUMBER OF
SHAREHOLDERS SHARES PERCENT SHARES PERCENT
------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
G. Darcy Klug(2)(3)............................... 737,500 58.7% 737,500 9.4%
J&D Capital Investments, L.C.(3).................. 737,500 58.7 737,500 9.4
James B. Thompson, Jr.(3)......................... 100,000 8.0 100,000 1.3
Bill E. Stallworth................................ 100,000 8.0 100,000 1.3
Thad Smith........................................ 100,000 8.0 100,000 1.3
Johnnie W. Domingue............................... 75,000 6.0 75,000 1.0
Beldon E. Fox, Jr.(3)............................. 75,000 6.0 75,000 1.0
Louis Woodson..................................... -- -- 586,667 7.5
Daniel N. Hargett, Sr............................. -- -- 533,333 6.3
H. Daniel Hughes II............................... -- -- 300,000 3.8
All executive officers, directors and persons
nominated to become directors as a group (5
persons)........................................ 275,000 21.9 1,108,333 13.7
</TABLE>
- ---------------
(1) Shares shown do not include shares that could be acquired on exercise of
currently outstanding stock options, as none of those options will vest
within 60 days of the date of this Prospectus.
(2) Shares shown include 737,500 shares held by J&D Capital Investments, L.C.,
of which Mr. Klug owns 73.75% of the membership interests.
(3) Shares shown are shares of Restricted Common Stock. See "Description of
Capital Stock -- Common Stock and Restricted Common Stock."
45
<PAGE> 47
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, organizers 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.
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. 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
August 10, 1997, there were outstanding advances under the J&D Loan Agreement
totaling $209,000, 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.
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
46
<PAGE> 48
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) 2,573,333 shares of Common Stock. TCMS will also
assume up to $11.0 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 no additional consideration will be payable as a result of these
post-closing adjustments.
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 $1.5 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)....................................... $19,800 $ -- 1,240,000 $ --
CSI.............................................. 40,000 -- 533,333 5,000
HBH.............................................. 24,350(2) -- 600,000 6,000
RFCNI............................................ 1,500 3,000 200,000 --
------- ------ --------- -------
Total.................................. $85,650 $3,000 2,573,333 $11,000
======= ====== ========= =======
</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) 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, certain 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.
47
<PAGE> 49
<TABLE>
<CAPTION>
SHARES OF
NAME CASH COMMON STOCK
- ---- ------- ------------
<S> <C> <C>
Daniel N. Hargett, Sr...................................... $36,670 533,333
Louis Woodson.............................................. -- 586,667
H. Daniel Hughes II........................................ 12,175 300,000
------- ---------
Total............................................ $48,845 1,420,000
======= =========
</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.
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 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 six months after the
Offering closes. In connection with the MG Warrant, the Company granted certain
registration rights to MGCO. The MG Warrant is exercisable for a period of five
years beginning six months after the closing of the Offering.
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 Term
Loan, payable on closing of the Term Loan; 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.
48
<PAGE> 50
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 ("Preferred
Stock"). At August 28, 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 7,829,333 shares of Common Stock, including 975,000 shares of
Restricted Common Stock, and no shares of Preferred Stock. 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.
Each share of Restricted Common Stock outstanding 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 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 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 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 are not subject to any redemption
provisions, but are convertible into Common Stock, on the occurrence of certain
events as described above. All outstanding shares of Common Stock and Restricted
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 preferences 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
49
<PAGE> 51
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)
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.
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,
50
<PAGE> 52
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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions and completion of the Offering, 7,829,333
shares of Common Stock will be outstanding. See "Certain Transactions --
Acquisitions of the Founding Companies." The 4,000,000 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 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 457,000 shares of Common Stock, which
are anticipated to be outstanding pursuant to the 1997 Stock Option Plan on the
date the Offering closes, and (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). 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 78,293 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 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 an affiliate of TCMS, a holder of such
restricted securities who is not an affiliate at the time of the sale and has
not been 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. 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
51
<PAGE> 53
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, 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 (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 and pursuant to awards under the 1997 Stock Option
Plan.
52
<PAGE> 54
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............................................. 4,000,000
=========
</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. 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 600,000 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, 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 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 200,000 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 number of
shares of Common Stock available to the general public will be reduced to the
extent these persons purchase the reserved shares.
53
<PAGE> 55
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.
In connection with the Offering, certain Underwriters and selling group
members, if any, may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M
promulgated by the Commission. Passive market making consists of displaying bids
on the Nasdaq National Market limited by the prices of independent market makers
and effecting purchases limited by such prices and in response to order flow.
Rule 103 limits the amount of net purchases that each passive market maker can
make and the displayed size of the bid. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued 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.
54
<PAGE> 56
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 with
the Securities and Exchange Commission (the "Commission"), a Registration
Statement on Form S-1 (together with all amendments, schedules and exhibits
thereto, the "Registration Statement") 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.
55
<PAGE> 57
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-21
Combined Balance Sheets................................ F-22
Combined Statements of Operations...................... F-23
Combined Statements of Shareholders' Equity............ F-24
Combined Statements of Cash Flows...................... F-25
Notes to Combined Financial Statements................. F-26
The CSI Companies
Report of Independent Public Accountants............... F-34
Combined Balance Sheets................................ F-35
Combined Statements of Operations...................... F-36
Combined Statements of Owners' Equity.................. F-37
Combined Statements of Cash Flows...................... F-38
Notes to Combined Financial Statements................. F-39
HBH, Inc.
Independent Auditors' Report........................... F-46
Balance Sheets......................................... F-47
Statements of Operations............................... F-48
Statements of Shareholder's Equity (Deficit)........... F-49
Statements of Cash Flows............................... F-50
Notes to Financial Statements.......................... F-51
The Red Fox Companies of New Iberia, Inc.
Report of Independent Public Accountants............... F-56
Balance Sheets......................................... F-57
Statements of Operations............................... F-58
Statements of Shareholder's Equity..................... F-59
Statements of Cash Flows............................... F-60
Notes to Financial Statements.......................... F-61
</TABLE>
F-1
<PAGE> 58
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> 59
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 $ (4,150) $ (132)
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 1,389 564 128 462 668 3,495
------- ------- ------- ------ ---- -------- --------
Total current assets........ 8,373 7,211 12,387 2,435 463 (3,482) 27,387
------- ------- ------- ------ ---- -------- --------
PROPERTY AND EQUIPMENT, net......... 4,348 7,053 8,328 44 -- 45,752 65,525
GOODWILL............................ -- -- -- -- -- 50,176 50,176
OTHER............................... 927 39 157 34 40 -- 1,197
------- ------- ------- ------ ---- -------- --------
Total assets................ $13,648 $14,303 $20,872 $2,513 $503 $ 92,446 $144,285
======= ======= ======= ====== ==== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 3,229 $ 4,116 $11,141 $1,508 $375 $ 1,504 $ 21,873
Notes payable and current
maturities of long-term debt.... 994 1,069 1,477 -- 187 300 4,027
Payable to founding
stockholders.................... -- -- -- -- -- 85,650 85,650
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 87,454 112,690
------- ------- ------- ------ ---- -------- --------
LONG-TERM DEBT...................... -- 4,696 5,267 -- -- 1,191 11,154
SUBORDINATED DEBT................... -- -- -- -- -- -- --
DEFERRED INCOME TAXES............... -- 670 -- 8 -- 17,961 18,639
------- ------- ------- ------ ---- -------- --------
Total liabilities........... 4,941 10,551 17,885 1,938 562 106,606 142,483
------- ------- ------- ------ ---- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock...................... 98 264 66 1 1 (426) 4
Additional paid-in capital........ 25 380 808 -- 12 (5,861) (4,636)
Retained earnings (deficit)....... 8,570 5,672 2,113 574 (72) (10,437) 6,420
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) (14,160) 1,802
------- ------- ------- ------ ---- -------- --------
Total liabilities and
stockholders' equity...... $13,648 $14,303 $20,872 $2,513 $503 $ 92,446 $144,285
======= ======= ======= ====== ==== ======== ========
<CAPTION>
POST-ACQUISITION AS
ADJUSTMENTS ADJUSTED
---------------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................. $ 6,310 $ 6,178
Receivables, net.................. -- 20,710
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... -- 2,950
Inventory......................... -- 364
Other............................. (1,130) 2,365
-------- --------
Total current assets........ 5,180 32,567
-------- --------
PROPERTY AND EQUIPMENT, net......... -- 65,525
GOODWILL............................ -- 50,176
OTHER............................... 1,338 2,535
-------- --------
Total assets................ $ 6,518 $150,803
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ (1,879) $ 19,994
Notes payable and current
maturities of long-term debt.... (400) 3,627
Payable to founding
stockholders.................... (85,650) --
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... -- 1,140
-------- --------
Total current liabilities... (87,929) 24,761
-------- --------
LONG-TERM DEBT...................... 24,213 35,367
SUBORDINATED DEBT................... 15,000 15,000
DEFERRED INCOME TAXES............... -- 18,639
-------- --------
Total liabilities........... (48,716) 93,767
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock...................... 4 8
Additional paid-in capital........ 55,230 50,594
Retained earnings (deficit)....... -- 6,420
Treasury stock.................... -- --
Net unrealized gain on
available-for-sale securities... -- 14
-------- --------
Total stockholders' equity
(deficit)................. 55,234 57,036
-------- --------
Total liabilities and
stockholders' equity...... $ 6,518 $150,803
======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-3
<PAGE> 60
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 (330) 6,958
Depreciation and amortization... 562 359 1,482 12 -- 2,415 3,396 5,811
------- ------ ------- ------ ---- ------- ------- ---------
Operating income (loss)... 842 389 664 573 -- 2,468 (3,066) (598)
INTEREST EXPENSE.................. (35) (137) (853) (30) -- (1,055) (3,717) (4,772)
OTHER INCOME (EXPENSE), net....... 443 134 646 (60) -- 1,163 -- 1,163
------- ------ ------- ------ ---- ------- ------- ---------
Income (loss) before
taxes................... 1,250 386 457 483 -- 2,576 (6,783) (4,207)
PROVISION (BENEFIT) FOR INCOME
TAXES........................... 91 205 -- 197 -- 493 (1,674) (1,181)
------- ------ ------- ------ ---- ------- ------- ---------
NET INCOME (LOSS)................. $ 1,159 $ 181 $ 457 $ 286 $-- $ 2,083 $(5,109) $ (3,026)
======= ====== ======= ====== ==== ======= ======= =========
PRO FORMA LOSS PER SHARE.......... $ (.39)
=========
SHARES USED IN COMPUTING PRO FORMA
LOSS PER SHARE.................. 7,852,666
=========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 61
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 (165) 3,957
Depreciation and
amortization.......... 455 245 750 8 -- 1,458 2,115 3,573
------- ------ ------- ------ ---- ------- ------- ----------
Operating income
(loss)......... 971 2,440 3,035 29 (72) 6,403 (1,950) 4,453
INTEREST EXPENSE.......... (45) (214) (368) (7) -- (634) (1,752) (2,386)
OTHER INCOME (EXPENSE),
net..................... 560 44 26 (13) -- 617 -- 617
------- ------ ------- ------ ---- ------- ------- ----------
Income (loss)
before taxes... 1,486 2,270 2,693 9 (72) 6,386 (3,702) 2,684
PROVISION (BENEFIT) FOR
INCOME TAXES............ 191 931 -- 2 -- 1,124 201 1,325
------- ------ ------- ------ ---- ------- ------- ----------
NET INCOME (LOSS)......... $ 1,295 $1,339 $ 2,693 $ 7 $(72) $ 5,262 $(3,903) $ 1,359
======= ====== ======= ====== ==== ======= ======= ==========
PRO FORMA INCOME PER
SHARE................... $ 0.17
==========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE................... 7,852,666
==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 62
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....................... $19,800 $ -- 1,240,000 $ --
The CSI Companies........................... 40,000 -- 533,333 5,000
HBH, Inc.................................... 24,350 -- 600,000 6,000
RFCNI....................................... 1,500 3,000 200,000 --
------- ------ --------- -------
Total............................. $85,650 $3,000 2,573,333 $11,000
======= ====== ========= =======
</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
2,573,333 shares of Common Stock together with the assumption of $11.0 million
in debt for a total estimated purchase price of $128.6 million, resulting in
excess
F-6
<PAGE> 63
TRANSCOASTAL MARINE SERVICES, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price over the fair value of assets acquired of $50.2 million. Also
records the S corporation distribution for certain Founding Companies of
approximately $4.2 million.
(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 $ 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 the cash proceeds from a $35.0 million term loan (the "Term
Loan") and the issuance of $15.0 million of subordinated debt (the "Subordinated
Debt") (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........................................................ $ (4,150)
Other current assets........................................ 668
Property and equipment, net................................. 45,752
Goodwill.................................................... 50,176
---------
Total assets...................................... $ 92,446
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Accounts payable and accrued liabilities.................. $ (1,504)
Notes payable and current maturities of long-term debt.... (300)
Payable to founding stockholders.......................... (85,650)
---------
Total current liabilities......................... (87,454)
Long-term debt, net of current maturities................... (1,191)
Deferred income taxes....................................... (17,961)
---------
Total liabilities................................. (106,606)
Stockholders' equity --
Common stock.............................................. 426
Additional paid-in capital................................ 5,861
Retained earnings......................................... 10,437
Treasury stock............................................ (2,564)
---------
Total stockholders' equity........................ 14,160
---------
Total liabilities and stockholders' equity........ $ (92,446)
=========
</TABLE>
F-7
<PAGE> 64
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..................... $ 54,298 $(96,650) $ 48,662 $ 6,310
Other current assets.......................... (1,130) -- -- (1,130)
Other non current assets...................... -- -- 1,338 1,338
-------- -------- -------- --------
Total assets.................................. $ 53,168 $(96,650) $ 50,000 $ 6,518
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Accounts payable and accrued liabilities...... $ 1,879 $ -- $ -- $ 1,879
Notes payable and current portion of long-term
debt....................................... 187 2,546 (2,333) 400
Payable to founding stockholders.............. -- 85,650 -- 85,650
-------- -------- -------- --------
Total current liabilities............. 2,066 88,196 (2,333) 87,929
Long-term debt, net of current maturities....... -- 8,454 (32,667) (24,213)
Subordinated debt............................... -- -- (15,000) (15,000)
-------- -------- -------- --------
Total liabilities..................... 2,066 96,650 (50,000) 48,716
Stockholders' equity --
Common stock.................................. (4) -- -- (4)
Additional paid-in capital.................... (55,230) -- -- (55,230)
-------- -------- -------- --------
Total stockholders' equity............ (55,234) -- -- (55,234)
-------- -------- -------- --------
Total liabilities and stockholders'
equity.............................. $(53,168) $ 96,650 $(50,000) $ (6,518)
======== ======== ======== ========
</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, which have been agreed to
prospectively. Also reflects a $1.1 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 $1.3 million relating to the
Acquisitions, using a 40-year estimated life, plus additional depreciation
expense of $1.9 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
$4.8 million on the $3.0 million in long-term debt incurred as part of the
Acquisitions, the $35.0 million Term Loan and the $15.0 million of Subordinated
Debt.
(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> 65
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........................ (330) -- -- -- -- (330)
Depreciation and amortization........ 215 3,181 -- -- -- 3,396
----- ------- ------- ------- ------- -------
Operating income (loss)......... 115 (3,181) -- -- -- (3,066)
Interest expense................... -- -- (3,717) -- -- (3,717)
----- ------- ------- ------- ------- -------
Income (loss) before taxes...... 115 (3,181) (3,717) -- -- (6,783)
Provision (benefit) for income
taxes.............................. -- -- -- (1,674) -- (1,674)
----- ------- ------- ------- ------- -------
Net income (loss).................... $ 115 $(3,181) $(3,717) $ 1,674 $ -- $(5,109)
===== ======= ======= ======= ======= =======
</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, which has been agreed to
prospectively. Also reflects a $1.1 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 $627,000 relating to the
Acquisitions, using a 40-year estimated life, plus additional depreciation
expense of $1,380,000 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 $634,000
resulting from refinancing the outstanding indebtedness of the Founding
Companies in conjunction with the Acquisitions, net of the additional interest
expense of $2.4 million on the $3.0 million in long-term debt incurred as part
of the Acquisitions, the $35.0 million Term Loan and the $15.0 million of
Subordinated Debt.
(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> 66
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............................. (165) -- -- -- -- (165)
Depreciation and amortization........... 108 2,007 -- -- -- 2,115
---- ------- ------- ------ ------- -------
Operating income (loss).............. 57 (2,007) -- -- -- (1,950)
Interest expense........................ -- -- (1,752) -- -- (1,752)
---- ------- ------- ------ ------- -------
Income (loss) before taxes........... 57 (2,007) (1,752) -- -- (3,702)
Provision (benefit) for income taxes...... -- -- -- 201 -- 201
---- ------- ------- ------ ------- -------
Net income (loss)......................... $ 57 $(2,007) $(1,752) $ (201) $ -- $(3,903)
==== ======= ======= ====== ======= =======
</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..................................... 1,240,000 1,240,000
The CSI Companies......................................... 533,333 533,333
HBH, Inc.................................................. 600,000 600,000
RFCNI..................................................... 200,000 200,000
Offering.................................................... 4,000,000 4,000,000
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..................................................... 7,852,666 7,852,666
========= =========
</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> 67
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 $1.1
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.
Restricted Common Stock
Concurrent with the Offering, 975,000 shares of Common Stock will be
exchanged for 975,000 shares of Restricted Common Stock. The Restricted Common
Stock has no voting rights. Shares of Restricted Common Stock are convertible
into shares of Common Stock on a share-for-share basis in the event of (i)
certain ownership changes, (ii) 18 months after the Offering or (iii) approval
by a majority of holders of the Common Stock.
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
"Warrant") for $.001 per share. The 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.
Term Loan
TCMS anticipates obtaining the Term Loan, which will be available on the
closing of the Offering. The Term Loan is intended to be used for paying part of
the cash portion of the aggregate purchase price for the Founding Companies and
general corporate purchases.
Subordinated Debt
The Company expects to issue the Subordinated Debt, which is intended to be
used for paying part of the cash portion of the purchase price for the Founding
Companies and general working capital needs.
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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 $1.1 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> 75
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
The Restricted Common Stock has no voting rights. Shares of Restricted
Common Stock are 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 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 the Term Loan (see Note 6), payable on closing of
the Term Loan; 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.
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
F-19
<PAGE> 76
TRANSCOASTAL MARINE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 expects to enter 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 2,573,333 shares of Common Stock
(including certain estimated post-closing adjustments). In addition, the Company
will be assuming debt on certain of the Founding Companies.
Term Loan
The Company anticipates obtaining a $35.0 million term loan (the "Term
Loan"), which will be available on the closing of the Offering. The facility is
intended to be used for paying part of the cash portion of the purchase price
for the Founding Companies, working capital and general corporate purposes.
Subordinated Debt
The Company expects to issue $15.0 million of subordinated debt (the
"Subordinated Debt"), which is intended to be used for paying part of the cash
portion of the purchase price for the Founding Companies and general working
capital needs.
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-20
<PAGE> 77
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-21
<PAGE> 78
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-22
<PAGE> 79
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-23
<PAGE> 80
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-24
<PAGE> 81
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-25
<PAGE> 82
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-26
<PAGE> 83
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
The Woodson Companies follow 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.
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-27
<PAGE> 84
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-28
<PAGE> 85
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-29
<PAGE> 86
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-30
<PAGE> 87
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-31
<PAGE> 88
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. 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 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
F-32
<PAGE> 89
THE WOODSON COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
year. No expenses were accrued relative to the self-insurance program for the
periods shown in the statements of operations.
Litigation
The Woodson Companies are involved in various legal actions arising in the
ordinary course of business. Management believes the outcome of such legal
actions will not have a material adverse effect on the Companies' financial
position or results of operations.
The Companies are currently involved in two class action lawsuits arising
from events in October 1991 and January 1992 during the course of a pipeline
installation project for a third party gas transmission company. The claims of
representative class members in both cases were tried in 1995, and judgments
were rendered against the Companies, which were later affirmed by the court of
appeal. In both lawsuits, the compensatory damages awarded are expected to be
covered by the Companies' insurance. In one of the cases, punitive damages were
awarded to certain of the representative class members. On the basis of those
punitive damage awards, the Companies estimate that their uninsured exposure for
punitive damages to the entire class may be approximately $2.5 million. In July
1997, all parties involved applied to the Louisiana Supreme Court for further
discretionary review of the judgments. The Companies believe that there are
meritorious defenses to these claims, but are unable to predict whether the
Louisiana Supreme Court will grant relief from the judgments.
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>
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
Subchaper 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-33
<PAGE> 90
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-34
<PAGE> 91
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-35
<PAGE> 92
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-36
<PAGE> 93
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-37
<PAGE> 94
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-38
<PAGE> 95
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-39
<PAGE> 96
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 recognize income from their contracts based on the efforts
expended compared with contractual amounts for these efforts, usually on an
as-billed basis, but at the end of each month accruals are made to reflect
revenues earned. The Companies' customers consist mainly of major companies
operating in the oil and gas business. The Companies charge uncollectible
receivables to expense when available information indicates that it is probable
that the assets have been impaired. Occasionally, the Companies will have claims
for work they complete outside the scope of the original contracts. The
Companies' policy is to record revenue on these claims at the time collection is
assured.
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-40
<PAGE> 97
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-41
<PAGE> 98
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-42
<PAGE> 99
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-43
<PAGE> 100
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. HMMI filed a motion for a summary judgment in which the district court
granted the motion and dismissed the plaintiff's claim. The summary judgment was
reversed on appeal by the Third Circuit Court of Appeals. HMMI has filed a
petition, which is still pending, for the Louisiana Supreme Court to hear the
case in order to reverse the lower court's ruling. The petition is currently
pending. In the opinion of the Companies' management, after consultation with
outside legal counsel, the ultimate disposition of such proceedings,
F-44
<PAGE> 101
THE CSI COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
including the case above, will not have a material adverse effect on the
Companies' financial position or results of operations.
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-45
<PAGE> 102
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-46
<PAGE> 103
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-47
<PAGE> 104
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-48
<PAGE> 105
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-49
<PAGE> 106
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-50
<PAGE> 107
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. 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-51
<PAGE> 108
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-52
<PAGE> 109
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-53
<PAGE> 110
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-54
<PAGE> 111
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-55
<PAGE> 112
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-56
<PAGE> 113
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-57
<PAGE> 114
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-58
<PAGE> 115
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-59
<PAGE> 116
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-60
<PAGE> 117
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
The Company follows 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. 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-61
<PAGE> 118
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-62
<PAGE> 119
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-63
<PAGE> 120
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-64
<PAGE> 121
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-65
<PAGE> 122
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-66
<PAGE> 123
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............................... 15
Use of Proceeds........................... 17
Dividend Policy........................... 17
Capitalization............................ 18
Dilution.................................. 19
Selected Financial Information............ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 22
Business.................................. 33
Management................................ 42
Security Ownership of Certain Beneficial
Owners and Management................... 45
Certain Transactions...................... 46
Description of Capital Stock.............. 49
Shares Eligible for Future Sale........... 51
Underwriting.............................. 53
Legal Matters............................. 54
Experts................................... 54
Additional Information.................... 55
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.
4,000,000 SHARES
TRANSCOASTAL MARINE
SERVICES, INC.
COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.
JOHNSON RICE &
COMPANY L.L.C.
, 1997
<PAGE> 124
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........................................ $22,304
NASD Filing Fee............................................. 7,860
NASDAQ Listing Fee.......................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue sky fees and expenses (including counsel fees)......... *
Printing Costs.............................................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be provided by amendment.
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.
II-1
<PAGE> 125
[The Company intends to enter into Indemnity Agreements with its directors
and certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.]
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
Under Section 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 sales and issuances of the securities referenced above were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof as
transaction not involving any public offerings, with the recipients representing
their intentions to acquire the securities for their own accounts and not with a
view to the distribution thereof.
See "Certain Transactions" for a discussion of the issuance of shares of
Common Stock in connection with the Acquisitions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C>
*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 Certificate representing Restricted Common Stock.
4.3 -- Form of Secured Promissory Note dated as of ,
1997, issued in the acquisition of RFCNI.
*5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin.
*8.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin regarding certain tax matters.
10.1 -- TCMS 1997 Stock Option Plan.
10.2 -- Employment Agreement dated as of August 6, 1997, between
TCMS and Bill E. Stallworth.
</TABLE>
II-2
<PAGE> 126
<TABLE>
<C> <S>
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 -- Employment Agreement dated as of , 1997,
between HBH, Inc. and H. Daniel Hughes II.
*10.9 -- Employment Agreement dated as of , 1997,
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.
*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, Jr.
Children's Trust No. 1.
*10.20 -- 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.
*21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP.
</TABLE>
II-3
<PAGE> 127
<TABLE>
<S> <S>
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.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by Amendment.
(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-4
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas
on August 29, 1997.
TRANSCOASTAL MARINE SERVICES, INC.
By: /s/ BILL E. STALLWORTH
----------------------------------
Bill E. Stallworth, Chairman of
the Board of Directors and Chief
Executive Officer
Each individual whose signature appears below constitutes and appoints Bill
E. Stallworth, Thad Smith and Johnnie W. Domingue, and each of them, his true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statements filed
by the Registrant pursuant to Rule 462(b) of the Securities Act of 1933, which
relates to this Registration Statement, and to file same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or his or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BILL E. STALLWORTH Chairman of the Board of August 29, 1997
- ----------------------------------------------------- Directors, and Chief
Bill E. Stallworth Executive Officer (Principal
Executive Officer)
/s/ THAD SMITH President, Chief Operating August 29, 1997
- ----------------------------------------------------- Officer and Director
Thad Smith
/s/ JOHNNIE W. DOMINGUE Senior Vice President, Chief August 29, 1997
- ----------------------------------------------------- Financial Officer, Treasurer
Johnnie W. Domingue and Secretary (Principal
Financial and Accounting
Officer)
</TABLE>
II-5
<PAGE> 129
INDEX TO EXHIBITS
<TABLE>
<S> <C>
*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 Certificate representing Restricted Common Stock.
4.3 -- Form of Secured Promissory Note dated as of ,
1997, issued in the acquisition of RFCNI.
*5.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin.
*8.1 -- Opinion of Chamberlain, Hrdlicka, White, Williams &
Martin regarding certain tax matters.
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 -- Employment Agreement dated as of , 1997,
between HBH, Inc. and H. Daniel Hughes II.
*10.9 -- Employment Agreement dated as of , 1997,
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.
*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.
</TABLE>
<PAGE> 130
<TABLE>
<C> <S>
*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, Jr.
Children's Trust No. 1.
*10.20 -- 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.
*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.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by Amendment.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
TRANSCOASTAL MARINE SERVICES, INC.
Adopted as of August 6, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1.
Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Principal Offices. . . . . . . . . . . . . . . . . . . 1
Section 1.2 Registered Offices. . . . . . . . . . . . . . . . . . . 1
Section 1.3 Other Offices. . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2.
Stockholder's Meetings . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Annual Meeting. . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Special Meetings. . . . . . . . . . . . . . . . . . . . 1
Section 2.3 Notices of Meetings and Adjourned Meetings. . . . . . . 2
Section 2.4 Voting Lists. . . . . . . . . . . . . . . . . . . . . . 2
Section 2.5 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.6 Organization. . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 Voting. . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.8 Stockholders Entitled to Vote. . . . . . . . . . . . . 3
Section 2.9 Order of Business. . . . . . . . . . . . . . . . . . . 4
Section 2.10 Action by Written Consent. . . . . . . . . . . . . . . 4
Section 2.11 Authorization of Proxies. . . . . . . . . . . . . . . . 4
Section 2.12 Inspectors and Voting Procedures. . . . . . . . . . . . 5
ARTICLE 3.
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 Management. . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Number and Term. . . . . . . . . . . . . . . . . . . . 5
Section 3.3 Quorum and Manner of Action. . . . . . . . . . . . . . 6
Section 3.4 Vacancies. . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.5 Resignations. . . . . . . . . . . . . . . . . . . . . . 6
Section 3.6 Removals. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.7 Annual Meetings. . . . . . . . . . . . . . . . . . . . 7
Section 3.8 Regular Meetings. . . . . . . . . . . . . . . . . . . . 7
Section 3.9 Special Meetings. . . . . . . . . . . . . . . . . . . . 7
Section 3.10 Organization of Meetings. . . . . . . . . . . . . . . . 7
Section 3.11 Place of Meetings. . . . . . . . . . . . . . . . . . . 7
Section 3.12 Compensation of Directors. . . . . . . . . . . . . . . 8
Section 3.13 Action by Unanimous Written Consent. . . . . . . . . . 8
Section 3.14 Participation in Meetings by Telephone. . . . . . . . . 8
Section 3.15 Manifestation of Dissent. . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 4.
Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1 Executive Committee. . . . . . . . . . . . . . . . . . 9
Section 4.2 Compensation Committee. . . . . . . . . . . . . . . . . 9
Section 4.3 Audit Committee. . . . . . . . . . . . . . . . . . . . 9
Section 4.4 Other Committees. . . . . . . . . . . . . . . . . . . . 10
Section 4.5 Rules of Procedure. . . . . . . . . . . . . . . . . . . 10
Section 4.6 Minutes. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.7 Vacancies. . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.8 Telephone Meetings. . . . . . . . . . . . . . . . . . . 11
Section 4.9 Action Without Meeting. . . . . . . . . . . . . . . . . 11
ARTICLE 5.
Operating Divisions of the Corporation . . . . . . . . . . . . . . . 11
Section 5.1 Advisory Board. . . . . . . . . . . . . . . . . . . . . 11
Section 5.2 Titles. . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 6.
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Number and Title. . . . . . . . . . . . . . . . . . . . 12
Section 6.2 Term of Office; Vacancies. . . . . . . . . . . . . . . 12
Section 6.3 Removal of Elected officers. . . . . . . . . . . . . . 12
Section 6.4 Resignations. . . . . . . . . . . . . . . . . . . . . . 12
Section 6.5 The Chairman of the Board. . . . . . . . . . . . . . . 12
Section 6.6 Chief Executive Officer. . . . . . . . . . . . . . . . 13
Section 6.7 President. . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.8 Vice Presidents. . . . . . . . . . . . . . . . . . . . 13
Section 6.9 Secretary. . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.10 Assistant Secretaries. . . . . . . . . . . . . . . . . 14
Section 6.11 Treasurer. . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.12 Assistant Treasurers. . . . . . . . . . . . . . . . . . 14
Section 6.13 Subordinate Officers. . . . . . . . . . . . . . . . . . 14
Section 6.14 Salaries and Compensation. . . . . . . . . . . . . . . 14
ARTICLE 7.
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.1 Indemnification of Directors and Officers. . . . . . . 15
ARTICLE 8.
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.1 Certificates of Stock. . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 8.2 Lost Certificates. . . . . . . . . . . . . . . . . . . 16
Section 8.3 Fixing Date for Determination of Stockholders of
Record for Certain Purposes. . . . . . . . . . . . . . 16
Section 8.4 Dividends. . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.5 Registered Stockholders. . . . . . . . . . . . . . . . 17
Section 8.6 Transfer of Stock. . . . . . . . . . . . . . . . . . . 17
ARTICLE 9.
Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.1 Corporate Seal. . . . . . . . . . . . . . . . . . . . 18
Section 9.2 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . 18
Section 9.3 Checks, Drafts, Notes. . . . . . . . . . . . . . . . . 18
Section 9.4 Notice and Waiver of Notice. . . . . . . . . . . . . . 18
Section 9.5 Examination of Books and Records. . . . . . . . . . . . 19
Section 9.6 Voting Upon Shares Held by the Corporation. . . . . . 19
ARTICLE 10.
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 10.1 Amendments. . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 5
BYLAWS
OF
TRANSCOASTAL MARINE SERVICES, INC.
ARTICLE 1.
Offices
Section 1.1 Principal Offices.
The principal office of the Corporation shall be in the City of New
Iberia, Louisiana.
Section 1.2 Registered Offices.
The registered office of the Corporation required to be maintained in
the State of Delaware by the General Corporation Laws of the State of Delaware
may be, but need not be, identical with the Corporation's principal office, and
the address of the registered office may be changed from time to time by the
Board of Directors.
Section 1.3 Other Offices.
The Corporation may also have offices at such other places both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE 2.
Stockholder's Meetings
Section 2.1 Annual Meeting.
The annual meeting of the holders of shares of each class or series of
stock as are entitled to notice thereof and to vote thereat pursuant to
applicable law and the Corporation's Certificate of Incorporation for the
purpose of electing directors and transacting such other proper business as may
come before it shall be held in each year, at such time, on such day and at
such place, within or without the State of Delaware, as may be designated by
the Board of Directors or by the holders of 50% or more of all of the shares
entitled to vote at the annual meeting.
Section 2.2 Special Meetings.
In addition to such special meetings as are provided by law or the
Corporation's Certificate of Incorporation, special meetings of the holders of
any class or series or of all classes or series of the Corporation's stock for
any purpose or purposes, may be called at any time by the Board of Directors,
the Chief Executive Officer, and the holders of not less than one-tenth
(1/10th) of all the outstanding shares of the Corporation entitled to vote at
the meeting for any purpose or purposes,
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and may be held on such day, at such time and at such place, within or without
the State of Delaware, as shall be designated by the Board of Directors, the
Chief Executive Officer, and the holders of not less than one-tenth (1/10th) of
all the outstanding shares of the Corporation entitled to vote at the meeting.
Section 2.3 Notices of Meetings and Adjourned Meetings.
Except as otherwise provided by law, written notice of any meeting of
Stockholders (i) shall be given either by personal delivery or by mail to each
Stockholder of record entitled to vote thereat, (ii) shall be in such forms as
approved by the Board of Directors, and (iii) shall state the date, place and
hour of the meeting, and, in the case of a special meeting, the purpose for
which the meeting is called. Unless otherwise provided by law, such written
notice shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting. Except when a Stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting is not lawfully
called or convened, presence in person or by proxy of a Stockholder shall
constitute a waiver of notice of such meeting. Further, a written waiver of
any notice required by law or by these Bylaws, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Except as otherwise provided by law, the business that
may be transacted at any such meeting shall be limited to and consist of the
purpose or purposes stated in such notice. If a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken; provided, however, that if the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Stockholder
of record entitled to vote at the meeting.
Section 2.4 Voting Lists.
The officer or agent having charge of the stock transfer books for
shares of the Corporation shall keep a complete list of Stockholders entitled
to vote at meetings or any adjournments thereof, arranged in alphabetical
order, in accordance with applicable law and shall make same available prior to
and during each Stockholders' meeting for inspection by the Corporation's
Stockholders as required by law. The Corporation's original stock transfer
books shall be prima facie evidence as to who are the Stockholders entitled to
examine such list or transfer books or to vote at any meeting of Stockholders.
Section 2.5 Quorum.
Except as otherwise provided by law or by the Corporation's Certificate
of Incorporation, the holders of a majority of the Corporation's stock issued
and outstanding and entitled to vote at a meeting, present in person or
represented by proxy, without regard to class or series, shall constitute a
quorum at all meetings of the Stockholders for the transaction of business.
If, however, such quorum shall not be present or represented at any meeting of
the Stockholders, the holders of a majority of such shares of stock, present in
person or represented by proxy, may adjourn any meeting from time to time
without notice other than announcement at the meeting, except as otherwise
required by these Bylaws, until a quorum shall be present or represented. At
any such adjourned
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meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
called.
Section 2.6 Organization.
Meetings of the Stockholders shall be presided over by the Chairman of
the Board of Directors, if one shall be elected, or in his absence, by the
President or by any Vice President, or, in the absence of any such officers, by
a chairman to be chosen by a majority of the Stockholders entitled to vote at
the meeting who are present in person or by proxy. The Secretary, or, in his
absence, any Assistant Secretary or any person appointed by the individual
presiding over the meeting, shall act as secretary at meetings of the
Stockholders.
Section 2.7 Voting.
Each Stockholder of record, as determined pursuant to Section 2.8, who
is entitled to vote in accordance with the terms of the Corporation's
Certificate of Incorporation and in accordance with the provisions of these
Bylaws, shall be entitled to one vote, in person or by proxy, for each share of
stock registered in his name on the books of the Corporation. Every
Stockholder entitled to vote at any Stockholders' meeting may authorize another
person or persons to act for him by proxy pursuant to Section 2.11, provided
that no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A Stockholder's attendance at any meeting shall not have
the effect of revoking a previously granted proxy unless such Stockholder shall
in writing so notify the Secretary of the meeting prior to the voting of the
proxy. Unless otherwise provided by law, no vote on the election of directors
or any question brought before the meeting need be by ballot unless the
chairman of the meeting shall determine that it shall be by ballot or the
holders of a majority of the shares of stock present in person or by proxy and
entitled to participate in such vote shall so demand. In a vote by ballot,
each ballot shall state the number of shares voted and the name of the
Stockholder or proxy voting. Except as otherwise provided by law, by the
Corporation's Certificate of Incorporation or these Bylaws, all elections of
directors and all other matters before the Stock-holders shall be decided by
the vote of the holders of a majority of the shares of stock present in person
or by proxy at the meeting and entitled to vote in the election or on the
question. In the election of directors, votes may not be cumulated.
Section 2.8 Stockholders Entitled to Vote.
The Board of Directors may fix a date not more than sixty (60) days nor
less than ten (10) days prior to the date of any meeting of Stockholders, or,
in the case of corporate action by written consent in accordance with the terms
of Section 2.10, not more than sixty (60) days prior to such action, as a
record date for the determination of the Stockholders entitled to notice of and
to vote at such meeting and any adjournment thereof, or to act by written
consent, and in such case such Stockholders and only such Stockholders as shall
be Stockholders of record on the date so fixed shall be entitled to notice of
and to vote at such meeting and any adjournment thereof, or to act by written
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consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after such record date fixed as aforesaid.
Section 2.9 Order of Business.
The order of business at all meetings of Stockholders shall be as
determined by the chairman of the meeting or as is otherwise determined by the
vote of the holders of a majority of the shares of stock present in person or
by proxy and entitled to vote without regard to class or series at the meeting.
Section 2.10 Action by Written Consent.
Any action required to be taken by the Stockholders of the Corporation
at an annual or special meeting of Stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
Stockholders in lieu thereof.
Section 2.11 Authorization of Proxies.
Without limiting the manner in which a Stockholder may authorize another
person or persons to act for him as proxy, the following are valid means of
granting such authority. A Stockholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be
accomplished by the Stockholder or his authorized officer, director, employee
or agent signing such writing or causing his or her signature to be affixed to
such writing by any reasonable means including, but not limited to, by
facsimile signature. A Stockholder may also authorize another person or
persons to act for him as proxy by transmitting or authorizing the transmission
of a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the person
who will be the holder of the proxy to receive such transmission, provided that
any such telegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
Stockholder. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied. Any copy, facsimile telecommunication or
other reliable reproduction of the writing or transmission created pursuant to
this Section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the writing or transmission
could be used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing or
transmission.
Section 2.12 Inspectors and Voting Procedures.
(a) The Corporation shall, in advance of any meeting of
Stockholders, appoint one or more inspectors to act at the meeting and
make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
Stockholders, the person
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<PAGE> 9
presiding at the meeting shall appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his
ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii)
count all votes and ballots, (iv) determine and retain for a reasonable
period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of
the number of shares represented at the meeting, and their count of all
votes and ballots. The inspectors may appoint or retain other persons
or entities to assist the inspectors in the performance of the duties of
the inspectors.
(c) The date and time of the opening an closing of the polls
for each matter upon which the Stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the
inspectors after the closing of the polls unless the Court of Chancery
upon application by a Stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors may examine and consider such records or factors
as allowed by the General Corporation Laws of the State of Delaware.
ARTICLE 3.
Directors
Section 3.1 Management.
The property, affairs and business of the Corporation shall be managed
by or under the direction of the Board of Directors. The Board of Directors
may exercise all powers of the Corporation consistent with the Certificate of
Incorporation, the Bylaws and applicable laws.
Section 3.2 Number and Term.
The number of directors may be fixed from time to time by resolution of
the Board of Directors adopted by the affirmative vote of a majority of the
members of the entire Board of Directors, but shall consist of not less than
one (1) member who shall be elected annually by the Stockholders except as
provided in Section 3.4. Directors need not be Stockholders. No decrease in
the number of directors shall have the effect of shortening the term of office
of any incumbent director.
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Section 3.3 Quorum and Manner of Action.
At all meetings of the Board of Directors a majority of the total number
of directors holding office shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law, by the Corporation's Certificate
of Incorporation or these Bylaws. When the Board of Directors consists of one
director, the one director shall constitute a majority and a quorum. If at any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at such adjourned meeting. Attendance by a director at a meeting
shall constitute a waiver of notice of such meeting except where a director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 3.4 Vacancies.
Except as otherwise provided by law or the Corporation's Certificate of
Incorporation, in the case of any increase in the authorized number of
directors or of any vacancy in the Board of Directors, however created, the
additional director or directors may be elected, or, as the case may be, the
vacancy or vacancies may be filled by majority vote of the directors remaining
on the whole Board of Directors although less than a quorum, or by a sole
remaining director. In the event one or more directors shall resign, effective
at a future date, such vacancy or vacancies shall be filled by a majority of
the directors who will remain on the whole Board of Directors, although less
than a quorum, or by a sole remaining director. Any director elected or chosen
as provided herein shall serve until the sooner of: (i) the unexpired term of
the directorship to which he is appointed; (ii) until his successor is elected
and qualified; or (iii) until his earlier resignation or removal.
Section 3.5 Resignations.
A director may resign at any time upon written notice of resignation to
the Corporation. Any resignation shall be effective immediately unless a
certain effective date is specified therein, in which event it will be
effective upon such date and acceptance of any resignation shall not be
necessary to make it effective.
Section 3.6 Removals.
No director may be removed from office by a vote of the Stockholders at
any time except for cause. At the meeting of Stockholders at which such
removal occurs, another person or persons may be elected to serve for the
remainder of his or their term by the holders of a majority of the shares of
the Corporation entitled to vote in the election of directors. In case any
vacancy so created shall not be filled by the Stockholders at such meeting,
such vacancy may be filled by the directors as provided in Section 3.4.
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Section 3.7 Annual Meetings.
The annual meeting of the Board of Directors shall be held, if a quorum
be present, immediately following each annual meeting of the Stockholders at
the place such meeting of Stockholders took place, for the purpose of
organization and transaction of any other business that might be transacted at
a regular meeting thereof, and no notice of such meeting shall be necessary.
If a quorum is not present, such annual meeting may be held at any other time
or place that may be specified in a notice given in the manner provided in
Section 3.9 for special meetings of the Board of Directors or in a waiver of
notice thereof.
Section 3.8 Regular Meetings.
Regular meetings of the Board of Directors may be held without notice at
such places and times as shall be determined from time to time by resolution of
the Board of Directors. Except as otherwise provided by law, any business may
be transacted at any regular meeting of the Board of Directors.
Section 3.9 Special Meetings.
Special meetings of the Board of Directors may be called by the
President, or by the Secretary on the written request of one-third ( 1/3) of
the members of the whole Board of Directors stating the purpose or purposes of
such meeting. Notices of special meetings, if mailed, shall be mailed to each
director not later than two (2) days before the day of the meeting is to be
held or if otherwise given in the manner permitted by these Bylaws, not later
than the day before such meeting. Neither the business to be transacted at,
nor the purpose of, any special meetings need be specified in any notice or
written waiver of notice unless so required by the Corporation's Certificate of
Incorporation or by these Bylaws. Any and all business may be transacted at a
special meeting, unless limited by law, the Corporation's Certificate of
Incorporation or by these Bylaws.
Section 3.10 Organization of Meetings.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as such Board of Directors may from time to time
determine, and all matters shall be determined by the vote of a majority of the
directors present at any meeting at which there is a quorum, except as
otherwise provided by these Bylaws or required by law.
Section 3.11 Place of Meetings.
The Board of Directors may hold their meetings and have one or more
offices, and keep the books of the Corporation, outside the State of Delaware,
at any office or offices of the Corporation, or at any other place as they may
from time to time by resolution determine.
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Section 3.12 Compensation of Directors.
Directors who are not full-time employees of the Corporation may receive
a stated salary for their services as directors as determined by resolution of
the Board of Directors. Directors who are full-time employees of the
Corporation shall not receive any stated salary for their services as
directors, but by resolution of the Board of Directors a fixed honorarium or
fees and expenses, if any, of attendance may be allowed for attendance at each
meeting. Members of special or standing committees may be allowed like
compensation for attending such committee meetings.
Section 3.13 Action by Unanimous Written Consent.
Unless otherwise restricted by law, the Corporation's Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of such
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors of
the committee.
Section 3.14 Participation in Meetings by Telephone.
Unless otherwise restricted by the Corporation's Certificate of
Incorporation or these Bylaws, members of the Board of Directors or of any
committee thereof may participate in a meeting of such Board of Directors or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation in a meeting in such manner shall constitute presence in person
at such meeting, except where a person participates in the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened.
Section 3.15 Manifestation of Dissent.
A director of the Corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
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ARTICLE 4.
Committees of the Board
Section 4.1 Executive Committee.
The Board of Directors may appoint from among its members an Executive
Committee of not less than two nor more than five members, one of whom shall be
the Chief Executive Officer, and shall designate one of such members as
Chairman. The Board may also designate one or more of its members as alternates
to serve as a member or members of the Executive Committee in the absence of a
regular member or members. The Board of Directors reserves to itself alone the
power to recommend to stockholders any action requiring their approval and the
power to adopt, amend or repeal any bylaw of the Corporation. Subject to the
foregoing limitations, the Executive Committee shall possess and exercise all
other powers of the Board of Directors during the intervals between meetings.
Section 4.2 Compensation Committee.
The Board of Directors may appoint a Compensation Committee of two or
more directors, at least one of whom shall be neither an officer nor otherwise
employed by the Corporation. The Board shall designate one director as Chairman
of the Committee, and may designate one or more directors as alternate members
of the Committee, who may replace any absent or disqualified member at any
meeting of the Committee. The Committee shall have the power to fix from time
to time the compensation of all principal officers of the Corporation and shall
otherwise exercise such powers as may be specifically delegated to it by the
Board and act upon such matters as may be referred to it from time to time for
study and recommendation by the Board or the President.
Section 4.3 Audit Committee.
The Board of Directors may appoint from among its members an Audit
Committee of not less than three members, and shall designate one of such
members as Chairman.
The responsibilities of the Audit Committee shall be as follows:
(a) To recommend to the Board of Directors for approval by the
stockholders a firm of independent public accountants, hereinafter called the
firm, to audit the accounts of the Corporation, and such of its subsidiaries as
the Audit Committee may recommend, for the year regarding which the firm is
appointed.
(b) To meet jointly and/or separately with the Comptroller of the
Corporation and the firm before commencement of the audit (i) to discuss the
evaluation by the firm of the adequacy and effectiveness of the accounting
procedures and internal controls of the Corporation and its subsidiaries, (ii)
to approve the overall scope of the audit to be made and the fees to be
charged, (iii) to inquire regarding and discuss with the firm recent Financial
Accounting Standards Board,
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Securities and Exchange Commission or other regulatory agency pronouncements,
if any, which might affect the Corporation's financial statements.
(c) To meet jointly and/or separately with the Controller and the
firm at the conclusion of the audit: (i) to review the audited financial
statements of the Corporation, (ii) to discuss the results of the audit, (iii)
to discuss any significant recommendations by the firm for improvement of
accounting systems and controls of the Corporation, and (iv) to discuss the
quality and depth of staffing in the accounting and financial departments of
the Corporation.
(d) To meet and confer with such officers and employees of the
Corporation as the Audit Committee shall deem appropriate in connection with
carrying out the foregoing responsibilities.
Section 4.4 Other Committees.
The Board of Directors may also appoint from among its own members such
other committees as the Board may determine, which shall in each case consist
of not less than two directors, and which shall have such powers and duties as
shall from time to time be prescribed by the Board. The President shall be a
member ex officio of each committee appointed by the Board of Directors.
Section 4.5 Rules of Procedure.
A majority of the members of any committee may fix its rules of
procedure. All action by any committee shall be reported to the Board of
Directors at a meeting succeeding such action and shall be subject to revision,
alteration, and approval by the Board of Directors; provided that no rights or
acts of third parties shall be affected by any such revision or alteration.
Section 4.6 Minutes.
Each committee designated by the Board of Directors shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.
Section 4.7 Vacancies.
The Board of Directors may designate one (1) or more of its members as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of such committee. If no alternate members have been
appointed, the committee member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. The Board of
Directors shall have the power at any time to fill vacancies in, to change the
membership of, and to dissolve, any committee.
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Section 4.8 Telephone Meetings.
Members of any committee designated by the Board of Directors may
participate in or hold a meeting by use of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
Section 4.8 shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
Section 4.9 Action Without Meeting.
Any action required or permitted to be taken at a meeting of any
committee designated by the Board of Directors may be taken without a meeting
if a consent in writing, setting forth the action so taken, is signed by all
the members of the committee and filed with the minutes of the committee
proceedings. Such consent shall have the same force and effect as a unanimous
vote at a meeting.
ARTICLE 5.
Operating Divisions of the Corporation
Section 5.1 Advisory Board.
The Board of Directors of the Corporation may appoint individuals who
may but need not be directors, officers, or employees of the Corporation to
serve as members of an Advisory Board of Directors of one or more operating
divisions of the Corporation and may fix fees or compensation for attendance at
meetings of any such Advisory Boards. The members of any such Advisory Board
may adopt and from time to time may amend rules and regulations for the conduct
of their meetings and shall keep minutes which shall be submitted to the Board
of Directors of the Corporation. The term of office of any member of the
Advisory Board of Directors shall be at the pleasure of the Board of Directors
of the Corporation and shall expire the day of the annual meeting of the
stockholders of the Corporation. The function of any such Advisory Board of
Directors shall be to advise with respect to the affairs of the operating
divisions of the Corporation to which it is appointed.
Section 5.2 Titles.
The Board of Directors of the Corporation may from time to time confer
on the employees of the Corporation assigned to any operating division of the
Corporation, or discontinue, the title of President, Vice President, and any
other titles deemed appropriate. The designation of any such official titles
for employees assigned to operating divisions of the Corporation shall not be
permitted to conflict in any way with any executive or administrative authority
established from time to time by the Corporation. Any employee so designated as
an officer of an operating division shall have authority, responsibilities, and
duties with respect to his operating division corresponding to those normally
vested in the comparable officer of the Corporation by these Bylaws, subject to
such limitations as may be imposed by the Board of Directors of the
Corporation.
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SECTION 6.
Officers
Section 6.1 Number and Title.
The elected officers of the Corporation shall be chosen by the Board of
Directors and shall be a Chief Executive Officer, a President, a Vice
President, a Secretary and a Treasurer. The Board of Directors may also choose
a Chairman of the Board, who must be a Board member of the Board of Directors,
and additional Vice Presidents, Assistant Secretaries and/or Assistant
Treasurers. One person may hold any two or more of these offices and any one
or more of the Vice Presidents may be designated as an Executive Vice President
or Senior Vice President.
Section 6.2 Term of Office; Vacancies.
So far as is practicable, all elected officers shall be elected by the
Board of Directors at the annual meeting of the Board of Directors each year,
and except as otherwise provided in this Article 6, shall hold office until the
next such meeting of the Board of Directors in the subsequent year and until
their respective successors are elected and qualified or until their earlier
resignation or removal. All appointed officers shall hold office at the
pleasure of the Board of Directors. If any vacancy shall occur in any office,
the Board of Directors may elect or appoint a successor to fill such vacancy
for the remainder of the term.
Section 6.3 Removal of Elected officers.
Any elected officer may be removed at any time, with or without cause,
by affirmative vote of a majority of the whole Board of Directors, at any
regular meeting or at any special meeting called for such purpose.
Section 6.4 Resignations.
Any officer may resign at any time upon written notice of resignation to
the President, Secretary or Board of Directors of the Corporation. Any
resignation shall be effective immediately unless a date certain is specified
for it to take effect, in which event it shall be effective upon such date, and
acceptance of any resignation shall not be necessary to make it effective,
irrespective of whether the resignation is tendered subject to such acceptance.
Section 6.5 The Chairman of the Board.
The Chairman of the Board, if one shall be elected, shall preside at all
meetings of the Stockholders and Board of Directors. In addition, the Chairman
of the Board shall perform whatever duties and shall exercise all powers that
are given to him by the Board of Directors.
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Section 6.6 Chief Executive Officer.
The Chief Executive Officer shall be the most senior executive officer
of the Corporation; shall (in the absence of the Chairman of the Board, if one
be elected) preside at meetings of the Stockholders and Board of Directors;
shall be ex officio a member of all standing committees; shall have general and
active management of business of the Corporation; shall implement the general
directives, plans and policies formulated by the Board of Directors; and shall
further have such duties, responsibilities and authorities as may be assigned
to him by the Board of Directors. He may sign, with any other proper officer,
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts and other documents which the Board of Directors has authorized to be
executed, except where required by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors or these Bylaws, to some other officer or agent of the
corporation. In the absence of the Chief Executive Officer, his duties shall
be performed and his authority may be exercised by the President of the
Corporation.
Section 6.7 President.
The President shall, after the Chief Executive Officer, be the most
senior executive officer of the corporation and shall, subject to the authority
of the Chief Executive Officer, implement the general plans and directives of
the Board of Directors and perform such other duties as may be assigned to him
by the Board of Directors.
Section 6.8 Vice Presidents.
The several Vice Presidents shall have such powers and duties as may be
assigned to them by these Bylaws and as may from time to time be assigned to
them by the Board of Directors and may sign, with any other proper officer,
certificates for shares of the Corporation.
Section 6.9 Secretary.
The Secretary, if available, shall attend all meetings of the Board of
Directors and all meetings of the Stockholders and record the proceedings of
the meetings in a book to be kept for that purpose and shall perform like
duties for any committee of the Board of Directors as shall designate him to
serve. He shall give, or cause to be given, notice of all meetings of the
Stockholders and meetings of the Board of Directors and committees thereof and
shall perform such other duties incident to the office of secretary or as may
be prescribed by the Board of Directors or the President, under whose
supervision he shall be. He shall have custody of the corporate seal of the
Corporation and he, or any Assistant Secretary, or any other person whom the
Board of Directors may designate, shall have authority to affix the same to any
instrument requiring it, and when so affixed it may be attested by his
signature or by the signature of any Assistant Secretary or by the signature of
such other person so affixing such seal.
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Section 6.10 Assistant Secretaries.
Each Assistant Secretary shall have the usual powers and duties
pertaining to his office, together with such other powers and duties as may be
assigned to him by the Board of Directors, the President or the Secretary. The
Assistant Secretary or such other person as may be designated by the President
shall exercise the powers of the Secretary during that officer's absence or
inability to act.
Section 6.11 Treasurer.
The Treasurer shall have the custody of and be responsible for the
corporate funds and securities, shall keep full and separate accounts of
receipts and disbursements in the books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation and
he shall perform all other duties incident to the position of Treasurer, or as
may be prescribed by the Board of Directors or the President. If required by
the Board of Directors, he shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the Corporation
Section 6.12 Assistant Treasurers.
Each Assistant Treasurer shall have the usual powers and duties
pertaining to his office, together with such other powers and duties as may be
assigned to him by the Board of Directors, the President or the Treasurer. The
Assistant Treasurer or such other person designated by the President shall
exercise the power of the Treasurer during that officer's absence or inability
to act.
Section 6.13 Subordinate Officers.
The Board of Directors may (i) appoint such other subordinate officers
and agents as it shall deem necessary who shall hold their offices for such
terms, have such authority and perform such duties as the Board of Directors
may from time to time determine, or (ii) delegate to any committee or officer
the power to appoint any such subordinate officers or agents.
Section 6.14 Salaries and Compensation.
The salary or other compensation of officers shall be fixed from time to
time by the Board of Directors. The Board of Directors may delegate to any
committee or officer the power to fix form time to time the salary or other
compensation of subordinate officers and agents appointed in accordance with
the provisions of Section 6.12.
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ARTICLE 7.
Indemnification
Section 7.1 Indemnification of Directors and Officers.
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a named defendant or respondent in any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact
that such person is or was, at any time prior to or during which this
Article 7 is in effect, a director or officer of the Corporation, or is
or was, at any time prior to or during which this Article 7 is in
effect, serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against
reasonable expenses (including attorneys' fees), judgments, fines,
penalties, amounts paid in settlement and other liabilities actually and
reasonably incurred by such person in connection with such action, suit
or proceeding to the full extent permitted by the General Corporation
laws of the State of Delaware, upon such determination having been made
as to such person's good faith and conduct.
(b) Expenses (including attorneys' fees) incurred by a
person who is or was a director or officer of the Corporation in
defending any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
shall be paid by the Corporation at reasonable intervals in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to
be indemnified by the Corporation as authorized by this Article 7.
(c) It is the intention of the Corporation to indemnify the
persons referred to in this Article 7 to the fullest extent permitted by
law and with respect to any action, suit or proceeding arising from
events which occur at any time prior to or during which this Article 7
is in effect. The indemnification of any other rights which those
seeking indemnification or advancement of expenses may be or become
entitled under any law, the Corporation's Certificate of Incorporation,
these Bylaws, agreement, the vote of Stockholders or disinterested
directors or otherwise, or under any policy or policies of insurance
purchased and maintained by the Corporation on behalf of any such
person, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of
such person.
(d) The indemnification provided by this Article 7 shall be
subject to all valid and applicable laws, and, in the event this Article
7 or any of the provisions hereof or the indemnification contemplated
hereby are found to be inconsistent with or contrary to any such valid
laws, the latter shall be deemed to control and this Article 7 shall be
regarded as modified accordingly, and, as so modified, to continue in
full force and effect.
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ARTICLE 8.
Capital Stock
Section 8.1 Certificates of Stock.
Certificates of stock shall be issued to each Stockholder certifying the
number of shares owned by him in the Corporation and shall be in a form not
inconsistent with the Certificate of Incorporation and as approved by the Board
of Directors. The certificates shall be signed by the Chairman of the Board,
the President or a Vice President and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer and may be sealed with
the seal of the Corporation or a facsimile thereof. Any or all of the
signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
If the Corporation shall be authorized to issue more than one (1) class
of stock or more than one (1) series of any class, the power, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided by statute, in lieu of the foregoing requirements, there may
be set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each Stockholder who so requests the
powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Section 8.2 Lost Certificates.
The Board of Directors may direct a new certificate to be issued in
place of any certificate theretofore issued by the Corporation alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the owner of such certificate, or his legal representative. When authorizing
the issuance of a new certificate, the Board of Directors may in its
discretion, as a condition precedent to the issuance thereof, require the
owner, or his legal representative, to give a bond in such form and substance
with such surety as it may direct, to indemnify the Corporation against any
claim that may be made on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
Section 8.3 Fixing Date for Determination of Stockholders of Record
for Certain Purposes.
(a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of capital stock
or for
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<PAGE> 21
the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) days
prior to the date of payment of such dividend or other distribution or
allotment of such rights or the date when any such rights in respect of
any change, conversion or exchange of stock may be exercised or the date
of such other action. In such a case, only Stockholders of record on the
date so fixed shall be entitled to receive any such dividend or other
distribution or allotment of rights or to exercise such rights or for
any other purpose, as the case may be, notwithstanding any transfer of
any stock on the books of the Corporation after any such record date
fixed as aforesaid.
(b) If no record date is fixed, the record date for
determining Stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 8.4 Dividends.
Subject to the provisions of the Corporation's Certificate of
Incorporation, if any, and except as otherwise provided by law, the directors
may declare dividends upon the capital stock of the Corporation as and when
they deem it to be expedient. Such dividends may be paid in cash, in property
or in shares of the Corporation's capital stock. Before declaring any dividend
there may be set apart out of the funds of the Corporation available for
dividends, such sum or sums as the directors from time to time in their
discretion think proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends, or for such other purposes as the
directors shall think conducive to the interests of the Corporation and the
directors may modify or abolish any such reserve in the manner in which it was
created.
Section 8.5 Registered Stockholders.
Except as expressly provided by law, the Corporation's Certificate of
Incorporation or these Bylaws, the Corporation shall be entitled to treat
registered Stockholders as the only holders and owners in fact of the shares
standing in their respective names and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in such shares on the
part of any other person, regardless of whether it shall have express or other
notice thereof.
Section 8.6 Transfer of Stock.
Transfers of shares of the capital stock of the Corporation shall be
made only on the books of the Corporation by the registered owners thereof, or
by their legal representatives or their duly authorized attorneys. Upon any
such transfers the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock transfer books and
ledgers, by whom they shall be canceled and new certificates shall thereupon be
issued.
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ARTICLE 9.
Miscellaneous Provisions
Section 9.1 Corporate Seal.
If one is adopted, the corporate seal shall have inscribed thereon the
name of the Corporation and shall be in such form as may be approved by the
Board of Directors. Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any manner reproduced.
Section 9.2 Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
Section 9.3 Checks, Drafts, Notes.
All checks, drafts or other orders tor the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation, and in
such manner as shall from time to time be determined by resolution (whether
general or special) of the Board of Directors or may be prescribed by any
officer or officers, or any officer and agent jointly, thereunto duly
authorized by the Board of Directors.
Section 9.4 Notice and Waiver of Notice.
Whenever notice is required to be given to any director or Stockholder
under the provisions of applicable law, the Corporation's Certificate of
Incorporation or these Bylaws, such notice shall be in writing and delivered
whether (i) personally, or (ii) by mail, or (iii) by telegram, telecopy, or
similar facsimile means (delivered during the recipient's regular business
hours). Such notice shall be sent to such director or Stockholder at the
address or telecopy number as it appears on the records of the Corporation,
unless prior to the sending of such notice he has designated, in a written
request to the Secretary of the Corporation, another address or telecopy number
to which notices are to be sent. Notices shall be deemed given when received,
if sent by telegram, telex, telecopy or similar facsimile means (confirmation
of such receipt by confirmed facsimile transmission being deemed receipt of
communications sent by telex, telecopy or other facsimile means); and when
delivered and receipted for (or upon the date of attempted delivery where
delivery is refused), if hand delivered, sent by express courier or delivery
service, or sent by certified or registered mail. Whenever notice is required
to be given under any provision of law, the Corporation's Certificate of
Incorporation or these Bylaws, a waiver thereof in writing, by telegraph, cable
or other form of recorded communication, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business on the grounds that the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Stockholders, directors, or
members of
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<PAGE> 23
a committee of directors need be specified in any written waiver of notice
unless so required by the Corporation's Certificate of Incorporation or these
Bylaws.
Section 9.5 Examination of Books and Records.
The Board of Directors shall determine from time to time whether, and
if allowed, when and under what conditions and regulations the accounts and
books of the Corporation (except such as may be statute be specifically opened
to inspection) or any of them shall be open to inspection by the Stockholders,
and the Stockholders' rights in this respect are and shall be restricted and
limited accordingly.
Section 9.6 Voting Upon Shares Held by the Corporation.
Unless otherwise provided by law or by the Board of Directors, the Chief
Executive Officer, acting on behalf of the Corporation, shall have full power
and authority to attend and to act and to vote at any meeting of Stockholders
of any corporation, partnership, venture or limited liability company in which
the Corporation may hold stock or other equity interest and, at any such
meeting, shall possess and may exercise any and all of the rights and powers
incident to the ownership of such equity interest which, as the owner thereof,
the Corporation might have possessed and exercised, if present. The Board of
Directors by resolution from time to time may confer like powers upon any
person or persons.
ARTICLE 10.
Amendments
Section 10.1 Amendments.
Except as expressly provided in the Corporation's Certificate of
Incorporation, the directors, by the affirmative vote of a majority of the
entire Board of Directors and without the consent or vote of the Stockholders,
may at any meeting, provided the substance of the proposed amendment shall have
been stated in the meeting, make, repeal, alter, amend or rescind any of these
Bylaws. The Stockholders shall not make, repeal, alter, amend or rescind any of
the provisions of these Bylaws except by the holders of not less than a
majority of the shares of stock of the Corporation entitled to vote in the
election of directors.
/s/ BILL E. STALLWORTH
---------------------------------------------
Bill E. Stallworth, Chief Executive Officer
19
<PAGE> 1
EXHIBIT 4.3
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED OR UNDER THE SECURITIES LAWS OF ANY STATE AND IS BEING OFFERED AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT
AND SUCH LAWS. THIS PROMISSORY NOTE MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
SECURED PROMISSORY NOTE.
$3,000,000 _____________, 1997
TRANSCOASTAL MARINE SERVICES, INC., a Delaware corporation (the
"Maker"), for value received, promises to pay the BELDON E. FOX, SR.
GRANDCHILDREN'S TRUST NO. 1 (the "Holder"), the sum of Three Million and No/100
Dollars ($3,000,000), in lawful money of the United States of America, at the
interest rate and on the terms herein specified.
Section 1. Payment.
1.1 Interest Rate. The unpaid principal balance from time to
time outstanding hereunder shall bear interest from and after the date hereof
until maturity at a fixed rate equal to EIGHT PERCENT (8%) per annum. Interest
on this Note shall be computed on the basis of a 365-day (or 366-day, as the
case may be) year for the actual number of days elapsed.
1.2 Due Dates. This Note shall be due and payable as follows:
(a) The outstanding principal balance of this Note and the
accrued interest thereon shall be due and payable in equal monthly installments
of principal in the amount of TWENTY FIVE THOUSAND AND 00/100 DOLLARS
($25,000.00) each, plus interest accrued to date of payment, the first of which
shall be due and payable on _______________, 1997, and the successive
installments shall be due and payable on the same day of each month thereafter
until all outstanding principal and accrued but unpaid interest thereon shall
be paid in full.
(b) All past due principal and interest on this Note shall
bear interest from the maturity date thereof until the date of payment at the
Maximum Rate. Unless changed in accordance with law, the "Maximum Rate" shall
mean the maximum nonusurious rate of interest allowed to be charged by Holder
to Maker by applicable law, as such applicable law or rate of interest is in
effect.
1.3 Prepayment. Maker at its option may prepay all or any
portion of the outstanding principal amount of this Note at any time without
premium, such prepayment of
<PAGE> 2
principal to be accompanied by payment of interest accrued and unpaid on the
principal amount being prepaid.
Section 2. Events of Default.
It is expressly agreed and understood that time is of the essence
concerning this Note, and that Maker shall be in default upon the happening of
any of the following events or conditions herein called an "Event of Default":
2.1 Payment. If default shall be made in any payment of the
principal or interest on this Note, as the same shall become due and payable,
and such default is not cured within ten (10) days after notice by Holder to
Maker; or
2.2 Certain Actions. Should Maker commit an act of bankruptcy,
make an assignment for the benefit of creditors, or authorize the filing of a
voluntary petition in bankruptcy, or should a receiver of any of the property
of Maker be appointed, and such proceedings have not been stayed within 90
days; and
2.3 Bankruptcy. Should involuntary bankruptcy proceedings be
filed against Maker and such filing is not set aside within 90 days.
2.4 Acceleration. Except as set forth above in paragraph 2.1,
in the event any Event of Default shall occur and remain uncured after any
applicable cure period, Holder may, at its option, declare the entirety of this
Note, together with all accrued but unpaid interest, immediately due and
payable. Failure to exercise this option shall not constitute a waiver on the
part of Holder to exercise said option at any other time.
Section 3. Waiver of Grace. Maker expressly and specifically waives
grace, presentment for payment, demand for payment, notice of intent to
accelerate and notice of acceleration, notice of dishonor, protest and notice
of protest, notice of nonpayment, and any and all other notices, the filing of
suit and diligence in collecting this Note or enforcing any of the security
herefor.
Section 4. Additional Agreements.
4.1 Security Agreement. The payment of this Note is secured by
a Security Agreement of even date herewith, executed by Maker in favor of
Holder, on the property described therein.
4.2 Compliance with Usury Laws. It is the intention of Maker
and Holder to conform strictly to applicable usury laws. Accordingly,
notwithstanding any provision to the contrary in this Note, the aggregate of
all interest and any other charges or consideration constituting
Page 2 of a 4 Page Promissory Note
<PAGE> 3
interest under applicable usury law that is taken, reserved, contracted for,
charged or received under this Note, or otherwise in connection with this loan
transaction shall under no circumstances exceed the maximum amount of interest
allowed by the usury law applicable to this loan transaction. If any excess
interest charge or consideration in such respect is taken, reserved, contracted
for, charged, received or provided for, or shall be adjudicated to be so taken,
reserved, contracted for, charged, received or provided for, in this Note,
whether by the terms of this Note or because the maturity of the indebtedness
evidenced by this Note is accelerated for any reason, or in the event of any
required or permitted prepayment, then in any such event (a) the provisions of
this paragraph shall govern and control, (b) neither Maker nor Maker's legal
representatives, successors or assigns or any other liable party shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the Maximum Rate, (c) any excess shall be deemed a mistake and canceled
automatically and, if theretofore paid, shall be credited on this Note by the
holder hereof (or if this Note shall have been paid in full, refunded to
Holder) and (d) the effective rate of interest shall be automatically subject
to reduction to the Maximum Rate allowed as the usury law may now or hereafter
be construed by courts of appropriate jurisdiction.
4.3 Business Days. Should any unpaid principal or interest on
this Note become due and payable upon a day other than a day on which national
banks located in [LOUISIANA] are open for the conduct of all banking business
(a "Business Day"), the maturity thereof shall be extended to the next
succeeding Business Day and, in the case of the unpaid principal, interest
shall be payable thereon at the rate per annum specified in this Note during
such extension.
4.4 Notice. All notices pertaining to this Note must be in
writing, must be sent to the addressee at the address set forth in this
Section, or at such other address as the addressee has designated by a notice
given in the manner set forth in this Section, and must be sent by telegram,
telex, facsimile, electronic mail, courier, or prepaid, certified U.S. Mail.
Notices will be deemed given when received, if sent by telegram, telex,
electronic mail or facsimile and if received between the hours of 8:00 a.m. and
5:00 p.m., local time of the destination address, on a Business Day (with
confirmation of completed transmission sufficing as prima facie evidence of
receipt of a notice sent by telex, telecopy, electronic mail, or facsimile),
and when delivered and receipted for (or when attempted delivery is refused at
the address where sent) if sent by courier or by certified U.S. Mail. Notices
sent by telegram, telex, electronic mail, or facsimile and received between
12:01 a.m. and 7:59 a.m., local time of the destination address, on a business
day will be deemed given at 8:00 a.m. on that same day. Notices sent by
telegram, telex, electronic mail, or facsimile and received at a time other
than between the hours of 12:01 a.m. and 5:00 p.m., local time of the
destination address, on a business day will be deemed given at 8:00 a.m. on the
next following business day after the day of receipt. The addresses for notice
are as follows:
Page 3 of a 4 Page Promissory Note
<PAGE> 4
If to Holder: The Beldon E. Fox, Sr. Grandchildren's Trust No. 1
__________________________________________________
__________________________________________________
Attn: Allyson B. Fox, Trustee
Facsimile No.: (___) _____________________________
If to Maker: TransCoastal Marine Services, Inc.
___________________________________________
___________________________________________
Attn: President
Facsimile No.: (___) ______________________
4.5 Binding Effect. This Note shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
4.6 Interpretation. Whenever possible, each provision of this
Note shall be interpreted in such manner as to be effective and valid under
applicable law. A determination that any provision of this Note is
unenforceable or invalid shall not affect the enforceability or validity of any
other provision.
4.7 Headings. The section headings appearing in this Note have
been inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Note.
4.8 Entire Agreement. This Note constitutes the entire
agreement of the parties with respect to the subject matter hereof and may not
be modified except in writing.
4.9 Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of [LOUISIANA], without
regard to conflicts of laws principles and the applicable laws of the United
States of America.
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the
date first written above.
MAKER:
TRANSCOASTAL MARINE SERVICES, INC.
By:
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Name:
--------------------------------
Title:
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Page 4 of a 4 Page Promissory Note
<PAGE> 1
EXHIBIT 10.1
TRANSCOASTAL MARINE SERVICES, INC.
1997 STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
1.1 PURPOSE.
The purposes of the TRANSCOASTAL MARINE SERVICES, INC.1997 STOCK OPTION
PLAN (the "Plan") are to advance the best interest of TransCoastal Marine
Services, Inc. ("Company") and to attract, retain, and motivate directors, key
management employees, and persons affiliated with the Company (the
"Participants"), and provide such persons with additional incentive to further
the business, promote the long-term financial success and increase shareholder
value of the Company by increasing their proprietary interest in the success of
the Company. Pursuant to the Plan, the Company may grant (i) non-qualified
stock options ("Stock Options"), and (ii) incentive stock options ("ISO
Options") (collectively herein "Options"). The ISO Options to be granted under
the Plan are intended to be qualified pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"); and the Stock Options to be
granted are intended to be non-qualified stock options as described in Sections
83 and 421 of the Code.
1.2 GENERAL.
The terms and provisions of this Article I shall be applicable to Stock
Options and ISO Options, unless the context herein clearly indicates to the
contrary.
1.3 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board may designate and appoint a committee (the
"Compensation Committee") which shall be (i) constituted so as to permit the
Plan to comply with SEC Rule 16b-3 and (ii) constituted solely of outside
directors," within the meaning of Section 162(m) of the Code. All references
to the Board shall also include the Committee, if one is appointed. The
members of the Committee shall serve at the pleasure of the Board. The Board
shall have the power where consistent with the general purpose and intent of
the Plan to (i) modify the requirements of the Plan to conform with the law or
to meet special circumstances not anticipated or covered in the Plan, (ii)
establish policies and (iii) adopt rules and regulations and prescribe forms
for carrying out the purposes and provisions of the Plan, including the form of
any stock option agreements ("Stock Option Agreements"). Unless otherwise
provided in the Plan, the Board shall have the authority to interpret and
construe the Plan and determine all questions arising under the Plan and any
agreement made pursuant to the Plan. Any interpretation, decision or
determination made by the Board shall be final, binding and conclusive. A
majority of the Board shall constitute a quorum and an act of the majority of
the members present at any meeting at which a quorum is present shall be the
act of the Board.
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
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1.4 STOCK SUBJECT TO THE PLAN.
Shares of stock ("Stock") covered by Stock Options and ISO Options shall
consist of 750,000 shares of the Common Stock at $.001 par value per share of
the Company. Either authorized and unissued shares or treasury shares may be
delivered pursuant to the Plan. If any option for shares of Stock granted to a
Participant lapses, or is otherwise terminated, the Board may grant Stock
Options or ISO Options for such shares of Stock to other Participants.
1.5 PARTICIPATION IN THE PLAN.
The Board shall determine from time to time those Participants who are
to be granted Stock Options and ISO Options, and the number of shares of Stock
covered thereby. Employees, directors and consultants shall be eligible to
participate in the Plan.
1.6 DETERMINATION OF FAIR MARKET VALUE.
As used in the Plan, "fair market value" shall mean on any particular
day (i) if the Stock is listed or admitted for trading on any national
securities exchange or the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotation System, the last sale price, or
if no sale occurred, the mean between the closing high bid and low asked
quotations for such date of the Stock on the principal securities exchange on
which shares of Stock are listed, (ii) if Stock is not traded on any national
securities exchange but is quoted on the National Association of Securities
Dealers, Inc. Automated Operations System, or any similar system of automated
dissemination of quotations or securities prices in common use, the mean
between the closing high bid and low asked quotations for such day of the Stock
on such system, (iii) if neither clause (i) nor (ii) is applicable, the mean
between the high bid and low asked quotations for the Stock as reported by the
National Quotation Bureau Incorporated if at least two securities dealers have
inserted both bid and asked quotations for shares of the Stock on at least five
(5) of the ten (10) preceding days, or (iv) if none of the conditions set forth
above is met, the fair market value of shares of Stock as determined by the
Board. Provided, for purposes of determining "fair market value" of the Common
Stock of the Company, such value shall be determined without regard to any
restriction other than a restriction which will never lapse. In no event shall
the fair market value of the Stock be less than its par value.
1.7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
The aggregate number of shares of Stock under Stock Options and ISO
Options granted under the Plan, the Option Price and the ISO Price, and the
total number of shares of Stock which may be purchased by a Participant upon
exercise of a Stock Option or an ISO Option shall be adjusted by the Board to
reflect approximately any recapitalization, stock split, merger, consolidation,
reorganization, combination, liquidation, stock dividend or similar transaction
involving the Company.
1.8 AMENDMENT AND TERMINATION OF THE PLAN.
The Plan shall terminate at midnight, July 25, 2007 but prior thereto,
may be altered, changed, modified, amended or terminated by written amendment
approved by the Board. Provided, that no action of the Board may, without the
approval of the stockholders; (i) increase the aggregate number
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
<PAGE> 3
of shares of Stock which may be purchased under Stock Options or ISO Options
granted under the Plan, or (ii) withdraw the administration of the Plan from
the Board. Except as provided in this Article I, no amendment, modification or
termination of the Plan shall in any manner adversely affect any Stock Option
or ISO Option previously granted under the Plan without the consent of the
affected Participant.
1.9 EFFECTIVE DATE.
The Plan shall be effective July 25, 1997 subject to approval by the
holders of a majority of the Common Stock of the Company present or represented
and entitled to vote at a meeting called for such purpose, within twelve (12)
months before or after the Plan's adoption by the Board.
1.10 SECURITIES LAW REQUIREMENTS.
(a) Legality of Issuance.
No Stock shall be issued upon the exercise of any Option unless
and until the Board has determined that:
(i) The Company and the Participant have taken all actions
required to register the Stock under the Securities Act of 1933, as
amended (the "Act"), or to perfect an exemption from registration
requirements of the Act, or to determine that the registration
requirements of the Act do not apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange on
which the Stock is listed has been satisfied; and
(iii) Any other applicable provision of state, federal or
foreign law has been satisfied.
(b) Restrictions on Transfer; Representations of Participant;
Legends.
Regardless of whether the offering and sale of Stock under the
Plan have been registered under the Act or have been registered or
qualified under the securities laws of any state, the Company may impose
restrictions and/or prohibitions upon the sale, pledge, or other
transfer of such Stock (including the placement of appropriate legends
on stock certificates) if, in the judgment of the Company and its
counsel, such restrictions and/or prohibitions are necessary or
desirable to achieve compliance with the provisions of the Act, the
securities laws of any state, or any other law or rule, including rules
of accounting. If the offering and/or sale of Stock under the Plan is
not registered under the Act and the Company determines that the
registration requirements of the Act apply but an exemption is available
which requires an investment representation or other representation, the
Participant shall be required, as a condition to acquiring such Stock,
to represent that such Stock is being acquired for investment, and not
with a view to the sale or distribution thereof, except in compliance
with the Act, and to make such other representations as are deemed
necessary or appropriate by the Company and its counsel. Stock
certificates evidencing Stock acquired
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
<PAGE> 4
pursuant to an unregistered transaction to which the Act applies shall
bear a restrictive legend as may be are required or deemed advisable
under the Plan or the provisions of any applicable law:
Any determination by the Company and its counsel in connection with any of the
matters set forth in this Section 1.10 shall be conclusive and binding on all
persons.
(c) Registration or Qualification of Securities.
The Company may, but shall not be obligated to, register or
qualify the offering or sale of Stock under the Act or any other
applicable law.
(d) Exchange of Certificates.
If, in the opinion of the Company and its counsel, any legend
placed on a stock certificate representing shares of Stock issued
pursuant to the Plan is no longer required, the Participant or the
holder of such certificate shall be entitled to exchange such
certificate for a certificate representing the same number of shares of
Stock but lacking such legend.
1.11 SEPARATE CERTIFICATE.
Separate certificates representing the Common Stock of the Company to be
delivered to a Participant upon the exercise of any Stock Option or ISO Option
will be issued to such Participant.
1.12 PAYMENT FOR STOCK.
Payment for shares of Stock purchased under this Plan shall be made in
full and in cash or check made payable to the Company. However, the Board in
its discretion may allow payment for shares of Stock purchased under this Plan
to be made in Common Stock of the Company or a combination of cash and Common
Stock of the Company. Further, the Stock Option Agreement may provide for a
"cashless exercise" of stock options pursuant to procedures established by the
Board. In the event that Common Stock of the Company is utilized in
consideration for the purchase of Stock upon the exercise of a Stock Option or
an ISO Option, then, such Common Stock shall be valued at the "fair market
value" as defined in Section 1.6 of the Plan.
1.13 INCURRENCE OF DISABILITY.
A Participant shall be deemed to have terminated employment or
consulting and incurred a disability ("Disability") if such Participant suffers
a physical or mental condition which (i) satisfies the definition of "total
disability" in the disability policy or plan provided by the Company covering
the Participant; or (ii) if no such policy or plan is then covering the
Participant, in the judgment of the Board, totally and permanently prevents a
Participant from engaging in any substantial gainful employment or consulting
with the Company.
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
<PAGE> 5
1.14 STOCK OPTIONS AND ISO OPTIONS GRANTED SEPARATELY.
Since the Board is authorized to grant Stock Options and ISO Options to
Participants, the grant thereof and Stock Option Agreement relating thereto
will be made separately and totally independent of each other. Except as it
relates to the total number of shares of Stock which may be issued under the
Plan, the grant or exercise of a Stock Option shall in no manner affect the
grant and exercise of any ISO Options. Similarly, the grant and exercise of
any ISO Option shall in no manner affect the grant and exercise of any Stock
Option.
1.15 GRANTS OF OPTIONS AND STOCK OPTION AGREEMENT.
Each Stock Option and/or ISO Option granted under this Plan shall be
evidenced by a written Stock Option Agreement effective on the date of grant
and executed by the Company and the Participant. Each Option granted hereunder
shall contain such terms, restrictions and conditions as the Board may
determine, which terms restrictions and conditions may or may not be the same
in each case.
1.16 USE OF PROCEEDS.
The proceeds received by the Company from the sale of Stock pursuant to
the exercise of Options granted under the Plan shall be added to the Company's
general funds and used for general corporate purposes.
1.17 NON-TRANSFERABILITY OF OPTIONS.
Except as otherwise herein provided, any Option granted shall not be
transferable otherwise than by will or the laws of descent and distribution and
only the Participant may exercise the Option during his lifetime. Specifically
(but without limiting the generality of the foregoing), the Option may not be
assigned, transferred (except as provided above), pledged or hypothecated in
any way, shall not be assignable by operation of law, and shall not be subject
to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other disposition of the Option contrary to
the provisions hereof shall be null and void and without effect.
1.18 ADDITIONAL DOCUMENTS ON DEATH OF PARTICIPANT.
No transfer of an Option by the Participant by will or the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice and such other evidence
as the Board may deem necessary to establish the validity of the transfer and
the acceptance by the successor to the Option of the terms and conditions of
such Option.
1.19 CHANGES IN EMPLOYMENT.
So long as the Participant shall continue to be an employee or
consultant of the Company, any Option granted to him shall not be affected by
any change of duty or position.
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
<PAGE> 6
1.20 STOCKHOLDER RIGHTS.
No Participant shall have a right as a stockholder with respect to any
shares of Stock subject to an Option prior to the purchase of such shares of
Stock by exercise of the Option.
1.21 CHANGE OF CONTROL.
(a) In the event of a Change of Control as hereinafter
defined, all outstanding Options shall immediately vest and become
exercisable. In the event of a Change of Control, the Board, in its
discretion may act to effect one or more of the following alternatives
with respect to outstanding Options, which may vary among individual
Participants and which may vary among Options held by any individual
Participant: (i) determine a limited period of time on or before a
specified date (before or after such Change of Control) after which
specified date all unexercised Options and all rights of Participants
thereunder shall terminate, (2) require the mandatory surrender to the
Company by selected Participants of some or all of the outstanding
Options held by such Participants (irrespective of whether such Options
are then exercisable under the provisions of the Plan) as of a date,
before or after such Change of Control, specified by the Board, in which
event the Board shall thereupon cancel such Options and the Company
shall pay to each Participant an amount of cash per share equal to the
excess, if any, of the Change of Control value of the shares subject to
such Option over the exercise price(s) under such Options for such
shares, (3) make such adjustments to Options then outstanding as the
Board deems appropriate to reflect such Change of Control (provided,
however, that the Board may determine in its sole discretion that no
adjustment is necessary to Options then outstanding) or (4) provide that
thereafter upon any exercise of an Option theretofore granted the
Participant shall be entitled to purchase under such Option, in lieu of
the number of shares of Stock then covered by such Option the number and
class of shares of stock or other securities or property (including,
without limitation, cash) to which the Participant would have been
entitled pursuant to the terms of the agreement of merger, consolidation
or sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution the Participant has been
the Participant of record of the number of shares of Stock then covered
by such Option. The provisions contained in this paragraph shall not
terminate any rights of the Participant to further payments pursuant to
any other agreement with the Company following a Change of Control.
(b) For purposes of this Agreement, "Change of Control" means
the occurrence, following successful completion of the Company's IPO (as
defined below), of any of the following events: (i) the Company shall
not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other than
a previously wholly-owned subsidiary of the Company), (ii) the Company
sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the
Company), (iii) the Company is to be dissolved and liquidated, (iv) any
person or entity, including a "group" as contemplated by Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of
the Company's voting stock (based upon voting power), or (v) as a result
of or in connection with a contested election of directors, the persons
who were
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
<PAGE> 7
directors of the Company before such election, together with their
nominees, shall cease to constitute a majority of the Board. The term
"IPO" means the first underwritten public offering of the Company's
common stock other than any offering pursuant to any registration
statement (i) relating to any capital stock of the Company or options,
warrants or other rights to acquire any such capital stock issued or to
be issued primarily to directors, officers or employees of the Company,
or any of its subsidiaries (ii) relating to any employee benefit plan or
interest therein, (iii) relating principally to any preferred stock or
debt securities of the Company, or (iv) filed pursuant to Rule 145 under
the Act, as amended, or any successor or similar provisions.
1.22 NON-QUALIFYING OPTIONS.
Notwithstanding anything to the contrary contained in this Plan, with
respect to all or any portion of any option granted under the Plan not
qualifying as an "incentive stock option" under Section 422 of the Code, such
option shall be considered as a Stock Option granted under this Plan for all
purposes.
1.23 TAX STATUS.
The Board shall take all appropriate steps at the time of the grant of
Options or the exercise of Options, or both, consistent with such Options'
status for federal income tax purposes (including but not limited to,
designating whether such Option is considered a Stock Option or an ISO Option).
ARTICLE II
TERMS OF STOCK OPTIONS AND EXERCISE
2.1 GENERAL TERMS.
(a) Grants and Terms of Stock Options.
Stock Options shall be granted by the Board on the following
terms and conditions: No Stock Option shall be exercisable within six
months from the date of grant (except as specifically provided in
Subsection 2.1(c) hereof, with regard to the death or Disability of a
Participant), nor more than ten (10) years after the date of grant.
Subject to such limitation, the Board shall have the discretion to fix
the period during which any Stock Option may be exercised (the "Option
Period"). No Stock Option shall be exercisable after the expiration of
its Option Period. Each Stock Option shall be evidenced by a Stock
Option Agreement in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Board shall approve.
Each Stock Option Agreement shall specify the effect of termination of
employment or consulting on the exercisability of Stock Options.
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
<PAGE> 8
(b) Option Price.
The option price ("Option Price") for shares of Stock subject to
Stock Options shall be determined by the Board, but in no event shall
such Option Price be less than 85% of the fair market value of the Stock
on the date of grant.
(c) Acceleration of Otherwise Unexercisable Stock Options on
Retirement, Death, Disability or Other Special Circumstances.
All Stock Options which are not exercisable as of the date of
termination of a Participant's employment or consulting shall expire as
of such date; provided, however, the Board, in its sole discretion, may
permit any Participant whose employment or consulting with the Company
terminates, for any cause whatsoever, to exercise, at any time, any or
all Stock Options previously granted to such Participant notwithstanding
that such Stock Options have not yet vested, in whole or in part, as of
the date of termination of such Participant's employment or consulting.
However, such discretionary authority of the Board shall not be
exercised with respect to any Stock Option (or portion thereof) if the
applicable six-month waiting period for exercise has not expired, except
in the event of the death or Disability of the Participant when the
personal representative of the Participant or the disabled Participant
may, with the consent of the Board, exercise such Stock Option
notwithstanding that the applicable six-month waiting period has not yet
expired.
(d) Number of Stock Options Granted.
The Board shall determine the number of Stock Options which are
to be granted to each Participant. In making such determinations, the
Board shall obtain the advice and recommendation of the officers of the
Company which have supervisory authority over each such Participant.
The granting of a Stock Option under the Plan shall not affect any
outstanding Stock Option previously granted to a Participant under the
Plan.
(e) Notice to Exercise Stock Option.
Upon exercise of a Stock Option, a Participant shall give written
notice to the Secretary of the Company, or other officer designated by
the Board at the Company's principal office in Houston, Texas. No Stock
shall be issued to any Participant until the Company receives full
payment for the Stock purchased, if applicable, and any required state
and federal withholding taxes.
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
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ARTICLE III
GRANTING OF ISO OPTIONS
3.1 GENERAL.
With respect to ISO Options granted on or after the effective date of
the Plan, the following provisions in this Article III shall apply to the
exclusion of any inconsistent provisions in any other Article in this Plan
since the ISO Options to be granted under the Plan are intended to qualify as
"incentive stock options" as defined in Section 422 of the Code.
3.2 GRANT OF ISO OPTIONS.
ISO Options may be granted only to key management employees of the
Company and any of its subsidiaries. No ISO Options shall be granted to any
person who is not eligible to receive incentive stock options as provided in
Section 422 of the Code. No ISO Options shall be granted to any key management
employee if, immediately before the grant of an ISO Option, such employee owns
more than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries (as determined in accordance with the stock
attribution rules contained in Section 425(d) of the Code). Provided, the
preceding sentence shall not apply if at the time the ISO Option is granted,
the ISO Price is at least 110 percent of the "fair market value" of the stock
subject to the ISO Option, and such ISO Option by its terms is not exercisable
after the expiration of five years from the date such ISO Option is granted.
(a) ISO Option Price.
The option price for shares of Stock subject to an ISO Option
("ISO Price") shall be determined by the Board, but in no event shall
such ISO Price be less than the fair market value of the Stock on the
date of grant.
(b) Annual ISO Option Limitation.
The aggregate "fair market value" (determined as of the time the
ISO Option is granted) of the Stock with respect to which ISO Options
are exercisable for the first time by any Participant during any
calendar year (under all "incentive stock option" plans qualified under
Section 422 of the Code sponsored by the Company) shall not exceed
$100,000.00.
(c) Terms of ISO Options.
ISO Options shall be granted on the following terms and
conditions: No ISO Option shall be exercisable within six months from
the date of grant (except as specifically provided in Subsection 3.2(d)
hereof with regard to the Disability or death of a Participant), nor
more than ten years after the date of grant. The Board shall have the
discretion to fix the period during which any ISO Option may be
exercised (the "ISO Period"). No ISO Option shall be exercisable after
the expiration of its ISO Period. Each ISO Option shall be evidenced by
a
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Stock Option Agreement in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Board shall approve,
including provisions to qualify an ISO Option under Section 422 of the
Code. Each Stock Option Agreement shall specify the effect of
termination of employment or consulting on the exercisability of ISO
Options.
(d) Acceleration of Otherwise Unexercisable ISO Option on Retirement,
Death, Disability or Other Special Circumstances.
All ISO Options which are not exercisable as of the date of
termination of a Participant's employment, shall expire as of such date;
provided, however, the Board, in its sole discretion, may permit any
Participant whose employment with the Company terminates, for any cause
whatsoever, to exercise, at any time within the ISO Period, any or all
ISO Options previously granted to such Participant notwithstanding that
such ISO Options have not yet vested, in whole or in part, as of the
date of the termination of such Participant's employment. However, that
such discretionary authority of the Board shall not be exercised with
respect to any ISO Options (or portion thereof) if the applicable six-
month waiting period has not expired, except in the event of the death
or Disability of the Participant, when the personal representative of
the Participant or the disabled Participant may, with the consent of the
Board, exercise such ISO Options notwithstanding that the six-month
waiting period has not yet expired.
(e) Number of ISO Options Granted.
Subject to the applicable limitations contained in the Plan, the
Board shall determine the number of ISO Options which are to be granted
to each Participant. In making such determinations, the Board shall
obtain the advice and recommendation of the officers of the Company.
The granting of an ISO Option under the Plan shall not affect any
outstanding ISO Option previously granted to a Participant under the
Plan.
(f) Notice to Exercise ISO Option.
Upon exercise of an ISO Option, a Participant shall give written
notice to the Secretary of the Company, or other officer designated by
the Board at the Company's principal office in Houston, Texas. No Stock
shall be issued to any Participant until the Company receives full
payment for the Stock purchased and any required state and federal
withholding taxes.
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1997 Stock Option Plan - TransCoastal Marine Services, Inc.
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ARTICLE IV
MISCELLANEOUS
4.1 NO RIGHT TO A GRANT.
Neither the adoption of the Plan by the Company nor any action of the
Board or the Committee shall be deemed to give a Participant any right to be
granted an Option or any of the rights hereunder except as may be evidenced by
a Stock Option Agreement.
4.2 NO EMPLOYMENT RIGHTS CONFERRED.
Nothing in the Plan or in any Stock Option Agreement which relates to
the Plan shall confer upon any Participant any right to continue in the employ
as an employee or consultant of the Company, or interfere in any way with the
right of the Company to terminate his employment or consulting arrangement at
any time.
4.3 RULE 16b-3.
It is intended that the Plan and any grant of options made to a person
subject to Section 16 of the 1934 Act meet all of the requirements of Rule
16b-3. If any provision of the Plan or any such grant would disqualify the
Plan or such grant under, or would otherwise not comply with, Rule 16b-3, such
provision or grant shall be construed or deemed amended to conform to Rule
16b-3.
4.4 GOVERNING LAW.
This Plan shall be construed in accordance with the laws of the state of
Delaware.
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of August 1, 1997, by
and between RED FOX INTERNATIONAL, INC., a Delaware corporation anticipated to
be renamed TransCoastal Marine Services, Inc., 3535 Briarpark, Suite 210,
Houston, Texas 77042 (the "Company"), and BILL E. STALLWORTH, an individual
with an address of 20 Sugarberry Circle, Houston, Texas 77024 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and
the Employee hereby agrees to work for the Company upon the terms and
conditions set forth herein.
2. Term of Employment. The term of employment pursuant to this
Agreement shall begin on August 1, 1997, and shall continue in effect for an
initial term of three (3) years from the closing of the Company's IPO (as
defined below) (the "Closing Date") unless terminated in accordance with
Section 6, and shall be extended from year to year thereafter, unless
terminated effective as of the end of the initial term or any one-year
extension thereafter by written notice from the Company to Employee, or by
written notice of Employee to the Company, delivered not less than ninety (90)
days prior to the end of the initial term, or the end of such one-year
extension, as applicable. The term "IPO" means any underwritten public
offering of the Company's common stock other than any offering pursuant to any
registration statement (i) relating to any capital stock of the Company or
options, warrants or other rights to acquire any such capital stock issued or
to be issued primarily to directors, officers or employees of the Company, or
any of its subsidiaries (ii) relating to any employee benefit plan or interest
therein, (iii) relating principally to any preferred stock or debt securities
of the Company, or (iv) filed pursuant to Rule 145 under the Securities Act of
1933, as amended, or any successor or similar provisions.
3. Scope of Duties; Representations and Warranties.
(a) The Employee shall be employed by the Company as its
Chairman of the Board and Chief Executive Officer, reporting only to the Board
of Directors, and shall have supervision and control over, and responsibility
for, the general operations of the Company and shall have such other powers,
duties, and authority as are set forth in the Bylaws of the Company or as may
from time to time be prescribed by the Board of Directors, provided that such
powers, duties, and authority are those that are customarily inherent in such a
position. Contemporaneously with the execution of this Agreement, Employee
shall be elected a member of the Board of Directors of the Company.
(b) So long as he is employed by the Company, the Employee
shall devote his skill, energy and best efforts to the faithful discharge of
his duties as an employee of the Company. The Employee agrees that in the
provision of all services to the Company, he will comply with and follow all
directives, policies, standards and regulations from time to time established
by the Board of Directors of the Company.
(c) The Employee represents and warrants that he is under no
contractual or other restrictions or obligations which will significantly limit
his activities on behalf of the Company or which will prohibit or limit the
disclosure or use of by the Employee of any information which directly
<PAGE> 2
or indirectly relates to the nature of the Company or the services to be
rendered by the Employee under this Agreement.
(d) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all patents, trademarks, copyrights, trade secrets, and
other intellectual property rights, all inventions, whether or not patentable
and any product, drawing, design, recording, writing, literary work or other
author's work, in any other tangible form developed in whole or in part by
Employee during the term of this Agreement, or otherwise developed, purchased
or acquired by Employer, shall be the exclusive property of the Employer
("Intellectual Property"), and unless otherwise agreed by Employer, all right,
title and interest therein shall remain in Employer.
(e) The Employee will hold all Intellectual Property and
Confidential Information (defined below) in trust for the Company and will
deliver all Intellectual Property and Confidential Information in his
possession or control to the Company upon request and, in any event, at the end
of his employment with the Company. The Employee will promptly disclose to the
Company all Confidential Information, as well as any business opportunity which
comes to his attention during the term of his employment with the Company. The
Employee will not take advantage of or divert any business opportunity for the
benefit of himself or any other party without the prior written consent of the
Company.
(f) The Employee shall assign and does hereby assign to the
Company all property rights that he may now or hereafter have in the
Intellectual Property and Confidential Information. The Employee shall take
such action, including, but not limited to, the execution, acknowledgment,
delivery and assistance in preparation of documents, and the giving of
testimony, as may be requested by the Company to evidence, transfer, vest or
confirm the Company's right, title and interest in the Intellectual Property.
(g) The Employee will not contest the validity of any
invention, any copyright, any trademark or any mask work registration owned by
or vesting in the Company under this Agreement.
4. Compensation.
(a) During the period from August 1, 1997, until the Closing
Date, the Company shall pay the Employee a base salary, payable semi-monthly,
in equal installments at a rate equal to $120,000 per year. During the first
year of this Agreement, following the Closing Date, the Company shall pay the
Employee a base salary, payable semi-monthly, in equal installments at a rate
equal to $200,000 per year. In each subsequent year of this Agreement,
following the Closing Date, the Company shall pay to the Employee a salary
equal to the greater of (i) his salary for the immediately preceding year or
(ii) a salary determined by the Board of Directors following its annual salary
and performance review.
(b) Employee shall receive an annual cash performance bonus
for the calendar year during the term of this Agreement to be determined
according to the following procedure. The Board of Directors of the Company,
or the Compensation Committee of the Board of Directors, if so authorized,
shall establish specific annual performance goals for the Company and for
Employee with
2
<PAGE> 3
respect to each calendar year during the term of this Agreement commencing on
January 1, 1998. Such goals shall be communicated to Employee not later than
the end of the first quarter of the applicable calendar year. At the end of
each calendar year during the term of this Agreement, or within a reasonable
time thereafter, the Board of Directors of the Company, or the Compensation
Committee of the Board of Directors, if so authorized, shall review the actual
performance of the Company and Employee, giving due consideration to market and
other developments outside of the control or influence of Employee and the
Company, and based upon the extent to which the applicable annual performance
goals have been achieved, shall determine in its sole and absolute discretion,
the amount of performance bonus payable to Employee with respect to such year.
(c) All payments of salary and other compensation to the
Employee shall be made after deduction of any taxes which are required to be
withheld with respect thereto under applicable federal and state laws.
5. Fringe Benefits. So long as the Employee is employed by the
Company, the Employee shall participate in all employee benefit plans sponsored
by the Company for its executive employees as approved from time to time by the
board of directors of the Company or any compensation committee of the board of
directors, if any, and on terms at least as favorable to Employee as are
offered to other senior executives of the Company. The Company shall reimburse
Employee for his reasonable travel and other expenses incurred in connection
with his employment under this Agreement.
6. Termination.
(a) Employee agrees that this Agreement may be terminated by
the Company with or without "Cause" at any time, subject to the terms of this
Section 6. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 6. "Cause" when used in connection with the termination of employment
with the Company, shall mean the termination of the Employee's employment by
the Company by reason of (i) the conviction of the Employee of a crime
involving moral turpitude by a court of competent jurisdiction as to which no
further appeal can be taken; (ii) the proven commission by the Employee of an
act of fraud upon the Company; (iii) the willful and proven misappropriation of
any funds or property of the Company by the Employee; (iv) the willful,
continued and unreasonable failure by the Employee to perform material duties
assigned to him and agreed to by him after reasonable written notice and
opportunity to cure such performance; (v) the knowing engagement by the
Employee in any direct, material conflict of interest with the Company without
compliance with the Company's conflict of interest policy, if any, then in
effect; (vi) the knowing engagement by the Employee, without the written
approval of the Board of Directors of the Company, in any activity which
competes with the business of the Company or which would result in a material
injury to the Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the Company's
Insider Trading Policy, if any, then in effect.
If the Employee's employment terminates, unless the Company
terminates the Employee's employment under this Agreement for Cause or the
Employee resigns, the Company shall, subject to the terms of Section 6(c)
below, and only if and as long as Employee is not in breach of
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<PAGE> 4
his obligations under this Agreement, pay to the Employee an amount equal to
twelve (12) months compensation at his then current salary, payable
semimonthly, and shall continue to provide benefits in the kind and amounts
provided up to the date of termination for said twelve (12) month period
including, without limitation, continuation of any Company-paid benefits as
described in Section 5 for the Employee and his family. Notwithstanding
anything in this Agreement to the contrary, in the event of (A) the sale of all
or substantially all of the assets of the Company, or (B) a merger,
consolidation, liquidation or reorganization of the Company, in which the
Company is not the surviving entity, or which results, in any event, in a
change of control of the Company, the Company or the surviving entity, as the
case may be, shall either adopt this Agreement or pay to the Employee, an
amount equal to thirty six (36) months compensation at Employee's then current
annual salary, payable semimonthly, and shall continue to provide benefits in
the kind and amounts provided up to the date of termination for such thirty six
(36) month period.
In the event that this Agreement is terminated by Company without Cause,
Employee agrees to accept, in full settlement of any and all claims, losses,
damages and other demands which Employee may have arising out of such
termination as liquidated damages and not as a penalty, the applicable amount
which is set out above. Employee hereby waives any and all rights he may have
to bring any cause of action or proceeding contesting any termination without
Cause, provided, however, that such waiver shall not be deemed to affect
Employee's rights to enforce any other obligations of the Company. Under no
circumstances shall Employee be entitled to any compensation or confirmation of
any benefits under this Agreement for any period of time following his date of
termination if his termination is for Cause.
(b) If at any time during the term of this Agreement, Employee
is unable due to physical or mental disability, to perform effectively his
duties hereunder, the Company shall continue payment of compensation as
provided in Section 4 during the first six (6) month period of such disability
to the extent not covered by the Company's disability insurance policies. Upon
the expiration of such six (6) month period, the Company, at its sole option,
may continue payment of Employee's salary for such additional periods as the
Company elects, or may terminate this Agreement without any further obligations
hereunder. If Employee should die during the term of this Agreement,
Employee's employment and the Company's obligations hereunder shall terminate
as of the end of the month in which Employee's death occurs and there will be
no salary and benefit continuation period pursuant to Section 6(a). Employee
shall be deemed to have incurred a disability if Employee suffers a physical or
mental condition which (i) satisfies the definition of "total disability" in
the Company's disability insurance policies, or (ii) if no such policy or plan
is then covering Employee, in the judgment of the Board of Directors, prevents
Employee from engaging in any substantial gainful employment with the Company
for a period not less than six (6) months.
(c) So long as Employee receives a severance as provided in
Section 6(a) or (b) above, Employee agrees that he will sign any lock-up
letters, standstill agreements, or other similar documentation required by an
underwriter in connection with a public offering of securities by the Company
or take other actions reasonably related thereto as requested by the Board of
Directors of the Company. Failure to take any such action shall cause Employee
to forfeit any further rights to the salary continuation payments in Section
6(a) or (b). In addition, Employee agrees that in such event the Company can
seek and obtain specific performance of such covenant, including any injunction
requiring execution thereof, and the Employee hereby appoints the then current
president
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<PAGE> 5
of the Company to sign any such documents on his behalf so long as such
documents are prepared on the same basis as other shareholders generally or as
all management shareholders.
7. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not
compete with the Company or its affiliates, directly or indirectly, either for
himself or as a member of a partnership or as a stockholder (except as a
stockholder of less than one percent (1 %) of the issued and outstanding stock
of a publicly-held company whose gross assets exceed one hundred million
dollars), investor, owner, officer or director of a company or other entity, or
as an employee, agent, associate or consultant of any person, partnership,
corporation or other entity, in any business in competition with that carried
on by the Company or any of its affiliates.
(b) Employee further agrees that, for a period of two (2)
years from and after the date of termination of Employee's employment under
this Agreement, regardless of the reason for such termination, he will neither
represent nor engage in or carry on, directly or indirectly, either for himself
or as a member of a partnership or as a stockholder (other than as a
stockholder of less than one percent (1 %) of the issued and outstanding stock
of a publicly-held company whose gross assets exceed one hundred million
dollars), investor, owner, officer or director of a company or other entity, or
as an employee, agent, associate or consultant of any person, partnership,
corporation or other entity, any business in any State of the United States or
in any other part of the world which directly competes with any services or
products produced, sold, conducted, developed, or in the process of development
by the Company or its affiliates on the date of termination of Employee's
employment. Notwithstanding the foregoing, after the termination of Employee's
employment under this Agreement, nothing herein shall prevent Employee from
working in the marsh or marine construction and pipe laying businesses,
industrial diving and offshore products fabrication businesses, other than as
an employee of Company or a subsidiary of Company if such activities are in
areas not in direct competition with any services or products produced, sold,
conducted, developed, or in the process of development by the Company or its
affiliates on the date of termination of Employee's employment.
(c) Employee agrees that the limitations set forth herein on
his rights to compete with the Company and its affiliates are reasonable and
necessary for the protection of the Company and its affiliates. In this
regard, Employee specifically agrees that the limitations as to period of time
and geographic area, as well as all other restrictions on his activities
specified herein, are reasonable and necessary for the protection of the
Company and its affiliates. In particular, Employee acknowledges that the
parties anticipate that the Employee will be actively seeking markets for the
Company's products throughout the United States during his employment with the
Company.
(d) Employee agrees that the remedy at law for any breach by
him of this Section 7 will be inadequate and that the Company shall also be
entitled to injunctive relief.
8. Confidential Information and Results of Services. Employee
agrees that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not make use of or disclose, without the
prior consent of the Company, Confidential Information (as hereinafter defined)
relating to the Company, or any of its affiliates, and further agrees, that he
will return to the
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<PAGE> 6
Company all written materials in his possession embodying such Confidential
Information. For purposes of this Agreement, "Confidential Information"
includes information conveyed or assigned to the Company by Employee or
conceived, compiled, created, developed, discovered or obtained by Employee
from and during his employment relationship with the Company, whether solely by
the Employee or jointly with others, which concerns the affairs of the Company
or its affiliates and which the Company could reasonably be expected to desire
be held in confidence, or the disclosure of which would likely be embarrassing,
detrimental or disadvantageous to the Company or its affiliates and without
limiting the generality of the foregoing includes information relating to
inventions, and the trade secrets, technologies, algorithms, products,
services, finances, business plans, marketing plans, legal affairs, supplier
lists, client lists, potential clients, business prospects, business
opportunities, personnel assignments, contracts and assets of the Company and
information made available to the Company by other parties under a confidential
relationship. Confidential Information, however, shall not include information
(a) which is, at the time in question, in the public domain through no wrongful
act of Employee, (b) which is later disclosed to Employee by one not under
obligations of confidentiality to the Company or Employee, (c) which is
required by court or governmental order, law or regulation to be disclosed, or
(d) which the Company has expressly given Employee the right to disclose
pursuant to written agreement. Employee agrees that the remedy at law for any
breach by him of this Section 8 will be inadequate and that the Company shall
also be entitled to injunctive relief.
9. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the
beginning of this Agreement;
(b) If to the Company:
Red Fox International, Inc.
3535 Briarpark, Suite 210
Houston, Texas 77042
Either party may change such party's address by such notice to
the other parties.
10. Assignment. This Agreement is personal to the Employee, and he
shall not assign any of his rights or delegate any of his duties hereunder
without the prior written consent of the Company. Neither the employee nor his
spouse will have the right to commute, encumber, or otherwise dispose of any
payments under this Agreement. The Company shall have the right to assign this
Agreement to a successor in interest in connection with a merger, sale of
substantially all assets, or the like; provided however, that an assignment of
this Agreement to an entity with operations, products or services outside of
the industries in which the Company is then active shall not be deemed to
expand the scope of Employee's covenant not to compete with such operations,
products or services without Employee's written consent.
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<PAGE> 7
11. Survival. The provisions of this Agreement shall survive the
termination of the Employee's employment hereunder in accordance with their
terms.
12. Applicable Law. The substantive laws of the State of Texas,
excluding any law, rule or principle which might refer to the substantive law
of another jurisdiction, will govern the interpretation, validity and effect of
this Agreement without regard to the place of execution or the place for
performance thereof. This Agreement is to be negotiated, executed and
performed in Harris County, Texas, and, as such, the Company and Grantor agree
that personal jurisdiction and venue shall be proper with the state or federal
courts situated in Harris County, Texas, to hear such disputes arising under
this Agreement.
13. Binding Upon Successors. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
14. Entire Agreement. This Agreement constitutes the entire
agreement between the Company and the Employee with respect to the terms of
employment of the Employee by the Company and supersedes all prior agreements
and understandings, whether written or oral, between them concerning such terms
of employment.
15. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented,
and any obligation hereunder may be waived, only by a written instrument
executed by the parties hereto. The waiver by either party of a breach of any
provision of this Agreement shall not operate as a waiver of any subsequent
breach.
(b) No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
hereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies hereunder are cumulative
and are in addition to all other rights and remedies provided by law, agreement
or otherwise.
(c) The obligations of the parties hereto and such parties'
rights and remedies hereunder are in addition to all other obligations of such
parties, and all rights and remedies of such parties, created pursuant to any
other agreement.
16. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement shall
not be construed or interpreted against any party on the basis that such party
drafted or authored a particular provision, parts of or the entirety of this
Agreement.
17. Severability. In the event that any provision or provisions of
this Agreement is held to be invalid, illegal or unenforceable by any court of
law or otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, in such event
the parties hereto shall
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negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible with respect to those provisions
which were held to be invalid, illegal or unenforceable.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written, to be effective as of
August 1, 1997.
RED FOX INTERNATIONAL, INC., A
DELAWARE CORPORATION
By: /s/ G. DARCY KLUG
----------------------------------
G. Darcy Klug, Vice President
EMPLOYEE:
/s/ BILL E. STALLWORTH
-------------------------------------
Bill E. Stallworth
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of August 1, 1997, by
and between RED FOX INTERNATIONAL, INC., a Delaware corporation anticipated to
be renamed TransCoastal Marine Services, Inc., 3535 Briarpark, Suite 210,
Houston, Texas 77042 (the "Company"), and THAD SMITH, an individual with an
address of 33 Charleston North, Sugar Land, Texas 77478 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and
the Employee hereby agrees to work for the Company upon the terms and
conditions set forth herein.
2. Term of Employment. The term of employment pursuant to this
Agreement shall begin on August 1, 1997, and shall continue in effect for an
initial term of three (3) years from the closing of the Company's IPO (as
defined below) (the "Closing Date") unless terminated in accordance with
Section 6, and shall be extended from year to year thereafter, unless
terminated effective as of the end of the initial term or any one-year
extension thereafter by written notice from the Company to Employee, or by
written notice of Employee to the Company, delivered not less than ninety (90)
days prior to the end of the initial term, or the anniversary of such one-year
extension, as applicable. The term "IPO" means any underwritten public
offering of the Company's common stock other than any offering pursuant to any
registration statement (i) relating to any capital stock of the Company or
options, warrants or other rights to acquire any such capital stock issued or
to be issued primarily to directors, officers or employees of the Company, or
any of its subsidiaries (ii) relating to any employee benefit plan or interest
therein, (iii) relating principally to any preferred stock or debt securities
of the Company, or (iv) filed pursuant to Rule 145 under the Securities Act of
1933, as amended, or any successor or similar provisions.
3. Scope of Duties; Representations and Warranties.
(a) The Employee shall be employed by the Company as its
President and Chief Operating Officer. At all times, the Employee shall serve
under the direction of the Chairman of the Board and Chief Executive Officer of
the Company and shall perform such services and exercise such authority as is
customary for such position. Contemporaneously with the execution of this
Agreement, Employee shall be elected a member of the Board of Directors of the
Company.
(b) So long as he is employed by the Company, the Employee
shall devote his skill, energy and best efforts to the faithful discharge of
his duties as an employee of the Company. The Employee agrees that in the
provision of all services to the Company, he will comply with and follow all
directives, policies, standards and regulations from time to time established
by the Board of Directors of the Company.
(c) The Employee represents and warrants that he is under no
contractual or other restrictions or obligations which will significantly limit
his activities on behalf of the Company or which will prohibit or limit the
disclosure or use of by the Employee of any information which directly or
indirectly relates to the nature of the Company or the services to be rendered
by the Employee under this Agreement.
<PAGE> 2
(d) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all patents, trademarks, copyrights, trade secrets, and
other intellectual property rights, all inventions, whether or not patentable
and any product, drawing, design, recording, writing, literary work or other
author's work, in any other tangible form developed in whole or in part by
Employee during the term of this Agreement, or otherwise developed, purchased
or acquired by Employer, shall be the exclusive property of the Employer
("Intellectual Property"), and unless otherwise agreed by Employer, all right,
title and interest therein shall remain in Employer.
(e) The Employee will hold all Intellectual Property and
Confidential Information (defined below) in trust for the Company and will
deliver all Intellectual Property and Confidential Information in his
possession or control to the Company upon request and, in any event, at the end
of his employment with the Company. The Employee will promptly disclose to the
Company all Confidential Information, as well as any business opportunity which
comes to his attention during the term of his employment with the Company. The
Employee will not take advantage of or divert any business opportunity for the
benefit of himself or any other party without the prior written consent of the
Company.
(f) The Employee shall assign and does hereby assign to the
Company all property rights that he may now or hereafter have in the
Intellectual Property and Confidential Information. The Employee shall take
such action, including, but not limited to, the execution, acknowledgment,
delivery and assistance in preparation of documents, and the giving of
testimony, as may be requested by the Company to evidence, transfer, vest or
confirm the Company's right, title and interest in the Intellectual Property.
(g) The Employee will not contest the validity of any
invention, any copyright, any trademark or any mask work registration owned by
or vesting in the Company under this Agreement.
4. Compensation.
(a) During the period from August 1, 1997, until the Closing
Date, the Company shall pay the Employee a base salary, payable semi-monthly,
in equal installments at a rate equal to $120,000 per year. During the first
year, following the Closing Date, the Company shall pay the Employee a base
salary, payable semi-monthly, in equal installments at a rate equal to $200,000
per year. In each subsequent year of this Agreement, following the Closing
Date, the Company shall pay to the Employee a salary equal to the greater of
(i) his salary for the immediately preceding year or (ii) a salary determined
by the Board of Directors following its annual salary and performance review.
(b) Employee shall receive an annual cash performance bonus
for the calendar year during the term of this Agreement to be determined
according to the following procedure. The Board of Directors of the Company,
or the Compensation Committee of the Board of Directors, if so authorized,
shall establish specific annual performance goals for the Company and for
Employee with respect to each calendar year during the term of this Agreement
commencing on January 1, 1998. Such goals shall be communicated to Employee
not later than the end of the first quarter of the applicable calendar year.
At the end of each calendar year during the term of this Agreement, or within a
reasonable time thereafter, the Board of Directors of the Company, or the
Compensation
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<PAGE> 3
Committee of the Board of Directors, if so authorized, shall review the actual
performance of the Company and Employee, giving due consideration to market and
other developments outside of the control or influence of Employee and the
Company, and based upon the extent to which the applicable annual performance
goals have been achieved, shall determine in its sole and absolute discretion,
the amount of performance bonus payable to Employee with respect to such year.
(c) All payments of salary and other compensation to the
Employee shall be made after deduction of any taxes which are required to be
withheld with respect thereto under applicable federal and state laws.
5. Fringe Benefits. So long as the Employee is employed by the
Company, the Employee shall participate in all employee benefit plans sponsored
by the Company for its executive employees as approved from time to time by the
board of directors of the Company or any compensation committee of the board of
directors, if any, and on terms at least as favorable to Employee as are
offered to other senior executives of the Company. The Company shall reimburse
Employee for his reasonable travel and other expenses incurred in connection
with his employment under this Agreement.
6. Termination.
(a) Employee agrees that this Agreement may be terminated by
the Company with or without "Cause" at any time, subject to the terms of this
Section 6. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 6. "Cause" when used in connection with the termination of employment
with the Company, shall mean the termination of the Employee's employment by
the Company by reason of (i) the conviction of the Employee of a crime
involving moral turpitude by a court of competent jurisdiction as to which no
further appeal can be taken; (ii) the proven commission by the Employee of an
act of fraud upon the Company; (iii) the willful and proven misappropriation of
any funds or property of the Company by the Employee; (iv) the willful,
continued and unreasonable failure by the Employee to perform material duties
assigned to him and agreed to by him after reasonable written notice and
opportunity to cure such performance; (v) the knowing engagement by the
Employee in any direct, material conflict of interest with the Company without
compliance with the Company's conflict of interest policy, if any, then in
effect; (vi) the knowing engagement by the Employee, without the written
approval of the Board of Directors of the Company, in any activity which
competes with the business of the Company or which would result in a material
injury to the Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the Company's
Insider Trading Policy, if any, then in effect.
If the Employee's employment terminates, unless the Company
terminates the Employee's employment under this Agreement for Cause or the
Employee resigns, the Company shall, subject to the terms of Section 6(c)
below, and only if and as long as Employee is not in breach of his obligations
under this Agreement, pay to the Employee an amount equal to twelve (12) months
compensation at his then current salary, payable semimonthly, and shall
continue to provide benefits in the kind and amounts provided up to the date of
termination for said twelve (12) month period including, without limitation,
continuation of any Company-paid benefits as described in Section 5
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<PAGE> 4
for the Employee and his family. Notwithstanding anything in this Agreement to
the contrary, in the event of (A) the sale of all or substantially all of the
assets of the Company, or (B) a merger, consolidation, liquidation or
reorganization of the Company, in which the Company is not the surviving
entity, or which results, in any event, in a change of control of the Company,
the Company or the surviving entity, as the case may be, shall either adopt
this Agreement or pay to the Employee, an amount equal to thirty six (36)
months compensation at Employee's then current annual salary, payable
semimonthly, and shall continue to provide benefits in the kind and amounts
provided up to the date of termination for such thirty six (36) month period.
In the event that this Agreement is terminated by Company without Cause,
Employee agrees to accept, in full settlement of any and all claims, losses,
damages and other demands which Employee may have arising out of such
termination as liquidated damages and not as a penalty, the applicable amount
which is set out above. Employee hereby waives any and all rights he may have
to bring any cause of action or proceeding contesting any termination without
Cause, provided, however, that such waiver shall not be deemed to affect
Employee's rights to enforce any other obligations of the Company. Under no
circumstances shall Employee be entitled to any compensation or confirmation of
any benefits under this Agreement for any period of time following his date of
termination if his termination is for Cause.
(b) If at any time during the term of this Agreement, Employee
is unable due to physical or mental disability, to perform effectively his
duties hereunder, the Company shall continue payment of compensation as
provided in Section 4 during the first six (6) month period of such disability
to the extent not covered by the Company's disability insurance policies. Upon
the expiration of such six (6) month period, the Company, at its sole option,
may continue payment of Employee's salary for such additional periods as the
Company elects, or may terminate this Agreement without any further obligations
hereunder. If Employee should die during the term of this Agreement,
Employee's employment and the Company's obligations hereunder shall terminate
as of the end of the month in which Employee's death occurs and there will be
no salary and benefit continuation period pursuant to Section 6(a). Employee
shall be deemed to have incurred a disability if Employee suffers a physical or
mental condition which (i) satisfies the definition of "total disability" in
the Company's disability insurance policies, or (ii) if no such policy or plan
is then covering Employee, in the judgment of the Board of Directors, totally
and permanently prevents Employee from engaging in any substantial gainful
employment with the Company.
(c) So long as Employee receives a severance as provided in
Section 6(a) or (b) above, Employee agrees that he will sign any lock-up
letters, standstill agreements, or other similar documentation required by an
underwriter in connection with a public offering of securities by the Company
or take other actions reasonably related thereto as requested by the Board of
Directors of the Company. Failure to take any such action shall cause Employee
to forfeit any further rights to the salary continuation payments in Section
6(a) or (b). In addition, Employee agrees that in such event the Company can
seek and obtain specific performance of such covenant, including any injunction
requiring execution thereof, and the Employee hereby appoints the then current
president of the Company to sign any such documents on his behalf so long as
such documents are prepared on the same basis as other shareholders generally
or as all management shareholders.
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7. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not
compete with the Company or its affiliates, directly or indirectly, either for
himself or as a member of a partnership or as a stockholder (except as a
stockholder of less than one percent (1 %) of the issued and outstanding stock
of a publicly-held company whose gross assets exceed one hundred million
dollars), investor, owner, officer or director of a company or other entity, or
as an employee, agent, associate or consultant of any person, partnership,
corporation or other entity, in any business in competition with that carried
on by the Company or any of its affiliates.
(b) Employee further agrees that, for a period of two (2)
years from and after the date of termination of Employee's employment under
this Agreement, regardless of the reason for such termination, he will neither
represent nor engage in or carry on, directly or indirectly, either for himself
or as a member of a partnership or as a stockholder (other than as a
stockholder of less than one percent (1 %) of the issued and outstanding stock
of a publicly-held company whose gross assets exceed one hundred million
dollars), investor, owner, officer or director of a company or other entity, or
as an employee, agent, associate or consultant of any person, partnership,
corporation or other entity, any business in any State of the United States or
in any other part of the world which directly competes with any services or
products produced, sold, conducted, developed, or in the process of development
by the Company or its affiliates on the date of termination of Employee's
employment. Notwithstanding the foregoing, after the termination of Employee's
employment under this Agreement, nothing herein shall prevent Employee from
working in the marsh or marine construction and pipe laying businesses,
industrial diving and offshore products fabrication businesses, other than as
an employee of Company or a subsidiary of Company if such activities are in
areas not in direct competition with any services or products produced, sold,
conducted, developed, or in the process of development by the Company or its
affiliates on the date of termination of Employee's employment.
(c) Employee agrees that the limitations set forth herein on
his rights to compete with the Company and its affiliates are reasonable and
necessary for the protection of the Company and its affiliates. In this
regard, Employee specifically agrees that the limitations as to period of time
and geographic area, as well as all other restrictions on his activities
specified herein, are reasonable and necessary for the protection of the
Company and its affiliates. In particular, Employee acknowledges that the
parties anticipate that the Employee will be actively seeking markets for the
Company's products throughout the United States during his employment with the
Company.
(d) Employee agrees that the remedy at law for any breach by
him of this Section 7 will be inadequate and that the Company shall also be
entitled to injunctive relief.
8. Confidential Information and Results of Services. Employee
agrees that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not make use of or disclose, without the
prior consent of the Company, Confidential Information (as hereinafter defined)
relating to the Company, or any of its affiliates, and further agrees, that he
will return to the Company all written materials in his possession embodying
such Confidential Information. For purposes of this Agreement, "Confidential
Information" includes information conveyed or assigned to the Company by
Employee or conceived, compiled, created, developed, discovered or obtained
5
<PAGE> 6
by Employee from and during his employment relationship with the Company,
whether solely by the Employee or jointly with others, which concerns the
affairs of the Company or its affiliates and which the Company could reasonably
be expected to desire be held in confidence, or the disclosure of which would
likely be embarrassing, detrimental or disadvantageous to the Company or its
affiliates and without limiting the generality of the foregoing includes
information relating to inventions, and the trade secrets, technologies,
algorithms, products, services, finances, business plans, marketing plans,
legal affairs, supplier lists, client lists, potential clients, business
prospects, business opportunities, personnel assignments, contracts and assets
of the Company and information made available to the Company by other parties
under a confidential relationship. Confidential Information, however, shall
not include information (a) which is, at the time in question, in the public
domain through no wrongful act of Employee, (b) which is later disclosed to
Employee by one not under obligations of confidentiality to the Company or
Employee, (c) which is required by court or governmental order, law or
regulation to be disclosed, or (d) which the Company has expressly given
Employee the right to disclose pursuant to written agreement. Employee agrees
that the remedy at law for any breach by him of this Section 8 will be
inadequate and that the Company shall also be entitled to injunctive relief.
9. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the
beginning of this Agreement;
(b) If to the Company:
Red Fox International, Inc.
3535 Briarpark, Suite 210
Houston, Texas 77042
Either party may change such party's address by such notice to
the other parties.
10. Assignment. This Agreement is personal to the Employee, and he
shall not assign any of his rights or delegate any of his duties hereunder
without the prior written consent of the Company. Neither the employee nor his
spouse will have the right to commute, encumber, or otherwise dispose of any
payments under this Agreement. The Company shall have the right to assign this
Agreement to a successor in interest in connection with a merger, sale of
substantially all assets, or the like; provided however, that an assignment of
this Agreement to an entity with operations, products or services outside of
the industries in which the Company is then active shall not be deemed to
expand the scope of Employee's covenant not to compete with such operations,
products or services without Employee's written consent.
11. Survival. The provisions of this Agreement shall survive the
termination of the Employee's employment hereunder in accordance with their
terms.
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<PAGE> 7
12. Applicable Law. The substantive laws of the State of Texas,
excluding any law, rule or principle which might refer to the substantive law
of another jurisdiction, will govern the interpretation, validity and effect of
this Agreement without regard to the place of execution or the place for
performance thereof. This Agreement is to be negotiated, executed and
performed in Harris County, Texas, and, as such, the Company and Grantor agree
that personal jurisdiction and venue shall be proper with the state or federal
courts situated in Harris County, Texas, to hear such disputes arising under
this Agreement.
13. Binding Upon Successors. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
14. Entire Agreement. This Agreement constitutes the entire
agreement between the Company and the Employee with respect to the terms of
employment of the Employee by the Company and supersedes all prior agreements
and understandings, whether written or oral, between them concerning such terms
of employment.
15. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented,
and any obligation hereunder may be waived, only by a written instrument
executed by the parties hereto. The waiver by either party of a breach of any
provision of this Agreement shall not operate as a waiver of any subsequent
breach.
(b) No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
hereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies hereunder are cumulative
and are in addition to all other rights and remedies provided by law, agreement
or otherwise.
(c) The obligations of the parties hereto and such parties'
rights and remedies hereunder are in addition to all other obligations of such
parties, and all rights and remedies of such parties, created pursuant to any
other agreement.
16. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement shall
not be construed or interpreted against any party on the basis that such party
drafted or authored a particular provision, parts of or the entirety of this
Agreement.
17. Severability. In the event that any provision or provisions of
this Agreement is held to be invalid, illegal or unenforceable by any court of
law or otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, in such event
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible with
respect to those provisions which were held to be invalid, illegal or
unenforceable.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written, to be effective as of
August 1, 1997.
RED FOX INTERNATIONAL, INC., A
DELAWARE CORPORATION
By:/s/ G. DARCY KLUG
----------------------------------
Name: G. Darcy Klug
--------------------------------
Title: Vice President
-------------------------------
EMPLOYEE:
/s/ THAD SMITH
-------------------------------------
Thad Smith
8
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of August 1, 1997, by
and between RED FOX INTERNATIONAL, INC., a Delaware corporation anticipated to
be renamed TransCoastal Marine Services, Inc., 3535 Briarpark, Suite 210,
Houston, Texas 77042 (the "Company"), and JOHNNIE W. DOMINGUE, an individual
with an address of 13814 Woodthorpe, Houston, Texas 77079 (the "Employee").
1. Employment. The Company hereby agrees to employ the Employee and
the Employee hereby agrees to work for the Company upon the terms and
conditions set forth herein. This Agreement shall be deemed a modification and
extension of the letter dated April 21, 1997 by and between Employee and the
Company (the "Employment Letter"); provided, however, that the terms and
conditions of the Employment Letter shall continue in full force and effect,
notwithstanding this Agreement, for periods prior to the closing of the
Company's IPO (as defined below).
2. Term of Employment. The term of employment pursuant to this
Agreement shall begin on the closing of the Company's IPO (as defined below)
(the "Effective Date") and shall continue in effect for an initial term of
three (3) years from the closing of the Company's IPO (as defined below) (the
"Closing Date"), unless terminated in accordance with Section 6, and shall be
extended from year to year thereafter, unless terminated effective as of the
end of the initial term or any one-year extension thereafter by written notice
from the Company to Employee, or by written notice of Employee to the Company,
delivered not less than ninety (90) days prior to the end of the initial term,
or the anniversary of such one-year extension, as applicable. The term "IPO"
means any underwritten public offering of the Company's common stock other than
any offering pursuant to any registration statement (i) relating to any capital
stock of the Company or options, warrants or other rights to acquire any such
capital stock issued or to be issued primarily to directors, officers or
employees of the Company, or any of its subsidiaries (ii) relating to any
employee benefit plan or interest therein, (iii) relating principally to any
preferred stock or debt securities of the Company, or (iv) filed pursuant to
Rule 145 under the Securities Act of 1933, as amended, or any successor or
similar provisions.
3. Scope of Duties; Representations and Warranties.
(a) The Employee shall be employed by the Company as its
Treasurer and Chief Financial Officer. At all times, the Employee shall serve
under the direction of the Chief Executive Officer of the Company and shall
perform such services and exercise such authority as is customary for such
position.
(b) So long as he is employed by the Company, the Employee
shall devote his skill, energy and best efforts to the faithful discharge of
his duties as an employee of the Company. The Employee agrees that in the
provision of all services to the Company, he will comply with and follow all
directives, policies, standards and regulations from time to time established
by the Board of Directors of the Company.
(c) The Employee represents and warrants that he is under no
contractual or other restrictions or obligations which will significantly limit
his activities on behalf of the Company or which will prohibit or limit the
disclosure or use of by the Employee of any information which directly
<PAGE> 2
or indirectly relates to the nature of the Company or the services to be
rendered by the Employee under this Agreement.
(d) To the extent they relate to, or result from, directly or
indirectly, the actual or anticipated operations of the Company, the Employee
hereby agrees that all patents, trademarks, copyrights, trade secrets, and
other intellectual property rights, all inventions, whether or not patentable
and any product, drawing, design, recording, writing, literary work or other
author's work, in any other tangible form developed in whole or in part by
Employee during the term of this Agreement, or otherwise developed, purchased
or acquired by Employer, shall be the exclusive property of the Employer
("Intellectual Property"), and unless otherwise agreed by Employer, all right,
title and interest therein shall remain in Employer.
(e) The Employee will hold all Intellectual Property and
Confidential Information (defined below) in trust for the Company and will
deliver all Intellectual Property and Confidential Information in his
possession or control to the Company upon request and, in any event, at the end
of his employment with the Company. The Employee will promptly disclose to the
Company all Confidential Information, as well as any business opportunity which
comes to his attention during the term of his employment with the Company. The
Employee will not take advantage of or divert any business opportunity for the
benefit of himself or any other party without the prior written consent of the
Company.
(f) The Employee shall assign and does hereby assign to the
Company all property rights that he may now or hereafter have in the
Intellectual Property and Confidential Information. The Employee shall take
such action, including, but not limited to, the execution, acknowledgment,
delivery and assistance in preparation of documents, and the giving of
testimony, as may be requested by the Company to evidence, transfer, vest or
confirm the Company's right, title and interest in the Intellectual Property.
(g) The Employee will not contest the validity of any
invention, any copyright, any trademark or any mask work registration owned by
or vesting in the Company under this Agreement.
4. Compensation.
(a) During the first year of this Agreement following the
Closing Date, the Company shall pay the Employee a base salary, payable semi-
monthly, in equal installments at a rate equal to $180,000 per year. In each
subsequent year of this Agreement the Company shall pay to the Employee a
salary equal to the greater of (i) his salary for the immediately preceding
year or (ii) a salary determined by the Board of Directors following its annual
salary and performance review.
(b) Employee shall receive an annual cash performance bonus
for the calendar year during the term of this Agreement to be determined
according to the following procedure. The Board of Directors of the Company,
or the Compensation Committee of the Board of Directors, if so authorized,
shall establish specific annual performance goals for the Company and for
Employee with respect to each calendar year during the term of this Agreement
commencing on January 1, 1998. Such goals shall be communicated to Employee
not later than the end of the first quarter of the applicable calendar year.
At the end of each calendar year during the term of this Agreement, or
2
<PAGE> 3
within a reasonable time thereafter, the Board of Directors of the Company, or
the Compensation Committee of the Board of Directors, if so authorized, shall
review the actual performance of the Company and Employee, giving due
consideration to market and other developments outside of the control or
influence of Employee and the Company, and based upon the extent to which the
applicable annual performance goals have been achieved, shall determine in its
sole and absolute discretion, the amount of performance bonus payable to
Employee with respect to such year.
(c) All payments of salary and other compensation to the
Employee shall be made after deduction of any taxes which are required to be
withheld with respect thereto under applicable federal and state laws.
5. Fringe Benefits. So long as the Employee is employed by the
Company, the Employee shall participate in all employee benefit plans sponsored
by the Company for its executive employees as approved from time to time by the
board of directors of the Company or any compensation committee of the board of
directors, if any, and on terms at least as favorable to Employee as are
offered to other senior executives of the Company. The Company shall reimburse
Employee for his reasonable travel and other expenses incurred in connection
with his employment under this Agreement.
6. Termination.
(a) Employee agrees that this Agreement may be terminated by
the Company with or without "Cause" at any time, subject to the terms of this
Section 6. Such termination shall be effective upon delivery of written notice
to Employee of the Company's election to terminate this Agreement under this
Section 6. "Cause" when used in connection with the termination of employment
with the Company, shall mean the termination of the Employee's employment by
the Company by reason of (i) the conviction of the Employee of a crime
involving moral turpitude by a court of competent jurisdiction as to which no
further appeal can be taken; (ii) the proven commission by the Employee of an
act of fraud upon the Company; (iii) the willful and proven misappropriation of
any funds or property of the Company by the Employee; (iv) the willful,
continued and unreasonable failure by the Employee to perform material duties
assigned to him and agreed to by him after reasonable written notice and
opportunity to cure such performance; (v) the knowing engagement by the
Employee in any direct, material conflict of interest with the Company without
compliance with the Company's conflict of interest policy, if any, then in
effect; (vi) the knowing engagement by the Employee, without the written
approval of the Board of Directors of the Company, in any activity which
competes with the business of the Company or which would result in a material
injury to the Company; or (vii) the knowing engagement in any activity which
would constitute a material violation of the provisions of the Company's
Insider Trading Policy, if any, then in effect.
If the Employee's employment terminates, unless the Company
terminates the Employee's employment under this Agreement for Cause or the
Employee resigns, the Company shall, subject to the terms of Section 6(c)
below, and only if and as long as Employee is not in breach of his obligations
under this Agreement, pay to the Employee an amount equal to twelve (12) months
compensation at his then current salary, payable semimonthly, and shall
continue to provide benefits in the kind and amounts provided up to the date of
termination for said twelve (12) month period
3
<PAGE> 4
including, without limitation, continuation of any Company-paid benefits as
described in Section 5 for the Employee and his family. Notwithstanding
anything in this Agreement to the contrary, in the event of (A) the sale of all
or substantially all of the assets of the Company, or (B) a merger,
consolidation, liquidation or reorganization of the Company, in which the
Company is not the surviving entity, or which results, in any event, in a
change of control of the Company, the Company or the surviving entity, as the
case may be, shall either adopt this Agreement or pay to the Employee an amount
equal to thirty six (36) months compensation at Employee's then current annual
salary, payable semimonthly, and shall continue to provide benefits in the kind
and amounts provided up to the date of termination for such thirty six (36)
month period.
In the event that this Agreement is terminated by Company without Cause,
Employee agrees to accept, in full settlement of any and all claims, losses,
damages and other demands which Employee may have arising out of such
termination as liquidated damages and not as a penalty, the applicable amount
which is set out above. Employee hereby waives any and all rights he may have
to bring any cause of action or proceeding contesting any termination without
Cause, provided, however, that such waiver shall not be deemed to affect
Employee's rights to enforce any other obligations of the Company. Under no
circumstances shall Employee be entitled to any compensation or confirmation of
any benefits under this Agreement for any period of time following his date of
termination if his termination is for Cause.
(b) If at any time during the term of this Agreement, Employee
is unable due to physical or mental disability, to perform effectively his
duties hereunder, the Company shall continue payment of compensation as
provided in Section 4 during the first six (6) month period of such disability
to the extent not covered by the Company's disability insurance policies. Upon
the expiration of such six (6) month period, the Company, at its sole option,
may continue payment of Employee's salary for such additional periods as the
Company elects, or may terminate this Agreement without any further obligations
hereunder. If Employee should die during the term of this Agreement,
Employee's employment and the Company's obligations hereunder shall terminate
as of the end of the month in which Employee's death occurs and there will be
no salary and benefit continuation period pursuant to Section 6(a). Employee
shall be deemed to have incurred a disability if Employee suffers a physical or
mental condition which (i) satisfies the definition of "total disability" in
the Company's disability insurance policies, or (ii) if no such policy or plan
is then covering Employee, in the judgment of the Board of Directors, totally
and permanently prevents Employee from engaging in any substantial gainful
employment with the Company.
(c) So long as Employee receives a severance as provided in
Section 6(a) or (b) above, Employee agrees that he will sign any lock-up
letters, standstill agreements, or other similar documentation required by an
underwriter in connection with a public offering of securities by the Company
or take other actions reasonably related thereto as requested by the Board of
Directors of the Company. Failure to take any such action shall cause Employee
to forfeit any further rights to the salary continuation payments in Section
6(a) or (b). In addition, Employee agrees that in such event the Company can
seek and obtain specific performance of such covenant, including any injunction
requiring execution thereof, and the Employee hereby appoints the then current
president of the Company to sign any such documents on his behalf so long as
such documents are prepared on the same basis as other shareholders generally
or as all management shareholders.
4
<PAGE> 5
7. Covenant Not to Compete.
(a) During the term of this Agreement, Employee will not
compete with the Company or its affiliates, directly or indirectly, either for
himself or as a member of a partnership or as a stockholder (except as a
stockholder of less than one percent (1 %) of the issued and outstanding stock
of a publicly-held company whose gross assets exceed one hundred million
dollars), investor, owner, officer or director of a company or other entity, or
as an employee, agent, associate or consultant of any person, partnership,
corporation or other entity, in any business in competition with that carried
on by the Company or any of its affiliates.
(b) Employee further agrees that, for a period of two (2)
years from and after the date of termination of Employee's employment under
this Agreement, regardless of the reason for such termination, he will neither
represent nor engage in or carry on, directly or indirectly, either for himself
or as a member of a partnership or as a stockholder (other than as a
stockholder of less than one percent (1 %) of the issued and outstanding stock
of a publicly-held company whose gross assets exceed one hundred million
dollars), investor, owner, officer or director of a company or other entity, or
as an employee, agent, associate or consultant of any person, partnership,
corporation or other entity, any business in any State of the United States or
in any other part of the world which directly competes with any services or
products produced, sold, conducted, developed, or in the process of development
by the Company or its affiliates on the date of termination of Employee's
employment. Notwithstanding the foregoing, after the termination of Employee's
employment under this Agreement, nothing herein shall prevent Employee from
working in the marsh or marine construction and pipe laying businesses,
industrial diving and offshore products fabrication businesses, other than as
an employee of Company or a subsidiary of Company if such activities are in
areas not in direct competition with any services or products produced, sold,
conducted, developed, or in the process of development by the Company or its
affiliates on the date of termination of Employee's employment.
(c) Employee agrees that the limitations set forth herein on
his rights to compete with the Company and its affiliates are reasonable and
necessary for the protection of the Company and its affiliates. In this
regard, Employee specifically agrees that the limitations as to period of time
and geographic area, as well as all other restrictions on his activities
specified herein, are reasonable and necessary for the protection of the
Company and its affiliates. In particular, Employee acknowledges that the
parties anticipate that the Employee will be actively seeking markets for the
Company's products throughout the United States during his employment with the
Company.
(d) Employee agrees that the remedy at law for any breach by
him of this Section 7 will be inadequate and that the Company shall also be
entitled to injunctive relief.
8. Confidential Information and Results of Services. Employee
agrees that during the term of this Agreement, and for five (5) years after his
termination of employment, he will not make use of or disclose, without the
prior consent of the Company, Confidential Information (as hereinafter defined)
relating to the Company, or any of its affiliates, and further agrees, that he
will return to the Company all written materials in his possession embodying
such Confidential Information. For purposes of this Agreement, "Confidential
Information" includes information conveyed or assigned to the Company by
Employee or conceived, compiled, created, developed, discovered or obtained
5
<PAGE> 6
by Employee from and during his employment relationship with the Company,
whether solely by the Employee or jointly with others, which concerns the
affairs of the Company or its affiliates and which the Company could reasonably
be expected to desire be held in confidence, or the disclosure of which would
likely be embarrassing, detrimental or disadvantageous to the Company or its
affiliates and without limiting the generality of the foregoing includes
information relating to inventions, and the trade secrets, technologies,
algorithms, products, services, finances, business plans, marketing plans,
legal affairs, supplier lists, client lists, potential clients, business
prospects, business opportunities, personnel assignments, contracts and assets
of the Company and information made available to the Company by other parties
under a confidential relationship. Confidential Information, however, shall
not include information (a) which is, at the time in question, in the public
domain through no wrongful act of Employee, (b) which is later disclosed to
Employee by one not under obligations of confidentiality to the Company or
Employee, (c) which is required by court or governmental order, law or
regulation to be disclosed, or (d) which the Company has expressly given
Employee the right to disclose pursuant to written agreement. Employee agrees
that the remedy at law for any breach by him of this Section 8 will be
inadequate and that the Company shall also be entitled to injunctive relief.
9. Notice. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand, by courier service, or sent by
registered or certified mail, postage prepaid, to the parties at their
respective addresses listed below:
(a) If to the Employee, to the address set out in the
beginning of this Agreement;
(b) If to the Company:
Red Fox International, Inc.
3535 Briarpark, Suite 210
Houston, Texas 77042
Either party may change such party's address by such notice to
the other parties.
10. Assignment. This Agreement is personal to the Employee, and he
shall not assign any of his rights or delegate any of his duties hereunder
without the prior written consent of the Company. Neither the employee nor his
spouse will have the right to commute, encumber, or otherwise dispose of any
payments under this Agreement. The Company shall have the right to assign this
Agreement to a successor in interest in connection with a merger, sale of
substantially all assets, or the like; provided however, that an assignment of
this Agreement to an entity with operations, products or services outside of
the industries in which the Company is then active shall not be deemed to
expand the scope of Employee's covenant not to compete with such operations,
products or services without Employee's written consent.
11. Survival. The provisions of this Agreement shall survive the
termination of the Employee's employment hereunder in accordance with their
terms.
6
<PAGE> 7
12. Applicable Law. The substantive laws of the State of Texas,
excluding any law, rule or principle which might refer to the substantive law
of another jurisdiction, will govern the interpretation, validity and effect of
this Agreement without regard to the place of execution or the place for
performance thereof. This Agreement is to be negotiated, executed and
performed in Harris County, Texas, and, as such, the Company and Grantor agree
that personal jurisdiction and venue shall be proper with the state or federal
courts situated in Harris County, Texas, to hear such disputes arising under
this Agreement.
13. Binding Upon Successors. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
14. Entire Agreement. This Agreement constitutes the entire
agreement between the Company and the Employee with respect to the terms of
employment of the Employee by the Company and supersedes all prior agreements
and understandings, whether written or oral, between them concerning such terms
of employment.
15. Waiver and Amendments; Cumulative Rights and Remedies.
(a) This Agreement may be amended, modified or supplemented,
and any obligation hereunder may be waived, only by a written instrument
executed by the parties hereto. The waiver by either party of a breach of any
provision of this Agreement shall not operate as a waiver of any subsequent
breach.
(b) No failure on the part of any party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
hereof, nor shall any single or partial exercise of any such right or remedy by
such party preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies hereunder are cumulative
and are in addition to all other rights and remedies provided by law, agreement
or otherwise.
(c) The obligations of the parties hereto and such parties'
rights and remedies hereunder are in addition to all other obligations of such
parties, and all rights and remedies of such parties, created pursuant to any
other agreement.
16. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement shall
not be construed or interpreted against any party on the basis that such party
drafted or authored a particular provision, parts of or the entirety of this
Agreement.
17. Severability. In the event that any provision or provisions of
this Agreement is held to be invalid, illegal or unenforceable by any court of
law or otherwise, the remaining provisions of this Agreement shall nevertheless
continue to be valid, legal and enforceable as though the invalid or
unenforceable parts had not been included therein. In addition, in such event
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible with
respect to those provisions which were held to be invalid, illegal or
unenforceable.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement under seal on the date first above written, to be effective as of
August 1, 1997.
RED FOX INTERNATIONAL, INC., A
DELAWARE CORPORATION
By: /s/ G. DARCY KLUG
----------------------------------
G. Darcy Klug, Vice President
EMPLOYEE:
/s/ JOHNNIE W. DOMINGUE
-------------------------------------
Johnnie W. Domingue
8
<PAGE> 1
EXHIBIT 10.5
STOCK REPURCHASE AGREEMENT
This Stock Repurchase Agreement (this "Agreement") dated as of March
24, 1997 is entered into by and between RED FOX INTERNATIONAL, INC., a Delaware
corporation (the "Company") and BILL E. STALLWORTH (the "Grantor") .
W I T N E S S E T H:
WHEREAS, Grantor owns certain shares of common stock of the Company (the
"Common Stock");
WHEREAS, in order to facilitate certain additional funding of the
Company, Grantor, the Company desires that Grantor grant to the Company an
option to purchase certain shares of Common Stock on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns 100
shares of Common Stock (the "Shares"), all of which shall initially be subject
to the terms, provisions and conditions of the Purchase Option (as hereafter
defined). The term "IPO" means the first underwritten public offering of the
Company's common stock other than any offering pursuant to any registration
statement (i) relating to any capital stock of the Company or options, warrants
or other rights to acquire any such capital stock issued or to be issued
primarily to directors, officers or employees of the Company, or any of its
subsidiaries (ii) relating to any employee benefit plan or interest therein,
(iii) relating principally to any preferred stock or debt securities of the
Company, or (iv) filed pursuant to Rule 145 under the Securities Act of 1933,
as amended, or any successor or similar provisions.
2. PURCHASE OPTION.
a. The Shares shall be subject to the option (the "Purchase
Option") set forth in this Section 2. In the event that Grantor shall cease to
be engaged, either as a consultant or as an employee, by the Company (including
a parent or subsidiary of the Company) under the circumstances set forth in
Section 2(b) of this Agreement (the "Section 2(b) Event"), the Company shall
have the right, at any time within 90 days after the date Grantor ceases to be
so engaged (the "Option Period"), to exercise the Purchase Option, which
consists of the right to purchase from Grantor at a purchase price of $1.00 per
share (as adjusted pursuant to Section 4 below) (the "Option Price"), up to but
not exceeding the number of Shares specified in Section 2(b) below, upon the
terms hereinafter set forth.
b. If any of the following items (i), (ii) or (iii) occurs:
i. Grantor repudiates or renounces that certain
Employment Agreement between the Company and Grantor (the "Employment
Agreement") or voluntarily ceases his engagement with the Company (other
than by reason of death or disability) prior to the date
<PAGE> 2
which is 18 months following the date of the successful completion of
the IPO without the prior written consent of the Company; or
ii. Grantor's engagement by the Company under the
Employment Agreement is terminated by the Company at any time prior to
the date which is 18 months following the date of the successful
completion of the IPO, with "Cause," as defined in Section 6 of such
Employment Agreement;
prior to the occurrence of any Termination Event (as defined in Section 9),
then the Company may exercise the Purchase Option at the Option Price as to the
number of Shares determined as follows:
(A) Prior to the IPO, the Company may exercise the Purchase
Option as to all of the Shares;
(B) Following the IPO, the Company may exercise the Purchase
Option as to a number of Shares equal to the total number of Shares less
an aggregate number of Shares equal to the product (rounded down to the
nearest whole Share) of (i) 1/18 times (ii) the aggregate number of full
calendar months following the IPO that Grantor has been engaged as an
employee to the Company, times (iii) the total number of Shares (100)
The Company shall not have the right to exercise the Purchase Option in
the event Grantor's employment by the Company under the Employment Agreement is
terminated for death, disability, "without Cause" or for any other reason
except as provided in Section 2(b) above.
c. The Purchase Option may be exercised by the Company by giving
notice to the Grantor in accordance with Section 13.1 hereof stating that the
Company has elected to acquire the Shares subject to the Purchase Option. Each
sale and purchase in accordance with the rights so exercised shall be
thereafter completed without avoidable delay by the transfer and assignment of
such Shares to the Company and payment of the Option Price. The Option Price
shall be payable, at the option of the Company, by cancellation of all or a
portion of any outstanding indebtedness of the Grantor to the Company or by
payment in cash (by check), or both.
d. Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Company, or a parent or subsidiary of the Company, to
terminate Grantors' engagement with the Company, for any reason, with or
without cause as provided in the applicable Employment Agreement.
3. ASSIGNMENT. Neither the Company nor Grantor may assign this
Agreement or any of its respective rights and obligations hereunder.
4. ADJUSTMENTS. If, from time to time during the term of the
Purchase Option (i) there is any dividend of stock or other securities or
liquidating dividend of cash or property, stock split, reverse stock split,
subdivision, combination, recapitalization, reorganization, reclassification or
other change in the character or amount of any of the outstanding securities of
the Company, or (ii) there is any transaction involving the consolidation or
merger of the Company in which the Company is the
2
<PAGE> 3
surviving entity (collectively, (i) and (ii) shall be referred to as a
"Reorganization"), then, in such event, any and all new, substituted or
additional securities or other property to which Grantor is entitled by reason
of Grantor's ownership of the Shares shall be immediately subject to the
Purchase Option and be included in the term "Shares" for all purposes of the
Purchase Option with the same force and effect as the Shares subject to the
Purchase Option under the terms of Section 2 hereof. In the event that the
outstanding Common Stock is at any time increased or decreased solely by reason
of a Reorganization, appropriate adjustments to the Option Price shall be made
effective as of the date of such occurrence so that the total Option Price upon
exercise of the Purchase Option will be the same as it would have been had the
Company exercised the Purchase Option immediately prior to the occurrence of
such event.
5. LEGENDS. All certificates representing any of the Shares subject
to the provisions of this Agreement shall have endorsed thereon a legend
substantially as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST
IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO AN OPTION, CONTAINED IN A CERTAIN AGREEMENT
EXECUTED BY THE RECORD HOLDER HEREOF, THE CORPORATION AND CERTAIN
OTHER PARTIES, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION
OF A WRITTEN REQUEST THEREFOR."
Upon presentation to the Company or any authorized transfer agent of
certificates representing the Shares, the number of Shares represented thereby
which are no longer subject to the Purchase Option shall be exchanged for
certificates not bearing such legend, and all Shares, if any, which remain
subject to the Purchase Option, shall be represented by certificates endorsed
with the legend set forth above.
6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or
otherwise transfer (otherwise than by operation of law) any of the Shares which
are subject to the Purchase Option or any interest therein, or grant or
otherwise allow to exist any lien, claim or other encumbrance on or with
respect to any of the Shares then subject to the Purchase Option.
7. NO TRANSFER. The Company shall not be required (i) to transfer
on its books any of the Shares which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such Shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such Shares shall have been so transferred.
8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section 7
above, Grantor shall, during the term of this Agreement, exercise all rights
and privileges of a shareholder of the Company with respect to the Shares.
3
<PAGE> 4
9. TERMINATION. This Agreement and the Purchase Option granted
hereunder shall terminate on the earlier to occur of any of the following
events (each a "Termination Event"):
a. the 91st calendar day immediately succeeding the date
which is 18 months following the date of the successful completion of
the IPO;
b. upon expiration of the Option Period;
c. the commencement by the Company of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent to the entry
of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or
the consent to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee
trustee, sequestrator or other similar official of the Company or of any
substantial part of its property, or the making of an assignment for the
benefit of creditors, or the admission in writing of inability to pay
debts generally as they become due, or the taking of corporate action by
the Company in furtherance of any such action;
d. the sale of all or substantially all of the assets of the
Company; or
e. the occurrence of a change in control as defined in the
TransCoastal Marine Services, Inc. 1997 Stock Option Plan.
10. FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further actions as may reasonably be necessary to
carry out the purposes and intent of this Agreement.
11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to sell
any Shares to the Company under this Agreement and fails to deliver such Shares
in accordance with the terms of this Agreement, the Company may, at its option,
in addition to all other remedies it may have, send to the Grantor the purchase
price for such Shares as is herein specified. Thereupon, the Company upon
written notice to the Grantor, (a) shall cancel on its books the certificate or
certificates representing the Shares to be sold and (b) shall issue, in lieu
thereof, in the name of the Company a new certificate or certificates
representing such Shares, and thereupon all of the Grantor's rights in and to
such Shares shall terminate.
12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the Company
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach of the terms, covenants and/or conditions of this Agreement by
Grantor, the Company shall, in addition to all other remedies, be
4
<PAGE> 5
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions hereof.
13. MISCELLANEOUS.
a. Notice. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall
be deemed to have been duly given when personally delivered or when
mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company: Red Fox International, Inc.
3535 Briarpark, Suite 210
Houston, Texas 77042
If to Grantor, at the address identified on the signature page
hereof, or to such other address as either party may furnish to the
other in writing in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
b. Applicable Law. The substantive laws of the State of
Texas, excluding any law, rule or principle which might refer to the
substantive law of another jurisdiction, will govern the interpretation,
validity and effect of this Agreement without regard to the place of
execution or the place for performance thereof. This Agreement is to be
negotiated, executed and performed in Harris County, Texas, and, as
such, the Company and Grantor agree that personal jurisdiction and venue
shall be proper with the state or federal courts situated in Harris
County, Texas, to hear such disputes arising under this Agreement.
c. No Waiver. No failure by either party hereto at any time
to give notice of any breach by the other party of, or to require
compliance with, any condition or provision of this Agreement shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time.
d. Severability. If a court of competent jurisdiction
determines that any provision of this Agreement, including any
appendices attached hereto, is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the
validity or enforceability of any other provision of this Agreement, and
all other provisions shall remain in full force and effect. Further,
such provisions shall be reformed and construed to the extent permitted
by law so that it may be valid, legal and enforceable to the maximum
extent possible.
e. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but
all of which together will constitute one and the same Agreement.
f. Headings. The section headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
5
<PAGE> 6
g. Successors. This Agreement shall inure to the benefit of
the permitted successors and assigns of the Company and be binding upon
Grantor and his or her heirs, executors, administrators and successors.
h. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement
shall not be construed or interpreted against any party on the basis
that such party drafted or authored a particular provision, parts of or
the entirety of this Agreement.
i. Entire Agreement. This Agreement and the agreements
referred to herein constitute the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants,
promises, representations, warranties and agreements between the
parties with respect to the subject matter hereof. Each party to this
Agreement acknowledges that no representation, inducement, promise or
agreement, oral or written, with regard to the subject matter hereof,
has been made by either party, or by anyone acting on behalf of either
party, which is not embodied herein, and that no agreement, statement or
promise relating to the subject matter hereof which is not contained in
this Agreement or in such other agreements shall be valid or binding.
j. Amendments. No amendment or modification to this
Agreement will be effective unless it is in writing and signed by the
Company and Grantor.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
COMPANY:
RED FOX INTERNATIONAL, INC.
By: /s/ G. DARCY KLUG
---------------------------
Name: G. Darcy Klug
------------------------
Title: President
-----------------------
SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR:
/s/ JACKIE W. STALLWORTH /s/ BILL E. STALLWORTH
- ---------------------------- -----------------------------
Name: Jackie W. Stallworth BILL E. STALLWORTH
----------------------
Address: 20 Sugarberry Circle
---------------------
Houston, TX 77024
---------------------
6
<PAGE> 1
EXHIBIT 10.6
STOCK REPURCHASE AGREEMENT
This Stock Repurchase Agreement (this "Agreement") dated as of April
25, 1997 is entered into by and between RED FOX INTERNATIONAL, INC., a Delaware
corporation (the "Company") and THAD SMITH (the "Grantor") .
W I T N E S S E T H:
WHEREAS, Grantor owns certain shares of common stock of the Company (the
"Common Stock");
WHEREAS, in order to facilitate certain additional funding of the
Company, Grantor, the Company desires that Grantor grant to the Company an
option to purchase certain shares of Common Stock on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns 100
shares of Common Stock (the "Shares"), all of which shall initially be subject
to the terms, provisions and conditions of the Purchase Option (as hereafter
defined). The term "IPO" means the first underwritten public offering of the
Company's common stock other than any offering pursuant to any registration
statement (i) relating to any capital stock of the Company or options, warrants
or other rights to acquire any such capital stock issued or to be issued
primarily to directors, officers or employees of the Company, or any of its
subsidiaries (ii) relating to any employee benefit plan or interest therein,
(iii) relating principally to any preferred stock or debt securities of the
Company, or (iv) filed pursuant to Rule 145 under the Securities Act of 1933,
as amended, or any successor or similar provisions.
2. PURCHASE OPTION.
a. The Shares shall be subject to the option (the "Purchase
Option") set forth in this Section 2. In the event that Grantor shall cease to
be engaged, either as a consultant or as an employee, by the Company (including
a parent or subsidiary of the Company) under the circumstances set forth in
Section 2(b) of this Agreement (the "Section 2(b) Event"), the Company shall
have the right, at any time within 90 days after the date Grantor ceases to be
so engaged (the "Option Period"), to exercise the Purchase Option, which
consists of the right to purchase from Grantor at a purchase price of $1.00 per
share (as adjusted pursuant to Section 4 below) (the "Option Price"), up to but
not exceeding the number of Shares specified in Section 2(b) below, upon the
terms hereinafter set forth.
b. If any of the following items (i), (ii) or (iii) occurs:
i. Grantor repudiates or renounces that certain
Employment Agreement between the Company and Grantor (the "Employment
Agreement") or voluntarily ceases his engagement with the Company (other
than by reason of death or disability) prior to the date
<PAGE> 2
which is 18 months following the date of the successful completion of
the IPO without the prior written consent of the Company; or
ii. Grantor's engagement by the Company under the
Employment Agreement is terminated by the Company at any time prior to
the date which is 18 months following the date of the successful
completion of the IPO, with "Cause," as defined in Section 6 of such
Employment Agreement;
prior to the occurrence of any Termination Event (as defined in Section 9),
then the Company may exercise the Purchase Option at the Option Price as to the
number of Shares determined as follows:
(A) Prior to the IPO, the Company may exercise the Purchase
Option as to all of the Shares;
(B) Following the IPO, the Company may exercise the Purchase
Option as to a number of Shares equal to the total number of Shares less
an aggregate number of Shares equal to the product (rounded down to the
nearest whole Share) of (i) 1/18 times (ii) the aggregate number of full
calendar months following the IPO that Grantor has been engaged as an
employee to the Company, times (iii) the total number of Shares (100)
The Company shall not have the right to exercise the Purchase Option in
the event Grantor's employment by the Company under the Employment Agreement is
terminated for death, disability, "without Cause" or for any other reason
except as provided in Section 2(b) above.
c. The Purchase Option may be exercised by the Company by giving
notice to the Grantor in accordance with Section 13.1 hereof stating that the
Company has elected to acquire the Shares subject to the Purchase Option. Each
sale and purchase in accordance with the rights so exercised shall be
thereafter completed without avoidable delay by the transfer and assignment of
such Shares to the Company and payment of the Option Price. The Option Price
shall be payable, at the option of the Company, by cancellation of all or a
portion of any outstanding indebtedness of the Grantor to the Company or by
payment in cash (by check), or both.
d. Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Company, or a parent or subsidiary of the Company, to
terminate Grantors' engagement with the Company, for any reason, with or
without cause as provided in the applicable Employment Agreement.
3. ASSIGNMENT. Neither the Company nor Grantor may assign this
Agreement or any of its respective rights and obligations hereunder.
4. ADJUSTMENTS. If, from time to time during the term of the
Purchase Option (i) there is any dividend of stock or other securities or
liquidating dividend of cash or property, stock split, reverse stock split,
subdivision, combination, recapitalization, reorganization, reclassification or
other change in the character or amount of any of the outstanding securities of
the Company, or (ii) there is any transaction involving the consolidation or
merger of the Company in which the Company is the
2
<PAGE> 3
surviving entity (collectively, (i) and (ii) shall be referred to as a
"Reorganization"), then, in such event, any and all new, substituted or
additional securities or other property to which Grantor is entitled by reason
of Grantor's ownership of the Shares shall be immediately subject to the
Purchase Option and be included in the term "Shares" for all purposes of the
Purchase Option with the same force and effect as the Shares subject to the
Purchase Option under the terms of Section 2 hereof. In the event that the
outstanding Common Stock is at any time increased or decreased solely by reason
of a Reorganization, appropriate adjustments to the Option Price shall be made
effective as of the date of such occurrence so that the total Option Price upon
exercise of the Purchase Option will be the same as it would have been had the
Company exercised the Purchase Option immediately prior to the occurrence of
such event.
5. LEGENDS. All certificates representing any of the Shares subject
to the provisions of this Agreement shall have endorsed thereon a legend
substantially as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST
IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO AN OPTION, CONTAINED IN A CERTAIN AGREEMENT
EXECUTED BY THE RECORD HOLDER HEREOF, THE CORPORATION AND CERTAIN
OTHER PARTIES, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION
OF A WRITTEN REQUEST THEREFOR."
Upon presentation to the Company or any authorized transfer agent of
certificates representing the Shares, the number of Shares represented thereby
which are no longer subject to the Purchase Option shall be exchanged for
certificates not bearing such legend, and all Shares, if any, which remain
subject to the Purchase Option, shall be represented by certificates endorsed
with the legend set forth above.
6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or
otherwise transfer (otherwise than by operation of law) any of the Shares which
are subject to the Purchase Option or any interest therein, or grant or
otherwise allow to exist any lien, claim or other encumbrance on or with
respect to any of the Shares then subject to the Purchase Option.
7. NO TRANSFER. The Company shall not be required (i) to transfer
on its books any of the Shares which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such Shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such Shares shall have been so transferred.
8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section 7
above, Grantor shall, during the term of this Agreement, exercise all rights
and privileges of a shareholder of the Company with respect to the Shares.
3
<PAGE> 4
9. TERMINATION. This Agreement and the Purchase Option granted
hereunder shall terminate on the earlier to occur of any of the following
events (each a "Termination Event"):
a. the 91st calendar day immediately succeeding the date
which is 18 months following the date of the successful completion of
the IPO;
b. upon expiration of the Option Period;
c. the commencement by the Company of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent to the entry
of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or
the consent to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee
trustee, sequestrator or other similar official of the Company or of any
substantial part of its property, or the making of an assignment for the
benefit of creditors, or the admission in writing of inability to pay
debts generally as they become due, or the taking of corporate action by
the Company in furtherance of any such action;
d. the sale of all or substantially all of the assets of the
Company; or
e. the occurrence of a change in control as defined in the
TransCoastal Marine Services, Inc. 1997 Stock Option Plan.
10. FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further actions as may reasonably be necessary to
carry out the purposes and intent of this Agreement.
11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to sell
any Shares to the Company under this Agreement and fails to deliver such Shares
in accordance with the terms of this Agreement, the Company may, at its option,
in addition to all other remedies it may have, send to the Grantor the purchase
price for such Shares as is herein specified. Thereupon, the Company upon
written notice to the Grantor, (a) shall cancel on its books the certificate or
certificates representing the Shares to be sold and (b) shall issue, in lieu
thereof, in the name of the Company a new certificate or certificates
representing such Shares, and thereupon all of the Grantor's rights in and to
such Shares shall terminate.
12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the Company
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach of the terms, covenants and/or conditions of this Agreement by
Grantor, the Company shall, in addition to all other remedies, be
4
<PAGE> 5
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions hereof.
13. MISCELLANEOUS.
a. Notice. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall
be deemed to have been duly given when personally delivered or when
mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company: Red Fox International, Inc.
3535 Briarpark, Suite 210
Houston, Texas 77042
If to Grantor, at the address identified on the signature page
hereof, or to such other address as either party may furnish to the
other in writing in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
b. Applicable Law. The substantive laws of the State of
Texas, excluding any law, rule or principle which might refer to the
substantive law of another jurisdiction, will govern the interpretation,
validity and effect of this Agreement without regard to the place of
execution or the place for performance thereof. This Agreement is to be
negotiated, executed and performed in Harris County, Texas, and, as
such, the Company and Grantor agree that personal jurisdiction and venue
shall be proper with the state or federal courts situated in Harris
County, Texas, to hear such disputes arising under this Agreement.
c. No Waiver. No failure by either party hereto at any time
to give notice of any breach by the other party of, or to require
compliance with, any condition or provision of this Agreement shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time.
d. Severability. If a court of competent jurisdiction
determines that any provision of this Agreement, including any
appendices attached hereto, is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the
validity or enforceability of any other provision of this Agreement, and
all other provisions shall remain in full force and effect. Further,
such provisions shall be reformed and construed to the extent permitted
by law so that it may be valid, legal and enforceable to the maximum
extent possible.
e. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but
all of which together will constitute one and the same Agreement.
f. Headings. The section headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
5
<PAGE> 6
g. Successors. This Agreement shall inure to the benefit of
the permitted successors and assigns of the Company and be binding upon
Grantor and his or her heirs, executors, administrators and successors.
h. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement
shall not be construed or interpreted against any party on the basis
that such party drafted or authored a particular provision, parts of or
the entirety of this Agreement.
i. Entire Agreement. This Agreement and the agreements
referred to herein constitute the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants,
promises, representations, warranties and agreements between the
parties with respect to the subject matter hereof. Each party to this
Agreement acknowledges that no representation, inducement, promise or
agreement, oral or written, with regard to the subject matter hereof,
has been made by either party, or by anyone acting on behalf of either
party, which is not embodied herein, and that no agreement, statement or
promise relating to the subject matter hereof which is not contained in
this Agreement or in such other agreements shall be valid or binding.
j. Amendments. No amendment or modification to this
Agreement will be effective unless it is in writing and signed by the
Company and Grantor.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
<TABLE>
<S> <C>
COMPANY:
RED FOX INTERNATIONAL, INC.
By:/s/ G. DARCY KLUG
---------------------------
Name: G. Darcy Klug
------------------------
Title: President
-----------------------
SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR:
/s/ JOSANNA SMITH /s/ THAD SMITH
- ----------------------------------- ------------------------------
Name: Josanna Smith THAD SMITH
-----------------------------
Address: 33 Charleston North
---------------------
Sugarland, Tx 77478
---------------------
</TABLE>
6
<PAGE> 1
EXHIBIT 10.7
STOCK REPURCHASE AGREEMENT
This Stock Repurchase Agreement (this "Agreement") dated as of March
24, 1997 is entered into by and between RED FOX INTERNATIONAL, INC., a Delaware
corporation (the "Company") and JOHNNIE W. DOMINGUE (the "Grantor").
W I T N E S S E T H:
WHEREAS, Grantor owns certain shares of common stock of the Company
(the "Common Stock");
WHEREAS, in order to facilitate certain additional funding of the
Company, Grantor, the Company desires that Grantor grant to the Company an
option to purchase certain shares of Common Stock on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns 75
shares of Common Stock (the "Shares"), all of which shall initially be subject
to the terms, provisions and conditions of the Purchase Option (as hereafter
defined). The term "IPO" means the first underwritten public offering of the
Company's common stock other than any offering pursuant to any registration
statement (i) relating to any capital stock of the Company or options, warrants
or other rights to acquire any such capital stock issued or to be issued
primarily to directors, officers or employees of the Company, or any of its
subsidiaries (ii) relating to any employee benefit plan or interest therein,
(iii) relating principally to any preferred stock or debt securities of the
Company, or (iv) filed pursuant to Rule 145 under the Securities Act of 1933,
as amended, or any successor or similar provisions.
2. PURCHASE OPTION.
a. The Shares shall be subject to the option (the
"Purchase Option") set forth in this Section 2. In the event that Grantor
shall cease to be engaged, either as a consultant or as an employee, by the
Company (including a parent or subsidiary of the Company) under the
circumstances set forth in Section 2(b) of this Agreement (the "Section 2(b)
Event"), the Company shall have the right, at any time within 90 days after the
date Grantor ceases to be so engaged (the "Option Period"), to exercise the
Purchase Option, which consists of the right to purchase from Grantor at a
purchase price of $1.00 per share (as adjusted pursuant to Section 4 below)
(the "Option Price"), up to but not exceeding the number of Shares specified in
Section 2(b) below, upon the terms hereinafter set forth.
b. If any of the following items (i), (ii) or (iii)
occurs:
i. Grantor repudiates or renounces that certain
Employment Agreement between the Company and Grantor (the "Employment
Agreement") or voluntarily ceases his engagement with the Company
(other than by reason of death or disability) prior to the date
<PAGE> 2
which is 18 months following the date of the successful completion of
the IPO without the prior written consent of the Company; or
ii. Grantor's engagement by the Company under the
Employment Agreement is terminated by the Company at any time prior to
the date which is 18 months following the date of the successful
completion of the IPO, with "Cause," as defined in Section 6 of such
Employment Agreement;
prior to the occurrence of any Termination Event (as defined in Section 9),
then the Company may exercise the Purchase Option at the Option Price as to the
number of Shares determined as follows:
(A) Prior to the IPO, the Company may exercise the
Purchase Option as to all of the Shares;
(B) Following the IPO, the Company may exercise the
Purchase Option as to a number of Shares equal to the total number of
Shares less an aggregate number of Shares equal to the product
(rounded down to the nearest whole Share) of (i) 1/18 times (ii) the
aggregate number of full calendar months following the IPO that
Grantor has been engaged as an employee to the Company, times (iii)
the total number of Shares (75);
The Company shall not have the right to exercise the Purchase Option
in the event Grantor's employment by the Company under the Employment Agreement
is terminated for death, disability, "without Cause" or for any other reason
except as provided in Section 2(b) above.
c. The Purchase Option may be exercised by the Company by giving
notice to the Grantor in accordance with Section 13.1 hereof stating that the
Company has elected to acquire the Shares subject to the Purchase Option. Each
sale and purchase in accordance with the rights so exercised shall be
thereafter completed without avoidable delay by the transfer and assignment of
such Shares to the Company and payment of the Option Price. The Option Price
shall be payable, at the option of the Company, by cancellation of all or a
portion of any outstanding indebtedness of the Grantor to the Company or by
payment in cash (by check), or both.
d. Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Company, or a parent or subsidiary of the
Company, to terminate Grantors' engagement with the Company, for any reason,
with or without cause as provided in the applicable Employment Agreement.
3. ASSIGNMENT. Neither the Company nor Grantor may assign this
Agreement or any of its respective rights and obligations hereunder.
4. ADJUSTMENTS. If, from time to time during the term of the
Purchase Option (i) there is any dividend of stock or other securities or
liquidating dividend of cash or property, stock split, reverse stock split,
subdivision, combination, recapitalization, reorganization, reclassification or
other change in the character or amount of any of the outstanding securities of
the Company, or (ii) there is any transaction involving the consolidation or
merger of the Company in which the Company is the
2
<PAGE> 3
surviving entity (collectively, (i) and (ii) shall be referred to as a
"Reorganization"), then, in such event, any and all new, substituted or
additional securities or other property to which Grantor is entitled by reason
of Grantor's ownership of the Shares shall be immediately subject to the
Purchase Option and be included in the term "Shares" for all purposes of the
Purchase Option with the same force and effect as the Shares subject to the
Purchase Option under the terms of Section 2 hereof. In the event that the
outstanding Common Stock is at any time increased or decreased solely by reason
of a Reorganization, appropriate adjustments to the Option Price shall be made
effective as of the date of such occurrence so that the total Option Price upon
exercise of the Purchase Option will be the same as it would have been had the
Company exercised the Purchase Option immediately prior to the occurrence of
such event.
5. LEGENDS. All certificates representing any of the Shares
subject to the provisions of this Agreement shall have endorsed thereon a
legend substantially as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY
INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO AN OPTION, CONTAINED IN A
CERTAIN AGREEMENT EXECUTED BY THE RECORD HOLDER HEREOF, THE
CORPORATION AND CERTAIN OTHER PARTIES, A COPY OF WHICH WILL BE
MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER
RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR."
Upon presentation to the Company or any authorized transfer agent of
certificates representing the Shares, the number of Shares represented thereby
which are no longer subject to the Purchase Option shall be exchanged for
certificates not bearing such legend, and all Shares, if any, which remain
subject to the Purchase Option, shall be represented by certificates endorsed
with the legend set forth above.
6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or
otherwise transfer (otherwise than by operation of law) any of the Shares which
are subject to the Purchase Option or any interest therein, or grant or
otherwise allow to exist any lien, claim or other encumbrance on or with
respect to any of the Shares then subject to the Purchase Option.
7. NO TRANSFER. The Company shall not be required (i) to
transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement
or (ii) to treat as owner of such Shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such Shares shall have been
so transferred.
8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section
7 above, Grantor shall, during the term of this Agreement, exercise all rights
and privileges of a shareholder of the Company with respect to the Shares.
3
<PAGE> 4
9. TERMINATION. This Agreement and the Purchase Option granted
hereunder shall terminate on the earlier to occur of any of the following
events (each a "Termination Event"):
a. the 91st calendar day immediately succeeding the date
which is 18 months following the date of the successful completion of
the IPO;
b. upon expiration of the Option Period;
c. the commencement by the Company of a voluntary case
or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the
consent to the entry of a decree or order for relief in respect of the
Company in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing of a petition or answer
or consent seeking reorganization or relief under any applicable
federal or state law, or the consent to the filing of such petition or
to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee trustee, sequestrator or other similar official
of the Company or of any substantial part of its property, or the
making of an assignment for the benefit of creditors, or the admission
in writing of inability to pay debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any
such action;
d. the sale of all or substantially all of the assets of
the Company; or
e. the sale of all or substantially all of the assets of
the Company, or a merger, consolidation, liquidation or reorganization
of the Company, in which the Company is not the surviving entity, or
which results, in any event, in a change of control of the Company.
10. FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further actions as may reasonably be necessary to
carry out the purposes and intent of this Agreement.
11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to
sell any Shares to the Company under this Agreement and fails to deliver such
Shares in accordance with the terms of this Agreement, the Company may, at its
option, in addition to all other remedies it may have, send to the Grantor the
purchase price for such Shares as is herein specified. Thereupon, the Company
upon written notice to the Grantor, (a) shall cancel on its books the
certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of the Company a new certificate or
certificates representing such Shares, and thereupon all of the Grantor's
rights in and to such Shares shall terminate.
12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the
Company will be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach of the terms, covenants and/or conditions of this
Agreement by Grantor, the Company shall, in addition to all other remedies, be
4
<PAGE> 5
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions hereof.
13. MISCELLANEOUS.
a. Notice. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing and
shall be deemed to have been duly given when personally delivered or
when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Company: Red Fox International, Inc.
3535 Briarpark, Suite 210
Houston, Texas 77042
If to Grantor, at the address identified on the signature page
hereof, or to such other address as either party may furnish to the
other in writing in accordance herewith, except that notices of
changes of address shall be effective only upon receipt.
b. Applicable Law. The substantive laws of the State of
Texas, excluding any law, rule or principle which might refer to the
substantive law of another jurisdiction, will govern the
interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. This
Agreement is to be negotiated, executed and performed in Harris
County, Texas, and, as such, the Company and Grantor agree that
personal jurisdiction and venue shall be proper with the state or
federal courts situated in Harris County, Texas, to hear such disputes
arising under this Agreement.
c. No Waiver. No failure by either party hereto at any
time to give notice of any breach by the other party of, or to require
compliance with, any condition or provision of this Agreement shall be
deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
d. Severability. If a court of competent jurisdiction
determines that any provision of this Agreement, including any
appendices attached hereto, is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the
validity or enforceability of any other provision of this Agreement,
and all other provisions shall remain in full force and effect.
Further, such provisions shall be reformed and construed to the extent
permitted by law so that it may be valid, legal and enforceable to the
maximum extent possible.
e. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same Agreement.
f. Headings. The section headings have been inserted
for purposes of convenience and shall not be used for interpretive
purposes.
5
<PAGE> 6
g. Successors. This Agreement shall inure to the
benefit of the permitted successors and assigns of the Company and be
binding upon Grantor and his or her heirs, executors, administrators
and successors.
h. Construction. Each party to this Agreement has had
the opportunity to review this Agreement with legal counsel. This
Agreement shall not be construed or interpreted against any party on
the basis that such party drafted or authored a particular provision,
parts of or the entirety of this Agreement.
i. Entire Agreement. This Agreement and the agreements
referred to herein constitute the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants,
promises, representations, warranties and agreements between the
parties with respect to the subject matter hereof. Each party to this
Agreement acknowledges that no representation, inducement, promise or
agreement, oral or written, with regard to the subject matter hereof,
has been made by either party, or by anyone acting on behalf of either
party, which is not embodied herein, and that no agreement, statement
or promise relating to the subject matter hereof which is not
contained in this Agreement or in such other agreements shall be valid
or binding.
j. Amendments. No amendment or modification to this
Agreement will be effective unless it is in writing and signed by the
Company and Grantor.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
COMPANY:
RED FOX INTERNATIONAL, INC.
By: /s/ G. DARCY KLUG
------------------------------------
G. Darcy Klug
President
SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR:
/s/ PAM A. DOMINGUE
Name: Pam A. Domingue /s/ JOHNNIE W. DOMINGUE
Address: 13814 Woodthorpe
Houston, TX 77079
6
<PAGE> 1
EXHIBIT 10.10
AGREEMENT FOR CONSULTING SERVICES
THIS AGREEMENT is made the 14th day of April, 1997 between RED FOX
INTERNATIONAL, INC., whose offices are located at 505 Lorie Avenue, Suite I,
Lafayette, Louisiana 70507 (the Company) and STALLWORTH, FRANKHOUSER &
ASSOCIATES, a Texas General Partnership, whose offices are located at 3535
Briarpark Dr., Suite 207, Houston, Texas 77042 (th Consultant) of the other
part.
WHEREAS, the Company desires the Consultant to provide Consultancy
Personnel ("Personnel"), as set forth on Schedule A, to carry out services in
connection with the organization, negotiation of definitive agreements with
target companies for acquisition and initial public offering of stock in the
Company and the Consultant has agreed to do so for the compensation and in
accordance with the terms and conditions set out below.
NOW THEREFORE the parties have agreed as follows:
I. SCOPE OF WORK
1.01 The Consultant will provide at least the agreed assistance as requested
by the Company so as to support all activities leading up to the
Company's Initial Public Offering, currently scheduled for or about
September 1997.
II. COMPENSATION
2.01 In consideration of the provision of Personnel by the Consultant, the
Company shall pay to the Consultant the agreed rates in accordance with
the attached Schedule A. Should Personnel be required other than those
shown on the schedule, rates for such additional Personnel would be
agreed prior to their assignment to the work.
2.02 The Company shall reimburse to the Consultant all reasonable expenses
such as transportation, meals, lodging and communications that are
incurred with the Company's prior approval. Air travel if required will
be made in Business Class where available. Automobile mileage will be
reimbursed at $0.31 per mile.
2.03 The Consultant shall invoice the Company for the Personnel and for
Authorized Expenses monthly in arrears and payment shall be made by the
Company within 15 days of receipt of such invoices. All payments in
respect of the Personnel and Authorized Expenses shall be made in U.S.
Dollars by check drawn on the Company.
<PAGE> 2
III. TERM
3.01 This Agreement shall remain in force and effect until September 30,
1997, and may thereafter be extended by mutual agreement of the parties.
This Agreement may be cancelled by either party by giving 30 days
notice.
IV. CONFIDENTIALITY
4.01 The Consultant shall ensure that its personnel shall keep confidential
all information made available by or acquired from the Company in the
performance of their duties which was not already in their possession or
in the public domain. This clause shall remain in force and effect for a
period of five years from the date of termination of this Agreement.
4.02 In particular, neither the consultant nor its Personnel shall directly
or indirectly disclose or divulge to any third party (other than as
shall be necessary in the performance of duties hereunder or as may be
required by a Court of Law) any information, particulars, dates or
documents which are made or become available to the Consultant and/or
its Personnel as a result of this Agreement which relate to the business
or affairs or contracts or methods of working processes or trade secrets
of the Company.
4.03 Notwithstanding the foregoing, any provision in conflict with the terms
of the Confidentiality/Non-Disclosure Agreement signed by the Consultant
and by the personnel shall be governed by the Confidentiality/
Non-Disclosure Agreement.
V. INDEPENDENT CONTRACTOR
5.01 This Agreement is not a contract of employment and no relationship of
master and servant or employer and employee is intended, expressed or
implied. The Consultant and its Personnel shall be deemed to act at all
times as an independent contractor.
VI. RESPONSIBILITIES AND LIABILITIES
6.01 The Consultant shall use its best efforts to ensure that its Personnel
perform their duties in a professional and businesslike manner but,
notwithstanding, neither the Consultant nor its Personnel shall have any
liability for any loss or damage sustained by the Company or any party
claiming under or through the Company arising out of or in connection
with the performance of their duties or otherwise under this Agreement
however arising and the Company shall indemnify, defend and hold
harmless the Consultant and/or its Personnel from and against all
actions, claims, demands, proceedings, costs (including reasonable legal
fees) charges and expenses and all such losses and damages whatsoever in
respect thereof or in relation thereto.
<PAGE> 3
VII. GENERAL PROVISIONS
7.01 This Agreement constitutes the sole and only agreement of the parties
and supersedes any prior understandings of written or oral agreements
between the parties respecting this subject matter, except for the
Confidentiality/Non-Disclosure Agreement dated March 7, 1997.
7.02 Neither this Agreement nor any duties or obligations under it shall be
assignable without the prior written consent of the other party.
7.03 The validity of this Agreement and of any of its terms or provisions, as
well as the rights and duties of the parties, shall be governed by the
laws of the State of Texas, with the venue in any Court of proper
jurisdiction in Harris County, Texas.
7.04 In the event that any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions, and the
Agreement shall be construed as if such invalid, illegal, or
unenforceable provisions had never been contained in it.
AS WITNESS the hands of the parties hereto by their duly authorized
representatives.
RED FOX INTERNATIONAL, INC.
By: /s/ G. Darcy Klug
----------------------------
Title: Chief Financial Officer
-------------------------
Date: 4/14/97
--------------------------
STALLWORTH, FRANKHOUSER & ASSOCIATES
By: /s/ B. E. Stallworth
----------------------------
B. E. Stallworth, President
Stallworth Interests, Inc.
General Partner
Date: 4/14/97
--------------------------
<PAGE> 4
SCHEDULE A
B.E. Stallworth, Partner US$ 10,000/Month
It is understood that Stallworth has other interest and that this rate
is not for full time work; however, the parties agree that Stallworth
shall expend at least 85 hours/month on the work
Thad Smith III, Senior Consultant US$ 250.00/Hour
Monthly charge is 4 hours; Maximum daily charge is US$ 2000.00
In the event that other personnel is required, rates to be mutually agreed
before assignment to the project.
<PAGE> 5
AMENDMENT TO AGREEMENT FOR CONSULTING SERVICES
This Amendment is made the 6th day of August, 1997 (the "Amendment"),
between RED FOX INTERNATIONAL, INC. (the "Company") and STALLWORTH, FRANKHOUSER
& ASSOCIATES ("Consultant") as an amendment of that certain Agreement for
Consulting Services between the Company and the Consultant dated April 14,
1997 (the "Agreement"). Each term included in this Amendment with its initial
letter capitalized shall have the meaning assigned to such term in the
Agreement. All references to the "Agreement" shall be deemed references to the
Agreement as amended.
WHEREAS, the Company has retained Consultant to provide certain
consulting services as provided in the Agreement; and
WHEREAS, the parties desire to amend the Agreement to reflect
their further agreements as set forth below.
NOW THEREFORE, the parties have agreed as follows:
1.01 Except as set forth herein, the Agreement shall continue in
effect without modification. All consulting services to be performed pursuant
to the Agreement shall be deemed terminated effective as of July 31, 1997. The
parties agree that (i) the aggregate outstanding compensation payable to
Consultant (all Personnel) pursuant to Section 2.01 of the Agreement as of
August 6, 1997, is $20,000, and that no further compensation shall be payable
pursuant to Section 2.01 of the Agreement; and (ii) reimbursable expenses
incurred by Consultant on or before August 6, 1997 pursuant to Sections 2.02
and 2.03 of the Agreement shall be paid by the Company in the ordinary course
of business pursuant to the Agreement and thereafter no further compensation or
reimbursement obligations shall be payable pursuant to said Sections of the
Agreement.
1.02 New sections 2.04 and 2.05 are added to the Agreement, to read as
follows:
"2.04 The Company agrees to pay to Consultant a success bonus,
in cash, equal to $245,000 in the aggregate (the "Bonus")
upon the successful completion of the IPO (as defined
below), as additional compensation to Consultant for
Consultant's services pursuant to the Agreement, to be
allocated to the Consultant's Personnel as set forth
below. The Bonus will be paid not later than the second
business day following the closing date of the IPO.
<TABLE>
<S> <C>
B. E. Stallworth, Partner US$115,000
Thad Smith III, Senior Consultant US$130,000
</TABLE>
The term "IPO" means the first underwritten public
offering of the Company's common stock, $.001 par value
("Common Stock") other than any offering pursuant to any
registration statement (i) relating to any capital stock
of the Company or options, warrants or other rights to
acquire any such
<PAGE> 6
capital stock issued or to be issued primarily to
directors, officers or employees of the Company, or any of
its subsidiaries (ii) relating to any employee benefit
plan or interest therein, (iii) relating principally to
any preferred stock or debt securities of the Company, or
(iv) filed pursuant to Rule 145 under the Securities Act
of 1933, as amended, or any successor or similar
provisions.
2.05 The Company agrees to reimburse Consultant for
Consultant's reasonable legal fees incurred in connection
with the IPO. Reimbursement of such amounts will be paid
to Consultant promptly upon submission of Consultant's
request for payment indicating the amount charged by
counsel to Consultant."
1.03 Section 3.01 of the Agreement shall be deleted in its entirety
and replaced with the following provision:
"Except for the rights of the parties relating to compensation,
Bonus, and reimbursement of certain fees and expenses as set forth
in paragraphs 1.01 and 1.02 of the Amendment dated August 6, 1997,
which shall survive until such time as the Company's efforts to
complete the IPO have been abandoned, all other terms and
conditions of the Agreement shall be terminated as of August 6,
1997, and shall be deemed superseded by terms of the Employment
Agreements by and between the Company and Bill E. Stallworth and
Thad Smith III, respectively; provided, however, that the
provisions of Article IV of the Agreement (concerning
confidentiality) shall survive for the period provided therein,
and the provisions of paragraphs 5.01(concerning status of
Consultant as an independent contractor) and 5.02 (concerning
responsibilities and liabilities of Consultant), shall survive for
the applicable statute of limitations period."
AS WITNESS the hands of the parties hereto by their duly authorized
representatives.
RED FOX INTERNATIONAL, INC. STALLWORTH, FRANKHOUSER
& ASSOCIATES
By: STALLWORTH INTERESTS INC.,
By: /s/ G. BARRY KLUG its general partner
--------------------------
Title: Vice President
-----------------------
Name: G. Barry Klug /s/ B. E. STALLWORTH
------------------------ ----------------------------------
B. E. Stallworth, President
/s/ THAD SMITH III /s/ B. E. STALLWORTH
- ------------------------------ ----------------------------------------
Thad Smith III, individually Bill E. Stallworth, individually
-2-
<PAGE> 1
EXHIBIT 10.11
[RED FOX INTERNATIONAL, INC. LETTERHEAD]
April 21, 1997
Mr. Johnnie W. Domingue
131814 Woodthorpe
Houston, Texas 77079
Dear Johnnie:
In my capacity as President of Red Fox International, Inc. ("RFI"), I am
pleased that you have joined RFI under the following terms and conditions:
POSITION
Your position is Vice President of Finance, Chief Financial Officer
and Treasurer. Your duties will be broad based and will cover all areas
that are normally with a start-up operation. While there are many
duties which will be assigned to you during the early months of RFI's
existence, your primary duties will surround activities involved in
acquisitions, financings, audits, and planning.
BASE COMPENSATION
Your initial base compensation will be $10,000 per month, payable
semimonthly and will include required payroll deductions as an
employee of RFI.
EFFECTIVE DATE
Unless otherwise agreed to between the parties, the effective date for
your employment will commence May 1, 1997.
EQUITY PARTICIPATION
Your Subscription Agreement dated March 24, 1997 for 75 shares of RFI
voting, common stock at a stated price of $1 per share, has been
accepted. This stock has been issued to you under certain terms and
conditions set forth in separate agreements, copies of which have been
provided to you including:
o Stock Repurchase Agreement
o Shareholders Agreement
o Employment Agreement effective with the date of the IPO
or a Private Placement in an amount adequate for RFI to
commence operations as anticipated.
<PAGE> 2
FUTURE STOCK OPTIONS
You will be granted stock options to acquire RFI voting, common stock on
or about the IPO or Private Placement date. The price will be the IPO
price or some other fair market value if RFI completes its transaction
through Private Placement. It is anticipated that vesting of the stock
options will be over some period of not less than 3 or more than 5
years. The specific terms and conditions of the stock options are
currently under development and must be approved by the stockholders and
Board of Directors of RFI. In no event, however, will the terms of your
options be any less favorable than those granted to other members of the
executive management team.
TERM OF EMPLOYMENT
This Interim Agreement may be canceled by either party with thirty (30)
days written notice until the Employment Agreement referred to above
becomes effective.
BENEFITS
HEALTH CARE - It is understood that you will continue your current
coverage for yourself and your family with United Health as a six (6)
month continuation from your current employer. The cost of such coverage
will be reimbursed to you by RFI until such time that you and other
management of RFI have established replacement coverage through RFI.
DIRECTORS AND OFFICERS LIABILITY INSURANCE will be obtained as soon as
practical, but in no event, later than the date necessary to have
coverage included in the contemplated IPO.
ORDINARY AND NECESSARY BUSINESS EXPENSES will be reimbursed upon
submission of an expense report supported with proper and adequate
documentation. Such costs will include travel expenses, parking, tolls,
cellular telephone, and other necessary and reasonable incurred by you
in the performance of your duties.
OTHER EXECUTIVE BENEFITS will be made available to you as they are
developed by RFI.
VACATION - Five (5) days of paid vacation between now and September 1,
1997 will be allowed if the schedule permits. We understand that
currently you are requesting the dates of July 7 through July 11 for
<PAGE> 3
vacation. Other vacation periods will be set forth in the RFI Policy
Manual developed by yourself and other managers of RFI but in no event
will the annual vacation exceed three (3) weeks per year.
CHANGE OF CONTROL and DISMISSAL WITHOUT CAUSE PROVISIONS will be
included in the Shareholder Agreement, Stock Repurchase Agreement,
Employment Agreement, Stock Option Agreement which will call for 100%
vesting in the event of the Change in Control of RFI and appropriate
vesting and severance of not less than six months in the event of
dismissal without cause.
POST IPO COMPENSATION - Subject to the approval of RFI financial
advisors, your post-IPO compensation will range between $150,000 and
$180,000 and include a performance bonus established by RFI ranging
between 0% and 50% of your annual compensation. Your employment will be
subject to the terms and conditions set forth in a three (3) year
Employment Agreement and will include annual performance reviews.
Under separate agreement we will discuss and agree to payment for time
incurred by you on behalf of RFI prior to the commencement of this
Interim Agreement. Additionally, it is understood by both parties that
you are currently providing consulting services in certain other
matters, none of which, conflict with the business affairs of RFI. It is
agreed that you may continue your consulting arrangements on these
matters as long as they do not conflict with the business affairs of
RFI and you provide RFI with a minimum of 130 hours per month or 30
hours per week.
Johnnie, I am looking forward to working with you again and I am truly excited
to have you with RFI.
Sincerely,
/s/ G. DARCY KLUG
G. Darcy Klug
<PAGE> 4
AMENDMENT TO EMPLOYMENT LETTER
This Amendment to Employment Letter (the "Amendment") is made as of
August 6, 1997, between TRANSCOASTAL MARINE SERVICES, INC. (F/K/A Red Fox
International, Inc.) (the "Company") and JOHNNIE W. DOMINGUE ("Executive") as
an amendment to that certain Letter dated April 21, 1997 between the Company
and the Executive (the "Employment Letter"). All references to the "Employment
Letter" shall be deemed references to the Employment Letter as amended.
WHEREAS, the Company has employed Executive to provide services to the
Company on the terms set forth in the Employment Letter; and
WHEREAS, the parties desire to amend the Employment Letter to reflect
certain agreements concerning additional compensation payable to the
Executive under the Employment Letter.
NOW THEREFORE, the parties have agreed as follows:
1. The following provisions are added as a new paragraph under the
caption "Base Compensation" on Page 1 of the Employment Letter:
"The Company also agrees to pay to Executive a success bonus, in
cash, equal to $100,000 (the "Bonus") upon the successful completion
of the IPO (as defined below), as additional compensation to Executive
for Executive's services pursuant to the Employment Letter. The Bonus
will be paid not later than the second business day following the
closing date of the IPO. The term "IPO" means the first underwritten
public offering of the Company's common stock, $.001 par value
("Common Stock") other than any offering pursuant to any registration
statement (i) relating to any capital stock of the Company or options,
warrants or other rights to acquire any such capital stock issued or
to be issued primarily to directors, officers or employees of the
Company, or any of its subsidiaries (ii) relating to any employee
benefit plan or interest therein, (iii) relating principally to any
preferred stock or debt securities of the Company, or (iv) filed
pursuant to Rule 145 under the Securities Act of 1933, as amended, or
any successor or similar provisions."
2. A new paragraph entitled, "Termination; Replacement Employment
Agreement," is added at the end of the Employment Letter as follows:
"Except for the rights of the Executive relating to base compensation,
Bonus, and reimbursement of certain fees and expenses as set forth in
this Employment Letter, which shall survive until such time as the
Company's efforts to complete the IPO have been abandoned, all other
terms and conditions of the Employment Letter shall be terminated as
of August 6, 1997, and shall be deemed replaced and superseded by the
terms of that certain Employment Agreement, dated August 6, 1997, by
and between the Company and the Executive."
<PAGE> 5
3. Except as set forth herein, the Employment Letter shall continue
in effect without modification.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first written above.
TRANSCOASTAL MARINE SERVICES, INC.
By: /s/ G. DARCY KLUG
-------------------------------------
Title: G. Darcy Klug
Name: Vice President
/s/ JOHNNIE W. DOMINGUE
----------------------------------------
Johnnie W. Domingue, individually
-2-
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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
August 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
August 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
August 28, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any references to me as a
person nominated to become a director of TransCoastal Marine Services Inc.
("TCMS") in the Prospectus constituting a part of TCMS' Registration Statement
on Form S-1 to be filed with the Securities and Exchange Commission pursuant to
the Act.
Dated: August 27, 1997
/s/ H. DANIEL HUGHES
--------------------------------------
H. Daniel Hughes
<PAGE> 1
EXHIBIT 23.6
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Act"), I hereby consent to the use of my name and any references to me as a
person nominated to become a director of TransCoastal Marine Services Inc.
("TCMS") in the Prospectus constituting a part of TCMS' Registration Statement
on Form S-1 to be filed with the Securities and Exchange Commission pursuant to
the Act.
Dated: August 28, 1997
/s/ DANIEL N. HARGETT, SR.
---------------------------------
Daniel N. Hargett, Sr.
