<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1997.
REGISTRATION NO. 333-18153
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AMERICAN OILFIELD DIVERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
LOUISIANA 130 EAST KALISTE SALOOM ROAD 72-0918249
(State or other jurisdiction LAFAYETTE, LOUISIANA 70508 (I.R.S. Employer
of incorporation or (318) 234-4590 Identification No.)
organization) (Address, including zip code,
and telephone number, including
area code, of registrant's
principal executive offices)
</TABLE>
RODNEY W. STANLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN OILFIELD DIVERS, INC.
130 EAST KALISTE SALOOM ROAD
LAFAYETTE, LOUISIANA 70508
(318) 234-4590
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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<S> <C>
CARL C. HANEMANN ALAN P. BADEN
JONES, WALKER, WAECHTER, VINSON & ELKINS L.L.P.
POITEVENT, CARRERE & DENEGRE, L.L.P. 2300 FIRST CITY TOWER
201 ST. CHARLES AVENUE 1001 FANNIN STREET
NEW ORLEANS, LOUISIANA 70170-5100 HOUSTON, TEXAS 77002-6760
(504) 582-8000 (713) 758-2222
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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.
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<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 JANUARY 14, 1997
3,100,000 SHARES
AMERICAN OILFIELD DIVERS, INC.
[AMERICAN OILFIELD DIVERS, INC. LOGO]
COMMON STOCK
Of the 3,100,000 shares of common stock, no par value (the "Common Stock"),
offered hereby, 2,502,315 shares are being sold by American Oilfield Divers,
Inc. (the "Company"), and 597,685 shares are being sold by the Selling
Stockholders. See "Selling Stockholders." The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"DIVE." On January 10, 1997, the last reported sale price of the Common Stock
was $12.50 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO PROCEEDS TO SELLING
PUBLIC UNDERWRITING COMPANY(2) STOCKHOLDERS
DISCOUNT(1)
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
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Total(3)........................ $ $ $ $
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- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $350,000.
(3) The Company has granted to the Underwriters an option for 30 days to
purchase up to an additional 465,000 shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if any.
If such option is exercised in full, the Price to Public, Underwriting
Discount and Proceeds to 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 and sold to and accepted by them, and
subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares will be made on or about
, 1997.
---------------------
MORGAN KEEGAN & COMPANY, INC.
RAUSCHER PIERCE REFSNES, INC.
SOUTHCOAST CAPITAL
CORPORATION
, 1997.
<PAGE> 3
[Photo of NEWTSUIT(TM)]
[Photo of NEWTSUIT(TM) in Use]
Current NEWTSUIT(TM) technology allows for manned diving in water depths up
to 1,200 feet without saturation or decompression.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
included in this Prospectus assumes that the Underwriters' over-allotment option
will not be exercised. Unless the context requires otherwise, the term "Company"
when used herein means American Oilfield Divers, Inc. and its consolidated
subsidiaries. Certain technical terms are defined in the "Glossary of Certain
Technical Terms" appearing immediately before the Index to Financial Statements.
THE COMPANY
GENERAL
American Oilfield Divers, Inc. provides subsea services and products to the
offshore oil and gas industry in the Gulf of Mexico, the West Coast and select
international markets. In addition, the Company provides inland underwater
services and products to domestic industrial and governmental customers. The
Company's services are provided through approximately 240 dive crews and are
supported by a Company-owned fleet of 20 diving support vessels ("DSVs"), 14 of
which operate in the Gulf of Mexico. Based upon the number of divers employed,
the size of its DSV fleet and the number of customers served, the Company
believes that it is the leading provider of diving services in the Gulf of
Mexico.
In the last three years, the Company's revenue has more than doubled as a
result of improved demand in its core Gulf of Mexico market and through internal
growth and acquisitions that have expanded the Company's service and product
offerings. For the nine months ended September 30, 1996, the Company's revenue
increased 25% to $79.5 million and EBITDA (earnings before interest, taxes,
depreciation and amortization) more than tripled to $13.1 million as compared to
the nine months ended September 30, 1995. For 1996, subsea services in the Gulf
of Mexico are expected to contribute approximately 50% of the Company's revenue.
In November 1996, the Company completed the acquisition of Hard Suits Inc.
("HSI"), which manufactures, markets and operates a one-atmosphere diving suit
known as the "NEWTSUIT(TM)." The NEWTSUIT(TM) has patented technology that
allows the diver to work at normal atmospheric pressure (one-atmosphere) and
requires no decompression. The Company believes that the NEWTSUIT(TM) provides a
lower cost alternative to current manned diving techniques.
SUBSEA AND OTHER SERVICES
The Company provides subsea services to support all phases of offshore oil
and gas activities, including drilling, production, abandonment, and salvage.
These services include construction, installation, maintenance, repair,
inspection and support of drilling operations; development of offshore pipelines
and production platforms; and ongoing production activities. Subsea services are
provided to a diverse group of customers, including major and independent oil
and gas exploration and production companies, offshore engineering and
construction companies, and major pipeline transmission companies. The Company's
offshore operations are currently performed through manned surface and
saturation diving activities at depths up to 1,000 feet. With the acquisition of
HSI, the Company intends to use the NEWTSUIT(TM) as a cost-effective alternative
for operations at depths up to 1,200 feet.
On November 30, 1996, the Company employed approximately 400 divers,
tenders, and diving supervisors, supported by the Company's fleet of 20 DSVs,
ranging in length from 65 to 210 feet, and a 150-foot jack-up derrick barge with
a 220-ton Manitowoc crane. The Company owns and operates seven remotely operated
vehicles ("ROVs"). Five of the Company's ROVs are observation ROVs, which
support its diving activities, and two are work ROVs outfitted with manipulators
to perform tasks in depths up to 3,000 feet. The Company owns seven
NEWTSUITs(TM), which are currently located in Australia, the North Sea, the Gulf
of Mexico, and Canada. The Company's offshore diving operations are coordinated
through regional
1
<PAGE> 5
staging facilities in the Port of Iberia and Harvey, Louisiana; Houston, Texas;
Oxnard, California; Dubai, United Arab Emirates; and Port Harcourt, Nigeria.
The Company provides a variety of specialized inland diving services to
industrial and governmental customers. These services include the maintenance,
repair, and inspection of bridges, docks, piers, pipelines, and other inland
underwater structures and the inspection and maintenance of hydroelectric and
nuclear power plants. The Company also pursues primarily small to medium-sized
general construction projects requiring its underwater capabilities. Inland
operations are coordinated through regional staging facilities in Houston,
Texas; Kansas City, Kansas; and Columbus, Ohio.
The Company also provides environmental remediation and emergency oil spill
response services to customers operating in both inland and offshore markets.
The Company's services include oil and chemical spill containment and removal,
remediation of naturally occurring radioactive material, pit closure,
bioremediation, asbestos abatement services, and confined space entry
activities.
SUBSEA PRODUCTS
The Company manufactures and markets a patented line of subsea pipeline
connectors used in the construction and repair of underwater pipelines. These
connector products, known by the tradename "Big Inch," are available worldwide
for use in pipeline and flowline tie-ins and emergency repairs to pipelines,
flowlines, and risers. Big Inch products are marketed in conjunction with the
Company's subsea services and are also sold to third-party installers.
The Company manufactures and installs the Tarpon System, a patented
production system primarily used in offshore marginal field development. A
Tarpon System consists of underwater anchor-piles, a cable guying assembly that
supports a well-protector caisson, a boat landing and related structures. The
Company believes that this system is a cost-effective alternative to traditional
multi-leg platforms in water depths from 80 to 300 feet.
The Company also manufactures concrete storage barges that may be used as
an alternative to steel tankers for offloading and storage of up to 350,000
barrels of oil either on the surface or in water depths up to approximately 350
feet. Concrete floating or subsea barges can be used with a Tarpon System for
storage of oil produced from marginal fields that do not have existing pipeline
infrastructure.
ACQUISITION OF HARD SUITS INC.
In November 1996, the Company acquired 97% of the outstanding common stock
of HSI for $11.8 million through an unsolicited tender offer. The Company
intends to acquire the remainder of the outstanding HSI common stock in 1997.
HSI's NEWTSUIT(TM) technology allows for manned diving in deep water without
saturation or decompression, which are required by current practices for manned
deep water diving. NEWTSUIT(TM) technology significantly reduces operating costs
associated with deep water projects due to the reduction in personnel and time
needed to complete such projects. The current NEWTSUIT(TM) is capable of
operations in water depths up to 1,200 feet. The Company intends to manufacture
the NEWTSUIT(TM) primarily for its own use and for sale to the United States
Navy and other navies. HSI has developed a suit capable of operation at depths
up to 2,000 feet and is working with the United States Navy to produce a
prototype. The Company is also considering the feasibility of a one-atmosphere
diving suit for deployment in shallower waters using HSI technology. HSI also
manufactures and markets the Remora(R), a subsea rescue vehicle for submarines.
---------------------
The principal executive offices of the Company are located at 130 East
Kaliste Saloom Road, Lafayette, Louisiana 70508, and its telephone number is
(318) 234-4590. The Company plans to relocate its corporate headquarters to the
Houston, Texas area in 1997.
2
<PAGE> 6
GROWTH STRATEGY
Key elements of the Company's growth strategy are to continue to:
- FOCUS ON GULF OF MEXICO MARKET. The Company's Gulf of Mexico operations
will continue to be the Company's core business. Since 1993, the Company
has significantly increased the number and capabilities of its DSVs in
the Gulf of Mexico. The Company believes it is well-positioned to take
advantage of opportunities in the Gulf of Mexico market.
- DIVERSIFY REVENUE BASE. Over the past three years, the Company has
expanded its operations to inland markets, the West Coast market, and
select international markets, including West Africa, Latin America, and
the Middle East. Revenues from these sources have increased substantially
over the past three years, from $12.3 million, or 23% of total revenue,
in the twelve months ended October 31, 1994 to $32.3 million, or 41% of
total revenue, for the nine months ended September 30, 1996.
- PROVIDE SINGLE-SOURCE SOLUTIONS FOR CUSTOMERS. Through expansion of its
fleet of DSVs and the broadening of its services and products, the
Company can offer total project management services. Management believes
this integrated approach simplifies a customer's procurement process and
reduces the Company's dependence on third-party contractors.
- EXPAND SERVICES AND PRODUCTS. By adding the Big Inch, Tarpon Systems and
NEWTSUIT(TM) products, the Company has significantly broadened its
capabilities and complemented its core subsea services business. The
Company intends to continue to expand its services and products
internally and through strategic acquisitions.
---------------------------
In December 1996, the Company announced that Rodney W. Stanley had been
promoted to serve as the Company's President and Chief Executive Officer. Mr.
Stanley had served as the Company's Vice President -- International Operations
since August 1996. Mr. Stanley has over 33 years of experience in the subsea
services industries. From 1995 to May 1996, he served as President and Chief
Executive Officer of HSI, which was acquired by the Company in 1996. From 1986
to 1995, Mr. Stanley was President and Chief Executive Officer of Sonsub, Inc.,
a leading provider of specialist subsea engineering and heavy work class ROV
services, which he founded in 1986. From 1969 to 1984, he held various
management positions at Divcon, Inc. and its successor, Oceaneering
International, Inc. George C. Yax, who had been President and Chief Executive
Officer, will continue as Chairman of the Board of the Company. See
"Management."
THE OFFERING
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<S> <C>
Common Stock offered by the Company................... 2,502,315 shares(1)
Common Stock offered by the Selling Stockholders...... 597,685 shares
Total Common Stock offered............................ 3,100,000 shares(1)
Common Stock to be outstanding after the Offering..... 9,313,497 shares(1)(2)
Use of proceeds....................................... To repay debt, including debt
incurred to finance the acquisition
of HSI, and for working capital and
other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market Symbol......................... DIVE
</TABLE>
- ---------------
(1) Does not include up to 465,000 shares that may be offered by the Company
pursuant to the Underwriters' over-allotment option.
(2) Based on the number of shares outstanding on September 30, 1996. Does not
include 733,892 shares subject to stock options granted by the Company under
certain benefit plans, of which options for 172,133 shares are currently
exercisable.
3
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
TWO MONTHS ENDED
YEAR ENDED OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------------- -----------------
1993 1994 1995 1994(1) 1995(1) 1995 1996
-------- ------- ------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Diving and related revenues..................... $ 51,023 $52,755 $88,660 $15,259 $15,486 $63,689 $79,466
Operating income (loss)......................... 7,427 (220) 1,098 1,228 1,196 79 8,313
Non-recurring charge(2)......................... (27,301) -- -- -- -- -- --
Income (loss) before income taxes, minority
interest and discontinued operations.......... (20,030) (264) (151) 1,091 994 (906) 8,160
Net income (loss)............................... $(13,837) $(1,953) $ (329) $ 611 $ 574 $ (626) $ 4,690
======== ======= ======= ======= ======= ======= =======
Net income (loss) per share..................... $ (2.52) $ (.29) $ (.05) $ .09 $ .09 $ (.09) $ .69
======== ======= ======= ======= ======= ======= =======
Weighted average common shares outstanding...... 5,484 6,706 6,709 6,709 6,709 6,709 6,769
PRO FORMA DATA:
Pro forma net income (loss)(3).................. $(5,630) $ 277
======= =======
Pro forma net income (loss) per share(3)........ $ (.84) $ .04
======= =======
OTHER DATA:
EBITDA(4)....................................... $ 9,580 $ 3,195 $ 6,162 $ 2,027 $ 2,085 $ 3,875 $13,050
EBITDA margin(4)................................ 19% 6% 7% 13% 13% 6% 16%
Depreciation and amortization................... $ 2,153 $ 3,415 $ 5,064 $ 799 $ 889 $ 3,796 $ 4,737
Capital expenditures............................ $ 8,287 $17,824 $ 7,884 $ 315 $ 322 $ 7,559 $15,757
OPERATING DATA:
Average number of dive crews employed(5)........ 163 221 239 218 230 226 228
Dive crew days(6)............................... 25,149 22,455 35,869 6,288 5,922 26,354 30,634
Number of DSVs at end of period................. 11 15 14 15 14 14 20
DSV days(7)..................................... 2,227 2,376 2,831 527 443 1,714 2,402
DSV utilization(8).............................. 59% 49% 47% 58% 52% 43% 52%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 (UNAUDITED)
--------------------------------------
PRO PRO FORMA
HISTORICAL FORMA(3) AS ADJUSTED(9)
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BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................................................. $ 20,231 $ 6,730 $ 30,807
Property, plant and equipment, net.......................................... 31,731 37,731 37,731
Intangible assets........................................................... 1,747 12,589 12,589
Total assets................................................................ 72,999 91,350 98,876
Borrowings under line of credit agreement................................... 4,033 16,483 --
Long-term debt, including current portion................................... 10,000 10,765 5,644
Total stockholders' equity.................................................. 44,965 44,965 74,096
</TABLE>
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(1) In June 1996 the Board of Directors of the Company changed the Company's
fiscal year end from October 31 to December 31.
(2) Non-recurring, non-cash incentive compensation charge incurred at the time
of the Company's initial public offering, at which time forfeiture
restrictions applicable to stock previously awarded to Company employees
were eliminated.
(3) Gives effect to the acquisition of HSI. The pro forma net income (loss) and
pro forma net income (loss) per share data for the year ended October 31,
1995 and the nine months ended September 30, 1996 combine the operating
results of the Company for the year ended October 31, 1995 with that of HSI
for the year ended December 31, 1995, the most recent fiscal year of each
company, and the operating results of both entities for the nine months
ended September 30, 1996, assuming the acquisition occurred on November 1,
1994. The pro forma balance sheet combines the historical balance sheets of
the two companies assuming the acquisition occurred on September 30, 1996.
4
<PAGE> 8
(4) The Company calculates EBITDA (earnings before interest, taxes, depreciation
and amortization) as operating income plus depreciation and amortization.
EBITDA should not be considered as an alternative to net income as an
indication of the Company's operating performance or as an alternative to
cash flow as a better measure of liquidity. EBITDA margin represents EBITDA
divided by the Company's total revenues in that period.
(5) A dive crew generally consists of (i) a diver and a tender (diver
trainee/assistant) or (ii) one diving supervisor.
(6) A dive crew day is one calendar day during which one Company dive crew was
engaged in an active project, was in transit or was waiting on inclement
weather while under contract.
(7) A DSV day is one calendar day in which one Company DSV is offshore
performing services, in transit or waiting on inclement weather while under
contract.
(8) DSV utilization is DSV days expressed as a percentage of DSV capacity. DSV
capacity is the average number of DSVs available for operation in a given
period multiplied by the number of days in that period. The Company's
maximum DSV utilization is limited by the seasonality of offshore
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations."
(9) Adjusted to give effect to (i) the sale by the Company of 2,502,315 shares
of Common Stock in the Offering, net of the underwriting discount and
estimated expenses payable by the Company and (ii) application of the net
proceeds to repay indebtedness. See "Use of Proceeds."
5
<PAGE> 9
UNCERTAINTY OF FORWARD-LOOKING INFORMATION
Certain of the statements set forth under "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this Prospectus, such as planned
capital expenditures and market opportunities, are forward-looking and are based
upon the Company's current belief as to the outcome and timing of such future
events. Many risks and uncertainties can affect the outcome and timing of such
events, including many factors beyond the control of the Company. These factors
include, but are not limited to, the matters described in "Risk Factors." Should
one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, the Company's actual results and plans could differ
materially from those expressed in the forwardlooking statements.
RISK FACTORS
Prospective purchasers of Common Stock should consider carefully the
following information, as well as the other information contained in this
Prospectus, before making an investment decision.
CYCLICAL DEMAND; DEPENDENCE ON ENERGY INDUSTRY
The demand for the Company's offshore diving services has traditionally
been cyclical, depending on the condition of the oil and gas industry, and
specifically on the capital expenditures of oil and gas companies for
exploration and production activities. These capital expenditures are influenced
by both short-term and long-term trends in 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 offshore leases in the United States and
other nations, the discovery rate of new oil and gas reserves in offshore areas,
local and international political, regulatory and economic conditions and the
ability of oil and gas companies to generate capital. The Company believes there
has been a general increase in the level of exploration and production
activities in the Gulf of Mexico in recent years resulting from increases in oil
and gas prices, but the extent and duration of this condition is beyond the
control of the Company and will depend primarily upon worldwide oil and gas
prices and the capital expenditures of oil and gas companies for offshore
development. A significant or prolonged reduction in natural gas or oil prices
in the future would likely depress offshore drilling and development activity,
reduce the demand for the Company's services and could have a material adverse
effect on the Company's financial condition and results of operations.
OPERATING RISKS AND LIMITATION OF INSURANCE COVERAGE
The Company's operations involve a high degree of operational risk,
particularly of personal injuries, fines and costs imposed by government
agencies, product liability and warranty claims, and third party consequential
damage claims. The Company's diving and vessel operations involve numerous
hazards to divers, vessel crew members and equipment, and result in a greater
incidence of employee injury and death and equipment loss and damage than occurs
in many other service industries. Virtually all employees engaged in the
Company's offshore diving operations are covered by provisions of the Jones Act,
the Death on the High Seas Act and general maritime law, which operate to exempt
these employees from the limits of liability established under worker's
compensation laws and, instead, permit them or their representatives to maintain
actions against the Company for damages or job related injuries, with no
limitations on the Company's potential liability. The Company's ownership and
operation of vessels give rise to large and varied liability risks, such as
risks of collisions with other vessels or structures, sinkings, fires and other
marine casualties, which can result in significant claims for damages against
both the Company and third parties for, among other things, personal injury,
death, property damage, pollution and loss of business. The Company's
manufacturing operations involve significant risks, particularly product
liability and warranty claims and installation risks. Company-manufactured
products installed in the past, as well as those to be installed in the future,
could give rise to such claims. The Company maintains insurance that it believes
is in accordance with general industry standards against the normal risks of its
operations. Such insurance, however, is subject to various exclusions, and there
can be no assurance that the Company's insurance policies will be sufficient or
effective under all circumstances or against all liabilities to which the
Company may be subject. Liabilities to
6
<PAGE> 10
customers and third parties for claimed defects in products or damages caused by
defective products manufactured by the Company may be significant and are not
insured to the extent that they are in the nature of warranty claims or other
claims based on breach of contract, nor has the Company established substantial
reserves for such claims. A successful claim for which the Company is not fully
insured could have a material adverse effect upon the Company and its financial
condition. Moreover, no assurance can be given that the Company will be able to
maintain adequate insurance in the future at rates that it considers reasonable
or that all types of coverage will be available. See "Business -- Insurance."
AVAILABILITY OF DIVERS
Divers require up to two years of diving school followed by two or more
years of apprenticeship and on-the-job training before they are considered
qualified to work as divers for the Company. With only six diving schools
producing diving graduates qualified to be employed by the Company (a decrease
from 12 in 1980), fewer divers are available for employment. As a result, there
can be no assurance that the Company will have a supply of qualified divers
sufficient to conduct and expand the Company's diving operations. Although none
of the terms and conditions of employment of the Company's divers are determined
by collective bargaining with a union, there can be no assurance that the
Company's divers may not be subject to union organization attempts and
collective bargaining in the future. The Company believes that its ability to
employ divers and other employees not subject to a collective bargaining
agreement is important to its ability to compete successfully for diving work.
CONTRACT BIDDING RISKS
A significant percentage of the Company's total revenues is derived from
increasingly large contracts performed on a fixed-price basis. This percentage
and the relative size of such contracts are expected to increase in the future.
Fixed-priced contracts are inherently risky because of the possibility of
underbidding and the Company's assumption of substantially all of the project's
operational risks. The revenue, cost and gross profit realized on such contracts
often vary from the estimated amounts for various reasons including, among
others, changes in weather and other job conditions, variations in labor and
equipment productivity (such as equipment failure) from original estimates,
project modifications creating unreimbursable costs overruns and supplier or
subcontractor failure to perform. These factors and the risks inherent in the
diving and the inland marine construction industry can result in reduced
profitability or losses on fixed-price contracts. When demand for the Company's
diving services decreases, the percentage of fixed-price contracts may increase.
Accordingly, the normal negative effects on the Company's operations resulting
from decreased demand can be exacerbated by an increased percentage of
fixed-price contracts. Moreover, the failure to obtain large projects, delays in
the awarding of large projects, the postponement of previously awarded projects
or delays in completion of large projects may negatively impact the Company's
results of operations and financial condition. See "Business -- Customers and
Competition."
EFFECT OF ADVERSE WEATHER CONDITIONS; SEASONALITY
The Company's diving services -- both offshore and inland -- are often
curtailed when adverse weather conditions are present or anticipated. During
such periods of curtailed activity, the Company continues to incur operating
expenses, but revenues from operations are delayed or reduced. Weather
conditions during the winter months are generally adverse and substantially
curtail the Company's diving activities in the Gulf of Mexico and, to a lesser
but nevertheless substantial extent, in the inland waters of the United States.
Winter conditions typically begin in December and continue until April, although
in some years, can begin as early as late September and continue through early
May. Although adverse weather is more typical during the winter months,
operations can be curtailed by weather conditions at any time, as has happened,
for example, during extended periods when hurricanes and tropical depressions
are present or expected in the Gulf of Mexico.
AVAILABILITY OF DSVS
There has been no significant construction of vessels within the worldwide
marine support services industry since the early 1980s. As a result, there is a
shortage of both new and used DSVs and vessels
7
<PAGE> 11
convertible into DSVs. Thus, the Company's ability to replace vessels or
increase the size of its DSV fleet through the purchase of new, used or
converted vessels may be significantly adversely affected by this shortage and
any acquisition may be cost prohibitive.
INTERNATIONAL OPERATIONS
The Company's international diving activities, which started in West Africa
in 1992, have continued to expand and play an increasingly important role in
Company operations. These international operations are subject to additional
risks, including the Company's relative inexperience in new international
markets, financial and political instability, civil unrest, asset seizures or
nationalization, currency restrictions, fluctuations and revaluations,
import-export restrictions, and tax and other regulatory requirements. There can
be no assurance that the Company will not experience material adverse
developments with respect to its operations outside the United States; such
developments, if they were to occur, could have a material adverse effect on the
Company's results of operations and financial condition. See "Business -- Diving
and Related Services -- International Diving Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on the continued active participation of the
Company's key officers and operating personnel. The loss of the services of any
one of these persons could have a material adverse effect upon the Company. The
Company does not hold key-man life insurance policies covering any Company
officer, nor does the Company have employment agreements or non-competition
agreements with any of its key officers or employees other than Rodney W.
Stanley, the Company's President and Chief Executive Officer. See "Management."
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's DSVs and operations are subject to various types of
governmental regulation, including many federal, state and local environmental
protection laws and regulations, which are becoming increasingly complex and
stringent. In addition, the Company depends on the demand for its services from
the oil and gas industry and, therefore, the Company's operations are affected
by laws and regulations, as well as changing taxes and policies, relating to the
oil and gas industry generally. Significant fines and penalties may be imposed
for non-compliance, and certain environmental laws impose joint and several
"strict liability" for remediation of spills and releases of oil and hazardous
substances rendering a person liable for environmental damage, without regard to
negligence or fault on the part of such person. Such laws and regulations may
expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company which are in compliance with all applicable
laws at the time such acts were performed. The Company does not believe that
compliance with current environmental laws or regulations is likely to have a
material adverse effect on the Company's business or financial condition or
results of operations. See "Business -- Government Regulation."
COMPETITION
The Company's business is highly competitive. Although some consolidation
has occurred in the Gulf of Mexico diving services industry in recent years, the
remaining companies aggressively compete for available diving projects. While
the Company believes that customers continue to consider the quality of the
supplier's services and equipment, price has become an increasingly more
important factor in the selection process. In all of its operations, the Company
competes with both large and small companies, and certain of these competitors
are larger and have greater financial and other resources than the Company. It
is possible that competitors, particularly large, international companies, could
relocate vessels, other equipment and personnel to the Gulf of Mexico and other
areas in which the Company operates with the result that competition could
increase and adversely affect the Company's revenues and operating margins.
Should the Company's competitors develop and market services or products that
are technologically superior to those of the Company, the Company's ability to
market its services and products would be significantly impaired. In addition,
it is possible for an experienced individual in the industry who has at least
minimal contacts with customers and divers to begin a business that could
compete successfully with the Company, particularly with
8
<PAGE> 12
respect to smaller, independent customers. See
"Business -- Manufacturing -- Pipeline Connector Products" and
"Business -- Competition."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and By-laws, including, among
others, provisions allowing the Company's Board of Directors to issue preferred
stock, and certain provisions of the Louisiana Business Corporation Law under
which the Company is incorporated, may tend to deter potential unsolicited
offers or other efforts to obtain control of the Company that are not approved
by the Board of Directors. Such provisions may therefore deprive the
stockholders of opportunities to sell shares of the Common Stock at prices
higher than prevailing market prices. See "Description of Capital Stock."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and intends
for the near future to retain any earnings otherwise available for dividends for
the future operation and growth of the Company's business. In addition, the
Company's loan agreement restricts the payment of cash dividends on its capital
stock. See "Price Range of Common Stock and Dividend Policy."
LIMITATION ON FOREIGN OWNERSHIP
The Company's Articles of Incorporation contain limitations on the
percentage of outstanding Common Stock and other classes of securities that can
be owned by persons who are not United States citizens within the meaning of
certain statutes relating to the ownership of United States flag vessels.
Consistent with statutory requirements, the Articles of Incorporation prohibit
the ownership of more than 23% of the outstanding Common Stock by persons other
than United States citizens. The restrictions imposed by the Company's Articles
of Incorporation may at times preclude United States citizens from transferring
their Common Stock to persons other than United States citizens. This may
restrict the available market for resale of shares of Common Stock and for the
issuance of shares of Common Stock by the Company. See "Business -- Government
Regulation" and "Description of Capital Stock -- Foreign Ownership."
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $29.1 million (approximately $34.6 million if the Underwriters'
over-allotment option is exercised in full), after deducting the underwriting
discount and estimated expenses from the Offering payable by the Company,
assuming a public offering price of $12.50 per share, the last reported sales
price of the Common Stock on the Nasdaq National Market on January 10, 1997.
The Company intends to use the net proceeds to repay short-term
indebtedness and a portion of its long-term indebtedness; any excess proceeds
will be used for general corporate purposes, including working capital
requirements and capital expenditures for the acquisition of additional DSVs,
other equipment or businesses. Approximately $13.4 million was outstanding under
the Company's bank line of credit on January 10, 1997, including $12.4 million
incurred to complete the acquisition of HSI, and $9.6 million was outstanding
under its long-term note payable with a bank. The indebtedness under the line of
credit bears interest at a variable rate (8.25% at January 10, 1997). The
indebtedness under the long-term note bears interest at the fixed rate of 7.9%
and requires monthly principal payments of $125,000, plus interest, with a
balloon payment of $3.1 million due on May 31, 2001. Until used, the Company
intends to invest the remaining net proceeds from the Offering in money market
obligations, certificates of deposit or short-term, interest-bearing securities.
9
<PAGE> 13
CAPITALIZATION
The following table sets forth (i) the historical short-term debt and
capitalization of the Company at September 30, 1996, (ii) the pro forma
short-term debt and capitalization of the Company at September 30, 1996 to give
effect to the acquisition of HSI, and (iii) such pro forma short-term debt and
capitalization of the Company at September 30, 1996 as adjusted to reflect the
sale by the Company of the 2,502,315 shares of Common Stock offered hereby at an
assumed public offering price of $12.50 per share and the use of the proceeds
thereof as described in "Use of Proceeds." The table set forth below should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto, the pro forma financial statements giving effect to the
acquisition of HSI, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 (UNAUDITED)
--------------------------------
PRO FORMA
PRO AS
HISTORICAL FORMA ADJUSTED
---------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Borrowings under line of credit agreement....................... $ 4,033 $16,483 $ --
-------- ------- -------
Current portion of long-term debt............................... 1,500 1,793 1,725
-------- ------- -------
Total short-term debt................................... $ 5,533 $18,276 $ 1,725
======== ======= =======
Long-term debt, less current portion............................ $ 8,500 $ 8,972 $ 3,919
Stockholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued............................... -- -- --
Common stock, no par value; 30,000,000
shares authorized; 6,811,182 issued and
outstanding at stated value; 9,313,497
shares issued and outstanding at stated
value as adjusted............................................ 1,368 1,368 1,681
Additional paid-in capital...................................... 41,548 41,548 70,366
Foreign currency translation adjustments........................ (131) (131) (131)
Retained earnings............................................... 2,180 2,180 2,180
-------- ------- -------
Total stockholders' equity.............................. 44,965 44,965 74,096
-------- ------- -------
Total capitalization.................................... $ 53,465 $53,937 $78,015
======== ======= =======
</TABLE>
10
<PAGE> 14
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock of the Company commenced trading on the Nasdaq National
Market under the symbol "DIVE" on July 21, 1993. The following table presents
high and low bid quotes for the Company's Common Stock as reported by the NASDAQ
National Market for each fiscal quarter and interim period since trading began
on July 21, 1993. In 1996, the Company changed the end of its fiscal year from
October 31 to December 31.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Quarter Ended:
July 31, 1993(1)....................................... $ 9.750 $ 9.000
October 31, 1993....................................... 12.500 9.250
Quarter Ended:
January 31, 1994....................................... 12.250 8.375
April 30, 1994......................................... 10.250 7.250
July 31, 1994.......................................... 9.750 6.500
October 31, 1994....................................... 7.500 6.000
Quarter Ended:
January 31, 1995....................................... 7.000 5.375
April 30, 1995......................................... 6.750 5.500
July 31, 1995.......................................... 6.750 5.750
October 31, 1995....................................... 6.313 5.375
Transition Period:
November 1, 1995 to December 31, 1995.................. 7.875 5.625
Quarter Ended:
March 31, 1996......................................... 8.750 6.750
June 30, 1996.......................................... 11.000 8.125
September 30, 1996..................................... 11.375 8.125
December 31, 1996...................................... 14.125 9.750
Current Period:
January 1, 1997 to January 10, 1997.................... 13.000 11.375
</TABLE>
- ---------------
(1) Prices are for the period July 21 to July 31, 1993.
On January 10, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $12.50 per share. At November 30, 1996, the
Company had approximately 1,500 holders of its Common Stock, including record
holders and individual participants in security position listings.
The Company has not paid cash dividends on its Common Stock since its
inception. The Board of Directors does not anticipate payment of any cash
dividends in the near future and intends to continue its present policy of
retaining earnings for reinvestment in the operations of the Company. The
amended and restated loan agreement between the Company and its lending bank
restricts the Company's payment of dividends for any fiscal quarter to 15% of
the average of quarterly net income of the Company for the immediately preceding
four fiscal quarters.
11
<PAGE> 15
DILUTION
At September 30, 1996, the Company's net tangible book value was $43.2
million, or $6.35 per share of Common Stock. Net tangible book value per share
of Common Stock is determined by dividing the tangible net worth (total tangible
assets of the Company less liabilities) by 6,811,182 shares, the total number of
shares of Common Stock outstanding prior to the consummation of this Offering.
Such net tangible book value, adjusted to reflect the sale of the 2,502,315
shares of Common Stock being offered by the Company at an assumed public
offering price of $12.50 per share and after deducting the underwriting discount
and estimated expenses of the Offering to be paid by the Company, is $72.3
million, or $7.77 per share. This represents an immediate increase in net
tangible book value of $1.42 per share to current holders of Common Stock and an
immediate dilution of approximately $4.73 per share to the purchasers of the
Common Stock offered hereby. Dilution is determined by subtracting the pro forma
net tangible book value per share of Common Stock after the Offering from the
public offering price.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................. $ 12.50
-------
Net tangible book value per share before the Offering............. $6.35
Increase per share attributable to new investors.................. $1.42
-----
Pro forma net tangible book value per share after the Offering(1)... $ 7.77
-------
Dilution per share to new investors(1).............................. $ 4.73
=======
</TABLE>
- ---------------
(1)If the Underwriters' over-allotment option is exercised in full, pro forma
net tangible book value per share would be $7.96, representing dilution to
new investors of $4.54 per share.
The above computations do not give effect to the 733,892 shares issuable
upon exercise of stock options granted by the Company under certain benefit
plans. To the extent any such stock options are exercised in the future at an
exercise price less than the offering price, there will be further dilution to
new investors.
12
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. In June 1996,
the Board of Directors of the Company changed the Company's fiscal year end from
October 31 to December 31 so as to report its quarterly and annual results of
operations on a comparable basis with other companies in the oil and gas
industry. The following historical selected consolidated financial data at and
for each of the five fiscal years ended October 31, 1995, and at and for the two
months ended December 31, 1995, are derived from the consolidated financial
statements of the Company, which have been audited by the Company's independent
accountants. The historical selected financial data for the two months ended
December 31, 1994, the nine months ended September 30, 1995, and at and for the
nine months ended September 30, 1996, are derived from unaudited consolidated
financial statements of the Company that, in the opinion of management, reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial condition and results of operations as of
such dates and for such periods. Due to the seasonality of the Company's
business, the results of operations for the nine-month period ended September
30, 1996, are not necessarily indicative of the results expected to be achieved
during the entire fiscal 1996 year.
<TABLE>
<CAPTION>
TWO MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ --------------------- -----------------
1991 1992 1993 1994 1995 1994 1995 1995 1996
------- ------- -------- ------- ------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Diving and related revenues.... $41,032 $36,875 $ 51,023 $52,755 $88,660 $15,259 $15,486 $63,689 $79,466
Diving and related expenses.... 23,755 22,084 30,635 35,338 63,180 10,359 10,346 45,486 51,657
Selling, general and
administrative expenses...... 9,977 8,303 10,808 14,222 19,318 2,873 3,055 14,328 14,759
Depreciation and
amortization................. 1,571 1,650 2,153 3,415 5,064 799 889 3,796 4,737
------- ------- -------- ------- ------- ------- ------- ------- -------
Operating income (loss)........ 5,729 4,838 7,427 (220) 1,098 1,228 1,196 79 8,313
Non-recurring charge(1)........ -- -- (27,301) -- -- -- -- -- --
Interest expense............... 455 277 341 297 1,377 183 220 1,075 817
Income (loss) before income
taxes, minority interest and
discontinued operations...... 5,916 4,834 (20,030) (264) (151) 1,091 994 (906) 8,160
Income tax expense
(benefit).................... 1,999 1,565 (6,777) 75 62 480 420 (280) 3,470
Minority interest in loss
(earnings) of subsidiary..... -- -- 54 82 (116) -- -- -- --
Loss from discontinued
operations, net of tax....... -- (555) (638) (1,696) -- -- -- -- --
------- ------- -------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 3,917 $ 2,714 $(13,837) $(1,953) $ (329) $ 611 $ 574 $ (626) $ 4,690
======= ======= ======== ======= ======= ======= ======= ======= =======
Net income (loss) per share.... $ .82 $ .54 $ (2.52) $ (.29) $ (.05) $ .09 $ .09 $ (.09) $ .69
======= ======= ======== ======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding.................. 4,779 5,044 5,484 6,706 6,709 6,709 6,709 6,709 6,769
PRO FORMA DATA:
Pro forma net income
(loss)(2).................... $(5,630) $ 277
======= =======
Pro forma net income (loss) per
share(2)..................... $ (.84) $ .04
======= =======
OTHER DATA:
EBITDA(3)...................... $ 7,300 $ 6,488 $ 9,580 $ 3,195 $ 6,162 $ 2,027 $ 2,085 $ 3,875 $13,050
EBITDA margin(3)............... 18% 18% 19% 6% 7% 13% 13% 6% 16%
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED)
OCTOBER 31, ----------------------------
----------------------------------------------- DECEMBER 31, PRO FORMA AS
1991 1992 1993 1994 1995 1995 HISTORICAL ADJUSTED(2)(4)
------- ------- ------- ------- ------- ------------ ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital............ $ 6,639 $ 8,366 $26,362 $14,087 $14,067 $ 15,898 $ 20,231 $ 30,807
Property, plant and
equipment, net........... 7,540 8,693 14,659 24,424 26,079 25,550 31,731 37,731
Intangible assets.......... 400 417 480 2,055 1,792 1,709 1,747 12,589
Total assets............... 21,971 26,068 47,601 61,607 69,408 63,921 72,999 98,876
Borrowings under line of
credit agreement......... 1,502 1,772 -- 4,830 7,300 7,875 4,033 --
Long-term debt, including
current portion.......... 3,188 3,333 121 7,931 7,121 6,788 10,000 5,644
Total stockholders'
equity................... 11,478 14,168 41,099 39,327 38,989 39,555 44,965 74,096
</TABLE>
- ---------------
(1) Non-recurring, non-cash incentive compensation charge incurred at the time
of the Company's initial public offering, at which time forfeiture
restrictions applicable to stock previously awarded to Company employees
were eliminated.
(2) Gives effect to the acquisition of HSI. The pro forma net income (loss) and
pro forma net income (loss) per share data for the year ended October 31,
1995 and the nine months ended September 30, 1996 combine the operating
results of the Company for the year ended October 31, 1995 with that of HSI
for the year ended December 31, 1995, the most recent fiscal year of each
company, and the operating results of both entities for the nine months
ended September 30, 1996, assuming the acquisition occurred on November 1,
1994. The pro forma balance sheet combines the historical balance sheets of
the two companies assuming the acquisition occurred on September 30, 1996.
(3) The Company calculates EBITDA (earnings before interest, taxes, depreciation
and amortization) as operating income plus depreciation and amortization.
EBITDA should not be considered as an alternative to net income as an
indication of the Company's operating performance or as an alternative to
cash flow as a better measure of liquidity. EBITDA margin represents EBITDA
divided by the Company's total revenues in that period.
(4) Adjusted to give effect to (i) the sale by the Company of 2,502,315 shares
of Common Stock in the Offering, net of the underwriting discount and
estimated expenses payable by the Company and (ii) application of the net
proceeds to repay indebtedness. See "Use of Proceeds."
14
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results of
operations, historical financial resources and working capital, and income taxes
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto included in this Prospectus.
In June 1996, the Board of Directors of the Company changed the Company's
fiscal year end from October 31 to December 31 so as to report its quarterly and
annual results of operations on a comparable basis with other companies in the
oil and gas industry. As a result of this change in year end, the following
discussion includes the three fiscal years ended October 31, 1993, 1994 and
1995; the two-month transition periods ended December 31, 1994 and 1995; and the
nine-month interim periods ended September 30, 1995 and 1996.
OVERVIEW
The Company's operations are affected by a number of factors, the most
significant of which is the activity of the offshore oil and gas industry in the
Gulf of Mexico, especially the timing of capital expenditures by oil and gas
companies. These capital expenditures are influenced by 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 offshore leases in the
United States and international markets, the discovery rate of new oil and gas
reserves in offshore areas, local, state, federal and international political,
regulatory and economic conditions, and the ability of oil and gas companies to
generate capital, all of which are beyond the control of the Company. Natural
gas factors have a greater effect on the operation of the Company than oil
factors because a majority of the production in the Gulf of Mexico is natural
gas.
The Company's results of operations will generally vary from reporting
period to reporting period depending in large part on the location and type of
work being performed, the mix of the marine services being performed, the season
of the year and the job conditions encountered. The diving industry is highly
seasonal as a result of the weather conditions that affect the timing of
platform and pipeline construction and other diving related activities of oil
and gas companies in the Gulf of Mexico, and the inland activities of the
Company's customers. The winter conditions that are generally present from
December through April substantially reduce the work that could otherwise be
performed by the Company's dive crews and limit the use of the Company's DSVs
stationed in the Gulf of Mexico. Although adverse weather conditions occurring
from time to time from May through November may also adversely affect vessel use
and diving operations, historically a disproportionate amount of the Company's
diving services have been performed during this period. The Company expects a
higher concentration of its total revenues and net income to be earned during
the third (July through September) and fourth (October through December)
quarters of its fiscal year compared to the first (January through March) and
second (April through June) quarters. The Company expects the winter weather
patterns to continue to have an adverse effect on the Company's Gulf of Mexico
and inland diving operations.
In general, large, complex underwater inland diving projects are awarded on
a fixed price basis. With such projects, contract revenues are recognized on a
percentage of completion basis for individual contracts based on the ratio of
costs incurred to total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract revenues
and gross profit in the reporting period when such estimates are revised. All
known or anticipated losses on contracts are provided for currently. At
September 30, 1996, the Company accounted for 14 contracts (aggregating
$836,000, or approximately 10%, of unbilled revenue at September 30, 1996) using
the percentage of completion method. If the Company continues to expand its
operations in the inland market and the number of turnkey projects in the Gulf
of Mexico awarded to the Company increases, the Company believes that a greater
proportion of its inland and Gulf of Mexico diving contracts will be accounted
for using the percentage of completion accounting method. See "Risk
Factors -- Contract Bidding Risks."
15
<PAGE> 19
RESULTS OF OPERATIONS
The Company analyzes the results of its operations by separating them into
four geographic and product markets: (i) Gulf of Mexico diving and related
services, derrick barge services, and environmental remediation and emergency
oil spill response services ("Gulf Services"); (ii) all diving and related
services performed outside the United States and its coastal waters, except
Latin America ("International Services"); (iii) diving and related services off
the United States West Coast, inland within the United States and in the coastal
waters off Latin America ("Inland and West Coast Services"); and (iv) Big Inch
pipeline connectors and Tarpon Systems marginal well production systems products
("Subsea Products"). The following table sets forth, for the periods indicated,
additional information on the operating results of the Company in each of those
four markets:
<TABLE>
<CAPTION>
TWO MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------- -------------------
1993 1994 1995 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
GULF SERVICES
Diving and related
revenues................... $39,306 $35,733 $49,522 $ 9,463 $ 9,929 $35,369 $40,735
Diving and related
expenses................... 23,779 24,887 37,362 6,087 6,888 27,130 26,874
------- ------- ------- ------- ------- ------- -------
Gross profit................. 15,527 10,846 12,160 3,376 3,041 8,239 13,861
Gross profit percentage...... 39.5% 30.4% 24.6% 35.7% 30.6% 23.3% 34.0%
INTERNATIONAL SERVICES
Diving and related
revenues................... $ 5,489 $ 3,889 $17,079 $ 1,350 $ 924 $14,071 $ 6,202
Diving and related
expenses................... 3,291 2,545 11,318 1,077 595 8,862 4,286
------- ------- ------- ------- ------- ------- -------
Gross profit................. 2,198 1,344 5,761 273 329 5,209 1,916
Gross profit percentage...... 40.0% 35.0% 33.7% 20.2% 35.6% 37.0% 30.9%
INLAND AND WEST COAST SERVICES
Diving and related
revenues................... $ 1,632 $ 8,439 $14,539 $ 3,268 $ 3,909 $ 8,402 $26,127
Diving and related
expenses................... 1,078 5,619 10,114 2,528 2,488 6,194 17,118
------- ------- ------- ------- ------- ------- -------
Gross profit................. 554 2,820 4,425 740 1,421 2,208 9,009
Gross profit percentage...... 33.9% 33.4% 30.4% 22.6% 36.4% 26.3% 34.5%
SUBSEA PRODUCTS
Diving and related
revenues................... $ 4,596 $ 4,694 $ 7,520 $ 1,178 $ 724 $ 5,847 $ 6,402
Diving and related
expenses................... 2,487 2,287 4,386 667 375 3,300 3,379
------- ------- ------- ------- ------- ------- -------
Gross profit................. 2,109 2,407 3,134 511 349 2,547 3,023
Gross profit percentage...... 45.9% 51.3% 41.7% 43.4% 48.2% 43.6% 47.2%
TOTAL
Diving and related
revenues................... $51,023 $52,755 $88,660 $15,259 $15,486 $63,689 $79,466
Diving and related
expenses................... 30,635 35,338 63,180 10,359 10,346 45,486 51,657
------- ------- ------- ------- ------- ------- -------
Gross profit................. 20,388 17,417 25,480 4,900 5,140 18,203 27,809
Gross profit percentage...... 40.0% 33.0% 28.7% 32.1% 33.2% 28.6% 35.0%
</TABLE>
For additional information concerning the operations of the Company in
geographic areas, see note 11 to the financial statements of the Company
included in this Prospectus.
16
<PAGE> 20
The following table sets forth for the periods indicated certain
consolidated income statement data expressed as a percentage of consolidated
revenues.
<TABLE>
<CAPTION>
TWO MONTHS NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- ------------------- -------------
1993 1994 1995 1994 1995 1995 1996
----- ---- ---- ----------- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of consolidated revenues:
Selling, general and administrative
expenses............................ 21.2% 27.0% 21.8% 18.8% 19.7% 22.5% 18.6%
Depreciation and amortization.......... 4.2 6.5 5.7 5.2 5.7 6.0 6.0
Operating income (loss)................ 14.6 (.4) 1.2 8.0 7.7 .1 10.5
Non-recurring stock compensation
charge.............................. 53.5 -- -- -- -- -- --
Income (loss) from continuing
operations before income taxes and
minority interest................... (39.2) (.5) (.2) 7.2 6.4 (1.4) 10.3
Net income (loss)...................... (27.1) (3.7) (.4) 4.0 3.7 (1.0) 5.9
</TABLE>
In the fiscal year ended October 31, 1995, and continuing into the first
nine months of 1996, the Company has continued to experience significant growth
in its operations and related revenues. Although the Company has experienced
increased levels of activity, there can be no assurances that such levels will
continue. Factors contributing to the increased activity include the following:
First, the oil and gas industry in the Gulf of Mexico has continued to
strengthen, resulting in an increase in both the demand and the day rates
charged for the Company's divers and DSVs. The improved industry trends
have also contributed to increased demand for the Company's subsea pipeline
connector products and derrick barge services in the Gulf of Mexico. The
Company anticipates that this trend will continue as long as supply and
demand fundamentals for oil and gas and demand for infrastructure-related
projects remain strong in the Gulf of Mexico.
Second, the activity level of Inland and West Coast Services has
increased substantially primarily due to improved bidding and estimating
processes, and the Company's ability to obtain large turnkey projects. For
example, the Company completed in 1996 the approximately $15 million
Chevron platform abandonment project and also expects to complete in late
1997 the approximately $8 million Port of Brownsville project. Although no
assurances can be given that the Company will obtain projects of a size
similar to these projects in the future, the Company believes it has
positioned itself to bid on competitive projects of similar size and scope
going forward.
Although the revenue and activity level of International Services were
significant in fiscal 1995, this was due primarily to the installation of a
Tarpon System off the Ivory Coast. Revenue and activity levels returned to a
more stable level during 1996.
The Company's profitability improved substantially from 1995 to 1996 due
primarily to the non-recurrence of several adverse factors that gave rise to
losses in 1995.
First, the Company experienced cost overruns and losses on certain
nonrecurring turnkey diving projects in the Gulf of Mexico and Dubai
aggregating approximately $1.5 million. The Company identified the causes
of these problems and, in response, has implemented new project management
and bidding procedures.
Second, the pipelay/bury barge "American Enterprise" recorded an
operating loss of approximately $1.5 million in fiscal 1995 due to low use
and lower than expected gross profit margins, both of which adversely
affected the Company's overall gross profit margins. After evaluating the
American Enterprise's results of operations, the Company sold the barge on
March 1, 1996 for $5.4 million, resulting in a nonrecurring gain in the
first quarter of 1996.
Third, the inland operations recorded an operating loss of
approximately $660,000 in fiscal 1995. This loss was attributable primarily
to low revenue levels in the first and second quarters of fiscal 1995
17
<PAGE> 21
coupled with the fixed costs of developing the inland market and lower than
expected gross profit margins on the larger construction projects, which
involve a relatively high percentage of third party costs. The Company
believes a portion of the inland diving market is sensitive to similar
weather patterns affecting the Gulf of Mexico diving market. However,
during the latter half of 1995 and continuing into the first nine months of
1996, the inland operations experienced high activity levels and were
profitable. Further, the Company believes the inland diving market can
reduce the Company's overall dependence on the oil and gas industry, which
is subject to several external factors as previously described.
During 1996, the Company acquired six vessels, two of which are suitable
for operations in deeper waters, and certain diving assets to be used in its
Gulf of Mexico diving operations. The vessels acquired during 1996 include the
"American Constitution," a 210-foot vessel that has since been undergoing
modifications for use as a DSV, including installation of a moonpool and
outfitting with a saturation diving system; the "American Pioneer," a 200-foot
dynamically positioned vessel dedicated to supporting work-class ROV; and the
"American Recovery," a 150-foot tug/diving support vessel to support its West
Coast operations.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Diving and related revenues. The Company's consolidated revenues increased
25%, from $63.7 million for the nine months ended September 30, 1995 to $79.5
million for the nine months ended September 30, 1996. The difference between
these two amounts is due primarily to the following increases: (i) approximately
$17.7 million was attributable to increased activity by Inland and West Coast
Services, approximately $14.3 million of which resulted from the Chevron
platform abandonment project off the coast of California; (ii) approximately
$6.7 million was attributable to increased diving and vessel activity in the
Gulf of Mexico; (iii) approximately $2.4 million was attributable to the
operations of the "American Intrepid," the Company's jack-up derrick barge,
which was not operational for the entire nine months ended September 30, 1995;
and (iv) approximately $1.8 million was attributable to increased sales of the
Company's subsea pipeline connector products. The increase in revenue was offset
by certain revenue decreases, including (i) approximately $3.8 million
attributable to the "American Enterprise," the Company's pipelay/bury barge that
was sold on March 1, 1996, (ii) approximately $7.9 million attributable to
International Services, primarily as a result of decreased activity in Nigeria,
and (iii) approximately $1.3 million attributable to decreased demand for the
Company's Tarpon Systems.
Diving and related expenses. The Company's diving and related expenses
increased 14%, from $45.5 million for the nine months ended September 30, 1995
to $51.7 million for the nine months ended September 30, 1996. The difference
between these two amounts is due primarily to the following increases: (i)
approximately $10.9 million was attributable to increased activity by Inland and
West Coast Services; (ii) approximately $2.6 million was attributable to
increased diving and vessel activity in the Gulf of Mexico; (iii) approximately
$2.4 million was attributable to the operations of the "American Intrepid," the
Company's jack-up derrick barge, which was not operational for the entire nine
months ended September 30, 1996; and (iv) approximately $1.1 million was
attributable to increased sales of the Company's subsea pipeline connector
products. The increase in expenses was offset by certain expense decreases,
including (i) approximately $5.2 million attributable to the "American
Enterprise," the Company's pipelay/bury barge that was sold on March 1, 1996,
(ii) approximately $4.6 million attributable to International Services,
primarily as a result of non-recurring work associated with the installation of
a Tarpon System off the Ivory Coast in 1995 and (iii) approximately $1.0 million
attributable to decreased demand for the Company's Tarpon Systems.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 3%, from $14.3 million for the nine months
ended September 30, 1995 to $14.8 million for the nine months ended September
30, 1996. The increase was attributable to (i) a $148,000 increase in the
selling, general and administrative expenses of International Services primarily
as a result of supporting the activities of the operations and sales office in
Dubai, which did not have full operations for the entire first nine months of
fiscal 1995, and (ii) $125,000 in severance paid in connection with personnel
layoffs during the three months ended March 31, 1996. Although there was an
overall increase in the level of selling, general and administrative expenses
during the nine months ended September 30, 1996, selling, general and
administrative expenses as a
18
<PAGE> 22
percentage of revenues decreased from 22% for the nine months ended September
30, 1995 to 19% for the nine months ended September 30, 1996.
Depreciation and amortization. Depreciation and amortization increased 25%,
from $3.8 million for the nine months ended September 30, 1995 to $4.7 million
for the nine months ended September 30, 1996. The increase includes a pretax
charge of $500,000, $290,000 after tax, attributable to the implementation of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
(SFAS 121) effective January 1, 1996. The charge is included in depreciation and
amortization in the consolidated statement of operations for the nine months
ended September 30, 1996. The remaining increase of $441,000 was attributable to
additions and improvements to the Company's operational and administrative
assets primarily in Gulf Services and International Services, offset by a
reduction in depreciation expense of the "American Enterprise," which was sold
on March 1, 1996.
Operating income. For the nine months ended September 30, 1996, operating
income was $8.3 million compared to operating income of $79,000 for the nine
months ended September 30, 1995. The significant change in operating income was
due primarily to an overall increase in the Company's gross profit margin for
reasons described above from $18.2 million, or 29%, in the first nine months of
1995 to $27.8 million, or 35.0%, in the first nine months of fiscal 1996. This
increase in operating income for the nine months ended September 30, 1996 was
offset slightly by increases in both selling, general and administrative
expenses and depreciation and amortization.
Other income (expense). For the nine months ended September 30, 1996, other
expense (net) of $153,000 was comprised of interest expense of $817,000, which
was offset by a net gain on disposal of assets of $531,000 and other income of
$133,000. The net gain on the disposal of assets includes the non-recurring gain
on the sale of the "American Enterprise" offset by losses on the disposal of
other fixed assets. This compares to other expense (net) of $985,000 in the
comparable period of fiscal 1995, which was comprised of interest expense of
$1,075,000, and a loss on the disposal of assets of $125,000, offset by other
income of $215,000.
Net income (loss). As a result of the factors discussed above, the Company
recorded net income of $4.7 million, or $.69 per share, in the nine months ended
September 30, 1996, compared to a net loss of $626,000, or ($.09) per share, in
the nine months ended September 30, 1995.
TWO MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWO MONTHS ENDED DECEMBER 31,
1994
Diving and related revenues. The Company's consolidated revenues increased
1%, from $15.3 million in the two months ended December 31, 1994 to $15.5
million in the two months ended December 31, 1995. The $227,000 increase in
revenues was comprised of (i) an increase of approximately $640,000 attributable
to increased diving activity by Inland and West Coast Services; (ii) an increase
of approximately $1.0 million attributable to the operations of the "American
Intrepid," the Company's jack-up derrick barge; (iii) a decrease of $393,000
attributable to the operations of the "American Enterprise," the Company's
pipelay/bury barge, which was sold on March 1, 1996; (iv) a decrease of $426,000
attributable to the diving activity of International Services; and (v) a
decrease of $454,000 attributable to decreased subsea products sales.
Diving and related expenses. The Company's diving and related expenses
decreased 1%, from $10.4 million in the two months ended December 31, 1994 to
$10.3 million in the two months ended December 31, 1995. The $14,000 decrease in
expenses was comprised of (i) an increase of approximately $40,000 attributable
to increased diving activity by Inland and West Coast Services; (ii) an increase
of approximately $1.0 million attributable to the operations of the "American
Intrepid," the Company's jack-up derrick barge; (iii) a decrease of $278,000
attributable to the operations of the "American Enterprise," the Company's
pipelay/bury barge, which was sold on March 1, 1996; (iv) a decrease of $481,000
attributable to the diving activity of International Services; and (v) a
decrease of $291,000 attributable to decreased subsea products sales.
19
<PAGE> 23
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 6%, from $2.9 million for the two months ended
December 31, 1994 to $3.1 million for the two months ended December 31, 1995.
This increase was primarily due to a $127,000 increase in expenses attributable
to supporting the activities of the operations and sales office in Dubai for the
two months ended December 31, 1995. This office did not have full operations in
the same period of 1994. Although there was an overall increase in the level of
selling, general and administrative expenses during the two months ended
December 31, 1995, these expenses, as a percentage of revenues, increased less
than 1%, from 19% for the two months ended December 31, 1994 to 20% for the two
months ended December 31, 1995.
Depreciation and amortization. Depreciation and amortization increased 11%,
from $799,000 in the two months ended December 31, 1994 to $889,000 for the two
months ended December 31, 1995. The increase was attributable to additions and
improvements to the Company's operational and administrative assets primarily in
Gulf Services and International Services.
Operating income. Operating income decreased from $1,228,000 for the two
months ended December 31, 1995 to $1,196,000 for the two months ended December
31, 1994. The slight decrease was due to the increase in selling, general and
administrative expenses and depreciation and amortization expenses for the two
months ended December 31, 1995 as described above.
Other income (expense). For the two months ended December 31, 1995, other
expense (net) of $202,000 was comprised of interest expense of $220,000, offset
by miscellaneous other income items totaling $18,000. This compares to other
expense (net) of $137,000 in the comparable two-month period ended December 31,
1994, which was comprised of interest expense of $183,000, offset by
miscellaneous other income items of $46,000.
Net income. As a result of the factors discussed above, the Company
recorded net income of $574,000, or $.09 per share, in the two months ended
December 31, 1995, compared to net income of $611,000, or $.09 per share, in the
two months ended December 31, 1994.
TWELVE MONTHS ENDED OCTOBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED OCTOBER
31, 1994
Diving and related revenues. The Company's revenues increased 68%, from
$52.8 million in fiscal 1994 to $88.7 million in fiscal 1995. Of the $35.9
million increase, (i) $13.2 million was attributable to increased diving
activity of International Services, primarily in West Africa, (ii) $8.3 million
was attributable to increased diving and vessel activity in the Gulf of Mexico,
(iii) $10.5 million was attributable to the results of operations of assets
acquired and operations established in fiscal 1994 that were not operational for
the entire year of fiscal 1994, and (iv) $1.9 million was attributable to the
operations of the "American Intrepid," the Company's new jack-up derrick barge.
Of the $10.5 million increase from the Company's expanded operations, $3.1
million was from pipelay/bury barge operations, $5.1 million was due to activity
of Inland and West Coast Services, $1.8 million was from Tarpon Systems
operations, and $565,000 was from environmental remediation and oil spill
response operations.
Diving and related expenses. Diving and related expenses in fiscal 1995
increased 79%, from $35.3 million in fiscal 1994 to $63.2 million in fiscal
1995. Of the $27.9 million increase, (i) $8.8 million was attributable to the
increased diving activity of International Services, primarily in West Africa,
(ii) $6.3 million was attributable to the increased diving and vessel activity
in the Gulf of Mexico, (iii) $10.0 million was attributable to the expanded
operations discussed above, and (iv) $1.3 million was attributable to the
derrick barge operations. Of the $10.0 million increase from the Company's
expanded operations, $4.4 million was from pipelay/bury barge operations, $3.7
million was from Inland and West Coast Services, $1.5 million was from Tarpon
Systems operations, and $434,000 was from environmental remediation and oil
spill response operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 36%, from $14.2 million in fiscal 1994 to
$19.3 million in fiscal 1995. Approximately $2.6 million, or 51% of the
increase, was attributable to supporting the assets acquired and operations
established during fiscal 1994. Although there was an overall increase in the
level of selling, general and administrative expenses during the
20
<PAGE> 24
fiscal year, these expenses as a percentage of total revenues decreased from 27%
in fiscal 1994 to 22% in fiscal 1995.
Depreciation and amortization. Depreciation and amortization expenses
increased 48%, from $3.4 million in fiscal 1994 to $5.1 million in fiscal 1995.
Of the $1.7 million increase, approximately $1.1 million was attributable to
depreciation of assets acquired and operations established during fiscal 1994.
The remainder of the increase was attributable to additions and improvements to
the Company's operational and administrative assets.
Operating income (loss). For fiscal 1995, the Company recorded operating
income of approximately $1.1 million compared to an operating loss of
approximately $220,000 in fiscal 1994. The increase in operating income was
primarily due to substantial increases in the Company's total revenues in 1995;
however, this significant revenue increase was offset by several factors that
adversely affected the Company's combined gross profit percentage, including
losses on certain turnkey projects, the operating losses on the American
Enterprise, and the operating loss of the inland diving operations, all of which
were previously described.
Other income (expense). For fiscal 1995, other expense (net) of $1.2
million was comprised of interest expense of $1.4 million, a loss of $130,000 on
the disposal of fixed assets, and other income of $258,000. This compares to
other expense (net) of $44,000 for fiscal 1994, which was comprised of interest
expense of $297,000, a gain on the disposal of fixed assets of $21,000, and
other income of $232,000. The increase in interest expense in 1995 was due
primarily to increased average borrowings under the Company's revolving line of
credit during the year compared to fiscal 1994. In addition, fiscal 1995
interest expense includes a discount of $159,000 on the sale of notes receivable
during the year.
Net loss. As a result of the factors discussed above, the Company recorded
a net loss of $329,000, or $.05 per share, for fiscal 1995 compared to a net
loss of $1,953,000, or $.29 per share, for fiscal 1994.
TWELVE MONTHS ENDED OCTOBER 31, 1994 COMPARED TO TWELVE MONTHS ENDED OCTOBER
31, 1993
Diving and related revenues. For fiscal 1994, the Company's revenues
increased 3%, from $51.0 million in fiscal 1993 to $52.8 million in fiscal 1994.
The increase was due primarily to the addition of $12.6 million of revenues
attributable to the results of operations of assets acquired and operations
established in 1994 of which $4.9 million was attributable to the pipelay/bury
barge operations and $6.3 million was attributable to Inland and West Coast
Services. The increase was partially offset by a $9.0 million revenue decrease
in diving and vessel activity in the Gulf of Mexico compared to the prior year
and a $1.6 million revenue decrease in International Services, compared to the
prior year due primarily to the interruption in diving activity in Nigeria
caused by political instability. This decrease in Gulf of Mexico activity was
partially offset by a strong fiscal 1994 fourth quarter demand for the Company's
Gulf of Mexico dive crews and DSVs.
Diving and related expenses. Diving and related expenses in fiscal 1994
increased 15%, from $30.6 million in fiscal 1993 to $35.3 million in fiscal
1994. Of the $4.7 million increase, $8.8 million was due to expenses related to
the Company's expanded operations. Specifically, $4.0 million was attributable
to the pipelay/bury barge operations and $4.0 million was attributable to Inland
and West Coast Services. The increase was partially offset by a $3.2 million
decrease in expenses related to diving and vessel activity in the Gulf of Mexico
and a $747,000 decrease in diving and related expenses of International
Services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 32%, from $10.8 million in fiscal 1993 to
$14.2 million in fiscal 1994. The increase was attributable primarily to the
addition of the expanded operations and to increased expenses related to the
administration of these operations. Selling, general and administrative expenses
increased as a percentage of total revenues from 21% in fiscal 1993 to 27% in
fiscal 1994.
Depreciation and amortization. Depreciation and amortization expenses
increased 59%, from $2.1 million in fiscal 1993 to $3.4 million in fiscal 1994.
The $1.3 million increase was due primarily to the inclusion in the Company's
depreciable assets for a full year of newly acquired assets, including four
DSVs, the pipelay/bury barge, two saturation diving systems and related diving
and other equipment, as a result of the Company's 1994 acquisition program and
the addition of assets to Gulf Services and International Services.
21
<PAGE> 25
Operating income (loss). For fiscal 1994, the Company recorded an operating
loss of approximately $220,000 compared to operating income of $7.4 million for
fiscal 1993. The decrease in fiscal 1994 operating income was primarily due to a
$9.0 million revenue decrease for Gulf Services that resulted primarily from a
decrease in the number of diving projects and a corresponding reduction in
average dive crew day rates and average DSV day rates charged by the Company.
The decrease was partially offset by operating income of approximately $1.3
million attributable primarily to the Company's new operations.
Other income (expense). For fiscal 1994, other expense (net) of $44,000 was
comprised of interest expense of $297,000, a gain of $21,000 on the disposal of
fixed assets, and other income of $232,000. This compares to other expense (net)
of $27.5 million for fiscal 1993, which was comprised of interest expense of
$341,000, a gain on the disposal of fixed assets of $42,000, other income of
$143,000, and a $27.3 million non-recurring, non-cash compensation expense
charge resulting from the elimination of forfeiture restrictions on common stock
previously awarded to employees upon the occurrence of the Company's July 1993
initial public offering.
Loss from continuing operations. For fiscal 1994, the Company recorded a
loss from continuing operations of $257,000 compared to a loss from continuing
operations of $13.2 million for fiscal 1993. The fiscal 1993 loss from
continuing operations was attributable primarily to the $27.3 million
non-recurring and non-cash charge described above. Excluding the after-tax
impact of such compensation expense, income from continuing operations for
fiscal 1993 would have been $4.6 million compared to a loss from continuing
operations of $257,000 in fiscal 1994. The $4.8 million difference is
attributable primarily to the factors discussed above.
Loss from discontinued operations. In fiscal 1994, the Company recorded an
operating loss from discontinued operations of $1.1 million, net of $539,000 of
tax benefit, and a capital asset loss of $642,000 directly related to the sale
of the Company's anode foundry operations. The aggregate loss from discontinued
operations of approximately $1.7 million represents the loss associated with the
sale of substantially all the assets of the anode foundry operations. The loss
includes expenses associated with the sale of the anode foundry operations,
including inventory writedown, professional fees and other closure expenses
relating to the sale.
Net loss. During fiscal 1994, the Company recorded a net loss of $2.0
million compared to a net loss of $13.8 million in fiscal 1993 as a result of
the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are, generally, to fund working
capital requirements and to make capital expenditures for acquisitions of, and
improvements to, facilities, DSVs, and diving and related equipment. The Company
also incurs expenses for mobilization and project execution throughout the
course of its contracts, while collections from customers typically do not occur
until approximately 90 days after completion of the job. The Company has
traditionally supported these working capital requirements by using a
combination of internally generated funds and short-term and long-term debt.
The Company believes that cash flows from operations, borrowings available
under its bank credit facility and the net proceeds from this Offering will
provide sufficient funds to meet its working capital and capital expenditure
requirements for 1997.
Cash flow from operations. The Company has generated positive net cash flow
from operations of $3.9 million, $4.4 million, and $1.4 million for fiscal 1993,
1994, and 1995, respectively; $928,000 and $297,000 for the two months ended
December 31, 1994 and 1995, respectively; and $693,000 and $10.4 million for the
nine months ended September 30, 1995 and 1996, respectively. The factors
affecting amounts and timing of cash flows from operating activities are the
same as those affecting results of operations discussed above.
Investing activities. Cash flows from investing activities are primarily
related to capital expenditures. In the nine-month period ended September 30,
1996, capital expenditures were $15.8 million, which included the acquisition of
six DSVs and certain other diving equipment. These expenditures were funded by a
combination
22
<PAGE> 26
of long-term debt, borrowings under the line of credit and proceeds of $5.4
million received from the sale of the "American Enterprise." Management expects
that the Company will continue to make capital expenditures for improvements to
its existing assets and for acquisitions of assets in support of its growth
strategy.
Financing activities. Cash flows from financing activities are primarily
attributable to borrowings and repayments on both the Company's long-term
indebtedness and credit facilities. The Company has a $15 million revolving line
of credit with a bank at the prime rate (8.25% at September 30, 1996). The line
is secured by and limited to certain qualifying accounts receivable and is
cross-collateralized by certain of the Company's vessels and equipment. At
September 30, 1996, $4.0 million was outstanding under the line of credit
agreement. Subsequent to September 30, 1996, the Company received a $5.0 million
increase in the line of credit to facilitate the funding of its purchase of the
outstanding common shares of HSI until such time as permanent financing could be
arranged. On January 10, 1997, the balance outstanding under the line of credit
was $13.4 million.
The Company also has a long-term note payable with a bank in the amount of
$10.0 million at September 30, 1996 at a fixed interest rate of 7.9%. The terms
of the note require monthly principal payments of $125,000, plus interest, with
a balloon payment of $3.1 million due on May 31, 2001. This debt is secured by
eleven DSVs and certain diving equipment. The Company intends to repay a portion
of its outstanding indebtedness with the net proceeds of this Offering. See "Use
of Proceeds."
INCOME TAXES
The Company conducts operations in various foreign tax jurisdictions
including Canada, the United Kingdom, Nigeria, and the United Arab Emirates and
anticipates that it will expand its operations into other foreign tax
jurisdictions. It is possible that a number of these foreign tax jurisdictions
may have corporate income tax rates that exceed the current maximum U.S.
corporate income tax rate of 34%. As a result, the Company's operations in these
jurisdictions could result in the Company experiencing an overall effective tax
rate in excess of the current maximum U.S. tax rate applicable to corporations.
In addition, the Company intends to conduct operations through subsidiaries
incorporated in foreign jurisdictions and, therefore, the Company may pay tax
rates with respect to such operations that are different from U.S. tax rates.
See Note 7 to the consolidated financial statements elsewhere in this Prospectus
for the reconciliation of the statutory federal income tax rate to the Company's
effective tax rate.
At December 1995, the Company had a deferred tax asset of $1.8 million
based in part on its federal net operating loss carryforwards (NOLs) of $8.5
million, which can be used to offset future taxable income through 2007 and
2010. A substantial portion of such NOLs are expected to be utilized during
1996. Accordingly, taxable income beyond fiscal 1996 is expected to result in
currently payable income taxes.
23
<PAGE> 27
HSI ACQUISITION
Pursuant to the terms of an unsolicited cash tender offer, the Company
purchased approximately 97% of the outstanding common shares of HSI for an
aggregate cash purchase price of approximately $11.8 million. The shares were
purchased at various times from October 31, 1996 to November 15, 1996. The
Company intends to acquire the remainder of the outstanding HSI common stock in
1997. The Company intends to use the NEWTSUIT(TM) in its own diving operations,
but does not intend to market NEWTSUITs(TM) to other commercial diving
operators. The Company also intends to market the suit to the United States Navy
and to other navies. The navies of France and Italy and the defense force of
Japan have purchased at least one NEWTSUIT(TM) each.
The following table sets forth certain pro forma combined statement of
operations data for the year ended October 31, 1995 and the nine months ended
September 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1995* NINE MONTHS ENDED SEPTEMBER 30, 1996*
------------------------------------------ ---------------------------------------------
PRO FORMA PRO FORMA
ACTUAL ACTUAL ---------------------- ACTUAL ACTUAL -----------------------
AOD HSI ADJUSTMENTS COMBINED AOD HSI ADJUSTMENTS COMBINED
------- ------- ----------- -------- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diving and related revenues.... $88,660 $13,401 $ -- $102,061 $79,466 $ 3,714 $ -- $83,180
Diving and related expenses.... 63,180 10,455 -- 73,635 51,657 3,622 -- 55,279
Selling, general and
administrative expenses...... 19,318 4,022 -- 23,340 14,759 1,979 -- 16,738
Depreciation and
amortization................. 5,064 1,535 1,834(a) 8,433 4,737 572 1,376(a) 6,685
------- ------- ------- -------- ------- ------- ------- -------
Operating income............... 1,098 (2,611) (1,834) (3,347) 8,313 (2,459) (1,376) 4,478
Interest expense............... (1,377) (98) (1,058)(b) (2,533) (817) (38) (794)(b) (1,649)
Income (loss) before income
taxes........................ (267) (2,840) (2,892) (5,999) 8,160 (2,564) (2,170) 3,426
Provision for income taxes..... 62 (3) (428)(c) (369) 3,470 -- (321)(c) 3,149
Net income (loss).............. $ (329) $(2,837) $(2,464) $(5,630) $ 4,690 $(2,564) $(1,849) $ 277
======= ======= ======= ======== ======= ======= ======= =======
Net income (loss) per share.... $ (.05) $ (.84) $ .69 $ .04
======= ======== ======= =======
</TABLE>
- ---------------
* These pro forma combined statements of operations combine the results of
operations of the Company for the year ended October 31, 1995 with that of
HSI for the year ended December 31, 1995, the most recent fiscal year of
each company, and the results of operations of both entities for the nine
months ended September 30, 1996, assuming the acquisition occurred on
November 1, 1994.
(a) Additional depreciation of property and equipment using the straight-line
method based on estimated useful lives ranging from 5 to 10 years.
Amortization of patents on purchased technology and intangible assets using
the straight-line method based on estimated useful lives ranging from 5 to
10 years, and amortization of goodwill over 10 years.
(b) Interest charges on borrowings of $12,450,000 on line of credit, at an
estimated average interest rate of 8.5%.
(c) Tax benefit related to additional interest charges.
These pro forma combined statements of operations reflect both the
historical operating losses of HSI and certain pro forma expense adjustments
related to the purchase of HSI, including additional interest expense on the
borrowings under the Company's line of credit and additional depreciation and
amortization related to tangible and intangible assets acquired. However, the
Company plans to repay the debt incurred to purchase HSI with a portion of the
proceeds of this Offering and therefore does not anticipate incurring ongoing
interest expense related to the HSI acquisition.
24
<PAGE> 28
BUSINESS
GENERAL
The Company provides subsea services and products to the offshore oil and
gas industry in the Gulf of Mexico, the West Coast and select international
markets. In addition, the Company provides inland underwater services and
products to domestic industrial and governmental customers. The Company's
services are provided through approximately 240 dive crews and are supported by
a Company-owned fleet of 20 DSVs, 14 of which operate in the Gulf of Mexico.
Based upon the number of divers employed, the size of its DSV fleet and the
number of customers served, the Company believes that it is the leading provider
of diving services in the Gulf of Mexico.
In the last three years, the Company's revenue has more than doubled as a
result of improved demand in its core Gulf of Mexico market and through internal
growth and acquisitions that have expanded the Company's service and product
offerings. For the nine months ended September 30, 1996, the Company's revenue
increased 25% to $79.5 million and EBITDA (earnings before interest, taxes,
depreciation and amortization) more than tripled to $13.1 million as compared to
the nine months ended September 30, 1995. For 1996, subsea services in the Gulf
of Mexico are expected to contribute approximately 50% of the Company's revenue.
In November 1996, the Company completed the acquisition of HSI, which
manufactures, markets and operates a one-atmosphere diving suit known as the
"NEWTSUIT(TM)." The NEWTSUIT(TM) is a diving suit with patented technology that
allows the diver to work at normal atmospheric pressure (one-atmosphere) and
requires no decompression. The Company believes that the NEWTSUIT(TM) provides a
lower cost alternative to current manned diving techniques.
SUBSEA AND OTHER SERVICES
The Company provides subsea services to support all phases of offshore oil
and gas activities, including drilling, production, abandonment, and salvage.
These services include construction, installation, maintenance, repair,
inspection and support of drilling operations; development of offshore pipelines
and production platforms; and ongoing production activities. Subsea services are
provided to a diverse group of customers, including major and independent oil
and gas exploration and production companies, offshore engineering and
construction companies, and major pipeline transmission companies. The Company's
offshore operations are currently performed through manned surface and
saturation diving activities at depths up to 1,000 feet. With the acquisition of
HSI, the Company intends to use the NEWTSUIT(TM) as a cost-effective alternative
for operations at depths up to 1,200 feet.
On November 30, 1996, the Company employed approximately 400 divers,
tenders, and diving supervisors, supported by the Company's fleet of 20 DSVs,
ranging in length from 65 to 210 feet, and a 150-foot jack-up derrick barge with
a 220-ton Manitowoc crane. The Company owns and operates seven ROVs, five of
which are observation ROVs, which support its diving activities, and two are
work ROVs outfitted with manipulators to perform tasks in depths up to 3,000
feet. The Company owns seven NEWTSUITs(TM), which are currently located in
Australia, the North Sea, the Gulf of Mexico, and Canada. The Company's offshore
diving operations are coordinated through regional staging facilities in the
Port of Iberia and Harvey, Louisiana; Houston, Texas; Oxnard, California; Dubai,
United Arab Emirates; and Port Harcourt, Nigeria.
The Company provides a variety of specialized inland diving services to
industrial and governmental customers. These services include the maintenance,
repair, and inspection of bridges, docks, piers, pipelines, and other inland
underwater structures and the inspection and maintenance of hydroelectric and
nuclear power plants. The Company also pursues primarily small to medium-sized
general construction projects requiring its underwater capabilities. Inland
operations are coordinated through regional staging facilities in Houston,
Texas; Kansas City, Kansas; and Columbus, Ohio.
The Company also provides environmental remediation and emergency oil spill
response services to customers operating in both inland and offshore markets.
The Company's services include oil and chemical
25
<PAGE> 29
spill containment and removal, remediation of naturally occurring radioactive
material, pit closure, bioremediation, asbestos abatement services, and confined
space entry activities.
The Company's operations are subject to weather-related seasonality as well
as cyclical demand based on the capital expenditures of oil and gas companies
for offshore production and exploration activities. See "Risk
Factors -- Cyclical Demand; Dependence on Energy Industry" and "--Effect of
Adverse Weather Conditions; Seasonality."
Traditional Diving Techniques. The Company conducts its diving operations
using the three traditional diving techniques: air diving, mixed gas diving and
saturation diving, all of which use a surface-supplied breathing media. With the
addition of the NEWTSUIT(TM) technology, the Company has an alternative method
of diving at depths up to 1,200 feet. See "Business -- Diving and Related
Services -- One-Atmosphere Diving."
The choice among the three traditional techniques is determined by diver
decompression requirements, which are in turn determined by the depth at which
the diver works and the time to be spent at that depth. Decompression is the
process by which the diver's depth (or the ambient pressure) is decreased over a
period of time long enough to prevent the gases absorbed by the diver's body
tissues from expanding into vapor and causing the "bends," a medical condition
that can result in injury or death. As dive depth and dive time increase, the
diver's body tissues absorb increasing amounts of ambient gases and require a
corresponding increase in decompression time. After a given time at a given
depth, the diver's body tissues reach the "saturation point" at which no
additional gases are absorbed. As a result, additional time spent at that depth
will not require additional decompression time when the diver ascends. As a
general rule, after the saturation point is reached, approximately one day of
decompression time is required for ascent from each 100 feet of water depth.
The air diving technique is employed in relatively shallow water projects
(up to approximately 160 feet) of short duration and does not require divers to
reach the saturation point. In air diving, which the Company uses to provide
many of its diving services, divers are linked to the surface by a diving
umbilical containing compressed air lines and communications equipment. The
diver enters the water directly, without the use of a diving bell, descends to
the work site, accomplishes project-related activities, and begins to decompress
in the water as he ascends to the surface. Decompression is conducted through
timed stops at intervals of ten feet and in a decompression chamber upon return
to the surface. The length of time a diver is required to remain at each
interval depends upon dive length and depth. At depths in excess of
approximately 220 feet the diver is required to enter a diving bell before
surfacing.
Mixed gas diving is used for projects of relatively short duration in water
depths between 160 and 300 feet. For this type of diving, divers breathe a
mixture of helium and oxygen, which reduces nitrogen narcosis, the harmful
effect of nitrogen when breathed at relatively high pressures for extended
periods. This type of diving also requires decompression as the diver ascends in
the water and the use of a surface decompression chamber. The decompression
times required for mixed gas diving generally exceed those required for air
diving.
For subsea projects in depths of 300 to 1,000 feet and for projects of
relatively long duration at depths below approximately 180 feet, the Company
typically conducts its operations by using saturation diving techniques from a
special pressurized chamber on the surface in which the divers live at a
pressure equivalent to the depth of the work site. Saturation diving is
generally considered the safest and most efficient form of the three traditional
diving techniques. The chamber in which the divers live is filled with a mixture
of helium and oxygen that saturates the divers' body tissues. Divers are
transported from the surface to the work site by a pressurized diving bell.
After working underwater for six to eight hours, divers are transported back to
the DSV by the diving bell, and return to the pressurized living chamber to be
replaced by a new group of divers who are lowered to the job site to continue
the underwater work. The Company currently operates five saturation diving
systems, each of which can accommodate four to six divers at a time. This allows
the Company to conduct diving operations 24 hours a day. During such a project,
the pressurized chamber functions as living quarters with food, showers,
sleeping accommodations and sanitary facilities. Saturation diving systems and
their associated life-support equipment are generally built into DSVs, but can
also be
26
<PAGE> 30
located on drilling rigs, production platforms, barges or other vessels or
structures. The primary advantage of saturation diving is that the divers can
remain under pressure and make repeated dives for extended periods (generally up
to a maximum of 30 days) before beginning decompression. This method reduces the
risks and delays associated with frequent decompression and enhances overall
productivity.
The headquarters and principal staging facilities of the Company's Gulf of
Mexico diving operations are at the Port of Iberia, Louisiana. A regional
staging facility is located in Harvey, Louisiana. Both the Port of Iberia and
Harvey offices are full-service, decentralized operations centers, strategically
located for the rapid deployment of personnel and equipment.
One-Atmosphere Diving. One-atmosphere diving, in which the diver is
maintained at normal surface atmospheric pressure, is an alternative to
saturation diving for jobs in depths up to 1,200 feet. In this method of diving,
the diver wears a proprietary diving suit developed by HSI known as the
"NEWTSUIT(TM)." The diver wearing a NEWTSUIT(TM) enters the water and returns to
the surface with the assistance of a NEWTSUIT(TM) launch and recovery diving
system but without the need of a pressurized diving bell. Atmospheric pressure
is maintained at all times in the NEWTSUIT(TM), thereby eliminating the diver's
need for any decompression. This permits the diver to make repeated dives at
atmospheric pressure without the delays and costs associated with frequent
decompression or saturation diving.
The Company does not expect to use the NEWTSUIT(TM) as a replacement for
traditional diving techniques, but believes that the suit will serve as an
additional diving tool in appropriate circumstances, particularly those in which
substantial decompression time is required. When using the NEWTSUIT(TM) the
diver performs tasks not by the direct use of his own hands but by means of
manipulators outfitted with specialized tools. Consequently, the time spent by
the diver in actually performing certain tasks in a NEWTSUIT(TM) may be
substantially longer than the time required for the same tasks using other
diving techniques. The Company believes, however, that in certain applications
the overall time and costs required to complete a project may be decreased
because of the elimination of decompression time. In such a case, overall time
and cost savings would result from the elimination of decompression time. The
Company believes that refinement of the tools used with the NEWTSUIT(R) will
increase the efficiency of one-atmosphere diving and broaden its application.
27
<PAGE> 31
Vessels. The Company's offshore diving activities are performed from the
Company's 20 DSVs, as well as from structures and vessels owned by others. The
DSVs are offshore utility and supply vessels that have been converted and
equipped to support diving operations for offshore construction, inspection,
maintenance, and repair work. All of the Company's vessels are United
States-flagged vessels except for the "American Eagle" (Honduran-flagged), the
"American Constitution" and the "American Pioneer" (Panamanian-flagged). The
following table describes the Company's DSVs, all of which are owned by wholly
owned subsidiaries of the Company:
<TABLE>
<CAPTION>
VESSEL
LENGTH YEAR
VESSEL VESSEL TYPE HOME PORT (FEET) ACQUIRED
- ---------------------- --------------------------------- ----------------------- ------ --------
<S> <C> <C> <C> <C>
American Constitution Four-point anchor Port of Iberia, La. 210 1996
system/saturation diving/moonpool
American Pioneer Dynamically positioned/ROV and Port of Iberia, La. 200 1996
NEWTSUITTM support
American Recovery Tug/diving support Oxnard, Ca. 150 1996
American Pride Four-point anchor system Port Harcourt, Nigeria 185 1990
American Victory Four-point anchor system Port of Iberia, La. 166 1993
American Star Four-point anchor Port of Iberia, La. 165 1989
system/saturation diving
American Patriot Four-point anchor system/40-ton Oxnard, Ca. 165 1994
crane
American Triumph Four-point anchor system Port of Iberia, La. 165 1996
American Independence Four-point anchor system Port of Iberia, La. 165 1996
American Eagle Four-point anchor system Port Harcourt, Nigeria 150 1986
American Spirit Four-point anchor system Port of Iberia, La. 130 1994
American Liberty Four-point anchor system Fourchon, La. 125 1990
American Diver Diving support Port of Iberia, La. 110 1983
Pipeline Surveyor Diving support Fourchon, La. 110 1985
American Scout Diving support Port of Iberia, La. 110 1996
Pipeline Inspector Diving support Port of Iberia, La. 105 1985
Pipeline Diver Diving support Port of Iberia, La. 105 1985
Pipeline Observer Diving support Fourchon, La. 95 1990
American Progress Crewboat/survey support Oxnard, Ca. 65 1994
American Endeavor Utility tug/ROV support Oxnard, Ca. 65 1994
</TABLE>
In addition to the DSVs listed above, the Company operates a 150-foot
jack-up derrick barge, the "American Intrepid," which it time-chartered in 1995.
The Company owns a 220-ton Manitowoc crane that is installed on the American
Intrepid.
The Company manages its vessel fleet so as to maintain a competitive
presence in each of its targeted market areas and to pursue project
opportunities as they arise in each area. The Company frequently evaluates the
need to reposition vessels and from time to time does so. For example, in August
1995 the Company repositioned the American Pride from its Dubai, United Arab
Emirates operations base to its Port Harcourt, Nigeria base to pursue chartering
opportunities in West Africa in fiscal 1996 and in November 1996 the Company
repositioned the American Eagle from its Port of Iberia, Louisiana base to its
Port Harcourt, Nigeria base. The average age of the Company's vessels is
approximately 27 years.
The Company's vessel fleet is maintained, as required by law and by its
insurers, in accordance with governmental regulations and classification
standards of either or both the American Bureau of Shipping and the U.S. Coast
Guard or, with respect to its foreign-flagged vessels, the regulations of the
respective foreign governments. The Company's United States-flagged vessels are
subject to annual inspections and to drydocking in which compliance with
applicable regulations and standards is monitored, after which any necessary
modifications or repairs are made. In addition to complying with these
regulations and standards,
28
<PAGE> 32
the Company performs supplemental repairs and maintenance on its vessels as part
of a regular preventive maintenance schedule and on an as-needed basis.
The vessels are also equipped with various winches, cranes and other
support equipment. Several of the Company's DSVs are equipped with a four-point
anchor system that maintains the ship in proper position. The dynamic
positioning system of the "American Pioneer" can, through thrusters coordinated
by the vessel's onboard computer system, maintain the vessel on station for an
extended period of time without the use of anchors.
ROVs. The Company's ROVs are submersible, unmanned, remotely controlled
vehicles that are powered and operated from a surface platform (a DSV, barge or
other platform) by a crew of trained pilots through an umbilical containing
electric power and communications cables. At November 30, 1996, the Company
owned and operated five observation ROVs, which are equipped with subsea lights,
sonar, video cameras and other equipment that transmit subsea video and other
information to their surface operators to support the work of the Company's
divers. Also at November 30, 1996, the Company operated two work ROVs, which are
equipped with lights and video equipment as well as manipulators, which permit
them to perform tasks in water depths up to 3,000 feet.
Diving Support Services. In connection with its diving operations, the
Company provides support services that minimize dependence on third-party
subcontractors and maximize safety and use of the Company's vessels, equipment,
personnel and organizational structure. The Company operates a small fleet of
leased crew cabs and vans that transport its dive crews and small equipment
items from its facilities to the Company's DSVs. This capability minimizes the
Company's reliance on third-party truck fleets, permits project scheduling
efficiency, enhances reliability and quality control, and significantly reduces
its costs. For medium to large equipment hauls, the Company generally uses
thirdparty truck fleets, which for these purposes are capable of providing
reliable, quality service at greatly reduced costs. As part of the Company's DSV
operations, the Company also provides full-service catering services to the
vessel and dive crews, which minimize dependence on third-party caterers and
permit the Company to further control costs. The Company's diving support
services distinguish the Company from its competitors and are consistent with
the Company's business strategy.
International Services. In July 1992, the Company established
administrative offices in Lagos, Nigeria and an operations office and shop in
Port Harcourt, Nigeria to provide diving services to oil and gas companies
operating in Nigeria and other West African locations. The Company has expanded
its activities in West and South Africa and to seek further international
expansion of its diving services in Latin America, the Middle East, and
Southeast Asia. In March, 1995, the Company acquired certain diving and related
assets located in Dubai, United Arab Emirates, and established an operational
and sales office in Dubai to provide diving services to oil and gas companies
operating in the Middle East. The Company currently maintains two DSVs in Port
Harcourt.
Inland and West Coast Services. The Company's inland United States diving
operations have historically provided a variety of specialized domestic diving
services, including pipeline repair, pipeline lowering and anchoring, underwater
drilling, underwater welding, burning and sawing, bridge inspection, dock and
pier inspection and repair, and installation and repair of water intake and
outflow structures. The Company also performs underwater construction,
maintenance, repair and inspection of hydroelectric and nuclear plants. The
Company's inland operations are conducted in lakes and rivers and along coast
lines. The operations bases of the Company's inland operations are located in
Houston, Texas; Kansas City, Kansas; and Columbus, Ohio. Recently, the Company
has changed the focus of its inland operations to larger marine construction
projects, in which the Company functions as prime contractor. To reduce the
effect of seasonality, the Company expects to focus primarily on projects in
warm-weather states that are less likely to be adversely affected by winter
weather.
Environmental Remediation and Oil Spill Response Operations. The Company is
an environmental contractor serving customers operating in both inland and
offshore markets and specializes in emergency oil spill response and hazardous
waste remediation activities. The Company's areas of expertise include
29
<PAGE> 33
bioremediation, oil and chemical spill containment and removal, remediation of
naturally occurring radioactive material (NORM), pit closure, asbestos abatement
services, and confined space entry activities.
SUBSEA PRODUCTS
One-Atmosphere Diving Suits. The NEWTSUIT(TM) is an articulated metal suit
with patented joints that allow the diver a relatively wide range of motion and
to work at surface atmospheric pressure (one atmosphere). The NEWTSUIT(TM) and
other products and related services are manufactured and developed by HSI in
North Vancouver, British Columbia, Canada. The current NEWTSUIT(TM) is capable
of operations to water depths up to 1,200 feet. The Company intends to market
the NEWTSUIT(TM) to the United States Navy and to the navies of other countries.
HSI has developed a suit capable of operation at depths up to 2,000 feet and is
working with the United States Navy to produce a prototype. The Company is also
considering the feasibility of a one-atmosphere diving suit for deployment in
shallower waters using HSI technology.
Submarine Rescue System. HSI also manufactures a submarine rescue vehicle
known as the "Remora(R)," a submersible decompression chamber that has an
articulated skirt to permit docking with a disabled submarine at angles of up to
60 degrees. The Remora(R) is capable of recovering, and subsequently
transferring under pressure, up to nine persons at a time from a disabled
submarine. One fully operational Remora(R) has been sold to the Royal Australian
Navy, and the Company is currently marketing the Remora(R) to the navies of
other nations.
Pipeline Connector Products. The "Big Inch" product line manufactured by
the Company includes Flexiforge(R) end connectors, Ball Flange(R) connectors and
Load Limiting(TM) connectors used in pipeline tie-ins, flow line tie-ins,
emergency repairs to pipelines, flow lines and risers and to retrofit mainline
lateral tie-ins. The Company offers a standard product line and also offers
modifications of its connectors for specialized applications. In the last two
years, the Company has diversified into land-based pipeline components with a
product line of electrical isolation joints known as Big Inch Insulating
Flanges(TM), which are used to isolate segments of pipelines from corrosion. The
Company has also developed the InnerLOCK(TM) Cutter system, a mechanical cutter
that removes stubs (abandoned in-place drillpipe) without the use of explosives,
by cutting them from inside the pipe and the BIMS-Tap(TM) Tee, a mechanical
subsea "hot tap" device that permits the joining of two subsea pipelines without
requiring the pipelines to be brought to the surface and without interrupting
the flow in the pipelines. The Company believes that the Big Inch products
permit pipeline construction, repair and removal to be performed faster and more
efficiently than conventional systems.
Components of Big Inch connectors are forged and machined to Big Inch
specifications by various unaffiliated contractors in the United States and the
United Kingdom. At its Houston plant, the Company assembles these components,
and the assembled products are shipped to customers or used by the Company in
its own diving operations. Assembly, quality control and warehousing of Big Inch
products are conducted at offices in Houston, Texas and Aberdeen, Scotland.
Although Big Inch sales are made primarily to users in the Gulf of Mexico and
the North Sea, Big Inch products are marketed and sold worldwide through both
its Aberdeen and Houston offices.
Marginal Well Production System. The Tarpon System consists of underwater
anchor piles and a cable guying assembly that supports a site-specific well
protector caisson, boat landing, platform and related production equipment.
Tarpon Systems are best suited for marginal well production in water depths from
80 to 300 feet and for the production of larger fields using a satellite system
of multiple Tarpon System structures tied into a central production facility.
The Company believes that Tarpon Systems are a cost-effective alternative to
traditional, fixed multi-leg platforms or other minimal systems because of their
relatively low construction costs and ability for rapid installation, allowing
oil and gas producers to recognize early cash flows from production. The Company
has at least seven competitors in this market, comprised primarily of
engineering firms. The Company is actively seeking opportunities for the Tarpon
System both in the United States and select international areas including West
Africa, the Middle East, India and Southeast Asia.
30
<PAGE> 34
Concrete Storage Barges. The Company manufactures concrete storage barges
that may be used as an alternative to steel tankers for offloading and storage
of up to 350,000 barrels of oil either on the surface or in water depths up to
approximately 350 feet. Concrete floating or subsea barges can be used with a
Tarpon System for storage of oil produced from marginal fields that do not have
existing pipeline infrastructure. The Company also intends to offer the concrete
storage barges to others on a stand-alone basis.
MARKETING
The Company's marketing efforts with respect to its diving services are
primarily concentrated in the Gulf Coast and West Coast of the United States, in
West Africa and in the Middle East. The Company maintains a focused marketing
effort through a direct sales force consisting of approximately 20 full-time
sales personnel operating from Lafayette, Houma, and Harvey, Louisiana; Houston,
Texas; Oxnard, California; Kansas City, Kansas; and Columbus, Ohio. The Company
also has sales offices located in Lagos, Nigeria and Dubai, United Arab
Emirates. The Company's senior management participates in the Company's
marketing efforts. The Company's diving services are often marketed in
conjunction with Big Inch and Tarpon System products and the Company's other
service and product lines.
SAFETY AND QUALITY ASSURANCE
The Company maintains a stringent safety and quality assurance program that
encompasses all areas of its operations and relies substantially on employee
experience and involvement. An offshore safety officer is assigned to every
diving project regardless of size. In connection with its safety program, the
Company maintains a rigorous in-house diver training program. The Company's
training program requires each new diver (who must be a graduate of a certified
diving school) to spend at least two years as a diving tender, maintaining
equipment and providing other top-side support to more experienced divers and,
in the process, learning how to complete diving assignments safely and
efficiently, and approximately two years as a junior diver on a large crew,
gaining more experience from the Company's senior divers. The Company stresses
diver safety and training throughout the diver's tenure with the Company. The
Company believes that its safety program and commitment to quality have given it
a competitive advantage in attracting and retaining customers and divers. The
accomplishments of the Company's safety program were recognized by the National
Oceans Industries Association, which awarded its Safety in Seas Award jointly to
the Company and the Gulf of Mexico business unit of Chevron USA, Inc. in 1996.
CUSTOMERS AND COMPETITION
The Company's offshore customers include a broad base of major and
independent oil and gas companies, offshore engineering and construction
companies and major pipeline transmission firms. The Company provided diving and
related services to approximately 300 customers in the fiscal year ended October
31, 1995. The Company's ten largest customers accounted for 39% and 46% of the
Company's total revenues during the fiscal years ended October 31, 1994 and
1995, respectively. During fiscal 1994 and fiscal 1995, Chevron USA, Inc. and
United Meridian Corporation accounted for 14% and 10%, respectively, of the
Company's total revenues. In 1995 the Company entered into an alliance agreement
with Chevron USA's Gulf of Mexico business unit under which the Company is a
preferred provider of services and has received a significant portion of the
Chevron unit's undersea work at prevailing rates.
The level of activity that the Company may perform for a single offshore
customer depends on, among other things, the amount of the customer's capital
expenditure budget devoted to diving projects in any single year. This amount
may vary substantially from year to year. As a result, customers that account
for a significant portion of revenues in one fiscal year may represent an
immaterial portion of revenues in other years.
The available market for diving services is essentially divided between the
call-out (or day rate) market and the turnkey (fixed price) market. Contracts
are obtained either through direct negotiation with the customer or pursuant to
bidding procedures established by the offshore customer. The Company typically
31
<PAGE> 35
enters into "master service agreements" or similar arrangements with most of its
offshore customers, that expedite providing call-out diving services for those
customers and enhance the Company's customer relationships. These contracts
establish daily rates and terms (such as insurance requirements) for services
that the customer may need in the future or on an emergency basis. Master
service agreements may be long-term, may be reviewed and renewed each year, or
may be of whatever duration the parties stipulate.
In past years the Company derived approximately 80% to 90% of its revenues
from the call-out market and approximately 10% to 20% of its revenues from the
turnkey market. More recently, however, the percentage of turnkey revenues
derived by the Company has increased from 14% in fiscal 1993 to 23% in fiscal
1994 to 30% in fiscal 1995. The Company expects this trend to continue as its
customers attempt to use fixed price contracts as a method of reducing their
costs and risks and to predetermine their costs for budgetary purposes. The
Company attempts to minimize the financial risks associated with fixed-price
contracts by stipulating certain conditions to its performance that, if not met
by the customer, result in increased charges. The Company may not, however, be
able to anticipate all such risks and, especially in a very competitive market,
the Company may not be able to obtain such protective terms. See "Risk
Factors -- Competition."
The Company's inland customers include utility companies, railroad
companies, state and federal governmental agencies (such as the U.S. Army Corps
of Engineers and the U.S. Bureau of Reclamation) and political subdivisions such
as city and county governments. Inland diving and related services contracts are
generally obtained pursuant to formal bidding procedures established by the
inland customer. Competition in the inland market is based largely on price,
although type of equipment available, location of or ability to deploy such
equipment and quality of service are other factors considered by the customer.
Because diving services contracts in the call-out market are generally bid
upon and entered into one to two weeks prior to the planned commencement of the
projects, the Company in the past has had no significant call-out diving
services backlog. However, as a result of recent increases in turnkey projects
and the increased activities of Inland and West Coast Services (in which turnkey
projects are more common), at November 30, 1996 the Company's backlog of
projects to be performed in 1997 was approximately $13.0 million, of which $6.5
million was attributable to the Port of Brownsville project.
The offshore diving industry is highly competitive and is influenced by
events largely beyond the control of the Company. At various times since 1986,
many oil and gas companies significantly decreased their expenditures for
development projects in the Gulf of Mexico in response to substantial declines
in oil and gas prices. Also during that period, a number of smaller diving firms
have been acquired or have ceased operations entirely. In addition, some of the
Company's major competitors have reorganized and redirected their efforts to
different or more specialized markets. While more than 50 independent diving
companies operated in the Gulf of Mexico in 1980, fewer than ten currently
operate on an on-going basis in the Gulf of Mexico. In addition, three offshore
construction companies operating in the Gulf of Mexico own diving subsidiaries
or divisions that provide substantially all of the diving services required by
their respective parent companies. The Company has three principal competitors
in its Gulf of Mexico market, Oceaneering International, Inc., Global
Industries, Ltd. and Cal Dive International, Inc. The remaining smaller diving
companies in the Gulf of Mexico also compete with the Company for diving
projects that require less sophisticated equipment or diving techniques.
Although the Company occasionally provides diving services to offshore
construction companies with in-house diving operations, the Company does not
expect to derive substantial revenues from such services. Moreover, such
in-house diving operations also provide diving services to unaffiliated third
parties and compete with the Company and other diving companies in the Gulf of
Mexico on a limited basis.
The Company has two major competitors with well developed international
sales capabilities (Hydro Tech, Inc. and Oceaneering International, Inc.) that
manufacture product lines of connectors used in the repair and construction of
underwater pipelines. Both of these manufacture connectors using elastimer seal
technology as opposed to the patented Big Inch metal-to-metal seal technology.
Several smaller companies also compete in the connector market, one of which
offers metal-to-metal seal technology. Despite the generally higher price of Big
Inch products, management believes that the Company competes effectively on the
basis of the installation, responsiveness and quality advantages associated with
its metal-to-metal seal technology.
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<PAGE> 36
Competition for underwater services historically has been based upon the
type of underwater equipment available, location of or ability to deploy such
equipment, quality of service and price. In recent years, price has been the
most important factor in obtaining contracts, although the abilities to develop
improved equipment and techniques and to attract and retain skilled personnel
are also important competitive factors. The Company believes, however, that the
awarding of contracts on the basis of pre-existing relationships between the
customer and supplier, combined with the reliability and quality of the
supplier's services, is a trend that has benefited the Company. An example of
this is the Company's relationship with Chevron USA's Gulf of Mexico business
unit, which has resulted in the Company's obtaining one of only two such
alliances currently existing between a diving contractor and a major oil company
in the Gulf of Mexico market. The Company competes in all of its service and
product lines with both large and small companies, and certain of these
companies are larger and have greater financial and other resources than the
Company. Should the Company's competitors develop and market products or
services that are technologically superior to any products manufactured or
services rendered by the Company, the Company's ability to market its products
and services would be significantly impaired. See "Risk Factors -- Competition."
FACILITIES AND EQUIPMENT
Facilities. The Company typically leases office facilities to house its
administrative staff (other than the Lafayette corporate headquarters building
and the Port of Iberia operations base, which it owns), shops equipped for
fabrication, testing, repair and maintenance activities, warehouses and yard
areas for storage and mobilization of equipment enroute to work sites, and dock
facilities for the Company's DSVs. The Company has facilities in California,
Kansas, Louisiana, Ohio, Texas, Canada, Nigeria, and the United Arab Emirates.
The Company also owns a facility in Houma, Louisiana that is currently held for
sale and not used as an operations base. The following table describes the
Company's primary facilities:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET PRIMARY USE(S)
---------------------------------- ----------- ----------------------------------------
<S> <C> <C>
Lafayette, Louisiana.............. 24,000 Corporate headquarters
Lafayette, Louisiana.............. 6,000 Tarpon Systems/jack-up barge operations
Port of Iberia, Louisiana......... 29,000(1) Gulf of Mexico diving operations
Harvey, Louisiana................. 31,000(2) Gulf of Mexico diving operations
Houston, Texas.................... 27,240(3) Big Inch/Inland headquarters
Oxnard, California................ 23,000(4) West Coast diving operations
Kansas City, Kansas............... 9,000(5) Inland diving operations
Columbus, Ohio.................... 8,600(6) Inland diving operations
Dubai, UAE........................ 11,500(7) International diving operations
Port Harcourt, Nigeria............ 29,500(8) International diving operations
Vancouver, Canada................. 4,970(9) HSI headquarters/shop space
</TABLE>
- ---------------
(1) Includes approximately 23 acres of yard space, 1,800 feet of waterfront
access, 6,000 square feet of office space and 23,000 square feet of
shop/warehouse space.
(2) The Company relocated its Belle Chasse diving operations base to Harvey,
Louisiana in March, 1995. The Harvey facility includes approximately 4,000
square feet of office space and 27,000 square feet of shop/warehouse space.
(3) Includes approximately 8,500 square feet of office space, 18,740 square feet
of shop/warehouse space and 83,160 square feet of yard space and parking.
(4) Includes approximately 10,000 square feet of office space and 13,000 square
feet of shop/warehouse space.
(5) Includes approximately 2,700 square feet of office space, 6,300 square feet
of shop/warehouse space and approximately one acre of yard space.
(6) Includes approximately 3,000 square feet of office space, 5,600 square feet
of shop/warehouse space and two acres of yard space.
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<PAGE> 37
(7) Includes approximately 3,000 square feet of office space and 8,500 square
feet of shop/warehouse space.
(8) Includes approximately 3,500 square feet of office space, 10,000 square feet
of shop/warehouse space and 16,000 square feet of yard space.
(9) Includes approximately 2,970 square feet of office space and 2,000 square
feet of shop/warehouse space.
Equipment. The Company owns an extensive inventory of diving equipment,
including six saturation diving systems (five of which are operational), seven
NEWTSUITs(TM) (one of which is used for training and demonstration only),
compressors, decompression chambers, high pressure water blasters, jet pumps,
hydraulic power tools, welding machines, tuggers, underwater video systems,
Ultrascan(TM) recordable non-destructive testing systems, and TH-1000 x-ray
systems. The Company performs routine maintenance on all of its equipment and
generates timely status reports to track use and availability of the Company's
equipment.
PATENTS
The Company owns certain technology (including patents) with respect to its
Big Inch pipeline connector products line, the pressurized rotary joints used in
the NEWTSUIT(TM), certain underwater Ultrascan(R) radiography systems, its Sonar
ScourVision(R) system, and the Tarpon System. See "-- Subsea
Products--One-Atmosphere Diving Suits," "-- Pipeline Connector Products," and
"-- Marginal Well Production Systems." The Company believes that its customer
relationships and reputation, together with its technical expertise,
responsiveness to customers and full-service capabilities, are of greater
competitive significance to the Company than its technology. While the Company's
business is not dependent on any one of its patents, the loss of patent
protection for the Company's entire Big Inch product line could have a material
adverse effect on the Company's competitive position. The Company's Big Inch
patents generally are scheduled to expire from 1999 to 2003. Although the patent
for Flexiforge(R) has expired, due to the high start-up costs of this system,
management does not believe that the loss of the exclusive use of this patent
will have a material adverse effect on the Company's competitive position. The
patents covering the NEWTSUIT(TM) joints will expire in the years 2004 through
2009 and have an average remaining term of approximately nine years.
GOVERNMENT REGULATION
Many aspects of the Company's operations are subject to governmental
regulation, including regulation by the U.S. Coast Guard and the Occupational
Safety and Health Administration, as well as by private industry organizations
such as the American Bureau of Shipping and the Association of Diving
Contractors. The Coast Guard sets certain safety standards and is authorized to
investigate vessel accidents and recommend improved safety standards relating to
vessels and offshore diving. The Occupational Safety and Health Administration
performs similar functions with respect to the Company's onshore facilities and
operations. Virtually all employees engaged in the Company's offshore diving
operations are covered by provisions of the Jones Act, the Death on the High
Seas Act and general maritime law, which operate to exempt these employees from
the limits of liability established under worker's compensation laws and instead
permit them or their representative to maintain an action against the Company
for damages for a job related injury, with no limitations on the Company's
potential liability. Certain of the Company's employees may also be covered by
the Longshoremen and Harbor Worker's Act, which permits such employees to seek
compensation for a job related injury under that act. As a result of the
Company's expansion into Nigeria, the Middle East and other foreign
jurisdictions, the Company is also subject to regulation by other governments.
The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its operations. The kinds of permits, licenses and certificates required in the
Company's operations depend upon a number of factors. The Company believes that
it has obtained or can obtain all permits, licenses and certificates that are
necessary to the conduct of its business.
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 laws
and regulations, as well as changing taxes and governmental policies, relating
to the oil and gas industry generally. In particular, the exploration and
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<PAGE> 38
development of oil and gas properties located on the Outer Continental Shelf of
the United States is regulated primarily by the Minerals Management Service.
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. In addition, the
Company's environmental services operations are subject to regulation by various
local, state and federal agencies including the Louisiana Department of
Environmental Quality and U.S. Environmental Protection Agency, among others.
The Company is not aware of any non-compliance 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 to comply
with, and some environmental laws provide for liability for damages to natural
resources (including damage to fish and wildlife) or threats to public health
and safety. Certain environmental laws provide for "strict liability" for
remediation of spills and releases of hazardous substances into the environment
even after such substances have been transferred to a disposal contractor.
Sanctions for non-compliance 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 vessel collisions with rigs, tankers
or pipelines, (ii) environmental harm caused by defective Company-manufactured
products, improper installation of products manufactured by others or the
improper handling of hazardous materials, (iii) the conduct of or conditions
caused by others, or (iv) acts of the Company that are in compliance with all
applicable laws at the time such acts were performed. It is possible that
changes in the environmental laws and enforcement policies thereunder, or claims
for damages to persons, property, natural resources or the environment could
result in substantial costs and liabilities to the Company. The Company's
insurance policies provide liability coverage for sudden and accidental
occurrences of pollution, clean-up and containment of the foregoing in amounts
that the Company believes are comparable to policy limits carried in the
offshore diving industry.
The Company's vessel operations in the Gulf of Mexico are considered to be
engaged in "coastwise trade" under federal maritime law and are, therefore,
subject to special regulation by federal government agencies. Under these laws
and regulations, only vessels owned by United States citizens that are built in
and documented under the laws of the United States may engage in "coastwise
trade." Certain provisions of the Company's Articles of Incorporation are
intended to aid in compliance with the foregoing requirements regarding
ownership by persons other than United States citizens. See "Description of
Capital Stock -- Foreign Ownership."
LEGAL PROCEEDINGS
A large oil and gas company has instituted litigation against subsidiaries
of the Company in Edinburgh, Scotland seeking damages of approximately U.S. $3.0
million, plus interest and costs, on the basis of allegations that a product
supplied by the subsidiaries exhibited design faults upon installation in a
North Sea pipeline. Prior to installation the product was hydrostatically tested
onshore and during the test it did not leak or otherwise malfunction. After
installation but before oil or gas flowed through the pipeline under pressure
the product was removed and replaced by the customer against the recommendations
of the Company's subsidiaries. The product did not leak and no environmental
damage is alleged. The Company believes that the product was fully suitable for
service and intends to defend the claim vigorously, although no assurance can be
given as to the ultimate outcome of the litigation.
The Company and certain of its subsidiaries are also parties to various
routine legal proceedings primarily involving claims for personal injury under
the General Maritime Laws of the United States and the Jones Act as a result of
alleged negligence or alleged "unseaworthiness" of the Company's vessels. While
the outcome of these lawsuits cannot be predicted with certainty, the Company
believes that its insurance coverage with respect to such claims is adequate and
that the outcome of all such proceedings, even if determined adversely, would
not have a material adverse effect on its business or financial condition or
results of operations.
35
<PAGE> 39
INSURANCE
The Company's operations are subject to the inherent risks of offshore and
inland marine activity including accidents resulting in personal injury, the
loss of life or property, environmental mishaps, mechanical failures and
collisions. The Company's diving and vessel operations involve numerous hazards
to divers, vessel crew members and equipment, and can result in greater
incidence of employee injury and death and equipment loss and damage than occurs
in many other service industries. The Company's ownership and operation of
vessels gives rise to large and varied liability risks, severe risks of
collisions with other vessels or structures, sinkings, fires and other marine
casualties, which can result in significant claims for damages against both the
Company and third parties for, among other things, personal injury, death,
property damage, pollution and loss of business. The Company's manufacturing
operations involve significant risks, particularly product liability and
warranty claims. Company-manufactured products installed in the past, as well as
those installed in the future, could give rise to such claims.
The Company maintains insurance that it believes is in accordance with
general and industry standards against normal risks of its operations. The
Company also carries workers' compensation, maritime employer's liability,
general liability, product liability and other insurance customary in its
business. All insurance is carried at levels of coverage and deductibles that
the Company considers financially prudent, although there can be no guarantee
that the amount of insurance carried by the Company is sufficient to protect it
fully in all events. Liabilities to customers and third parties for damages
caused by claimed defects in products manufactured by the Company may be
significant and are not insured to the extent that they are in the nature of
warranty claims or consequential damages. A successful liability claim for which
the Company is underinsured or uninsured could have a material adverse effect on
the Company. Moreover, no assurance can be given that the Company will be able
to maintain adequate insurance in the future at rates that it considers
reasonable or that all types of coverage will be available.
EMPLOYEES
The size of the Company's work force, other than its clerical and
administrative personnel, is variable and depends upon the Company's workload at
any particular time. Diving personnel are paid only for actual days worked, but
are available on a year-round basis and are entitled to participate in all of
the Company's employee benefit programs. At December 9, 1996, the Company had
approximately 182 divers, 141 tenders, 43 diving supervisors, 327 vessel
crewmen, barge crewmen and operations support personnel, and 207 clerical and
administrative personnel. Of these persons, 760 are hourly employees (divers are
paid on an hourly basis) and 140 are salaried employees. The Company believes
that its relationship with its employees is satisfactory. See "Risk
Factors -- Availability of Divers."
36
<PAGE> 40
MANAGEMENT
The following table sets forth certain information as of the date of this
Prospectus with respect to the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------
<S> <C> <C>
George C. Yax................. 55 Director and Chairman of the Board
Rodney W. Stanley............. 52 Director, President and Chief Executive Officer
Director, Executive Vice President and Chief
Prentiss A. Freeman........... 48 Operating Officer
Stephen A. Lasher............. 48 Director
William C. O'Malley........... 59 Director
Vice President-Finance and Chief Financial
Cathy M. Green................ 31 Officer
Quinn J. Hebert............... 33 Corporate Counsel and Secretary
Robert B. Suggs............... 49 Vice President/General Manager-Offshore Division
</TABLE>
The following biographies describe the business experience of the directors
and executive officers of the Company:
George C. Yax co-founded the Company in 1981 and has served as Chairman of
the Board since its inception. Mr. Yax served as President and Chief Executive
Officer from the Company's inception until December 1996. Mr. Yax has over 28
years of experience in the subsea services industry. Mr. Yax is a director of
the National Oceans Industries Association and has also served in various
officer capacities for the Association of Diving Contractors. Mr. Yax holds a
BBA degree and an MBA degree from Sam Houston University.
Rodney W. Stanley joined the Company on August 1, 1996 as a Director and
Senior Vice President-International Operations and became President and Chief
Executive Officer of the Company in December 1996. Mr. Stanley has over 33 years
of experience in the subsea services industries. From 1995 to May 1996, he
served as President and Chief Executive Officer of Hard Suits Inc., which was
acquired by the Company in 1996. From 1986 to 1995, Mr. Stanley was President
and Chief Executive Officer of Sonsub, Inc., a leading provider of specialist
subsea engineering and heavy work class ROV services, which he founded in 1986.
From 1969 to 1984, he held various management positions at Divcon, Inc. and its
successor, Oceaneering International, Inc.
Prentiss A. Freeman joined the Company in 1986 as Vice President and
General Manager of the Company's New Orleans office. He became Executive Vice
President and General Manager of the Company in 1987 and has served as the
Company's Executive Vice President and Chief Operating Officer since 1988. From
1983 to 1986, he served as President and Chief Operating Officer of Sonat Subsea
Services (Americas), Inc., which was acquired by the Company in 1986. Mr.
Freeman has over 28 years of experience in the subsea services industry,
including six years as a diver.
Stephen A. Lasher was elected a director of the Company in 1993 and is
co-founder and President of The Gulf Star Group, Inc., a provider of financial
advisory services. Mr. Lasher has served as President of The GulfStar Group,
Inc. since 1990. Prior to 1990, Mr. Lasher served in various capacities with
Rotan, Mosle Financial Corporation, an investment banking firm, including as
Executive Vice President, head of corporate finance. Mr. Lasher is also a
director of Weingarten Realty Investors and Weingarten Properties, public real
estate investment trusts, which directorships he has held since 1984.
William C. O'Malley was elected a director of the Company in 1993 and is
Chairman of the Board, President, and Chief Executive Officer of Tidewater Inc.,
a publicly held provider of offshore marine and gas compression services, a
position he has held since September 1994. Prior to that time, he had been
Chairman of the Board of Directors of Sonat Offshore Drilling, Inc. ("Sonat
Offshore"), a publicly held offshore oil and gas contract drilling company,
since April 1987, and Chief Executive Officer of Sonat Offshore since
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<PAGE> 41
May 1990. From 1987 until May 1993, Mr. O'Malley served as a director and
Executive Vice President of Sonat, Inc., a holding company of various
energy-related subsidiaries and principal stockholder of Sonat Offshore. Mr.
O'Malley is also a director of Hibernia Corporation, a publicly held,
Louisiana-based bank holding company.
Cathy M. Green joined the Company in 1994 as Corporate Controller. She
became Vice President-Finance and Chief Financial Officer in January 1996. Ms.
Green has over eight years of experience in the accounting profession. From 1988
to 1994, she was employed by Price Waterhouse LLP, an independent public
accounting firm, and served as a manager at such firm from 1992 to 1994. Ms.
Green holds a BS degree from the University of New Orleans. She is a Certified
Public Accountant.
Quinn J. Hebert joined the Company in 1993 as Corporate Counsel and
Secretary. Mr. Hebert has over eight years of experience in the legal
profession. From 1988 to 1993, he was an associate with the law firm of Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans, Louisiana.
Mr. Hebert holds a BA degree from Louisiana State University and a JD degree
from Boston College. He is a member of the Louisiana Bar Association.
Robert B. Suggs joined the Company in 1985 as the Company's Vice
President-Operations. He became Vice President/General Manager-Offshore Division
in 1990. From 1981 to 1985, Mr. Suggs served as Vice President-Diving Services
for Sea Con, Inc. In 1975, Mr. Suggs co-founded Sea Dive, Inc., which was sold
to Sea Con, Inc. in 1981. He has over 25 years of experience in the diving
industry, including six years as a diver. He served in the United States Navy
aboard a nuclear submarine from 1966 to 1970.
The Company and Mr. Stanley entered into a five-year employment agreement
effective August 1, 1996. Pursuant to the provisions of such agreement, Mr.
Stanley's initial annual salary as President and Chief Executive Officer will be
in the range of $225,000 to $275,000, as determined by the Compensation
Committee of the Board of Directors. During each year of such agreement, Mr.
Stanley will be eligible for an annual bonus upon the attainment of certain
Company-wide performance goals. Pursuant to the terms of such agreement, Mr.
Stanley was granted options to purchase 375,000 shares of Common Stock on August
1, 1996 at an option exercise price of $8.75 per share. The grant of the option
to purchase 225,000 of these shares is subject to approval by the Company
stockholders at their 1997 annual meeting. Such options will become exercisable
in installments of 75,000 shares each year during the term of such agreement,
provided certain Company-wide performance goals are attained. If such
shareholder approval is not obtained, the Company will provide Mr. Stanley with
the economic equivalent of those options not approved.
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<PAGE> 42
SELLING STOCKHOLDERS
The following table sets forth for each of the Selling Stockholders such
person's beneficial ownership of the Company's Common Stock and as adjusted to
reflect the sale of the shares of Common Stock offered hereby (assuming no
exercise of the Underwriters' over-allotment option). To the Company's
knowledge, all shares shown as beneficially owned are held with sole voting and
dispositive power unless otherwise indicated. The information set forth below
has been determined in accordance with Rule 13d-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange
Act") on the basis of the most recent information furnished by the person
listed.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE SHARES TO OWNED
OFFERING BE SOLD AFTER THE OFFERING
------------------------ --------- ------------------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
- ------------------------------------ --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
George C. Yax(1).................... 1,561,731 22.9% 500,000 1,061,731 11.4%
Prentiss A. Freeman(1).............. 239,165(2) 3.5 26,000 213,165(2) 2.3
Gulf Coast Marine Divers Inc.(3).... 71,685 1.1 71,685 -- --
--------- ---- ------- --------- ----
Total..................... 1,872,581 27.5% 597,685 1,274,896 13.7%
========= ==== ======= ========= ====
</TABLE>
- ---------------
(1) See "Management" for a description of the position with and relationship to
the Company of Messrs. Yax and Freeman. Their address is c/o American
Oilfield Divers, Inc., 130 East Kaliste Saloom Road, Lafayette, Louisiana
70508.
(2) Includes exercisable options to purchase 16,665 shares of Common Stock
granted by the Company.
(3) The address of Gulf Coast Marine Divers Inc. is 1025 South Hospital Drive,
Abbeville, Louisiana 70510.
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<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description is qualified in its entirety by reference
to the Company's Articles of Incorporation and By-laws, which are filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
Articles of Incorporation were amended and restated by the Company's
stockholders effective as of June 21, 1993. The Company is authorized by its
Articles of Incorporation to issue an aggregate of 30 million shares of Common
Stock, no par value per share, and five million shares of Preferred Stock, no
par value per share (the "Preferred Stock"). Upon consummation of this Offering,
9,313,497 shares of Common Stock (9,778,497 shares if the Underwriters'
over-allotment option is exercised in full) and no shares of Preferred Stock
will be outstanding. Prior to this Offering, at September 30, 1996 there were
6,811,182 shares of Common Stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of stockholders. Such
holders do not have the right to cumulate their votes in the election of
directors. Holders of Common Stock have no redemption or conversion rights and
no preemptive or other rights to subscribe for securities of the Company. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably in all of the assets
remaining, if any, after satisfaction of all debts and liabilities of the
Company, and the preferential rights of any series of Preferred Stock, if any,
then outstanding. The outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be, upon payment therefor as contemplated
herein, validly issued, fully paid and nonassessable. See "-- Certain
Anti-takeover and Other Provisions of the Articles of Incorporation and
By-Laws."
Holders of Common Stock have an equal and ratable right to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor and only after payment of, or provision for, full
dividends (on a cumulative basis if applicable) on all outstanding shares of any
series of Preferred Stock and after the Company has made provisions for any
sinking or purchase funds for any series of Preferred Stock. The Company does
not intend to pay any cash dividends. See "Price Range of Common Stock and
Dividend Policy."
The Company's transfer agent and registrar for the Common Stock is Key Corp
Shareholder Services, Inc.
PREFERRED STOCK
The Preferred Stock may be issued, from time to time, in one or more
series, and the Board of Directors, without further approval of the
stockholders, is authorized to amend the Articles of Incorporation to fix the
dividend rights and terms, conversion rights, voting rights, redemption rights
and terms, liquidation preferences, sinking funds and any other rights,
preferences, privileges and restrictions applicable to each such series of
Preferred Stock with voting or conversion rights that could adversely affect the
voting power of the holders of Common Stock. The issuance of shares of Preferred
Stock could be used, under certain circumstances, in an attempt to prevent an
acquisition of the Company. The Company has no present intention to issue any
shares of Preferred Stock.
FOREIGN OWNERSHIP
The Company's Articles of Incorporation contain provisions that limit
foreign ownership of the Company's capital stock to protect the Company's
ability to register its vessels under federal law and operate its vessels in
United States coastwise trade. Under the Shipping Act of 1916, as amended (the
"Shipping Act"), the Company's domestic vessel operations are deemed to be part
of U.S. coastwise trade for the purpose of the Shipping Act. To engage in United
States coastwise trade, the Company's vessel-owning subsidiaries must maintain
United States citizenship as defined in the Shipping Act and the regulations
40
<PAGE> 44
thereunder. For these subsidiaries to meet the citizenship requirement, at least
75% of the ownership and voting power of the Company's capital stock must be
held by United States citizens. Violation of these regulations could result in
forfeiture of the Company's DSVs.
Under the provisions of the Articles of Incorporation (i) any transfer, or
attempted or purported transfer, of any shares of capital stock that would
result in the ownership or control by one or more persons who are not United
States citizens for purposes of United States coastwise domestic shipping (as
defined in the Shipping Act) of an aggregate percentage of the shares of the
Company's capital stock or voting power in excess of a fixed percentage (the
"Permitted Percentage"), which is equal to 2% less than the percentage that
would prevent the Company from being a United States citizen (currently 25%) for
purposes of engaging in United States coastwise domestic shipping, will, until
such ownership no longer exceeds the Permitted Percentage, be void and
ineffective as against the Company, and (ii) if at any time ownership of capital
stock or voting power (either of record or beneficial) by persons other than
United States citizens exceeds the Permitted Percentage, the Company will
withhold payment of dividends on and will suspend the voting rights of such
shares deemed to be in excess of the Permitted Percentage.
Certificates representing the Common Stock bear legends concerning the
restrictions on ownership by persons other than United States citizens. In
addition, the Board of Directors is authorized by the Articles of Incorporation
(i) to require, as a condition precedent to the transfer of shares on the
records of the Company, representations and other proof as to the identity of
existing or prospective stockholders and (ii) to establish and maintain a dual
stock certificate system under which different forms of certificates may be used
to indicate whether or not the owner thereof is a United States citizen.
EFFECT OF SUBSEQUENT ISSUANCES
The authorized and unissued shares of Common Stock and Preferred Stock may
be used for various purposes, including possible future acquisitions. The
Company currently does not have any plans to issue additional shares of Common
Stock or Preferred Stock (other than the sale of the shares of Common Stock
offered hereby and pursuant to the terms of the existing benefit plans).
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to make
it more difficult or to discourage an attempt to obtain control of the Company
by means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of the Company's management. If, in the due exercise of
its fiduciary obligations, the Board of Directors were to determine that a
takeover proposal was not in the Company's best interest, such shares could be
issued by the Board of Directors without stockholder approval in one or more
transactions that might prevent or render more difficult or costly the
completion of the takeover transaction by diluting the voting or other rights of
the proposed acquiror or insurgent stockholder group, by putting a substantial
voting block in institutional or other hands that might undertake to support the
position of the incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise.
In addition, certain other charter provisions, which are described below,
may have the effect, either alone, in combination with each other or with the
existence of authorized but unissued capital stock, of making more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors.
CERTAIN ANTI-TAKEOVER AND OTHER PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BY-LAWS
Classified Board of Directors. The Articles of Incorporation and By-laws
divide the members of the Board of Directors who are elected by the holders of
the Common Stock into three classes serving three-year staggered terms.
Advance Notice of Intention to Nominate a Director. The Articles of
Incorporation and By-laws permit a stockholder to nominate a person for election
as a director only if written notice of such stockholder's intent to make a
nomination has been given to the Secretary of the Company not less than 45 days
or more than 90 days prior to an annual meeting, unless less than 55 days notice
is given of the meeting, in which case notice by the stockholder must be
received on the 10th day after notice of the meeting was given. This provision
also
41
<PAGE> 45
requires that the stockholder's notice set forth, among other things, a
description of all arrangements or understandings between the nominee and the
stockholder pursuant to which the nomination is to be made or the nominee is to
be elected and such other information regarding the nominee as would be required
to be included in a proxy statement filed pursuant to the proxy rules
promulgated under the Securities Exchange Act of 1934, as amended, had the
nominee been nominated by the Board of Directors of the Company. Any nomination
that fails to comply with these requirements may be disqualified.
Stockholders' Right to Call Special Meeting. The Articles of Incorporation
and By-laws provide that a special stockholders' meeting may be requested by a
stockholder or group of stockholders holding in the aggregate 50% or more of the
Company's total voting power.
Supermajority and Fair Price Provisions. The Company's Articles of
Incorporation contain certain provisions designed to provide safeguards for
stockholders when an Interested Stockholder (as defined below) attempts to
effect a Business Combination (as defined below) with the Company. In general, a
Business Combination between the Company and an Interested Stockholder must be
approved by the affirmative vote of (i) a majority of the Continuing Directors
(as defined below) and (ii) at least 80% of the total voting power of the
Company and two thirds of the total voting power entitled to be cast by the
Independent Stockholders, voting together as a single class; otherwise certain
minimum price, form of consideration and procedural requirements must be
satisfied. If the requisite approval of the Continuing Directors is obtained or
the minimum price, form of consideration and procedural requirements are
satisfied, only the affirmative vote otherwise required by law and the other
provisions of the Company's Articles of Incorporation or By-laws would be
required. The Louisiana Business Corporation Law has provisions similar to the
provisions of the Articles of Incorporation described under this heading.
For purposes of these provisions, an "Interested Stockholder" is defined as
any person or entity, or any group of two or more persons or entities acting in
concert (other than the Company, any majority-owned subsidiary, any employee
benefit plan of the Company, any person or entity who owned at least 20% of the
shares of capital stock of the Company as of the date of filing of the Articles
of Incorporation, or any Affiliate or Associate (both terms as defined in the
Securities Exchange Act of 1934, as amended) of any of the foregoing), that (i)
is the beneficial owner, directly or indirectly, of 10% or more of any class or
series of the Company's voting stock, or (ii) is an Affiliate or Associate of
the Company and at any time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or indirectly, of 10% or
more of any class or series of the Company's voting stock.
A "Continuing Director" is defined as (i) any member of the Board of
Directors who is neither an Interested Stockholder nor an Affiliate or Associate
thereof, and who was a director of the Company prior to the time that the
Interested Stockholder became an Interested Stockholder; and (ii) any other
member of the Board of Directors who is not an Interested Stockholder or an
Affiliate or Associate thereof, and was recommended or elected by a majority of
the Continuing Directors at a meeting at which a quorum consisting of a majority
of the Continuing Directors was present.
A "Business Combination" includes the following transactions: (i) any
merger, consolidation or share exchange of the Company with an Interested
Stockholder or any Affiliate or Associate thereof or the adoption of any plan or
proposal for the liquidation or dissolution of the Company in which anything
other than cash will be received by an Interested Stockholder; (ii) any sale,
lease, transfer, exchange, mortgage, pledge, loan, advance, or other similar
disposition, other than in the ordinary course of business, with or for the
direct or indirect benefit of any Interested Stockholder or any Affiliate or
Associate thereof of assets of the Company or any subsidiary thereof having a
market value of 10% or more of the outstanding Common Stock of the Company or
10% or more of its net worth; (iii) any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax advantages provided
by the Company to an Interested Stockholder except proportionately as a
stockholder; or (iv) certain non-pro rata issuances or distributions to an
Interested Stockholder or any Affiliate or Associate thereof of securities of
the Company having a market value of 5% or more of the outstanding Common Stock
of the Company or resulting in an increase by 5% or more of such Interested
Stockholder's proportionate ownership interest in the Company.
42
<PAGE> 46
The supermajority and fair price provisions are designed to prevent a
purchaser from utilizing two-tier pricing and similar inequitable tactics in the
event of an attempted takeover of the Company. In the absence of the
supermajority and fair price provisions, a purchaser who acquired control of the
Company could be in a position, by virtue of such control, to compel minority
stockholders to accept a lower price or a less desirable form of consideration
than that given to other stockholders. The effect of the provisions is to
encourage any Interested Stockholder or potential Interested Stockholder
interested in a Business Combination to negotiate the terms of such transaction
with the Board of Directors of the Company prior to its acquisition of a
substantial amount of the capital stock of the Company and in a context that
would provide adequate time and information so that all relevant considerations
would receive the requisite attention and, if necessary, publicity.
Although the supermajority and fair price provisions are designed to assure
fair treatment of all stockholders in the event of a takeover, the provisions
may discourage acquisitions of stock by persons attempting to acquire control
through market purchases, and may deprive holders of Common Stock of an
opportunity to sell their stock at a temporarily higher market price. Such
purchases may cause the market price of the stock temporarily to reach levels
that are higher than would otherwise be the case. In addition, tender offers are
usually made at premium prices above the prevailing market price of a company's
stock. Because of the higher percentage requirements for stockholder approval of
any subsequent Business Combination, and the possibility of having to pay a
higher price to other stockholders in such a Business Combination, it may become
more costly for a purchaser to acquire control of the Company. A potential
purchaser of stock seeking to obtain control may also be discouraged from
purchasing stock because a vote of at least two-thirds of the Company's total
voting power would be required in order to change or eliminate these provisions.
See "-- Amendment of Certain Provisions of the Articles of Incorporation." The
provisions would not necessarily discourage persons who would be willing to seek
control by acquiring 80% or more of the Company's total voting power.
Since only the Continuing Directors will have the authority to avoid the
requirement of a supermajority stockholder vote to approve Business Combinations
if the minimum price, form of consideration and procedural requirements are not
met, the provisions also may tend to insulate management against the possibility
of removal in the event of a takeover bid. Further, if an Interested Stockholder
were to replace all of the directors who were in office on the date it became an
Interested Stockholder there would be no Continuing Directors and, consequently,
the 80% stockholder vote requirement would apply to any Business Combination,
unless the minimum price, form of consideration and procedural requirements were
satisfied.
Removal of Directors; Filling Vacancies on Board of Directors. The Articles
of Incorporation and By-laws provide that any director elected by holders of the
Common Stock may be removed at any time during which there is no Interested
Stockholder, with or without cause, by a two-thirds vote of the entire Board of
Directors. In addition, any director or the entire Board may be removed at any
time, with or without cause, by a vote of the holders of two-thirds of the total
voting power held by all holders of voting stock present or represented at a
special stockholders' meeting called for that purpose. The Articles of
Incorporation and By-laws also provide that any vacancies on the Board of
Directors (including any resulting from an increase in the authorized number of
directors) may be filled by the affirmative vote of two-thirds of the directors
remaining in office at any time during which there is no Interested Stockholder
and at all other times by two-thirds of the directors unaffiliated with any
Interested Stockholder, provided the stockholders shall have the right, at any
special meeting called for that purpose prior to such action by the Board, to
fill the vacancy.
Adoption and Amendment of By-laws. The Articles of Incorporation provide
that the By-laws may be (i) adopted only by a majority vote of the Board of
Directors and (ii) amended or repealed by either a two-thirds vote of the Board
of Directors or the holders of two-thirds of the total voting power present or
represented at any stockholders' meeting. Any provisions amended or repealed by
the stockholders may be re-amended or re-adopted by the Board of Directors. At
any time during which there is an Interested Stockholder, the Board may adopt,
amend or repeal By-laws only upon the majority vote of the full Board and of
those directors that are unaffiliated with the Interested Stockholder.
Consideration of Tender Offers and Other Extraordinary Transactions. Under
Louisiana law, the Board of Directors, when considering a tender offer, exchange
offer, merger or consolidation, may consider, among
43
<PAGE> 47
other factors, the social and economic effects of the proposal on the Company,
its subsidiaries and their respective employees, customers, creditors and
communities.
Amendment of Certain Provisions of the Articles of Incorporation; Other
Corporate Action. Under Louisiana law, unless the articles of incorporation
specify otherwise, a corporation's articles of incorporation may be amended by
the affirmative vote of the holders of two-thirds of the voting power present at
a meeting of the stockholders. The Company's Articles of Incorporation require
the affirmative vote of not less than two-thirds of the total voting power of
the Company to amend, alter or repeal certain provisions of the Company's
Articles of Incorporation with respect to (i) the classification, filling of
vacancies and removal of the Board of Directors, (ii) amendments to the By-laws,
(iii) business combinations, (iv) limitation of liability of directors, (v)
limitation of foreign ownership, and (vi) amendments to the Articles of
Incorporation. Unless approved by a vote of at least two-thirds of the Board of
Directors, a merger, consolidation, sale of all or substantially all of the
assets or a voluntarily dissolution of the Company may be authorized only by the
affirmative vote of the holders of two-thirds of the total voting power.
The provisions of the Company's Articles of Incorporation and By-laws
summarized in the preceding paragraphs may have anti-takeover effects and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in such stockholder's best interest, including those attempts
that might result in the payment of a premium over the market price for the
shares of Common Stock held by such stockholder.
LOUISIANA CONTROL SHARE ACQUISITION STATUTE
The Louisiana Control Share Acquisition Statute provides that any shares
acquired by a person or group (an "Acquiror") in an acquisition that causes such
person or group to have the power to direct the exercise of voting power in the
election of directors in excess of 20%, 33-1/3% or 50% thresholds shall have
only such voting power as shall be accorded by the holders of all shares other
than "interested shares," as defined below, at a meeting called for the purpose
of considering the voting power to be accorded to such shares. "Interested
shares" include all shares as to which the Acquiror, any officer of a company
and any director of a company who is also an employee of a company may exercise
or direct the exercise of voting power. If a meeting of stockholders is held to
consider the voting rights to be accorded to an Acquiror and the stockholders do
not vote to accord voting rights to such shares, a company may have the right to
redeem the shares held by the Acquiror for their fair value. The statute permits
the articles of incorporation or by-laws of a company to exclude from the
statute's application acquisitions occurring after the adoption of the
exclusion. The Company's Articles of Incorporation and By-laws do not contain
such an exclusion.
44
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Stockholders and the Underwriters named below
(the "Underwriting Agreement"), the Company and the Selling Stockholders have
severally agreed to sell to each of such Underwriters, for whom Morgan Keegan &
Company, Inc., Rauscher Pierce Refsnes, Inc., and Southcoast Capital Corporation
are acting as representatives (collectively, the "Representatives"), and each of
such Underwriters has severally agreed to purchase from the Company and from the
Selling Stockholders the respective number of shares of Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
----------------------------------------------------------------------- ------------
<S> <C>
Morgan Keegan & Company, Inc. .........................................
Rauscher Pierce Refsnes, Inc. .........................................
Southcoast Capital Corporation.........................................
-----------
Total........................................................ 3,100,000
===========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares of Common Stock
offered hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the Offering price set forth on the cover page of this
Prospectus and in part to certain dealers at such price, less a concession of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession of $ per share to certain brokers and dealers. After the
shares of Common Stock are released for sale to the public, the Offering price
and other selling terms may from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 465,000 additional
shares of Common Stock solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them, as shown in the table above, bears to the total
number of shares of Common Stock initially offered by the Underwriters hereby.
The Company and each officer and director of the Company and certain
stockholders, including certain of the Selling Stockholders, who each own 1% or
more of the outstanding Common Stock have agreed that they will not offer, sell,
contract to sell, or otherwise dispose of, directly or indirectly, any equity
securities or any securities convertible into, or exchangeable for, equity
securities of the Company for a period of 180 days after the effective date of
the Registration Statement of which this Prospectus is a part, without the prior
consent of the Representatives pursuant to the Underwriting Agreement or, in the
case of the Company, other than an aggregate maximum of 733,892 shares of Common
Stock issuable or subject to purchase or stock appreciation rights pursuant to
employee or director benefit plans.
In connection with this Offering, the Underwriters may engage in passive
market making transactions in the Common Stock of the Company on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act during the
two business day period before commencement of offers or sales of the Common
Stock. The passive market making transactions must comply with applicable volume
and price limits and be identified as such. In general, a passive market maker
may display its bid at a price not in excess of the highest independent bid for
the security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
45
<PAGE> 49
LEGAL MATTERS
The validity of the shares of Common Stock being offered by this Prospectus
will be passed upon for the Company and the Selling Stockholders by Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans, Louisiana.
Certain legal matters in connection with this Offering will be passed upon for
the Underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of American Oilfield Divers, Inc. at
October 31, 1994 and 1995 and for each of the three years in the period ended
October 31, 1995 and the consolidated financial statements at December 31, 1995
and for the two months ended December 31, 1995 included in this Prospectus have
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Hard Suits Inc. as of December 31,
1994 and 1995 and for the two years in the period ended December 31, 1995
included in this Prospectus have been so included in reliance on the report
(which includes an explanatory paragraph relating to the Company's ability to
continue as a going concern as described in Note 1 to the financial statements)
of Arthur Andersen & Co., independent accountants, given on authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2, File No. 333-18153 (the
"Registration Statement"), under the Securities Act with respect to the Common
Stock being offered pursuant to this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements contained herein concerning the provisions of any
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed or incorporated by reference as an exhibit to
the Registration Statement.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The Registration Statement, as well as such
reports, proxy statements and other information filed with the Commission by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549, and at the regional offices of the Commission at the
following locations: New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048 and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the Commission
(http://www.sec.gov). The Company's Common Stock is traded on the Nasdaq
National Market. Reports, proxy statements and other information may also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission under the
Exchange Act, are incorporated into this Prospectus by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995;
(2) The Company's Quarterly Reports on Form 10-Q for the quarter ended
January 31, 1996, April 30, 1996, June 30, 1996, and September 30,
1996;
46
<PAGE> 50
(3) The Company's Transition Report on Form 10-Q for the transition period
from November 1, 1995 to December 31, 1995; and
(4) The Company's Current Reports on Form 8-K filed on June 25, 1996, July
11, 1996, July 31, 1996, August 19, 1996, September 12, 1996, September
26, 1996, and November 15, 1996.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits to such documents that are not specifically incorporated by reference
in such documents). Written requests for such copies should be directed to Greg
Rosenstein, American Oilfield Divers, Inc., 130 East Kaliste Saloom Road,
Lafayette, Louisiana 70508. Telephone requests may be directed to (318)
234-4590.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
47
<PAGE> 51
GLOSSARY OF CERTAIN TECHNICAL TERMS
air diving: Diving performed in relatively shallow water
(generally less than 160 feet) in which the diver
breathes air supplied from the surface through an
umbilical and need not enter a diving bell for
decompression before surfacing; the diver
decompresses in the water during his ascent to the
surface.
decompression: The procedure that must be followed by a diver
after diving to certain depths in which the diver's
ambient pressure is gradually reduced in order to
avoid the bends (i.e., the vaporization of gasses
absorbed by the diver's body tissues during the
dive).
DSV: A diving support vessel, which is a specially
constructed vessel that provides an above water
platform or operational base for divers; subsea
services are typically performed with the use of
such vessels.
dynamic positioning: A dynamic positioning system allows a vessel to
stay in position without the use of anchors.
Computer controlled thrusters mounted on the
vessel's hull ensure the proper counteraction to
wind, current, and wave forces to maintain the
vessel's position.
flowlines: Steel subsea pipelines for the movement of oil or
gas from production sites to transportation
pipelines.
mixed gas diving: Mixed gas diving is used at water depths between
160 and 300 feet and involves providing the diver
with a mixture of helium and oxygen through a
diving umbilical; the diver must make use of a
surface chamber for decompression.
moonpool: A walled hole cut in a DSV's deck to permit
deployment of divers and equipment in relatively
rough seas.
one-atmosphere diving: One-atmosphere diving is used as an alternative to
saturation diving at water depths between 300 and
1,200 feet and involves the use of the Company's
NEWTSUIT(TM) without the need for saturation or
decompression.
risers: The vertical portion of a subsea pipeline attached
to an offshore structure, for the movement of
hydrocarbon products to flowlines or other subsea
structures.
ROV: A remotely operated vehicle, which is a robotic,
unmanned vehicle used to compliment, support, and
increase the efficiency of diving and subsea
operations and for tasks at depths where the use of
divers is impossible; they may be employed for
observation or for repair and maintenance.
saturation diving: Diving under conditions in which the diver's body
tissues become fully saturated with ambient gasses.
Saturation diving is normally required at water
depths greater than 300 feet and involves divers
working from special surface chambers for extended
periods at a pressure equivalent to the depth of
the work site and being transported between the
surface chamber and the work site in a pressurized
diving bell.
turnkey project: A project that a party has agreed to perform for a
fixed price regardless of the time and materials
actually required to complete the project. A
turnkey project of the Company may involve
fabrication, testing, installation (both subsea and
topside) and the use of subcontractors.
48
<PAGE> 52
AMERICAN OILFIELD DIVERS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
AMERICAN OILFIELD DIVERS, INC. FINANCIAL STATEMENTS
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets -- October 31, 1994 and 1995, December 31, 1995 and
September 30, 1996 (unaudited)................................................... F-3
Consolidated Statements of Operations -- Years Ended October 31, 1993, 1994 and
1995, Two Months Ended December 31, 1994 (unaudited) and 1995 and Nine Months
Ended September 30, 1995 (unaudited) and 1996 (unaudited)........................ F-4
Consolidated Statements of Changes in Stockholders' Equity -- Years Ended October
31, 1993, 1994 and 1995, Two Months Ended December 31, 1995 and Nine Months Ended
September 30, 1996 (unaudited)................................................... F-5
Consolidated Statements of Cash Flows -- Years Ended October 31, 1993, 1994 and
1995, Two Months Ended December 31, 1994 (unaudited) and 1995 and Nine Months
Ended September 30, 1995 (unaudited) and 1996 (unaudited)........................ F-6
Notes to Consolidated Financial Statements.......................................... F-8
HARD SUITS INC. FINANCIAL STATEMENTS
Report of Independent Accountants................................................... F-19
Consolidated Balance Sheets -- December 31, 1994 and 1995........................... F-20
Consolidated Statements of Operations -- Years Ended December 31, 1994 and 1995..... F-21
Consolidated Statements of Deficit -- Years Ended December 31, 1994 and 1995........ F-22
Consolidated Statements of Changes in Financial Position -- Years Ended December 31,
1994 and 1995.................................................................... F-23
Notes to Consolidated Financial Statements.......................................... F-24
HARD SUITS INC. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet -- September 30, 1996.................................... F-34
Consolidated Statements of Operations -- Nine Months Ended September 30, 1995 and
1996............................................................................. F-35
Consolidated Statements of Deficit -- Nine Months Ended September 30, 1995 and
1996............................................................................. F-36
Consolidated Statements of Changes in Financial Position -- Nine Months Ended
September 30, 1995 and 1996...................................................... F-37
Notes to Consolidated Financial Statements.......................................... F-38
PRO FORMA FINANCIAL INFORMATION OF AMERICAN OILFIELD DIVERS, INC. (UNAUDITED)
Balance Sheet -- September 30, 1996................................................. F-40
Statements of Operations --
Nine Months Ended September 30, 1996............................................. F-43
Year Ended October 31, 1995...................................................... F-44
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of American Oilfield Divers, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of American Oilfield Divers, Inc. and its subsidiaries at October 31,
1994 and 1995 and December 31, 1995, and the results of their operations and
their cash flows for each of the three years in the period ended October 31,
1995 and the two months ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New Orleans, Louisiana
August 6, 1996
F-2
<PAGE> 54
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------- DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
------- ------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 1,226 $ 1,174 $ 788 $ 1,648
Accounts receivable, net of allowance for
doubtful accounts of $408, $300, $380 and
$500....................................... 17,297 23,870 13,014 21,812
Unbilled revenue.............................. 5,290 7,080 13,683 7,967
Other receivables............................. 1,131 1,415 2,025 1,574
Current deferred tax asset.................... 750 1,700 1,700 200
Current portion of assets held for sale (Note
1)......................................... 2,681 -- -- --
Inventories................................... 1,642 2,191 2,261 2,817
Prepaid expenses.............................. 1,023 1,935 1,380 2,547
------- ------- ------- -------
Total current assets.................. 31,040 39,365 34,851 38,565
Property, plant and equipment, net.............. 24,424 26,079 25,550 31,731
Deferred tax asset.............................. 1,407 477 57 --
Assets held for sale, net of current portion
(Note 1)...................................... 2,206 -- -- --
Other assets.................................... 2,530 3,487 3,463 2,703
------- ------- ------- -------
$61,607 $69,408 $ 63,921 $72,999
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 5,178 $ 5,806 $ 3,506 $ 5,128
Income taxes payable.......................... -- -- -- 585
Other liabilities............................. 4,457 10,192 6,197 7,088
Borrowings under a line of credit agreement... 4,830 7,300 7,875 4,033
Current portion of long-term debt............. 2,488 2,000 1,375 1,500
------- ------- ------- -------
Total current liabilities............. 16,953 25,298 18,953 18,334
Deferred tax liability.......................... -- -- -- 1,200
Long-term debt, less current portion............ 5,443 5,121 5,413 8,500
------- ------- ------- -------
Total liabilities..................... 22,396 30,419 24,366 28,034
------- ------- ------- -------
Commitments and contingencies (Note 12)......... -- -- -- --
Minority interest in consolidated subsidiary.... (116) -- -- --
Stockholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued............. -- -- -- --
Common stock, no par value; 30,000,000 shares
authorized; 6,709,497 issued and
outstanding at stated value at October 31,
1994 and 1995 and December 31, 1995;
6,811,182 at September 30, 1996............ 1,360 1,360 1,360 1,368
Additional paid-in capital.................... 40,837 40,837 40,837 41,548
Foreign currency translation adjustments...... (115) (124) (132) (131)
Retained earnings (accumulated deficit)....... (2,755) (3,084) (2,510) 2,180
------- ------- ------- -------
Total stockholders' equity............ 39,327 38,989 39,555 44,965
------- ------- ------- -------
$61,607 $69,408 $ 63,921 $72,999
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 55
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
------------------------------ ---------------------- ------------------
1993 1994 1995 1995 1995 1996
-------- ------- ------- 1994 ------- ------- -------
-----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Diving and related revenues...... $ 51,023 $52,755 $88,660 $15,259 $15,486 $63,689 $79,466
-------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Diving and related expenses.... 30,635 35,338 63,180 10,359 10,346 45,486 51,657
Selling, general and
administrative expenses...... 10,808 14,222 19,318 2,873 3,055 14,328 14,759
Depreciation and
amortization................. 2,153 3,415 5,064 799 889 3,796 4,737
-------- ------- ------- ------- ------- ------- -------
Total costs and
expenses.............. 43,596 52,975 87,562 14,031 14,290 63,610 71,153
-------- ------- ------- ------- ------- ------- -------
Operating income (loss)........ 7,427 (220) 1,098 1,228 1,196 79 8,313
-------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest expense............... (341) (297) (1,377) (183) (220) (1,075) (817)
Other income................... 143 232 258 45 13 215 133
Gain (loss) on sale or
abandonment of property and
equipment and other assets... 42 21 (130) 1 5 (125) 531
Non-recurring incentive
compensation charge related
to initial public offering of
common stock (Note 8)........ (27,301) -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Total other expense..... (27,457) (44) (1,249) (137) (202) (985) (153)
-------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations before income taxes
and minority interest.......... (20,030) (264) (151) 1,091 994 (906) 8,160
Income tax expense (benefit)
attributable to continuing
operations..................... (6,777) 75 62 480 420 (280) 3,470
-------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations before minority
interest....................... (13,253) (339) (213) 611 574 (626) 4,690
Minority interest in (earnings)
loss of subsidiary............. 54 82 (116) -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations..................... (13,199) (257) (329) 611 574 (626) 4,690
-------- ------- ------- ------- ------- ------- -------
Discontinued operations (Note 1):
Loss from discontinued
operations through October
31, 1994, less income tax
benefits of $539 in 1994 and
$328 in 1993................. (638) (1,054) -- -- -- -- --
Estimated loss on disposal,
less income tax benefit of
$331......................... -- (642) -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Loss from discontinued
operations..................... (638) (1,696) -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Net income (loss)................ $(13,837) $(1,953) $ (329) $ 611 $ 574 $ (626) $ 4,690
======== ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Continuing operations.......... $ (2.41) $ (.04) $ (.05) $ .09 $ .09 $ (.09) $ .69
Discontinued operations........ (.11) (.25) -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Net income (loss) per share...... $ (2.52) $ (.29) $ (.05) $ .09 $ .09 $ (.09) $ .69
======== ======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding.................... 5,484 6,706 6,709 6,709 6,709 6,709 6,769
======== ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 56
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995, THE TWO MONTHS
ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOREIGN (ACCUMULATED
COMMON STOCK ADDITIONAL CURRENCY DEFICIT)
------------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS TOTAL
--------- ------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1992....................... 1,950,000 $1,215 $ -- $ (82) $ 13,035 $14,168
Issuance of common stock in
initial public offering.... 1,150,000 103 8,826 -- -- 8,929
Issuance of common stock from
underwriters' exercise of
overall option............. 450,000 41 3,599 -- -- 3,640
Termination of Buy-Sell
Agreements on redeemable
common stock (Note 8)...... 3,138,750 -- 948 -- -- 948
Non-recurring incentive
compensation charge related
to initial public offering
of common stock (Note 8)... -- -- 27,301 -- -- 27,301
Net effects of translation of
foreign currency........... -- -- -- (50) -- (50)
Net loss..................... -- -- -- -- (13,837) (13,837)
--------- ------ -------- ----- -------- -------
Balance at October 31,
1993....................... 6,688,750 1,359 40,674 (132) (802) 41,099
Issuance of common stock..... 20,747 1 163 -- -- 164
Net effects of translation of
foreign currency........... -- -- -- 17 -- 17
Net loss..................... -- -- -- -- (1,953) (1,953)
--------- ------ -------- ----- -------- -------
Balance at October 31,
1994....................... 6,709,497 1,360 40,837 (115) (2,755) 39,327
Net effects of translation of
foreign currency........... -- -- -- (9) -- (9)
Net loss..................... -- -- -- -- (329) (329)
--------- ------ -------- ----- -------- -------
Balance at October 31,
1995....................... 6,709,497 1,360 40,837 (124) (3,084) 38,989
Net effects of translation of
foreign currency........... -- -- -- (8) -- (8)
Net income................... -- -- -- -- 574 574
--------- ------ -------- ----- -------- -------
Balance at December 31,
1995....................... 6,709,497 1,360 40,837 (132) (2,510) 39,555
Other........................ -- -- (52) -- -- (52)
Issuance of common stock..... 101,685 8 763 -- -- 771
Net effects of translation of
foreign currency........... -- -- -- 1 -- 1
Net income................... -- -- -- -- 4,690 4,690
--------- ------ -------- ----- -------- -------
Balance at September 30, 1996
(unaudited)................ 6,811,182 $1,368 $ 41,548 $(131) $ 2,180 $44,965
========= ====== ======== ===== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 57
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
-------------------------------- -------------------- --------------------
1993 1994 1995 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Cash received from
customers................... $ 52,828 $ 51,962 $ 80,070 $ 13,125 $ 19,657 $ 57,263 $ 75,843
Cash paid to suppliers and
employees................... (46,293) (53,570) (77,285) (13,527) (19,137) (55,522) (65,080)
Interest paid................. (362) (273) (1,217) (182) (220) (1,075) (817)
Income taxes refunded
(paid)...................... (1,903) 6,112 (167) 12 (21) (297) (129)
Other cash received (paid).... (302) 192 (26) (356) (576) 324 582
-------- -------- -------- -------- -------- -------- --------
Net cash provided by
operating
activities........... 3,968 4,423 1,375 (928) (297) 693 10,399
-------- -------- -------- -------- -------- -------- --------
Cash flows from investing
activities:
Decrease (increase) to other
assets...................... (425) (1,902) (1,551) (37) (44) (213) 462
Capital expenditures.......... (8,287) (17,824) (7,884) (315) (322) (7,559) (15,757)
Net proceeds from sales of
assets (Note 1)............. 64 17 1,541 -- 35 1,571 5,681
Proceeds from insurance
claim....................... -- -- 1,565 -- -- 1,565 535
Proceeds from sale of notes
receivable (Note 1)......... -- -- 2,762 -- -- 2,762 --
Receipt of payments on notes
receivable.................. -- -- 480 -- -- 467 --
Purchase of short-term
investment.................. (498) -- -- -- -- -- --
Maturity of short-term
investment.................. -- 498 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net cash used by
investing
activities........... (9,146) (19,211) (3,087) (352) (331) (1,407) (9,079)
-------- -------- -------- -------- -------- -------- --------
Cash flows from financing
activities:
Repayments of long-term
debt........................ (4,212) (213) (2,810) (401) (333) (2,242) (7,288)
Proceeds from long-term
borrowings.................. 1,000 8,023 2,000 -- -- 2,000 10,500
Net proceeds (payments) under
line of credit agreement.... (1,772) 4,830 2,470 950 575 1,270 (3,842)
Issuance of common stock under
exercise of options......... -- -- -- -- -- -- 170
Proceeds from initial public
offering of common stock.... 12,569 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net cash provided by
financing
activities........... 7,585 12,640 1,660 549 242 1,028 (460)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in
cash.......................... 2,407 (2,148) (52) (731) (386) 314 860
Cash and cash equivalents at
beginning of year............. 967 3,374 1,226 1,226 1,174 495 788
-------- -------- -------- -------- -------- -------- --------
Cash and cash equivalents at end
of year....................... $ 3,374 $ 1,226 $ 1,174 $ 495 $ 788 $ 809 $ 1,648
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 58
AMERICAN OILFIELD DIVERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
TWO MONTHS ENDED
YEAR ENDED OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
------------------------------ ------------------ ------------------
1993 1994 1995 1994 1995 1995 1996
-------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Reconciliation of net income to net cash provided
by operating activities:
Net income (loss).............................. $(13,837) $(1,953) $ (329) $ 611 $ 574 $ (626) $ 4,690
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain (loss) on sale or abandonment of
property and equipment and other assets.... (42) (21) 130 -- (5) 125 (530)
Discount on sale of note receivable.......... -- -- 159 -- -- -- --
Write-down of assets held for sale........... -- 648 -- -- -- -- --
Stock bonus compensation expense............. 81 -- -- -- -- -- --
Minority interest in earnings (loss) of
subsidiary................................. (54) (82) 116 -- -- -- --
Non-recurring incentive compensation charge
related to initial public offering of
common stock............................... 27,301 -- -- -- -- -- --
Depreciation and amortization................ 2,401 4,022 5,064 799 889 3,796 4,737
Provision for loss on receivables............ 120 92 237 70 80 190 543
Receivables written off...................... (65) (144) (345) (20) -- (143) --
(Increase) decrease in deferred tax asset.... -- (1,407) 930 -- -- (1,139) 57
Increase (decrease) in deferred tax
liability.................................. 349 (1,017) -- -- -- -- 1,200
(Increase) decrease in current assets, net of
the effect of businesses acquired (Note
1): --
Accounts receivable........................ (1,547) (4,521) (6,465) (1,876) 10,775 (1,152) (9,340)
Unbilled receivables....................... (2,078) (1,764) (1,790) (151) (6,604) (5,275) 5,716
Tax refund receivable...................... (6,275) 6,149 125 (102) -- -- --
Other receivables.......................... (445) (40) (409) (400) (590) 109 450
Current deferred tax asset................. (2,275) 1,525 (950) 492 400 280 1,500
Inventories................................ 369 (803) (549) 120 (70) (95) (556)
Prepaid expenses........................... (202) (239) (912) (83) 555 (1,221) (1,167)
Increase (decrease) in current liabilities,
net of the effect of businesses acquired
(Note 1): --
Accounts payable........................... 1,189 1,397 628 (1,526) (2,300) 2,976 1,622
Other liabilities.......................... (1,022) 2,581 5,735 1,138 (4,001) 2,868 1,477
-------- ------- ------- ------- ------- ------- -------
Total adjustments....................... 17,805 6,376 1,704 (1,539) (871) 1,319 5,709
-------- ------- ------- ------- ------- ------- -------
Net cash provided by operating
activities............................ $ 3,968 $ 4,423 $ 1,375 $ (928) $ (297) $ 693 $10,399
======== ======= ======= ======= ======= ======= =======
</TABLE>
Supplemental disclosure of noncash activities: --
Fixed assets and inventory totalling $4,886,890 are classified as assets held
for sale at October 31, 1994. The Company issued common stock valued at $164,000
in connection with its acquisition of a business during 1994.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 59
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Principles of Consolidation
The consolidated financial statements include the accounts of American
Oilfield Divers, Inc. and its wholly-owned and majority-owned subsidiaries (the
Company). All material intercompany transactions and balances have been
eliminated in consolidation.
Effective October 31, 1994, the Company sold certain operating assets of
its subsidiary, American Corrosion Services, Inc. (ACS), a manufacturer and
marketer of corrosion protection devices. Accordingly, ACS is reported as a
discontinued operation at October 31, 1994. The loss on disposal of ACS
operations of $642,000 (net of income taxes of $331,000) includes the loss on
the sale of the assets, and other estimated costs incurred in connection with
the disposition. Revenues from corrosion protection device sales were $5,429,242
in 1993 and $5,492,369 in 1994.
During fiscal 1994, the Company completed acquisitions of two businesses
involved in the diving and related services industry, as well as certain other
diving related assets. The excess of the aggregate purchase price over the fair
market value of net assets acquired of approximately $502,000 was recorded as
goodwill and is being amortized over 15 years. The operating results of the
acquisitions are included in the Company's consolidated results of operations
from the date of acquisition. Pro forma results of these acquisitions, assuming
they had been made at the beginning of fiscal 1993 and 1994, would not be
materially different from the results reported.
On June 26, 1996, the Company's Board of Directors resolved to change the
Company's fiscal year-end from October 31 to December 31 to enable the Company
to report its quarterly and annual results of operations on a comparable basis
with other companies in the oil and gas industry.
Revenue Recognition
Revenue is recognized on projects of short duration at the time services
are rendered at estimated collectible amounts. Revenue is recognized on fixed
price (turnkey) contracts on the percentage of completion method based on the
ratio of costs incurred to total estimated costs at completion. Contract price
and cost estimates are reviewed periodically as work progresses and adjustments
are reflected in the period in which such estimates are revised. Provisions for
estimated losses on fixed price contracts are made in the period such losses are
determined. Unbilled revenue represents revenue attributable to work completed
prior to the balance sheet date which has not been billed and work in progress
at the balance sheet date which will be billed at the completion of the related
contract. All amounts included in unbilled revenue at October 31, 1994 and 1995,
December 31, 1995 and September 30, 1996 are estimated to be billed and
collected within the current year.
Diving and related expenses include all the direct labor and benefits,
materials unique to or installed in the project, and vessel related expenses,
and are charged as incurred. General and administrative expenses are charged to
expense as incurred.
Inventories
Inventories are valued at the lower of cost or market determined on the
first-in, first-out basis.
Other Assets
Other assets include goodwill, patents and trademarks, organization costs,
deferred drydock costs and noncompete agreements, which are amortized on the
straight-line method over their estimated useful lives, ranging from five to
fifteen years. Accumulated amortization on other assets was $576,928 and
$1,323,709 at
F-8
<PAGE> 60
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
October 31, 1994 and 1995, $1,391,658 at December 31, 1995 and $1,690,895 at
September 30, 1996 (unaudited).
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation of assets
is computed by the straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is computed by the
straight-line method over the shorter of the useful life of the asset or the
life of the lease. Useful lives range from 5 to 10 years for vessels and
surveying equipment; 3 to 10 years for diving and other equipment; 3 to 5 years
for transportation equipment; 3 to 10 years for leasehold improvements; 5 years
for furniture and fixtures and 30 years for buildings. As the Company has not
had any construction projects of significant duration, no interest costs have
been capitalized in connection with these projects; however, certain labor and
other direct construction costs have been capitalized as part of the assets.
Assets retired or otherwise disposed of are removed from the accounts along
with any related depreciation and amortization and the resultant gain or loss is
reflected in income. Maintenance and repairs are charged to expense as incurred.
As a result of the change in fiscal year-end, the Company is required to
implement Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," (SFAS 121) for the fiscal year ended December 31, 1996. This pronouncement
requires a review for impairment whenever circumstances indicate that the
carrying amount of long-lived assets, certain identifiable intangibles and
goodwill may not be recoverable through future cash flows. In accordance with
SFAS 121, the Company recognized a pre-tax charge of $500,000 ($290,000 after
tax, or $.04 per share), effective January 1, 1996. The charge is included in
depreciation and amortization in the consolidated statement of income for the
nine months ended September 30, 1996.
Foreign Currency Translation
Income statement accounts are translated at average exchange rates during
the year and the balance sheet is converted as of the last day of the fiscal
year at the current rate of exchange. The resulting translation adjustment is
recorded as a separate component of stockholders' equity.
Income Taxes
The Company files a consolidated federal income tax return. The Company
provides for taxes on the basis of items included in the determination of income
for financial reporting purposes regardless of the period when such items are
reported for tax purposes. Accordingly, the Company records deferred tax
liabilities and assets for future tax consequences of events that have been
recognized in different periods for financial and tax purposes.
Earnings (Loss) Per Share
Earnings (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares, including redeemable
common shares, outstanding during each year. Outstanding stock options are
common stock equivalents but are excluded from earnings per common share as the
effect would not be materially dilutive.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, cash and cash
equivalents include short-term highly liquid investments with original
maturities of three months or less.
F-9
<PAGE> 61
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Statements
The accompanying financial statements for the two months ended December 31,
1994 and the nine months ended September 30, 1995 and 1996 are unaudited. In
management's opinion, such interim financial statements reflect all normal
recurring adjustments necessary for a fair statement of the results of
operations for such interim periods. These interim financial statements should
be read in conjunction with the Company's audited financial statements included
herein.
The offshore oilfield services industry in the Gulf of Mexico is highly
seasonal as a result of weather conditions and the timing of capital
expenditures by the oil and gas industry. As a result, a disproportionate amount
of the Company's total revenues and net income is earned during the third (July
through September) and fourth (October through December) quarters of its fiscal
year. Results for interim periods are not necessarily indicative of the results
that may be expected for the complete fiscal year.
NOTE 2 -- INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
---------------- DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
------ ------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Fuel....................................... $ 134 $ 112 $ 101 $ 49
Supplies................................... 659 1,007 1,026 759
Work-in-process............................ 287 389 444 453
Finished goods............................. 562 683 690 1,556
------ ------ ------ -------
$1,642 $2,191 $2,261 $ 2,817
====== ====== ====== =======
</TABLE>
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
-------- -------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Diving................................. $ 11,440 $ 15,719 $ 16,056 $ 18,572
Manufacturing and related equipment.... 682 832 892 1,073
Vessels and surveying equipment........ 17,994 17,416 17,454 21,280
Transportation equipment............... 702 688 703 652
Furniture and fixtures................. 2,742 3,401 3,463 3,762
Leasehold improvements................. 899 1,051 1,080 1,104
Construction in progress............... 970 946 665 3,395
Building............................... 1,681 2,663 2,699 2,732
Land................................... 377 591 591 591
-------- -------- -------- ---------
37,487 43,307 43,603 53,161
Less -- Accumulated depreciation and
amortization......................... (13,063) (17,228) (18,053) (21,430)
-------- -------- -------- ---------
$ 24,424 $ 26,079 $ 25,550 $ 31,731
======== ======== ======== =========
</TABLE>
F-10
<PAGE> 62
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Construction in progress at December 31, 1995 primarily consists of
construction of various items of equipment. The total costs to complete the
projects have been estimated by management to approximate $1,000,000 and are
estimated to be completed at various times during fiscal 1996.
The net book value of assets pledged as collateral to secure the Company's
debt (Note 6) was $12,472,000 at October 31, 1994, $9,975,000 at October 31,
1995, $9,555,623 at December 31, 1995 and $10,768,997 at September 30, 1996.
NOTE 4 -- OTHER LIABILITIES
Other liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
------ ------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accrued salaries, wages, bonuses and sales
commissions............................. $ 663 $ 1,400 $ 313 $ 607
Bank overdraft............................ 1,147 2,537 2,521 516
Workers' compensation liability........... 268 466 624 304
Other (primarily job related accruals).... 2,379 5,789 2,739 5,661
------ ------- ------ -------
$4,457 $10,192 $6,197 $ 7,088
====== ======= ====== =======
</TABLE>
NOTE 5 -- LINE OF CREDIT AGREEMENT
The Company has a $15,000,000 revolving line of credit agreement with a
bank with interest due quarterly at a prime rate plus .5% (9.00% at December 31,
1995). In April 1996, the line was amended to extend the maturity date to March
31, 1997 and reduce the interest rate to prime. The line of credit is secured by
and limited to certain qualifying accounts receivable, is cross-collateralized
by certain of the Company's vessels and certain other assets and is subject to
certain covenants (Note 6). Subsequent to September 30, 1996, the amount
available under the agreement was increased (Note 13).
NOTE 6 -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------ DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
------- ------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Note payable to a bank, interest at 9.50%;
monthly principal installments of $33
plus interest through April 3, 2000;
secured by a vessel...................... $ -- $ 1,800 $ 1,733 $ --
Note payable to a bank, interest at 8.75%;
monthly principal installments of $50
plus interest through August 9, 1999;
secured by a vessel...................... 2,950 2,300 2,200 --
Note payable to a bank, interest at 8.75%;
monthly principal installments of $33
plus interest through August 9, 1999;
secured by three vessels................. 1,967 1,533 1,467 --
</TABLE>
F-11
<PAGE> 63
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Note payable to a bank, interest at a prime
rate plus .75% (9.25% at December 31,
1995); monthly principal installments of
$50 plus interest through September 22,
1999; secured by two vessels and certain
diving equipment......................... 3,000 1,488 1,388 --
Note payable to a bank, interest at 7.90%;
monthly principal installments of $125
plus interest with a balloon payment of
$3,125 on May 31, 2001; secured by 11
vessels and certain diving equipment..... -- -- -- 10,000
Other long-term debt....................... 14 -- -- --
------- ------- ------- -------
7,931 7,121 6,788 10,000
Less -- Current portion.................... (2,488) (2,000) (1,375) (1,500)
------- ------- ------- -------
$ 5,443 $ 5,121 $ 5,413 $ 8,500
======= ======= ======= =======
</TABLE>
Included in the classification of long-term debt at December 31, 1995 are
certain current maturities totaling $625,000 which were refinanced in April
1996.
Aggregate maturities of long-term debt under the new agreement in the
fiscal years subsequent to September 30, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................... $ 1,500
1997............................................................... 1,500
1998............................................................... 1,500
1999............................................................... 1,500
2000 and thereafter................................................ 4,000
-------
$10,000
=======
</TABLE>
The Company's long term debt and line of credit agreements require the
Company to maintain certain financial ratios and a specified amount of equity,
include restrictions on capital expenditures and also limit payment or
declaration of dividends to an amount not to exceed 15% of average net income
for the four previous quarters.
F-12
<PAGE> 64
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES
The provision (benefit) for income taxes attributable to continuing
operations is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, TWO MONTHS ENDED
------------------------ DECEMBER 31,
1993 1994 1995 1995
------- ----- ---- ----------------
<S> <C> <C> <C> <C>
Current tax expense (benefit):
Federal.................................... $(4,910) $ 305 $ -- $ --
State...................................... 11 140 13 --
Foreign.................................... 48 -- 69 --
------- ----- ---- ----
Total current tax expense
(benefit)........................ (4,851) 445 82 --
Deferred tax (expense) provision............. (1,926) (370) (20) 420
------- ----- ---- ----
Total provision (benefit) for income taxes... $(6,777) $ 75 $ 62 $420
======= ===== ==== ====
</TABLE>
A summary of the components of the provision (benefit) for deferred income
taxes follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, TWO MONTHS ENDED
------------------------- DECEMBER 31,
1993 1994 1995 1995
------- ----- ----- ----------------
<S> <C> <C> <C> <C>
Recognition of tax loss and credit
carryforwards attributable to incentive
compensation charge....................... $(1,550) $ -- $ -- $ --
Utilization of tax loss carryforwards....... -- -- -- 338
Foreign tax loss carryforward............... (187) (329) -- --
Excess tax over book depreciation........... (164) (100) (111) 80
Other, net.................................. (25) 59 91 2
------- ----- ----- ----
Total provision (benefit) for deferred
income taxes.............................. $(1,926) $(370) $ (20) $420
======= ===== ===== ====
</TABLE>
The difference between the taxes provided for continuing operations at the
United States statutory rate and the Company's actual tax provision is
reconciled below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, TWO MONTHS ENDED
----------------------- DECEMBER 31,
1993 1994 1995 1995
------- ---- ---- ----------------
<S> <C> <C> <C> <C>
Taxes provided at United States statutory
rate........................................ $(6,810) $(90) $(51) $338
State tax expense, net of federal benefit..... 7 76 13 33
Non-deductible meals and entertainment........ 70 99 118 20
Other, net.................................... (44) (10) (18) 29
------- ---- ---- ----
Total provision (benefit) for income
taxes............................. $(6,777) $ 75 $ 62 $420
======= ==== ==== ====
</TABLE>
F-13
<PAGE> 65
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate effect of temporary differences and carryforwards that give
rise to deferred tax balances were as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------ DECEMBER 31,
1994 1995 1995
------- ------- ------------
<S> <C> <C> <C>
Federal net operating loss carryforward.............. $ 501 $ 1,679 $ 1,679
Deferred drydock expense............................. (49) (317) (317)
Allowance for doubtful accounts...................... 129 102 102
Accrued insurance.................................... 100 182 182
Other, net........................................... 69 54 54
------- ------- --------
Current deferred tax asset........................... $ 750 $ 1,700 $ 1,700
======= ======= ========
Depreciation......................................... $(1,475) $(2,320) $ (2,400)
Federal, state and foreign net operating loss
carryforward....................................... 2,413 2,255 1,917
Foreign tax credit carryforward...................... 95 163 163
Minimum tax credit carryforward...................... 372 372 372
Other, net........................................... 2 7 5
------- ------- --------
Noncurrent deferred tax asset........................ $ 1,407 $ 477 $ 57
======= ======= ========
</TABLE>
At December 31, 1995, the Company had federal net operating loss
carryforwards (NOL's) of $8,500,000 which can be used to offset future taxable
income. Such carryforwards, which may provide future tax benefits, expire in
2007 through 2010. Based on the Company's forecast for future earnings,
management has determined that future taxable income will more likely than not
be sufficient to utilize the NOL's prior to their expiration.
NOTE 8 -- STOCKHOLDERS' EQUITY
Incentive Compensation Charge
Prior to its Initial Public Offering (IPO) of common stock in July 1993,
the Company had Buy-Sell Agreements with certain employees for 3,138,750 shares
of common stock issued to them at no cost under an incentive award program.
These Agreements terminated immediately prior to the IPO and in 1993, the
Company recognized a non-recurring, non-cash charge to incentive compensation
expense of $27,300,700, with a corresponding credit to additional paid in
capital. This amount represented the difference between the IPO price of $9.00
per share, or $28,248,750, and $948,050 previously recognized as expense.
Additionally, $948,050 was reclassified from mandatorily redeemable common stock
to additional paid in capital. The Company recorded a tax benefit of $9,490,000
associated with this charge.
Stock Options
During 1993, the Company implemented an Incentive Compensation Plan whereby
officers and other employees of the Company may be granted stock options, stock
awards, restricted stock, performance share awards or cash awards by the
Compensation Committee of the Board of Directors. A total of 500,000 shares of
common stock have been reserved for issuance under the Plan. The exercise price
of an incentive option may not be less than the fair market value of the shares
subject to the option on the date of the grant and the exercise price of a
non-qualified option may not be less than 85% of the fair market value of the
shares subject to the options on the date of grant. At December 31, 1995,
outstanding options for 332,500 shares had been granted under this plan during
fiscal years 1993 through 1995 at fair market value prices ranging from $5.67 to
$9.00. These options are exercisable over various periods through 1998 and
expire over various periods through 2005. No compensation expense was recognized
in connection with the issuance of options under the Incentive Compensation Plan
and no options have been exercised as of December 31, 1995.
F-14
<PAGE> 66
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1993, the Company also implemented a Director Plan, pursuant to
which each non-employee director will automatically receive options to purchase
1,500 shares of common stock upon first becoming a director and annually
thereafter on the day following the date of the Company's annual meeting of
stockholders at an exercise price equal to the fair market value of the common
stock on the date of grant. A maximum of 50,000 shares may be issued pursuant to
options granted under the Director Plan. As of December 31, 1995, options to
purchase 9,000 shares of common stock at prices ranging from $6.625 per share to
$10.50 per share have been granted under the Director Plan. No compensation
expense was recognized in connection with the issuance of these options. The
stock options outstanding are immediately exercisable over a period of time not
to exceed 5 years after the date of grant. No options have been exercised during
the three years ended October 31, 1995 and the two months ended December 31,
1995.
During 1993, the Company also implemented an Employee Stock Option Plan
(the Employee Plan) to provide for the one-time grant of non-qualified stock
options to purchase shares of common stock to employees meeting certain
eligibility requirements. A total of 160,000 shares of common stock have been
reserved for issuance under the Employee Plan and in September 1993 options for
149,952 shares were granted to certain employees. The fair market value of the
common stock on the date of grant was $10.00. The options with respect to
one-third of the shares became exercisable on September 21, 1995 at a price of
$9.00 per share and were required to be exercised no later than December 21,
1995 or automatically expire. The options with respect to a second one-third of
the shares become exercisable on March 21, 1997 at a price of $10.00 per share
and must be exercised no later than September 21, 1998 or automatically expire.
The options with respect to the final one-third of the shares become exercisable
on March 21, 1998 at a price of $10.00 per share and must be exercised no later
than September 21, 1998 or automatically expire. No compensation expense was
recognized with the issuance of these options. No options have been exercised
during the three years ended October 31, 1995 and the two months ended December
31, 1995. At December 31, 1995, 80,260 options have expired or terminated.
NOTE 9 -- EMPLOYEE BENEFITS
Effective January 1, 1989, the Company established a qualified 401(k)
profit sharing plan (the Plan) for employees. The Plan provides for a 10% match
by the Company for employee contributions of up to 15% of gross pay. Such
employer contributions vest over a period of 5 years and totalled $74,492 in
1993, $80,241 in 1994 and $89,795 in 1995 and $17,038 for the two months ended
December 31, 1995. Under the terms of the Plan, participants may elect to
purchase shares of the Company's common stock on the open market through a
broker.
NOTE 10 -- RELATED PARTY TRANSACTIONS
The Company incurred costs related to property leases with two major
shareholders of $109,402 in 1993, $84,402 in 1994 and $58,935 in 1995. With the
exception of one lease with an annual cost of approximately $15,600, all leases
had been terminated at October 31, 1995.
F-15
<PAGE> 67
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- BUSINESS SEGMENT, GEOGRAPHIC AREA AND MAJOR CUSTOMER INFORMATION
The Company classifies its operations under one business segment, diving
and related revenues. A summary operations by geographical area follows (in
thousands):
<TABLE>
<CAPTION>
UNITED STATES CONSOLIDATED
AFRICA(1) AND OTHER CORPORATE TOTAL
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Year Ended October 31, 1993
Diving and related revenues............... $ 5,489 $45,534 $ -- $ 51,023
Operating income.......................... 1,020 6,407 -- 7,427
Identifiable assets(2).................... 2,206 43,120 2,275 47,601
Year Ended October 31, 1994
Diving and related revenues............... $ 3,889 $48,866 $ -- $ 52,755
Operating income (loss)................... (241) 21 -- (220)
Identifiable assets(2).................... 3,146 56,304 2,157 61,607
Year Ended October 31, 1995
Diving and related revenues............... $18,974 $69,686 $ -- $ 88,660
Operating income (loss)................... 2,883 (1,785) -- 1,098
Identifiable assets(2).................... 10,354 56,877 2,177 69,408
Two Months Ended December 31, 1995
Diving and related revenues............... $ 924 $14,562 $ -- $ 15,486
Operating income (loss)................... (150) 1,346 -- 1,196
Identifiable assets(2).................... 4,436 57,728 1,757 63,921
</TABLE>
- ---------------
(1) Includes the Company's diving and related services provided off the coast of
West Africa and Dubai, United Arab Emirates.
(2) Identifiable assets are those assets used in the Company's operations in
each area. Corporate assets consist of the Company's deferred tax asset.
The Company's ten largest customers accounted for $29,163,000 or 52% during
1993; $23,027,000 or 39% during 1994; $40,451,000 or 46% during 1995 and
$5,591,707 or 65% of the Company's total revenues during the two months ended
December 31, 1995. Of the ten customers, there was one that accounted for more
than 10% of the Company's revenues during each of the following periods:
$15,100,000 or 27% during 1993, $6,022,000 or 10% during 1994, $12,782,000 or
14% during 1995 and $2,445,311 or 16% for the two months ended December 31,
1995.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company becomes involved as a
defendant or plaintiff in various lawsuits. While the outcome of these lawsuits
cannot be predicted with certainty, based upon the evaluation by the Company's
legal counsel of the merits of pending or threatened litigation, management
believes that the outcome of such litigation would not have a material effect on
the accompanying financial statements.
The Company's operations involve a higher degree of operational risk,
product liability and warranty claims than that found in other industries.
Although a successful claim for which the Company is not fully insured could
have a material effect on the Company's financial condition or results of
operations, management is of the opinion that it maintains adequate insurance,
in line with industry standards, to insure itself against the normal risks of
operations.
F-16
<PAGE> 68
AMERICAN OILFIELD DIVERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leases are primarily for buildings and vehicles used in operations and are
classified as operating leases. The amount of future minimum rentals for these
noncancellable leases with terms in excess of one year are as follows at
December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996........................................................ $ 742
1997........................................................ 407
1998........................................................ 124
1999........................................................ 14
------
$1,287
======
</TABLE>
Total rental expense under operating leases was $948,483, $983,214 and
$1,249,196 for the years ended October 31, 1993, 1994 and 1995, respectively and
$153,316 for the two months ended December 31, 1995.
In the ordinary course of business, the Company issues letters of credit
which may be drawn down upon certain events including the Company's failure to
perform under certain contracts. At December 31, 1995, the Company had letters
of credit outstanding totaling $413,000 which expire at various times in fiscal
1996.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
Acquisition
Subsequent to September 30, 1996, a subsidiary of the Company acquired
approximately 97% of the outstanding common stock of Hard Suits Inc., a publicly
traded company on the Toronto and Vancouver Stock Exchanges, for a cash purchase
price of approximately $12,450,000, including estimated transaction costs. The
purchase was funded through borrowings on the Company's line of credit. The
Company intends to acquire the remaining common shares outstanding and to seek
delisting of all shares from both the Toronto and Vancouver Stock Exchanges. The
acquisition will be accounted for under the purchase method of accounting.
Line of Credit
In October 1996, the line of credit agreement was amended to increase the
facility by $5,000,000 in order to facilitate the funding of its purchase of
Hard Suits Inc. until such time as permanent financing is arranged. Advances
under the increased line of credit facility mature on January 31, 1997. At
December 12, 1996, the balance outstanding under the line of credit was
$13,380,605 and bears interest at a prime rate (8.25% at January 10, 1997).
Litigation
In October, 1996, an overseas operator instituted litigation in Edinburgh,
Scotland seeking damages of approximately $3,000,000, plus interest and costs,
against subsidiaries of the Company, on the basis of allegations that a product
supplied by the subsidiaries exhibited design faults upon installation in a
North Sea pipeline. The product was hydrostatically tested onshore and did not
leak and otherwise met the customer's requirements. The product was removed by
the overseas company against the recommendations of the subsidiaries and
replaced before the pipeline was placed in service and the product did not leak
or otherwise malfunction. No environmental damage is alleged. The Company
contends the product was fully suitable for service, intends to defend the claim
vigorously and does not believe that the ultimate resolution of the matter will
have a material adverse impact on the financial position or results of
operations of the Company.
F-17
<PAGE> 69
SELECTED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected unaudited quarterly financial
information.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
1994 1994 1994 1994
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Diving and related revenues.......................... $ 8,305 $ 8,946 $13,570 $ 21,934
Operating income (loss) from continuing operations... (709) (699) (614) 1,802
Income (loss) from continuing operations............. (328) (407) (412) 890
Loss from discontinued operations (including loss on
disposal).......................................... (274) (170) (266) (986)
Net loss............................................. (602) (577) (678) (96)
Earnings (loss) per share:
Continuing operations.............................. (.05) (.06) (.06) .13
Discontinued operations............................ (.04) (.03) (.04) (.14)
Net loss........................................... (.09) (.09) (.10) (.01)
Weighted average common shares outstanding........... 6,695 6,709 6,709 6,709
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
1995 1995 1995 1995
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Diving and related revenues.......................... $ 19,638 $ 12,287 $24,908 $ 31,827
Operating income (loss) from continuing operations... 384 (3,117) 1,632 2,199
Net income (loss).................................... 141 (2,126) 685 971
Earnings (loss) per share............................ .02 (.32) .10 .14
Weighted average common shares outstanding........... 6,709 6,709 6,709 6,709
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
JANUARY 31 APRIL 30 JUNE 30 SEPTEMBER 30
1996 1996 1996 1996
---------- -------- ------- ------------
<S> <C> <C> <C> <C>
Diving and related revenues........................ $ 22,162 $ 19,179 $26,829 $ 33,409
Operating income from continuing operations........ 1,427 595 2,992 5,296
Net income......................................... 709 471 1,735 2,851
Earnings per share................................. .11 .07 .26 .42
Weighted average common shares outstanding......... 6,709 6,726 6,788 6,806
</TABLE>
F-18
<PAGE> 70
AUDITORS' REPORT
To the Shareholders of
Hard Suits Inc.:
We have audited the consolidated balance sheets of Hard Suits Inc. (a
British Columbia company) as at December 31, 1994 and 1995 and the consolidated
statements of operations, deficit and changes in financial position for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1994 and 1995 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles in Canada. As required by the British Columbia Company
Act, we report that, in our opinion, these principles have been applied on a
consistent basis.
ARTHUR ANDERSEN & CO.
Vancouver, British Columbia
March 8, 1996.
Comments by Auditors for United States of America Readers
On Canada-United States Reporting Conflict
In the United States of America, reporting standards for auditors require
the addition of an explanatory paragraph when the consolidated financial
statements are affected by significant uncertainties such as described in Note 1
("Future Operations") to the consolidated financial statements. Our report to
the shareholders dated March 8, 1996 is expressed in accordance with Canadian
reporting standards, which do not permit a reference to such uncertainties in
the auditors' report when the uncertainties are adequately disclosed in the
consolidated financial statements.
ARTHUR ANDERSEN & CO.
Vancouver, British Columbia
March 8, 1996.
F-19
<PAGE> 71
HARD SUITS INC.
CONSOLIDATED BALANCE SHEETS
ASSETS (Note 9)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................ $ 1,556,614 $ 1,049,147
Accounts receivable, net........................................ 2,009,024 2,986,264
Inventories (Note 4)............................................ 1,403,670 780,188
Prepaid expenses and other...................................... 215,032 173,202
----------- -----------
5,184,340 4,988,801
DUE FROM AFFILIATE (Note 5)....................................... 43,057 167,247
RECEIVABLE........................................................ 252,369 --
EQUIPMENT AND OTHER CAPITAL ASSETS (Note 6)....................... 3,642,636 3,870,281
PATENTS, net of accumulated amortization of $745,485 (1994 --
$346,671)....................................................... 398,814 --
DEFERRED DEVELOPMENT COSTS (Note 7)............................... 671,264 469,295
DEFERRED FINANCING COSTS.......................................... 33,521 --
----------- -----------
$10,226,001 $ 9,495,624
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........................ $ 1,671,833 $ 3,089,167
Income taxes payable............................................ 15,491 20,615
Due to affiliates (Note 8)...................................... 91,309 562,506
Debt, current portion (Note 9).................................. 303,557 417,510
Customer deposits............................................... -- --
----------- -----------
2,082,190 4,089,798
DEFERRED REVENUE.................................................. -- --
DEBT (Note 9)..................................................... 709,545 650,997
DEFERRED INCOME TAXES............................................. 10,641 --
NON-CONTROLLING INTEREST (Note 10)................................ 1,206,490 1,189,592
----------- -----------
4,008,866 5,930,387
----------- -----------
CONTINGENCY (Note 17)
SHAREHOLDERS' EQUITY:
Share capital (Note 11)......................................... 8,976,921 9,927,263
Deficit......................................................... (2,850,063) (6,373,871)
Cumulative translation adjustment............................... 90,277 11,845
----------- -----------
6,217,135 3,565,237
----------- -----------
$10,226,001 $ 9,495,624
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 72
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Revenue........................................................... $10,314,362 $18,247,983
Cost of sales..................................................... 6,778,250 16,325,686
----------- -----------
Gross profit............................................ 3,536,112 1,922,297
----------- -----------
Selling expenses:
Salaries and other.............................................. 600,637 279,623
Commissions..................................................... 117,862 60,687
----------- -----------
718,499 340,310
----------- -----------
Administrative expenses:
Management fees (Note 13)....................................... 223,379 1,138,652
Office.......................................................... 580,178 1,034,426
Salaries and wages.............................................. 469,532 971,155
Professional fees............................................... 265,623 638,985
Insurance....................................................... 658,379 558,626
Rent............................................................ 271,722 307,518
Interest, royalties and bank charges............................ 44,811 133,242
Corporate promotion............................................. 77,459 91,631
Securities fees................................................. 38,449 48,780
----------- -----------
2,629,532 4,923,015
----------- -----------
3,348,031 5,263,325
----------- -----------
Income (loss) before provision for (recovery of) income
taxes................................................ 188,081 (3,341,028)
Provision for (recovery of) income taxes (Note 14)................ (145,122) 4,211
----------- -----------
Income (loss) before non-controlling interest........... 333,203 (3,345,239)
Non-controlling interest in (income) loss......................... (100,827) 178,569
----------- -----------
Net income (loss)....................................... $ 434,030 $(3,523,808)
=========== ===========
Income (loss) per share -- Basic (Note 12)........................ $ 0.06 $ (0.42)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 73
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
DEFICIT, beginning of year........................................ $(3,278,485) $(2,850,063)
Net income (loss)................................................. 434,030 (3,523,808)
Acquisition of BMD Can-Dive Ltd. (Note 3)......................... (5,608) --
----------- -----------
DEFICIT, end of year.............................................. $(2,850,063) $(6,373,871)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 74
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)................................................ $ 434,030 $(3,523,808)
Add (deduct) items not affecting cash --
Depreciation and amortization................................. 666,390 2,090,213
Non-controlling interest...................................... 100,827 178,569
Deferred income taxes......................................... (38,980) (10,641)
----------- -----------
1,162,267 (1,265,667)
Change in non-cash working capital accounts (Note 16).............. (2,274,356) 1,362,899
----------- -----------
(1,112,089) 97,232
----------- -----------
CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from stock private placement............................ -- --
Common shares issued for cash, net of issuance expenses.......... 97,658 950,342
Advances from (to) affiliates.................................... (862,789) 347,007
Debt issuance (repayment)........................................ (98,046) 55,405
Joint venturer's advances........................................ 821,806 (195,467)
Common shares issued in settlement of debts...................... 60,000 --
Funds held in trust.............................................. 4,173,195 --
Proceeds from stock options exercised............................ -- --
----------- -----------
4,191,824 1,157,287
----------- -----------
CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES:
Deferred revenue................................................. -- --
Proceeds from disposal of equipment.............................. 55,348 20,591
Equipment purchases.............................................. (1,596,967) (1,357,289)
Development costs incurred and deferred.......................... (342,962) (346,856)
Cumulative translation account................................... 90,277 (78,432)
Acquisition of subsidiary (Note 3) --
Cash acquired................................................. 245,583 --
----------- -----------
(1,548,721) (1,761,986)
----------- -----------
Increase (decrease) in cash.............................. 1,531,014 (507,467)
CASH, beginning of year............................................ 25,600 1,556,614
----------- -----------
CASH, end of year.................................................. $ 1,556,614 $ 1,049,147
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 75
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. FUTURE OPERATIONS
The consolidated financial statements of Hard Suits Inc. (the "Company")
are prepared on a going-concern basis, which assumes that the Company will
continue realizing its assets and discharging its liabilities in the normal
course of business, and accordingly do not reflect adjustments in the carrying
value and classifications of the assets and liabilities that would be required
if this assumption were not valid.
The Company experienced a loss of approximately $3.5 million in 1995 and
had working capital of approximately $.9 million at December 31, 1995. The
Company's first quarter, for seasonal reasons, is historically unprofitable and,
consequently, additional financing may be required in 1996.
The Company's management has implemented a business plan for 1996 which
calls for revenues at approximately the same level as in 1995, an increase in
margins and a reduction in administrative expenses. Management expects the
Company to return to profitability in 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, International Hard Suits Ltd. and Can-Dive
Marine Services Ltd. ("CDMS"). The accounts of CDMS include the accounts of its
subsidiaries, GMC-Candive Limited based in Aberdeen, Scotland, CDC Can-Dive Ltd.
based in Vancouver, British Columbia, BMD Can-Dive Ltd. based in Toronto,
Ontario, and United Marine Services J.V. based in Spokane, Washington. All
material intercompany balances and transactions have been eliminated.
Subsequent to year-end, BMD Can-Dive Ltd. was closed down. Costs relating
to the closure have been accrued in the consolidated financial statements.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies have been
translated at the exchange rate prevailing at the balance sheet date. Revenues
and expenses denominated in foreign currencies have been translated at the
exchange rate on the transaction date. Gains and losses resulting from
translation of foreign currencies are recognized in the statement of operations
during the year in which they arise.
Financial statements of self-sustaining foreign operations are translated
into Canadian dollars as follows:
- assets and liabilities using the exchange rates in effect at the balance
sheet dates;
- revenue and expense items at approximate exchange rates prevailing at the
time the transactions occurred;
- unrealized translation gains and losses are deferred and included as a
separate component of shareholders' equity. These cumulative currency
translation adjustments are recognized in income when there has been a
reduction in the net investment in the self-sustaining foreign operation.
Inventories
Inventories of raw materials and components are carried at the lower of
cost and net realizable value. Work-in-progress represents costs and estimated
profits (based on the percentage of completion) in excess of billings and
customer deposits.
F-24
<PAGE> 76
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Equipment and Other Capital Assets
Equipment and other capital assets are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided using
the following methods and rates:
<TABLE>
<CAPTION>
ASSETS METHOD RATE
- ----------------------- ------------------ --------------
<S> <C> <C>
Equipment Declining-balance 20% per annum
Straight-line 5 years
Computer equipment Straight-line 2 years
Patterns and dies Straight-line Over 24 suits
Leasehold improvements Straight-line 5 years
Demonstration units Declining-balance 20% per annum
</TABLE>
Development Costs
Costs relating to new products under development are deferred until
commercial production of the product commences, at which time amortization
begins. Costs relating to products that management determines to be no longer
viable are fully written off at that time.
The 2000 foot NEWTSUIT and Shallow Water NEWTSUIT are still under
development and, consequently, an appropriate amortization period has not yet
been determined.
Revenue Recognition
Revenue on units in production under sales contracts is recorded using the
percentage of completion method.
Revenue on services is recorded in the period when services are rendered.
Comparative Figures
Certain of the comparative figures for the year ended December 31, 1994
have been reclassified to conform with the current year's presentation.
F-25
<PAGE> 77
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITION
On June 1, 1995, the Company acquired the remaining 49% interest in BMD
Can-Dive Ltd. The acquisition was accounted for by the purchase method and,
since the transaction was between related parties, the purchase price for
accounting purposes was based upon the historical cost balances of BMD Can-Dive
Ltd. as follows:
<TABLE>
<S> <C> <C>
Assets acquired:
Cash......................................................... $ 23,510
Accounts receivable.......................................... 83,437
Inventories.................................................. 244
Prepaid expenses............................................. 6,629
Property and equipment, net.................................. 72,221
--------
186,041
Liabilities assumed:
Accounts payable and accrued liabilities..................... $ 57,814
Shareholder loans............................................ 184,835 242,649
-------- --------
Net liabilities assumed.............................. (56,608)
Goodwill purchased................................... 52,026
--------
Purchase price payable............................... $ 4,582
========
</TABLE>
Additional consideration of up to $40,833 may be payable to the vendor and
is dependent upon the amount realized on a specific account receivable.
4. INVENTORIES
<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Work-in-progress............................................. $ 16,102 $213,603
Raw materials................................................ 519,465 5,421
Components................................................... 868,103 561,164
---------- --------
$1,403,670 $780,188
========== ========
</TABLE>
5. DUE FROM AFFILIATE
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Due from Nuytco Services Ltd.................................... $43,057 $167,247
======= ========
</TABLE>
F-26
<PAGE> 78
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EQUIPMENT AND OTHER CAPITAL ASSETS
<TABLE>
<CAPTION>
1994 1995
---------- -----------
NET BOOK ACCUMULATED NET BOOK
VALUE COST DEPRECIATION VALUE
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Equipment......................... $2,281,309 $5,486,481 $ 2,468,387 $3,018,094
Patterns and dies................. 20,137 223,402 215,817 7,585
Leasehold improvements............ 108,524 218,096 135,381 82,715
Computer equipment................ 144,919 217,162 155,943 61,219
Demonstration units............... 103,390 211,094 128,594 82,500
Projects in progress.............. 984,357 618,168 -- 618,168
---------- ---------- ---------- ----------
$3,642,636 $6,974,403 $ 3,104,122 $3,870,281
========== ========== ========== ==========
</TABLE>
7. DEFERRED DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1994 1995
-------- -----------
NET BOOK ACCUMULATED NET BOOK
VALUE COST DEPRECIATION VALUE
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Shallow Water NEWTSUIT(TM)........... $213,011 $ 359,770 $ -- $359,770
2000 foot NEWTSUIT(TM)............... -- 100,833 -- 100,833
Other................................ 85,159 118,053 109,361 8,692
1200 foot NEWTSUIT(TM)............... 44,108 200,366 200,366 --
Sea Urchin assets and technology..... 271,631 364,857 364,857 --
Thruster packs....................... 40,708 74,690 74,690 --
Rotary Joint Developments............ 16,647 25,604 25,604 --
-------- ---------- -------- --------
$671,264 $1,244,173 $ 774,878 $469,295
======== ========== ======== ========
</TABLE>
During the year, the Company wrote off the deferred costs related to the
1200 foot NEWTSUIT, Sea Urchin, Thruster Pack and Rotary Joint Developments as
management does not currently intend to continue developing these products.
8. DUE TO AFFILIATES
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Due to Nuytco Services Ltd...................................... $ -- $562,506
Due to Totem Art Ltd............................................ 2,978 --
Due to Can-Dive Services Ltd.................................... 14,179 --
Due to Can-Dive Services (1991) Ltd............................. 74,152 --
------- --------
$91,309 $562,506
======= ========
</TABLE>
F-27
<PAGE> 79
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. DEBT
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Venture term loan repayable at $12,000 per month May 23,
1994 to December 23, 1996. Interest at 11.25% plus
royalties on gross annual sales (1.3% of first $3,000,000,
0.6% of balance) is payable for the duration of the loan.
The loan is secured by a general security agreement on
substantially all the assets of the Company, corporate
guarantee by an affiliated company and assignment of life
insurance................................................. $ 288,000 $ 144,000
Long-term loan repayable at $4,749 per month including
interest at 10% to August 1998, secured by a general
security agreement on substantially all the assets of the
Company's subsidiary...................................... 175,642 140,150
Customer advance, non-interest bearing and payable on
demand.................................................... 310,000 250,000
Government assistance received in connection with product
development, unsecured, and repayable in quarterly
installments of $4,179, without interest.................. 20,891 4,175
Government assistance received for inventory financing,
non-interest bearing, unsecured and repayable at $7,000
per completed suit and $3,000 per Thruster pack sold. Any
unpaid balance is due and payable December 31, 1996....... 190,000 145,472
Government assistance received for product development, non-
interest bearing, unsecured, and repayable in twelve equal
quarterly installments beginning July 31, 1996 and ending
April 30, 1999............................................ -- 340,467
Government assistance received for implementation of quality
standard to achieve ISO certification, non-interest
bearing, unsecured and repayable in two equal annual
installments on March 31, 1996 and 1997................... 28,569 44,243
---------- ----------
1,013,102 1,068,507
Less -- Current portion..................................... 303,557 417,510
---------- ----------
$ 709,545 $ 650,997
========== ==========
</TABLE>
The customer advance has been classified as long term as the customer has
indicated it will not demand repayment prior to December 31, 1996.
In summary, principal repayments of debt are as follows:
<TABLE>
<S> <C>
Year ending December 31 --
1996...................................................... $ 417,510
1997...................................................... 435,317
1998...................................................... 158,936
1999...................................................... 56,744
----------
$1,068,507
==========
</TABLE>
F-28
<PAGE> 80
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. NON-CONTROLLING INTEREST
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Joint venturers' advances, non-interest bearing and have no
specific terms of repayment............................... $1,023,459 $ 827,992
Non-controlling interest.................................. 183,031 361,600
---------- ----------
$1,206,490 $1,189,592
========== ==========
</TABLE>
11. SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Authorized
100,000,000 common shares, no par value.....................
5,000,000 Class "A" performance shares, no par value........
Issued
8,677,188 common shares (1994- 7,971,764)................... $8,951,921 $9,902,263
2,500,000 Class "A" performance shares...................... 25,000 25,000
---------- ----------
$8,976,921 $9,927,263
========== ==========
</TABLE>
Performance Shares
The Class "A" performance shares are convertible into common shares up to
June 29, 2000. Three Class "A" performance shares are convertible into one
common share for every $2.40 of cash flow generated from sales derived from the
Sea Urchin assets. The Class "A" performance shares are voting and non-
participatory. Any Class "A" performance share not converted by June 29, 2000
will be gifted back to the Company for cancellation. As at December 31, 1995, no
Class "A" performance shares had been converted.
Common Shares
A summary of the changes in common shares is as follows:
<TABLE>
<CAPTION>
1994 1995
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Balance, beginning of year.............. 5,236,454 $4,557,418 7,971,764 $8,951,921
Exercise of various share purchase
options............................... 9,333 11,200 405,424 494,342
Issue of common shares from treasury.... -- -- 300,000 456,000
Exercise of special warrants, net of
issuance costs of $241,033............ 2,380,950 3,995,812 -- --
Exercise of share purchase warrants..... 256,410 200,000 -- --
Exercise of share warrants.............. 60,710 127,491 -- --
Issue of common shares upon settlement
of a debt............................. 27,907 60,000 -- --
--------- ---------- --------- ----------
Balance, end of year.................... 7,971,764 $8,951,921 8,677,188 $9,902,263
========= ========== ========= ==========
</TABLE>
F-29
<PAGE> 81
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Share Purchase Options
The following is a summary of the share purchase options granted by the
Company and outstanding as at December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EXERCISE
OPTIONEE SHARES PRICE EXPIRY DATE
------------------------------------------- --------- -------- ------------------
<S> <C> <C> <C>
Executive officers......................... 50,000 $ 2.20 March 9, 1999
30,000 1.41 January 24, 2000
80,000 1.55 March 31, 2000
35,000 1.68 May 26, 2000
65,000 1.78 May 26, 2000
290,000 1.04 December 13, 2000
Employees.................................. 166 1.20 July 14, 1998
4,000 2.20 March 9, 1999
14,500 1.41 January 24, 2000
61,500 1.68 May 26, 2000
54,000 1.04 December 13, 2000
Others..................................... 50,000 1.80 January 22, 1996
100,000 2.21 January 22, 1996
95,239 1.41 January 24, 2000
105,000 1.68 May 26, 2000
100,000 1.04 December 13, 2000
Total............................ 1,134,405
=========
</TABLE>
12. EARNINGS PER SHARE
The earnings per share figures are calculated using the weighted average
number of shares outstanding during the respective fiscal years.
13. RELATED PARTY TRANSACTIONS
(a) Management fees of $150,000 (1994- $148,000) were paid to a company
controlled by a shareholder and officer. Management fees of $988,652
(1994- $75,379) were paid to the joint venture partners.
(b) Sales of $125,000 (1994- $144,534) were with a company controlled by a
shareholder and officer.
F-30
<PAGE> 82
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INCOME TAXES
The Company's provision for (recovery of) income taxes is determined as
follows:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Combined federal and provincial income tax rates........... 45.34% 45.62%
========= ===========
Provision for (recovery of) income taxes based on the
combined federal and provincial tax rates................ $ 78,778 $(1,524,177)
Increase (decrease) in provision for income taxes resulting
from --
Benefit of loss carryforward and other deductions not
recognized............................................ -- 1,688,151
Utilization of loss carryforwards not previously
recognized............................................ (263,846) (133,307)
Stock issuance fees deductible for tax purposes.......... (85,610) (86,139)
Life insurance not deductible for tax purposes........... -- 62,795
Lower effective tax rates on the losses of foreign
subsidiaries.......................................... 131,581 --
Other items.............................................. (6,025) (3,112)
--------- -----------
$(145,122) $ 4,211
========= ===========
</TABLE>
The Company has available non-capital losses of approximately $2,000,000
(1994- $480,000) which may be carried forward to reduce future income for tax
purposes up to and including 2002. The potential tax benefit of these loss
carryforwards have not been recognized in these consolidated financial
statements.
15. OPERATING LEASE COMMITMENTS
The Company has entered into a number of agreements to lease office and
shop facilities and office equipment. The aggregate future minimum lease
payments under these agreements are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31--
- -------------------------
<S> <C> <C>
1996........................................................... $238,000
1997........................................................... 188,000
1998........................................................... 15,000
</TABLE>
16. CHANGE IN NON-CASH WORKING CAPITAL ACCOUNTS
<TABLE>
<CAPTION>
1994 1995
----------- ----------
<S> <C> <C>
Accounts receivable........................................ $ (804,971) $ (724,871)
Inventories................................................ (1,335,497) 623,482
Prepaid expenses and other................................. (103,113) 41,830
Accounts payable and accrued liabilities................... (46,266) 1,417,334
Income taxes payable....................................... 15,491 5,124
----------- ----------
$(2,274,356) $1,362,899
=========== ==========
</TABLE>
17. CONTINGENCY
An action has been raised against GMC-Candive Limited by a supplier in the
value of approximately $57,000 (L26,981). The directors of GMC-Candive Limited
believe that the case will be successfully defended and, accordingly, no amount
has been provided for in the consolidated financial statements.
F-31
<PAGE> 83
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. DIFFERENCES IN ACCOUNTING POLICIES BETWEEN THE UNITED STATES AND CANADA
In certain respects, Canadian generally accepted accounting principles
("Canadian GAAP") differ from United States of America generally accepted
accounting principles ("U.S. GAAP"). The financial statements have been prepared
in accordance with Canadian GAAP, which are in agreement with U.S. GAAP, except
as set forth below.
Consolidated Balance Sheets
If U.S. GAAP were applied, the condensed consolidated balance sheets would
be adjusted as follows:
<TABLE>
<CAPTION>
1994 1995
-------------------------- --------------------------
CANADIAN U.S. CANADIAN U.S.
GAAP GAAP GAAP GAAP
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Deferred Development Costs
(Note 18(a))................. $ 671,264 $ -- $ 469,295 $ --
Share Capital (Note 18(b))....... $ 8,976,921 $ 8,997,657 $ 9,927,263 $ 9,927,263
Deficit (Notes 18(a) and (b)).... $(2,850,063) $(3,542,063) $(6,373,871) $(6,843,166)
</TABLE>
Consolidated Statements of Operations and Deficit
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Net income (loss) according to Canadian GAAP............... $ 434,030 $(3,523,808)
Development costs (Note 18(a))............................. (342,966) (347,304)
Non-cash compensation expense (Note 18(b))................. (20,736) --
--------- -----------
Net income (loss) according to U.S. GAAP.............. $ 70,328 $(3,871,112)
========= ===========
Income (loss) per share -- Basic according to U.S.
GAAP................................................ $ 0.01 $ (0.46)
========= ===========
</TABLE>
- ---------------
(a) Canadian GAAP permits the deferral of development costs if certain criteria
are met. Under U.S. GAAP, development costs are charged to expense as
incurred.
(a) Options to purchase shares of the Company were issued to employees at prices
which were below the estimated fair market value of the options at the date
of granting. Under Canadian GAAP, the issuance of these shares is recorded
as an increase to the capital stock of the Company at the issue price of the
shares. Under U.S. GAAP, the difference between the estimated fair market
value of the shares subject to the option at the date of granting and the
exercise price of the options is required to be charged to expense, with the
corresponding amount being credited to capital stock.
Additional Disclosures Under U.S. GAAP
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes", U.S. GAAP
requires that the Company use the liability method of accounting for income
taxes. Deferred income taxes are recognized on the difference between financial
statement and income tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. The
provision for income taxes represents the total of income taxes paid or payable
for the current year, plus the change in deferred taxes during the year.
Deferred tax assets totalling approximately $1.5 million at December 31,
1994 and $2.8 million at December 31, 1995 consist primarily of the tax effect
of net operating loss carryforwards and the difference
F-32
<PAGE> 84
HARD SUITS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
between the financial statement reporting and the tax bases of capital assets
which are not yet deductible for tax purposes. The Company has provided a full
valuation allowance on the deferred tax asset because of uncertainty regarding
realizability.
F-33
<PAGE> 85
HARD SUITS INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash........................................................................... $ 58,144
Accounts receivable, net....................................................... 948,619
Inventories.................................................................... 832,284
Prepaid expenses and other..................................................... 185,840
----------
2,024,887
DUE FROM AFFILIATE............................................................... --
RECEIVABLE....................................................................... --
EQUIPMENT AND OTHER CAPITAL ASSETS............................................... 3,528,078
DEFERRED DEVELOPMENT COSTS....................................................... 738,942
----------
$6,291,907
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities....................................... $2,381,279
Income taxes payable........................................................... 36,579
Due to affiliates.............................................................. 609,626
Debt, current portion.......................................................... 399,761
Customer deposits.............................................................. 61,400
----------
3,488,645
DEFERRED REVENUE................................................................. 97,980
DEBT............................................................................. 642,981
NON-CONTROLLING INTEREST......................................................... 1,161,940
----------
5,391,546
----------
CONTINGENCY
SHAREHOLDERS' EQUITY:
Share capital.................................................................. 10,492,334
Deficit........................................................................ (9,597,437)
Cumulative translation account................................................. 5,464
----------
900,361
----------
$6,291,907
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 86
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenue........................................................... $12,681,863 $ 5,062,475
Cost of sales..................................................... 9,929,037 4,937,202
----------- -----------
Gross profit............................................ 2,752,826 125,273
----------- -----------
Selling expenses:
Salaries and other.............................................. 321,992 195,392
Commissions..................................................... 32,250 12,963
----------- -----------
354,242 208,355
----------- -----------
Administrative expenses:
Management fees................................................. 112,500 170,229
Office.......................................................... 492,858 479,486
Salaries and wages.............................................. 707,732 1,096,817
Professional fees............................................... 266,983 462,498
Insurance....................................................... 456,030 481,761
Rent............................................................ 243,086 199,712
Interest, royalties and bank charges............................ 119,920 52,429
Corporate promotion............................................. 79,288 37,809
Securities fees................................................. 41,827 69,009
----------- -----------
2,520,224 3,049,750
----------- -----------
2,874,466 3,258,105
----------- -----------
Loss before provision for (recovery of) income taxes......... (121,640) (3,132,832)
Provision for (recovery of) income taxes.......................... -- --
----------- -----------
Loss before non-controlling interest......................... (121,640) (3,132,832)
Non-controlling interest in loss.................................. 293,153 90,734
----------- -----------
Net loss................................................ $ (414,793) $(3,223,566)
=========== ===========
Loss per share -- Basic........................................... $ (0.05) $ (0.35)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 87
HARD SUITS INC.
CONSOLIDATED STATEMENT OF DEFICIT (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
DEFICIT, beginning of year........................................ $(2,850,063) $(6,373,871)
Net loss.......................................................... (414,793) (3,223,566)
----------- -----------
DEFICIT, end of year.............................................. $(3,264,856) $(9,597,437)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 88
HARD SUITS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
Net loss........................................................ $ (414,793) $(3,223,566)
Add (deduct) items not affecting cash --
Depreciation and amortization................................ 721,741 778,684
Non-controlling interest..................................... (327,229) 90,734
Deferred income taxes........................................ (352) --
----------- -----------
(20,633) (2,354,148)
Change in non-cash working capital accounts....................... (1,268,735) 1,342,406
----------- -----------
(1,289,368) (1,011,742)
----------- -----------
CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from stock private placement........................... 456,000 --
Advances from (to) affiliates................................... (30,447) 214,367
Debt issuance (repayment)....................................... 39,434 (25,765)
Joint venturer's advances....................................... -- (118,386)
Proceeds from stock options exercised........................... 496,163 565,071
----------- -----------
961,150 635,287
----------- -----------
CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES:
Deferred revenue................................................ 21,335 97,980
Equipment purchases............................................. (908,767) (394,423)
Development costs incurred and deferred......................... (184,042) (311,704)
Cumulative translation account.................................. (26,163) (6,401)
----------- -----------
(1,097,637) (614,548)
----------- -----------
Decrease in cash............................................. (1,425,855) (991,003)
CASH, beginning of year........................................... 1,556,614 1,049,147
----------- -----------
CASH, end of year................................................. $ 130,759 $ 58,144
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE> 89
HARD SUITS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The financial statements are presented in accordance with generally
accepted accounting principles in Canada. Amounts are expressed in Canadian
dollars.
The accompanying financial statements for the nine months ended September
30, 1995 and 1996 are unaudited. In management's opinion, such interim financial
statements reflect all normal recurring adjustments necessary for a fair
statement of the results of operations for such interim periods. These interim
financial statements should be read in conjunction with the Company's audited
financial statements included herein. The results of operations for the interim
period are not necessarily indicative of the results expected for the complete
year.
NOTE 2 -- RECONCILIATION OF ACCOUNTING POLICIES BETWEEN THE UNITED STATES AND
CANADA
In certain respects, Canadian generally accepted accounting principles
("Canadian GAAP") differ from United States of America generally accepted
accounting principles ("U.S. GAAP"). The financial statements have been prepared
in accordance with Canadian GAAP, which are in agreement with U.S. GAAP, except
as set forth below.
Consolidated Balance Sheets
If U.S. GAAP were applied, the condensed consolidated balance sheets would
be adjusted as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
CANADIAN U.S.
GAAP GAAP
----------- ------------
(UNAUDITED)
<S> <C> <C>
Deferred Development Costs (Note (a)).................... $ 738,942 $ --
Deficit (Note (a))....................................... $(9,597,437) $(10,336,359)
</TABLE>
Consolidated Statements of Operations and Deficit
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Net loss according to Canadian GAAP...................... $ (414,793) $ (3,223,566)
Development costs (Note (a))............................. (86,986) (269,667)
----------- ------------
Net loss according to U.S. GAAP........................ $ (501,779) $ (3,493,233)
=========== ============
Loss per share -- Basic according to U.S. GAAP......... $ (0.06) $ (0.41)
=========== ============
</TABLE>
- ---------------
(a) Canadian GAAP permits the deferral of development costs if certain criteria
are met. Under U.S. GAAP, development costs are charged to expense as
incurred.
Additional Disclosures Under U.S. GAAP
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes", U.S. GAAP
requires that the Company use the liability method of accounting for income
taxes. Deferred income taxes are recognized on the difference between financial
statement and income tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. The
provision for income taxes
F-38
<PAGE> 90
HARD SUITS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
represents the total of income taxes paid or payable for the current year, plus
the change in deferred taxes during the year.
Deferred tax assets totalling approximately $3.8 million at September 30,
1996 consist primarily of the tax effect of net operating loss carryforwards and
the difference between the financial statement reporting and the tax bases of
capital assets which are not yet deductible for tax purposes. The Company has
provided a full valuation allowance on the deferred tax asset because of
uncertainty regarding realizability.
F-39
<PAGE> 91
AMERICAN OILFIELD DIVERS, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined financial statements reflect the
acquisition by American Oilfield Divers, Inc. (the Company) of Hard Suits Inc.
(HSI) combined using the purchase method of accounting. Under the purchase
method of accounting, the total purchase cost has been allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based on
respective estimated fair values, with any remaining unallocated purchase price
applied to goodwill. The Company's management is evaluating its appraisals of
the assets and liabilities of HSI and the allocation between the tangible and
intangible assets noted above is subject to change based upon final
determination of such values. The pro forma balance sheet combines the
historical statements of the two entities assuming the acquisition occurred on
September 30, 1996. The pro forma statements of operations combine the
historical statement of the Company for the year ended October 31, 1995 with
that of HSI for the year ended December 31, 1995, the most recent fiscal years,
and the historical statements of both entities for the nine months ended
September 30, 1996, assuming the acquisition occurred on November 1, 1994. The
historical balance sheet and statements of operations of HSI reflected in the
pro forma financial statements have been converted to United States generally
accepted accounting principles expressed in United States dollars. These
unaudited pro forma financial statements should be read in conjunction with the
historical financial statements and notes thereto of the Company and HSI
included elsewhere in this document.
The unaudited pro forma combined financial statements do not purport to
present the actual financial position or results of operations of the Company as
if the acquisition of HSI and the events assumed in connection therewith had in
fact occurred on the dates specified, nor are they necessarily indicative of the
results of operations that may be achieved in the future.
F-40
<PAGE> 92
AMERICAN OILFIELD DIVERS, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AMERICAN PRO FORMA
OILFIELD HARD ------------------------
DIVERS, INC. SUITS INC. ADJUSTMENTS COMBINED
------------ ---------- ----------- --------
(NOTE 1) (NOTE 2)
<S> <C> <C> <C> <C>
Current assets................................. $ 38,565 $ 1,486 $ 23 $40,074
Property, plant and equipment, net............. 31,731 2,588 3,412 37,731
Other assets................................... 956 -- -- 956
Patents on purchased technology and other
intangible assets............................ 1,037 -- 8,900(a) 9,937
Goodwill....................................... 710 -- 1,942(a) 2,652
-------- --------- ------- -------
$ 72,999 $ 4,074 $14,277 $91,350
======== ========= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings under line of credit agreement...... $ 4,033 $ -- $12,450(b) $16,483
Current portion of long-term debt.............. 1,500 293 -- 1,793
Other current liabilities...................... 12,801 2,267 -- 15,068
-------- --------- ------- -------
Total current liabilities............ 18,334 2,560 12,450 33,344
Deferred tax liability......................... 1,200 -- 1,942(c) 3,142
Other liabilities.............................. -- 71 -- 71
Long-term debt, less current portion........... 8,500 472 -- 8,972
Advances and non-controlling interest.......... -- 853 -- 853
-------- --------- ------- -------
Total liabilities.................... 28,034 3,956 14,392 46,382
-------- --------- ------- -------
Minority interest.............................. -- -- 3(d) 3
Stockholders' equity:
Common stock
American Oilfield Divers, Inc............. 1,368 -- 1,368
Hard Suits Inc............................ -- 7,698 (7,698)(e) --
Additional paid-in capital................... 41,548 -- -- 41,548
Foreign currency translation adjustments..... (131) 3 (3)(e) (131)
Retained earnings (accumulated deficit)...... 2,180 (7,583) 7,583(e) 2,180
-------- --------- ------- -------
Total stockholders' equity........... 44,965 118 (118) 44,965
-------- --------- ------- -------
$ 72,999 $ 4,074 $14,277 $91,350
======== ========= ======= =======
</TABLE>
See accompanying Notes to the pro forma balance sheet.
F-41
<PAGE> 93
AMERICAN OILFIELD DIVERS, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
Note 1 -- The historical balance sheet and statements of operations of HSI,
a Canada Corporation, have been converted to United States generally accepted
accounting principles expressed in United States dollars (converted at an
estimated exchange rate of .734 United States dollar for each Canadian dollar).
Note 2 -- During the period beginning October 31, 1996 and ending November
15, 1996, the Company purchased approximately 9.6 million common shares or 97%
of HSI for a cash purchase price of approximately $12.4 million including
estimated direct expenses of approximately $600,000. The following is a summary
of the allocation of the purchase price to the assets acquired and liabilities
assumed (in thousands).
<TABLE>
<S> <C>
Current assets................................................... $ 1,509
Property, plant and equipment.................................... 6,000
Patents on purchased technology and other intangible assets...... 8,900
Goodwill......................................................... 1,942
Liabilities assumed.............................................. (3,959)
Deferred tax liability........................................... (1,942)
-------
$12,450
=======
</TABLE>
The purchase price was allocated to the assets of HSI based on estimated
fair value, with any remaining unallocated purchase price applied to goodwill.
Property, plant and equipment acquired was valued at estimated fair market
value. Patents on purchased technology products that have reached technological
feasibility were valued using a risk adjusted cash flow model under which net
future net cash flows were discounted, taking into account risks related to
existing and future markets and assessments of the life expectancy of the
completed technology. Future net cash flows represent management's estimate of
the future cash inflows expected to be generated from projected sales, including
signed and/or pending contracts, less the future cash outflows expected to
obtain those inflows which consist of direct and indirect costs. The ultimate
allocation of the purchase price between tangible and intangible assets to the
assets acquired is subject to change based on the final determination of their
respective fair values.
Pro forma adjustments reflect:
(a) Allocation of purchase price based on estimated fair values of assets
acquired.
(b) Borrowings under the Company's line of credit to purchase shares of
HSI.
(c) Deferred tax liability resulting from excess of book basis over tax
basis of depreciable assets, net of deferred tax asset related to
operating loss carryforwards.
(d) Minority interest of HSI (approximately 3%).
(e) Elimination of stockholders' equity accounts of HSI.
F-42
<PAGE> 94
AMERICAN OILFIELD DIVERS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMERICAN PRO FORMA
OILFIELD HARD ------------------------
DIVERS, INC. SUITS INC. ADJUSTMENTS COMBINED
------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
Diving and related revenues...................... $ 79,466 $ 3,714 $ -- $ 83,180
-------- --------- --------- --------
Costs and expenses:
Diving and related expenses.................... 51,657 3,622 -- 55,279
Selling, general and administrative expenses... 14,759 1,979 -- 16,738
Depreciation and amortization.................. 4,737 572 1,376(a) 6,685
-------- --------- --------- --------
Total costs and expenses............... 71,153 6,173 1,376 78,702
-------- --------- --------- --------
Operating income (loss).......................... 8,313 (2,459) (1,376) 4,478
-------- --------- --------- --------
Other income (expense):
Interest expense............................... (817) (38) (794) (b) (1,649)
Other income................................... 664 -- -- 664
Non controlling interest in earnings of
subsidiaries................................ -- (67) -- (67)
-------- --------- --------- --------
Total other expense.................... (153) (105) (794) (1,052)
-------- --------- --------- --------
Income (loss) before income taxes................ 8,160 (2,564) (2,170) 3,426
-------- --------- --------- --------
Income tax expense (benefit)..................... 3,470 -- (321) (c) 3,149
-------- --------- --------- --------
Net income (loss)................................ $ 4,690 $ (2,564) $ (1,849) $ 277
======== ========= ========= ========
Net income per share............................. $ .69 .04
======== ========
Weighted average common shares outstanding....... 6,769 6,769
======== ========
</TABLE>
Pro forma adjustments:
- ---------------
(a) Additional depreciation of property and equipment using the
straight-line method based on estimated useful lives ranging from 5 to
10 years. Amortization of patents on purchased technology and
intangible assets using the straight-line method based on estimated
useful lives ranging from 5 to 10 years, and amortization of goodwill
over 10 years.
(b) Interest charges on borrowings of $12,450,000 on line of credit, at an
estimated average interest rate of 8.5%.
(c) Tax benefit related to additional interest charges.
See accompanying Notes to the pro forma balance sheet.
F-43
<PAGE> 95
AMERICAN OILFIELD DIVERS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMERICAN PRO FORMA
OILFIELD HARD ------------------------
DIVERS, INC. SUITS INC. ADJUSTMENTS COMBINED
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Diving and related revenues.................... $ 88,660 $ 13,401 $ -- $102,061
-------- -------- ------- --------
Costs and expenses:
Diving and related expenses.................. 63,180 10,455 -- 73,635
Selling, general and administrative
expenses.................................. 19,318 4,022 -- 23,340
Depreciation and amortization................ 5,064 1,535 1,834(a) 8,433
-------- -------- ------- --------
Total costs and expenses............. 87,562 16,012 1,834 105,408
-------- -------- ------- --------
Operating income (loss)...................... 1,098 (2,611) (1,834) (3,347)
-------- -------- ------- --------
Other income (expense):
Interest expense............................. (1,377) (98) (1,058)(b) (2,533)
Other income................................. 128 -- -- 128
Non controlling interest in earnings of
subsidiaries.............................. (116) (131) -- (247)
-------- -------- ------- --------
Total other expense.................. (1,365) (229) (1,058) (2,652)
-------- -------- ------- --------
Loss before income taxes....................... (267) (2,840) (2,892) (5,999)
-------- -------- ------- --------
Income tax expense (benefit)................... 62 (3) (428)(c) (369)
-------- -------- ------- --------
Net loss....................................... $ (329) $ (2,837) $(2,464) $ (5,630)
======== ======== ======= ========
Net loss per share............................. $ (.05) $ (.84)
======== ========
Weighted average common shares outstanding..... 6,709 6,709
======== ========
</TABLE>
- ---------------
Pro forma adjustments:
(a) Additional depreciation of property and equipment using the straight-line
method based on estimated useful lives ranging from 5 to 10 years.
Amortization of patents on purchased technology and intangible assets using
the straight-line method based on estimated useful lives ranging from 5 to
10 years, and amortization of goodwill over 10 years.
(a) Interest charges on borrowings of $12,450,000 on line of credit, at an
estimated average interest rate of 8.5%.
(c) Tax benefit related to additional interest charges.
See accompanying Notes to the pro forma balance sheet.
F-44
<PAGE> 96
[photo of diver]
The air diving technique is used to provide many of the Company's diving
services in water depths up to approximately 160 feet.
[photo of AMERICAN STAR]
Deployed in the Gulf of Mexico, the 165-foot diving support vessel AMERICAN
STAR supports a deck-mounted saturation diving system.
<PAGE> 97
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING 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, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO OR A SOLICITATION OF ANY PERSON IN
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Uncertainty of Forward-Looking
Information......................... 6
Risk Factors.......................... 6
Use of Proceeds....................... 9
Capitalization........................ 10
Price Range of Common Stock and
Dividend Policy..................... 11
Dilution.............................. 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 25
Management............................ 37
Selling Stockholders.................. 39
Description of Capital Stock.......... 40
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Available Information................. 46
Incorporation of Certain Documents by
Reference........................... 46
Glossary of Certain Technical Terms... 48
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,100,000 SHARES
[AMERICAN OILFIELD DIVERS, INC. LOGO]
AMERICAN OILFIELD
DIVERS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MORGAN KEEGAN &
COMPANY, INC.
RAUSCHER PIERCE
REFSNES, INC.
SOUTHCOAST CAPITAL
CORPORATION
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable in connection with the proposed sale of Common
Stock covered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 10,533
NASD filing fee......................................................... 3,976
Printing expenses....................................................... 80,000
Legal fees and expenses................................................. 100,000
Accounting fees and expenses............................................ 125,000
Blue Sky fees and expenses (including counsel fees)..................... 10,000
Transfer Agent.......................................................... 5,000
Miscellaneous expenses.................................................. 15,491
--------
Total expenses................................................ $350,000
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Louisiana Business Corporation Law (the "LBCL"), Section 83, gives
Louisiana corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers; subject to specific
conditions and exclusions gives a director or officer who successfully defends
an action the right to be so indemnified; and authorizes Louisiana corporations
to buy directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, authorization of shareholders or otherwise.
The Company's By-laws make mandatory the indemnification of directors and
officers permitted by the LBCL. The standard to be applied in evaluating any
claim for indemnification (excluding claims for expenses incurred in connection
with the successful defense of any proceeding or matter therein for which
indemnification is mandatory without reference to any such standard) is whether
the claimant acted in good faith and in a manner he reasonably believed to be in
or not opposed to, the best interests of the Company. With respect to any
criminal action or proceeding, the standard is that the claimant had no
reasonable cause to believe the conduct was unlawful. No indemnification is
permitted in respect of any claim, issue or matter as to which a director or
officer shall have been adjudged by a court of competent jurisdiction to be
liable for willful or intentional misconduct or to have obtained an improper
personal benefit, unless, and only to the extent that the court shall determine
upon application that, in view of all the circumstances of the case, he is
fairly and reasonably entitled to indemnity for such expenses that the court
shall deem proper.
The Company maintains liability policies to indemnify its officers and
directors against loss arising from claims by reason of their legal liability
for acts as officers and directors, subject to limitations and conditions to be
set forth in the policies.
The Underwriters have also agreed to indemnify the directors and certain of
the Company's officers against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribute to payments that such
directors and officers may be required to make in respect thereof.
Each of the Company's directors and executive officers has entered into an
indemnity agreement with the Company, pursuant to which the Company has agreed
under certain circumstances to purchase and maintain directors' and officers'
liability insurance. The agreements also provide that the Company will indemnify
the directors and executive officers against any costs and expenses, judgments,
settlements and fines incurred in connection with any claim involving a director
or executive officer by reason of his position as director or
II-1
<PAGE> 99
officer that are in excess of the coverage provided by any such insurance,
provided that the director or officer meets certain standards of conduct. A form
of indemnity agreement containing such standards of conduct is included as an
exhibit to the Company's Registration Statement, of which this Prospectus is a
part. Under the indemnity agreements, the Company is not required to purchase
and maintain directors' and officers' liability insurance if it is not
reasonably available or, in the reasonable judgment of the Board of Directors,
there is insufficient benefit to the Company from the insurance.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Articles of Incorporation of the Company.(1)
3.2 -- By-laws of the Company.(1)
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Company's Amended and
Restated Articles of Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 -- Specimen of Common Stock certificate.(1)
5 -- Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre
L.L.P.*
10.1 -- American Oilfield Divers, Inc. 1993 Incentive Compensation Plan.(1)
10.2 -- American Oilfield Divers, Inc. Non-Employee Director Stock Option
Plan.(1)
10.3 -- American Oilfield Divers, Inc. Profit Sharing and Retirement Plan.(1)
10.4 -- American Oilfield Divers, Inc. Employee Stock Option Plan.(2)
10.5 -- Sublease dated February 14, 1995 between Weatherford U.S., Inc. and
American Oilfield Divers, Inc. relating to the Harvey, Louisiana
facility.*
10.6 -- Lease dated August 30, 1994 between Robert Thornburgh and American
Pacific Marine Inc. relating to the Oxnard, California facility.*
10.7 -- Lease dated August 1, 1994 between Keith Business Centre Ltd. and
Hard Suits Inc. relating to the North Vancouver, British Columbia,
Canada facility.*
10.8 -- Lease dated December 1, 1984 between American Oilfield Divers, Inc.
and Le Triomphe General Partnership, a Louisiana general partnership
of which George C. Yax, the Chairman of the Board, President, and
Chief Executive Officers, is a general partner owning a 9.1%
interest, relating to the Company's Broussard, Louisiana facility.(1)
10.9 -- Business Park Lease dated April 23, 1993, between American Oilfield
Divers, Inc. and The Texas Development Company relating to the
Houston, Texas facility.(2)
10.10 -- Lease dated July 21, 1989 between Mr. Yax and American Oilfield
Divers, Inc. with respect to the Texas hunting facility and Amendment
No. 1 thereto dated December 1, 1994.(3)
10.11 -- Lease dated September 28, 1989 between Mr. Freeman and American
Oilfield Divers, Inc. with respect to Mississippi hunting facility
and Amendment No. 1 thereto dated December 1, 1994.(3)
</TABLE>
II-2
<PAGE> 100
<TABLE>
<C> <S>
10.12 -- Second Amended and Restated Loan Agreement dated as of April 3, 1996,
between American Oilfield Divers, Inc. and First National Bank of
Commerce.(4)
10.13 -- Form of Indemnity Agreement by and between American Oilfield Divers,
Inc. and each of Messrs. Yax, Stanley, Freeman, Suggs, Green, Hebert,
O'Malley and Lasher.(1)
10.14 -- Employment Agreement dated effective as of July 16, 1996, between
American Oilfield Divers, Inc. and Rodney W. Stanley.(5)
10.15 -- Lock-Up Agreement dated October 28, 1996, among American Oilfield
Divers, Inc., AOD Acquisition Corp., and Rene T. Nuytten.(6)
10.16 -- Acquisition Agreement dated October 28, 1996, among American Oilfield
Divers, Inc., AOD Acquisition Corp., Hard Suits Inc., Rene T.
Nuytten, Edward G. Hauptmann, and David S. Porter.(6)
23.1 -- Consent of Price Waterhouse LLP.*
23.2 -- Consent of Arthur Andersen & Co.*
23.3 -- Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre
L.L.P. (included in Exhibit 5).*
24 -- Power of Attorney (included in the Signature Page to this
Registration Statement).
</TABLE>
- ---------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-63920) filed on June 4, 1993, as amended.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1994.
(4) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1996.
(5) Incorporated by reference from the Company's Current Report on Form 8-K
filed on July 31, 1996.
(6) Incorporated by reference from the Company's Current Report on Form 8-K
filed on November 15, 1996.
* Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933 (the "Securities Act"), the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 15, above, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
II-3
<PAGE> 101
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New Orleans, State of Louisiana, on January 14,
1997.
AMERICAN OILFIELD DIVERS, INC.
By: /s/ QUINN J. HEBERT
------------------------------------
Quinn J. Hebert
Corporate Counsel and Secretary
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>
* Director and Chairman of the January 14, 1997
- --------------------------------------------- Board
George C. Yax
* Director, President and Chief January 14, 1997
- --------------------------------------------- Executive Officer (Principal
Rodney W. Stanley Executive Officer)
* Director, Executive Vice January 14, 1997
- --------------------------------------------- President, and Chief
Prentiss A. Freeman Operating Officer
* Director January 14, 1997
- ---------------------------------------------
Stephen A. Lasher
* Director January 14, 1997
- ---------------------------------------------
William C. O'Malley
* Vice President -- Finance and January 14, 1997
- --------------------------------------------- Chief Financial Officer
Cathy M. Green (Principal Financial Officer
and Principal Accounting
Officer)
*By: /s/ QUINN J. HEBERT
- ---------------------------------------------
Quinn J. Hebert
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Articles of Incorporation of the Company.(1)
3.2 -- By-laws of the Company.(1)
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Company's Amended and
Restated Articles of Incorporation and By-laws defining the rights of
holders of Common Stock.
4.2 -- Specimen of Common Stock certificate.(1)
5 -- Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre
L.L.P.*
10.1 -- American Oilfield Divers, Inc. 1993 Incentive Compensation Plan.(1)
10.2 -- American Oilfield Divers, Inc. Non-Employee Director Stock Option
Plan. (1)
10.3 -- American Oilfield Divers, Inc. Profit Sharing and Retirement Plan.(1)
10.4 -- American Oilfield Divers, Inc. Employee Stock Option Plan.(2)
10.5 -- Sublease dated February 14, 1995 between Weatherford U.S., Inc. and
American Oilfield Divers, Inc. relating to the Harvey, Louisiana
facility.*
10.6 -- Lease dated August 30, 1994 between Robert Thornburgh and American
Pacific Marine Inc. relating to the Oxnard, California facility.*
10.7 -- Lease dated August 1, 1994 between Keith Business Centre Ltd. and
Hard Suits Inc. relating to the North Vancouver, British Columbia,
Canada facility.*
10.8 -- Lease dated December 1, 1984 between American Oilfield Divers, Inc.
and Le Triomphe General Partnership, a Louisiana general partnership
of which George C. Yax, the Chairman of the Board, President, and
Chief Executive Officers, is a general partner owning a 9.1%
interest, relating to the Company's Broussard, Louisiana facility.(1)
10.9 -- Business Park Lease dated April 23, 1993, between American Oilfield
Divers, Inc. and The Texas Development Company relating to the
Houston, Texas facility.(2)
10.10 -- Lease dated July 21, 1989 between Mr. Yax and American Oilfield
Divers, Inc. with respect to the Texas hunting facility and Amendment
No. 1 thereto dated December 1, 1994.(3)
10.11 -- Lease dated September 28, 1989 between Mr. Freeman and American
Oilfield Divers, Inc. with respect to Mississippi hunting facility
and Amendment No. 1 thereto dated December 1, 1994.(3)
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.12 -- Second Amended and Restated Loan Agreement dated as of April 3, 1996,
between American Oilfield Divers, Inc. and First National Bank of
Commerce.(4)
10.13 -- Form of Indemnity Agreement by and between American Oilfield Divers,
Inc. and each of Messrs. Yax, Stanley, Freeman, Suggs, Green, Hebert,
O'Malley and Lasher.(1)
10.14 -- Employment Agreement dated effective as of July 16, 1996, between
American Oilfield Divers, Inc. and Rodney W. Stanley.(5)
10.15 -- Lock-Up Agreement dated October 28, 1996, among American Oilfield
Divers, Inc., AOD Acquisition Corp., and Rene T. Nuytten.(6)
10.16 -- Acquisition Agreement dated October 28, 1996, among American Oilfield
Divers, Inc., AOD Acquisition Corp., Hard Suits Inc., Rene T.
Nuytten, Edward G. Hauptmann, and David S. Porter.(6)
23.1 -- Consent of Price Waterhouse LLP.*
23.2 -- Consent of Arthur Andersen & Co.*
23.3 -- Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre
L.L.P. (included in Exhibit 5).*
24 -- Power of Attorney (included in the Signature Page to this
Registration Statement).
</TABLE>
- ---------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-63920) filed on June 4, 1993, as amended.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1994.
(4) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1996.
(5) Incorporated by reference from the Company's Current Report on Form 8-K
filed on July 31, 1996.
(6) Incorporated by reference from the Company's Current Report on Form 8-K
filed on November 15, 1996.
* Filed herewith.
<PAGE> 1
EXHIBIT 1.1
AMERICAN OILFIELD DIVERS, INC.
COMMON STOCK (NO PAR VALUE PER SHARE)
UNDERWRITING AGREEMENT
[date]
Morgan Keegan & Company, Inc.
Rauscher Pierce Refsnes, Inc.
Southcoast Capital Corporation
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Morgan Keegan & Company, Inc.
50 North Front Street
Memphis, Tennessee 38103
Ladies and Gentlemen:
American Oilfield Divers, Inc., a Louisiana corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 2,502,315 shares of common stock, no par value
per share ("Stock"), of the Company and, at the option of the Underwriters, up
to 465,000 additional shares of Stock; and the stockholders of the Company
named in Schedule II hereto propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 597,685 shares of Stock.
The stockholders named in Schedule II hereto shall be referred to herein as the
"Selling Stockholders." The aggregate of 3,100,000 shares to be sold by the
Company and the Selling Stockholders is herein called the "Firm Shares" and the
aggregate of 465,000 additional shares to be sold by the Company is herein
called the "Optional Shares." The Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares."
1. (a) The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(i) A registration statement on Form S-2 (File
No. 333-18153) filed on December 18, 1996, as amended by Amendment
No. 1 filed on January __, 1997 (the "Registration Statement"), in
respect of the Shares has been filed with the Securities and Exchange
Commission (the "Commission"); the Registration Statement and any
post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for each of
the other Underwriters, have been declared effective by the Commission
in such form; no other document with respect to the Registration
Statement has heretofore been filed with the Commission; and no stop
order suspending the effectiveness of the Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in the Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of
the Commission under the Securities Act of 1933, as amended (the
"Act"), is hereinafter called a "Preliminary Prospectus"; the
various parts of the Registration Statement, any post-effective
<PAGE> 2
amendment thereto or the Rule 462(b) Registration Statement including
all exhibits thereto and including the information contained in the
form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed
by virtue of Rule 430A under the Act to be part of the registration
statement at the time it was declared effective or such part of the
Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, each as amended at the time such part of the
registration statement became effective, is hereinafter collectively
called the "Registration Statement"; and such final prospectus, in the
form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus");
(ii) No order preventing or suspending the use of
any Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply
to statements or omissions made in reliance upon information furnished
in writing to the Company by the Underwriters or the Selling
Stockholders expressly for use therein.
(iii) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will conform, in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder; the Registration Statement does not and
will not, as of the applicable effective date as to the Registration
Statement and any amendment thereto contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
and the Prospectus, as of the date of such Prospectus, does not
contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(iv) The historical and pro forma financial
statements, together with related schedules and notes, set forth in
the Prospectus comply as to form in all material respects with the
requirements of the Act. The historical consolidated financial
statements of the Company and Hard Suits Inc. present fairly (subject,
in the case of unaudited interim financial information, to normal
year-end adjustments) the consolidated financial position of the
Company and Hard Suits Inc. at the respective dates indicated and the
consolidated results of operations and cash flows of the Company and
Hard Suits Inc. for the respective periods indicated and in
accordance with generally accepted accounting principles consistently
applied throughout such periods, unless otherwise reflected in the
notes to such financial statements. The pro forma financial statements
of the Company have been prepared on a basis consistent with the
historical statements of the Hard Suits Inc. and the Company, except
for the pro forma adjustments specified therein, and give effect to
the acquisition of Hard Suits Inc. The other financial and statistical
information and data included in the Prospectus are, in all material
respects, accurately presented and prepared on a basis consistent with
such historical and pro forma financial statements and the books and
records of the Company;
(v) The Company maintains a system of internal
accounting control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences;
-2-
<PAGE> 3
(vi) Neither the Company nor any of its
subsidiaries has sustained since the date of the latest audited
financial statements included in the Prospectus any loss or
interference with its business material to the Company and its
subsidiaries considered as one enterprise from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries
considered as one enterprise, otherwise than as set forth or
contemplated in the Prospectus;
(vii) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Louisiana, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus,
and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts
any business except where the failure so to qualify or to be in good
standing would not have a material adverse effect on the business
affairs, business prospects, assets, financial position or results of
operations of the Company and its subsidiaries considered as one
enterprise (a "Material Adverse Effect"); and each direct or indirect
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation or has been formed and is validly
existing as a limited partnership, as the case may be;
(viii) The Company has authorized capital stock as
set forth in the Prospectus, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and conform in all material respects
to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of, or partnership or other
equity ownership interest in, each subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims, except
as disclosed in the Prospectus;
(ix) The Shares to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and fully paid and
non-assessable and will conform to the description of the Stock
contained in the Prospectus;
(x) The issue and sale of the Shares to be sold
by the Company and the compliance by the Company with all of the
provisions of this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Amended and Restated
Certificate of Incorporation or By-laws of the Company or any
applicable statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration
of the Shares
-3-
<PAGE> 4
under the Act and under the Securities Exchange Act of 1934 and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters;
(xi) Neither the Company nor any of its
subsidiaries is in violation of its Amended and Restated Certificate
of Incorporation or By-laws or other organizational documents or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound
except to the extent it would not have a Material Adverse Effect;
(xii) The statements set forth in the Prospectus
under the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock are accurate
and complete in all material respects;
(xiii) Except as described in the Prospectus, the
Company and its subsidiaries have good and indefeasible title to all
real property, good and valid title to all vessels and good and
marketable title to all other material properties and assets described
in the Prospectus as owned by the Company or its subsidiaries and
valid, subsisting and enforceable leases for all of the properties and
assets, real or personal, described in the Prospectus as leased by
them, in each case free and clear of any security interests,
mortgages, pledges, liens, encumbrances or charges of any kind, other
than those described in the Prospectus;
(xiv) Other than as set forth in the Prospectus,
there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or to the best of the
Company's knowledge of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect; and, to the best of the
Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(xv) The Company is not and, after giving effect
to the offering and sale of the Shares, will not be, an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");
(xvi) Neither the Company nor any of its affiliates
does business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075,
Florida Statutes; and
(xvii) Price Waterhouse LLP and Arthur Andersen &
Co., who have certified certain financial statements of the Company
and its subsidiaries, are independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder.
(xviii) The Company (A) is in compliance with any and
all applicable federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or
hazardous or toxic substances or waste, pollutants or contaminants
("Environmental Laws"), (B) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to
conduct its business and (C) is in compliance with all terms and
conditions of any such permit, license or approval, except for such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions
-4-
<PAGE> 5
of such permits, licenses or approvals that would not, singularly or
in the aggregate, have a Material Adverse Effect. There has been no
storage, disposal, generation, transportation, handling or treatment
of hazardous substances or solid wastes by the Company (or to the
knowledge of the Company, any of its predecessors in interest) at,
upon or from any of the property now or previously owned or leased by
the Company in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action by the Company under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except for any
violation or remedial action which would not result in, or which would
not be reasonably likely to result in, singularly or in the aggregate
with all such violations and remedial actions, a Material Adverse
Effect; there has been no spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or into the
environment surrounding such property of any solid wastes or hazardous
substances due to or caused by the Company, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which
would not result in or would not be reasonably likely to result in,
singularly or in the aggregate with all such spills, discharges,
leaks, emissions, injections, escape, dumping or releases, a Material
Adverse Effect; and the terms "hazardous substances" and "solid
wastes" shall have the meanings specified in any applicable local,
state and federal laws or regulations with respect to environmental
protection;
(xix) There are no persons with registration or
similar rights to require registration of any securities of the
Company under the Act because of the filing of the Registration
Statement or the sale of the shares by the Company to the
Underwriters, other than such rights as are described in the
Prospectus and have been exercised in accordance therewith or duly and
effectively waived; and
(xx) The Company or one of its consolidated
subsidiaries has good and marketable title to each of the interests
created by all copyrights, uncopyrighted works, trademarks, trademark
rights, service marks, trade names, trade name rights, patents, patent
rights, unpatented inventions, licenses, permits, trade secrets, know-
how, inventions, computer software and intellectual property rights
and other proprietary rights (together with applications and licenses
for, and the goodwill of the business relating to, any of the
foregoing, the "Proprietary Rights") described in the Registration
Statement or the Prospectus. The right, title and interest of the
Company or its consolidated subsidiary in and to each such Proprietary
Right are free and clear of all liens.
(xxi) This Agreement has been duly authorized,
executed and delivered by the Company.
(b) Each of the Selling Stockholders severally represents
and warrants to, and agrees with, each of the Underwriters and the Company
that:
(i) All consents, approvals, authorizations and
orders necessary for the execution and delivery by such Selling
Stockholder of this Agreement and the Power of Attorney and the
Custody Agreement hereinafter referred to, and for the sale and
delivery of the Shares to be sold by such Selling Stockholder
hereunder, have been obtained; and such Selling Stockholder has full
right, power and authority to enter into this Agreement, the
Power-of-Attorney and the Custody Agreement and to sell, assign,
transfer and deliver the Shares to be sold by such Selling Stockholder
hereunder;
(ii) The sale of the Shares to be sold by such
Selling Stockholder hereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, the Power of
Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any statute, indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which
such Selling Stockholder is a party or by which such Selling
-5-
<PAGE> 6
Stockholder is bound or to which any of the property or assets of such
Selling Stockholder is subject, nor will such action result in any
violation of the provisions of the Amended and Restated Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Partnership Agreement of such
Selling Stockholder if such Selling Stockholder is a partnership; or
any applicable statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately
prior to each Time of Delivery (as defined in Section 4 hereof) such
Selling Stockholder will have, good and valid title to the Shares to
be sold by such Selling Stockholder hereunder, free and clear of all
liens, encumbrances, equities or claims; and, upon delivery of such
Shares and payment therefor pursuant hereto, good and valid title to
such Shares, free and clear of all liens, encumbrances, equities or
claims, will pass to the several Underwriters;
(iv) During the period beginning from the date
hereof and continuing to and including the date 180 days after the
date of the Prospectus, not to offer, sell contract to sell or
otherwise dispose of, except as provided hereunder, any securities of
the Company that are substantially similar to the Shares, including
but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any
such substantially similar securities (other than pursuant to employee
stock option or benefit plans existing on the date of this Agreement),
without the prior written consent of Morgan Keegan;
(v) To the best of such Selling Stockholder's
knowledge, as of the date hereof, and as of each Time of Delivery
(defined below), the Registration Statement did not and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein not misleading and the Prospectus did not
contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading
(vi) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the Tax
Equity and Fiscal Responsibility Act of 1982 with respect to the
transactions herein contemplated, such Selling Stockholder will
deliver to you prior to or at the First Time of Delivery (as
hereinafter defined) a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof);
(vii) Certificates in negotiable form representing
all of the Shares to be sold by such Selling Stockholder hereunder
have been placed in custody under a Custody Agreement, in the form
heretofore furnished to you (the "Custody Agreement"), duly executed
and delivered by such Selling Stockholder to _____________, as
custodian (the "Custodian"), and such Selling Stockholder has duly
executed and delivered a Power of Attorney, in the form heretofore
furnished to you (the "Power of Attorney"), appointing the persons
indicated in Schedule II hereto, and each of them, as such Selling
Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such
Selling Stockholder, to determine the purchase price to be paid by the
Underwriters to the Selling Stockholders as provided in Section 2
hereof, to authorize the delivery of the Shares to be sold by such
Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated
by this Agreement and the Custody Agreement; and
(viii) The Shares represented by the certificates
held in custody for such Selling Stockholder under the Custody
Agreement are subject to the interests of the Underwriters hereunder;
-6-
<PAGE> 7
the arrangements made by such Selling Stockholder for such custody,
and the appointment by such Selling Stockholder of the
Attorneys-in-Fact by the Power of Attorney, are to that extent
irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee
or the termination of such estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event; if any
individual Selling Stockholder or any such executor or trustee should
die or become incapacitated, or if any such estate or trust should be
terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur, before the
delivery of the Shares hereunder, certificates representing the Shares
shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact
pursuant to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred,
regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of the Selling Stockholders named in Schedule II hereto agree,
severally and not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company
and each of such Selling Stockholders, at a purchase price per share of $_____,
the number of Firm Shares (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying the aggregate number of Shares to be sold by
the Company and each of such Selling Stockholders as set forth opposite their
respective names in Schedule II hereto by a fraction, the numerator of which is
the aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from the Company and all of such Selling Stockholders
hereunder and (b) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, the
Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the one-time right to
purchase at their election up to 465,000 Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement and setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.
3. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as Morgan Keegan & Company, Inc., ("Morgan Keegan")
may request upon at least forty-eight hours' prior notice to the Company and
the Selling Stockholders, shall be delivered by or on behalf of the Company and
the Selling Stockholders to Morgan
-7-
<PAGE> 8
Keegan for the account of such Underwriter, against payment therefor in
immediately available funds. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at
least twenty-four hours prior to the Time of Delivery (as defined below) with
respect thereto at the office of Morgan Keegan, 50 N. Front Street, Memphis,
Tennessee 38103 (the "Designated Office"). The time and date of such delivery
and payment shall be, with respect to the Firm Shares, ______ __.m., Central
daylight time on ________________, 1997 or such other time and date as Morgan
Keegan and the Company may agree in writing, and with respect to the Option
Shares, ____ __.m., Central daylight time, on the date specified by Morgan
Keegan in the written notice given by Morgan Keegan of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Morgan Keegan and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of Delivery",
such time and date for delivery of the Optional Shares, if not the First Time
of Delivery, is herein called the "Second Time of Delivery", and each such time
and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of
Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof,
including the cross receipt for the Shares and any additional documents
requested by the Underwriters pursuant to Section 7(l) hereof will be delivered
at the offices of [Vinson & Elkins L.L.P., 1001 Fannin, Suite 2300, Houston,
Texas 77002] (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at Time of Delivery. A meeting will be held at the
Closing Location at ____ __.m., Central daylight time, on the Business Day next
preceding Time of Delivery, at which meeting the final drafts of the documents
to be delivered pursuant to the preceding sentence will be available for review
by the parties hereto. For the purposes of this Section 4, "Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you
and to file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day following
the execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
reasonably shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has
been filed and to furnish you with copies thereof; to advise you, promptly
after it receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus, of the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission for
the amending or supplementing of the Registration Statement or Prospectus or
for additional information; and, in the event of the issuance of any stop order
or of any order preventing or suspending the use of any Preliminary Prospectus
or prospectus or suspending any such qualification, promptly to use its best
efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you
may reasonably request to cooperate with the Underwriters to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you
may request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a foreign
corporation or as a dealer in securities, to file a general consent to service
of process in any jurisdiction or to subject itself to taxation in any
jurisdiction in which it is not otherwise so subject;
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<PAGE> 9
(c) On the Business Day next succeeding the date of this
Agreement and from time to time, to furnish the Underwriters with copies of the
Prospectus in such quantities as you may from time to time reasonably request,
and, if the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time any
events shall have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be necessary
during such period to amend or supplement the Prospectus in order to comply
with the Act, to notify you and upon your request to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or omission
or effect such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon your request but
at the expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date
of this Agreement, and the Company shall at the time of filing either pay to
the Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule II
1(b) under the Act;
(e) To make generally available to its security holders
as soon as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the option of
the Company, Rule 158);
(f) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option plans existing on the date of this Agreement), without
the prior written consent of Morgan Keegan;
(g) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public accountants)
and, as soon as practicable after the end of each of the first three quarters
of each fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary financial
information of the Company and its subsidiaries for such quarter in reasonable
detail;
(h) During a period of five years from the effective date
of the Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished generally to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed;
and (ii) such additional information concerning the business and financial
condition of the Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the accounts
of the Company and its subsidiaries are consolidated in reports furnished to
its stockholders generally or to the Commission);
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<PAGE> 10
(i) To use the net proceeds received by it from the sale
of the Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds."
6. The Company covenants and agrees with the several Underwriters
that (a) the Company will pay or cause to be paid, the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of
the Shares; (v) the cost of preparing stock certificates; (vi) the cost and
charges of any transfer agent or registrar and (vii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, that
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees
of their counsel, stock transfer taxes on resale of any of the Shares by them,
and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the
Shares to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties of the
Company and of the Selling Stockholders herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b),
the Rule 462(b) Registration Statement shall have become effective by 10:00
p.m., Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction;
(b) Vinson & Elkins L.L.P., counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to the matters covered in paragraphs (i), (ii), (xi) and
(xii) of subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., counsel for the Company, shall have furnished to you their
written opinion, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Louisiana, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
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<PAGE> 11
(ii) The Company has authorized capital stock as
set forth in the Prospectus under the caption "Description of Capital
Stock" (except for subsequent issuances, if any, pursuant to this
Agreement or pursuant to reservations, agreements, employee benefit
plans or the exercise of convertible securities or options referred to
in the Prospectus); all of the issued and outstanding shares of
capital stock of the Company (including the Shares being delivered at
such Time of Delivery) have been duly authorized and validly issued
and are fully paid and non-assessable; and the Shares conform, as to
legal matters, in all material respects to the description of the
Shares contained in the Prospectus under the caption "Description of
Capital Stock;"
(iii) The Company has been duly qualified as a
foreign corporation to transact business and is in good standing
under the laws of each other jurisdiction in which such qualification
is required, except where the failure so to qualify or to be in good
standing would not have a Material Adverse Effect;
(iv) Each direct or indirect subsidiary of the
Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation or is duly formed and validly existing as a limited
partnership, as the case may be, and all of the issued shares of
capital stock of, or partnership or other equity ownership interest
in, each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and to such counsel's
knowledge after due inquiry are owned directly or indirectly by the
Company), free and clear of all liens, encumbrances, equities or
claims;
(v) To such counsel's knowledge after due
inquiry, there is no legal or governmental proceeding which is
required to be disclosed in the Prospectus and is not disclosed;
(vi) This Agreement has been duly authorized,
executed and delivered by the Company;
(vii) The issue and sale of the Shares being
delivered at such Time of Delivery to be sold by the Company and the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan or credit agreement or other agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Amended and Restated
Certificate of Incorporation or By-laws of the Company or any
applicable statute or any order, rule or regulation known to such
counsel after due inquiry of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their material properties;
(viii) No consent, approval, authorization or order
of any court or governmental agency is required to be obtained by the
Company for the issue and sale of the Shares by the Company to the
Underwriters or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act
of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(ix) To the extent summarized therein, all
contracts and agreements summarized in the Registration Statement and
the Prospectus are fairly summarized therein, conform in all material
respects to the descriptions thereof contained therein, and, to the
extent such contracts or agreements
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<PAGE> 12
or any other material agreements are required under the Act or the
Rules and Regulations thereunder to be filed, as exhibits to the
Registration Statement, they are so filed; and such counsel does not
know of any contracts or other documents required to be summarized or
disclosed in the Prospectus or to be so filed as an exhibit to the
Registration Statement, which have not been so summarized or
disclosed, or so filed;
(x) The Company is not an "investment company" or
an entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act;
(xi) To such counsel's knowledge after due
inquiry, except as have been waived at the Time of Delivery, there are
no persons with registration or similar rights to have any securities
of the Company registered pursuant to the Registration Statement; and
(xii) The Registration Statement and each
amendment or supplement thereto, as of their respective effective
dates and the Prospectus as of its date, comply as to form in all
material respects with the requirements of the Act and the rules and
regulations thereunder (it being understood that such counsel need
express no opinion as to the financial statements and schedules or
other financial data and reports pertaining to natural resource
reserves contained in the Registration Statement or the Prospectus);
and nothing has come to such counsel's attention that would lead such
counsel to believe that either the Registration Statement or any
amendment or supplement thereto, at the time such Registration
Statement or amendment or supplement became effective, or the
Prospectus or any amendment or supplement thereto, as of its date and
as of each Time of Delivery, contains or contained any untrue
statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) The respective counsel for each of the Selling
Stockholders, as indicated in Schedule II hereto, shall have furnished to you
their written opinion with respect to each of the Selling Stockholders for whom
they are acting as counsel, dated the such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement
have been duly executed and delivered by such Selling Stockholder and
constitute valid and binding agreements of such Selling Stockholder in
accordance with their terms;
(ii) This Agreement has been duly executed and
delivered by or on behalf of such Selling Stockholder; the sale of
the Shares to be sold by such Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the provisions of
this Agreement, the Power-of-Attorney and the Custody Agreement and
the consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any terms
or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which such Selling Stockholder
is a party or by which such Selling Stockholder is bound or to which
any of the property or assets of such Selling Stockholder is subject,
nor will such action result in any violation of the provisions of the
Amended and Restated Certificate of Incorporation or By-laws of such
Selling Stockholder if such Selling Stockholder is a corporation, the
Partnership Agreement of such Selling Stockholder if such Selling
Stockholder is a partnership or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
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<PAGE> 13
(iii) No authorization, approval, consent or order
of any court or governmental agency (other than under the 1933 Act and
the rules and regulations promulgated thereunder, which have been
obtained, or as may be required under the securities or blue sky laws
of the various states, as to which we have not been asked to express
an opinion) is required to be obtained by such Selling Stockholder for
the issuance or sale of the Shares by such Selling Stockholder to the
Underwriters or for the consummation by the Selling Stockholders of
the transactions contemplated by this Agreement;
(iv) Immediately prior to such Time of Delivery,
such Selling Stockholder had good and valid title to the Shares to be
sold at such Time of Delivery by such Selling Stockholder under this
Agreement to our knowledge after due inquiry, free and clear of all
liens, encumbrances, equities or claims, and had full right, power and
authority to sell, assign, transfer and deliver the Shares to be sold
by such Selling Stockholder hereunder; and
(v) Good and valid title to such Shares, free and
clear of all liens, encumbrances, equities or claims, has been
transferred to each of the several Underwriters who have purchased
such Shares in good faith and without notice of any such lien,
encumbrance, equity or claim or any other adverse claim within the
meaning of the Uniform Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon
a certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold
by such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 8:30 a.m., Central daylight time, on the
effective date of any post-effective amendment to the Registration Statement
filed subsequent to the date of this Agreement and also at each Time of
Delivery, Price Waterhouse LLP and Arthur Andersen & Co. shall have furnished
to you a letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in Annex I
hereto;
(f)(i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus, and (ii) since
the respective dates as of which information is given in the Prospectus there
shall not have been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any development involving
a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the representatives of the Underwriters so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or on the
NASDAQ; (ii) a suspension or material limitation in trading in the Company's
securities on the NASDAQ; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York or Texas state authorities;
or (iv) the outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency or war, if the
effect of any such event specified in this Clause (iv) in the judgment of the
representatives of the Underwriters makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being delivered
at such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
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<PAGE> 14
(h) The Shares at such Time of Delivery shall have been
approved for inclusion in the NASDAQ subject only to official notice of
issuance; and
(i) The Company and the Selling Stockholders shall have
furnished or caused to be furnished to you at such Time of Delivery
certificates of officers of the Company on behalf of the Company and of the
Selling Stockholders, respectively, satisfactory to you as to the accuracy of
the representations and warranties of the Company and the Selling Stockholders,
respectively, herein at and as of such Time of Delivery, as to the performance
by the Company and the Selling Stockholders of all of their respective
obligations hereunder to be performed at or prior to such Time of Delivery, and
as to such other matters as you may reasonably request, and the Company shall
have furnished or caused to be furnished certificates as to the matters set
forth in subsection (a) and (g) of this Section.
8. (a) The Company and each of the Selling
Stockholders, jointly and severally, will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement made by the Company in Section 1(a) of
this Agreement or by the Selling Stockholders in Section 1(b) of this Agreement
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, (a) that
the Company and the Selling Stockholders shall not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Morgan Keegan expressly for use therein; (b) that each of the Selling
Stockholders' liability to the Underwriters shall be limited to the proceeds
received by such Selling Stockholder from the sale of such Selling
Stockholder's Shares in the Offering and (c) the Underwriters shall look to the
Selling Stockholders for the purposes of the indemnity provided in this Section
8(a) only if the indemnification from the Company is insufficient or
unavailable to indemnify and hold harmless each Underwriter.
(b) Each Selling Stockholder, severally and not jointly,
will indemnify and hold harmless each Underwriter to the same extent as the
foregoing indemnity from the Company and the Selling Stockholders to the
Underwriters, but only insofar as losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or omission or alleged untrue statement or omission which was made in
the Registration Statement, the Prospectus or any amendment or supplement
thereto, in reliance on and in conformity with information furnished in writing
by such Selling Stockholder expressly for use therein or (ii) any untrue
statement or alleged untrue statement made by the Selling Stockholder in
Section 1(b) of this Agreement; provided, however, that each of such Selling
Stockholders' liability to the Underwriters shall be limited to the proceeds
received by such Selling Stockholder from the sale of such Selling
Stockholder's Shares in the Offering.
(c) Each Underwriter will indemnify and hold harmless the
Company and each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company or such Selling Stockholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged
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<PAGE> 15
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Morgan Keegan, expressly
for use therein; and will reimburse the Company and each Selling Stockholder
for any legal or other expenses reasonably incurred by the Company or such
Selling Stockholder in connection with investigating or defending any such
action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the Selling Stockholders on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
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<PAGE> 16
The Company, each of the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above
in this subsection (e). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (e) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and no Selling Shareholder shall be
required to contribute any amount in excess of the proceeds received by such
Selling Shareholder in the Offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling
Stockholders under this Section 8 shall be in addition to any liability which
the Company and the respective Selling Stockholders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company
(including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company) and to
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company and the Selling Stockholders that you have so
arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Stockholders shall have the right to
postpone (a) Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company and the Selling Stockholders as provided in subsection (a) above,
the aggregate number of such Shares which remains unpurchased does not exceed
one-eleventh of the aggregate number of all the Shares to be purchased at such
Time of Delivery, then the Company and the Selling Stockholders shall have the
right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter
-16-
<PAGE> 17
or Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company and the Selling Stockholders as provided in subsection (a) above,
the aggregate number of such Shares which remains unpurchased exceeds
one-eleventh of the aggregate number of all of the Shares to be purchased at
such Time of Delivery, or if the Company and the Selling Stockholders shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and
the several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or any controlling
person of any Underwriter, or the Company, or any of the Selling Stockholders,
or any officer or director or controlling person of the Company, or any
controlling person of any Selling Stockholder, and shall survive delivery of
and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Stockholders shall then be under
any liability to any Underwriter except as provided in Sections 6 and 8 hereof;
but, if for any other reason any Shares are not delivered by or on behalf of
the Company and the Selling Stockholders as provided herein, the Company and
each of the Selling Stockholders pro rata (based on the number of Shares to be
sold by the Company and such Selling Stockholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Stockholders shall
then be under no further liability to any Underwriter in respect of the Shares
not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by Morgan Keegan on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Stockholder made or
given by any or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of Morgan
Keegan & Company, Inc., 50 North Front Street, Memphis, Tennessee 38103,
Attention: Mike Harris, telecopier number (901) 579-4355; if to any Selling
Stockholder shall be delivered or sent by mail, telex or facsimile transmission
to counsel for such Selling Stockholder at its address set forth in Schedule II
hereto; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Corporate Counsel, telecopier number (318)
232-7306; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth
-17-
<PAGE> 18
in its Underwriters' Questionnaire or telex constituting such Questionnaire,
which address will be supplied to the Company or the Selling Stockholders by
you on request. Any such statements, requests, notices or agreements shall
take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder
or any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE.
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and each of the representatives of the
Underwriters plus one for each counsel and the Custodian, of any counterparts
hereof, and upon the acceptance hereof by you, on behalf of each of the
Underwriters, this letter and such acceptance hereof shall constitute a binding
agreement among each of the Underwriters, the Company and each of the Selling
Stockholders. It is understood that your acceptance of this letter on behalf
of each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company and the Selling Stockholders for examination, upon request, but without
warranty on your part as to the authority of the signers thereof.
-18-
<PAGE> 19
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly
existing and binding Power-of-Attorney which authorizes such Attorney-in-Fact
to take such action.
Very truly yours,
American Oilfield Divers, Inc.
By:
---------------------
Name:
Title:
Selling Stockholders Named in
Schedule II to this Agreement
By:
---------------------
Name:
Title:
As Attorney-in-Fact acting on
behalf of each of the Selling
Stockholders named in Schedule
II to this Agreement.
Accepted as of the date hereof
Morgan Keegan & Company, Inc.
Rauscher Pierce Refsnes, Inc.
Southcoast Capital Corporation
By:
---------------------------------
Morgan Keegan & Company, Inc.
On behalf of each of the Underwriters
-19-
<PAGE> 20
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Total Number of Firm Shares to be purchased
Underwriter Shares to be Purchased if Maximum Option Exercised
----------- ---------------------- ---------------------------
<S> <C> <C>
Morgan Keegan & Company, Inc.
Rauscher Pierce Refsnes, Inc.
Southcoast Capital Corporation
</TABLE>
-20-
<PAGE> 21
SCHEDULE II
<TABLE>
<CAPTION>
Total Number of firm
Shares to be Sold
----------------------
<S> <C>
George C. Yax 500,000
c/o American Oilfield Divers, Inc.
130 East Kaliste Saloom Road
Lafayette, Louisiana 70508
Prentiss A. Freeman 26,000
c/o American Oilfield Divers, Inc.
130 East Kaliste Saloom Road
Lafayette, Louisiana 70508
Gulf Coast Marine Divers Inc 71,685
1025 South Hospital Drive
Abbeville, Louisiana 70510
</TABLE>
-21-
<PAGE> 22
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the Act and
the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by them
and included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations thereunder; and, if applicable,
they have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial data, pro forma
financial information, financial forecasts and/or condensed financial
statements derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports thereon, copies
of which have been separately furnished to the representatives of the
Underwriters (the "Representatives);
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
unaudited condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that the unaudited
condensed consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the Act and
the related published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees with
the corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus, inquiries of officials
of the Company and its
-22-
<PAGE> 23
subsidiaries responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma combined financial statements
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of those statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its subsidiaries, or
any decreases in consolidated net current assets or stockholders'
equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included in
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in
-23-
<PAGE> 24
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting
records of the Company and its subsidiaries, which appear in the
Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
-24-
<PAGE> 1
EXHIBIT 5
JONES, WALKER
WAECHTER, POITEVENT
CARRERE & DENEGRE, L.L.P.
504-582-8000 PLACE ST. CHARLES
FAX 504-582-8583 201 ST. CHARLES AVENUE
NEW ORLEANS, LOUISIANA 70170-5100
January 14, 1997
American Oilfield Divers, Inc.
130 East Kaliste Saloom Road
Lafayette, Louisiana 70508
Re: American Oilfield Divers, Inc.
1997 Public Offering
Registration No. 333-18153
Gentlemen:
We have acted as your counsel in connection with the preparation of
Registration Statement No. 333-18153 on Form S-2 (the "Registration Statement")
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of 3,565,000 shares of common stock (the "Shares"), no par value
(the "Common Stock"), of which up to 2,967,315 shares of Common Stock are being
offered by the Company (the "Company Shares") and 597,685 shares of Common
Stock are being offered by certain Selling Stockholders (the "Selling
Stockholders") identified in the Registration Statement.
In so acting, we have examined original, or photostatic or certified
copies, of such records of the Company, certificates of officers of the Company
and of public officials, and of such other documents as we have deemed
relevant. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such documents.
In delivering the opinion set forth below we have assumed and relied upon the
matters of fact set forth in such documents.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and sold upon the terms described in the Registration Statement, will be
validly issued and outstanding, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the prospectus under the
caption "Legal Matters." In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section
BATON ROUGE OFFICE: FOUR UNITED PLAZA * 8555 UNITED PLAZA BOULEVARD * BATON
ROUGE, LOUISIANA 70809-7000 *
504-231-2000 * FAX 504-231-2010
WASHINGTON, D.C. OFFICE: SUITE 245, REPUBLIC PLACE * 1776 EYE STREET, N.W. *
WASHINGTON, D. C. 20006 *
202-828-8363 * FAX 202-828-6907
LAFAYETTE OFFICE: SUITE 210 * 201 RUE IBERVILLE * LAFAYETTE, LOUISIANA
70508 * 318-232-5353 * FAX 318-232-5415
<PAGE> 2
Page 2
7 of the Securities Act of 1933, as amended, or the general rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
JONES, WALKER, WAECHTER,
POITEVENT, CARRERE & DENEGRE, L.L.P.
/s/ CARL C. HANEMANN
----------------------------------------
By: Carl C. Hanemann
<PAGE> 1
EXHIBIT 10.5
LATTER & BLUM
INC/REALTORS
SUBRENEWAL & EXTENSION OF LEASE
The lease between the undesigned, dated February 14, 1995, as the same
may have been amended, modified or extended, covering the following described
property:
737 St. Joseph Lane Harvey, La.
is hereby renewed and extended for a period of 1 year commencing on February 1,
1996 and ending on January 31, 1997, at a monthly rental of $4,290.00 per month
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(s $4,290.00) and otherwise under all of the terms, provisions and conditions
of said lease, except that the lessee shall not hereafter be entitled to any
option or privilege of renewal that may be contained in said lease (provided
that if said lease contains options or privilege to renew for more than one
period and this instrument represents the exercise of the option or privilege
to renew for the first or a subsequent period, this instrument shall not deny
or affect the right of the lessee to exercise the options or privileges to
renew for periods subsequent to the period covered by this renewal and
extension of said lease). Any default under said lease shall be considered a
default under this renewal and extension thereof.
Latter & Blum, Inc. is made a party hereto for the sole purpose of
enforcing its rights to commissions.
Dated: 11 3 95
- --------------------------------------- --------------------------------
Guarantor (if any)
LATTER & BLUM, INC./s/James Barse, CCIM Lessee /s/ Tom M. Kellahan
By: James Barse, CCIM
Agent
Lessor
--------------------------------
Latter & Blum, Inc. hereby agrees to and
accepts this foregoing agreement, this
10-31-95
- --------
(date)
Latter & Blum, Inc.
By:
-----------------------------------
Vice President
<PAGE> 2
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "Sublease") made and entered into as of
February 6, 1995, by and between Weatherford U.S., Inc., a Delaware
corporation with an office at 1360 Post Oak Boulevard, Suite 1000, Houston,
Texas 77056 ("Sublandlord"), and American Oilfield Divers, Inc., a Louisiana
corporation with an office at 130 E. Kaliste Saloom Road, Lafayette, LA 70508
("Subtenant").
W I T N E S S E T H:
WHEREAS, Rathborne Properties, Inc., ("Landlord") has leased to
Sublandlord certain property located in Harvey, Jefferson County, Louisiana,
known as 737 St. Joseph Street, more fully described on Exhibit "A" attached
hereto, together with the buildings and improvements thereon ("Leased
Premises"), in accordance with the provisions of a certain Lease of Commercial
Property dated October 14, 1988, as amended ("Master Lease"), a copy of which
is attached hereto as Exhibit "B", said Master lease to expire July 31, 1999;
and
WHEREAS, Sublandlord and Subtenant desire to provide for the subletting
of the Leased Premises from Sublandlord to Subtenant; and
WHEREAS, Landlord has consented to the subletting of the Leased
Premises;
NOW, THEREFORE, in consideration of the rent herein specified to be paid
by Subtenant, and in consideration of the covenants, conditions and agreements
hereinafter set forth, Sublandlord does hereby sublet and demise unto Subtenant
the Leased Premises specified herein on the following terms and conditions.
1. Premises. Sublandlord hereby sublets to Subtenant the Leased
Premises designated on the map attached hereto as Exhibit "C" ("Subleased
Premises"). Subtenant represents it has inspected the Subleased Premises and
accepts same in its present "as is, where is, with all faults" condition.
2. Term. The term of this Sublease will commence on February 6,
1995 and will terminate on January 31, 1996. Subtenant shall have the option
to extend the Sublease for an additional twelve month period beginning January
31, 1996 by delivering 90 days written notice to Sublandlord of its intent to
exercise such option; provided, however, if Subtenant does not deliver such
notice, the Sublease shall terminate in accordance with Section 2 hereof.
3. Rent. Subtenant agrees to pay Sublandlord, as rent under this
Sublease, a monthly sum of Four thousand two hundred ninety Dollars
($4,290.00). Rent shall be due and payable in advance on the first day of each
month. Rent for any period during the term hereof which is for less than one
month shall be a pro-rata portion of the monthly installment.
4. Security Deposit. Subtenant agrees to deposit with Sublandlord
upon execution of the Sublease the sum of four thousand two hundred and ninety
Dollars ($4,290.00) to ensure performance and observance by Subtenant of the
terms of this Sublease. If Subtenant fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Sublease, Sublandlord may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charges in default or for the
payment of any other sum to which Sublandlord may become obligated by reason of
Subtenant's default, or to compensate Sublandlord for any loss or damage which
Sublandlord may suffer thereby. If Subtenant performs all of Subtenant's
obligations hereunder, said deposit, or so much thereof as has not been applied
by Sublandlord, shall be returned, without payment of interest or other
increment for its use, to Subtenant within thirty (30) days after the
expiration of the term hereof or after Subtenant has vacated the Leased
Premises, whichever is later.
-2-
<PAGE> 3
5. Utilities. Subtenant agrees to arrange for service in its own
name and pay all charges for telephone services, gas, water, sewage,
electricity and light used by Subtenant on the Subleased Premises and agrees to
indemnify Sublandlord against any liability for the same.
6. Maintenance, Repairs and Alterations. Subtenant, at Subtenant's
expense, shall be responsible for the repair and maintenance of the Leased
Premises and agrees that it will promptly repair, or have repaired, in a good
and workmanlike manner any damage to the Leased Premises. Subtenant agrees to
indemnify Sublandlord against any liability for the cost of any such repairs
and maintenance. Any alterations made by Subtenant will be made in strict
accordance with applicable provisions of the Master Lease.
7. Taxes. Subtenant agrees to pay all applicable personal property
taxes assessed against Subtenant's personal property, trade fixtures or
equipment located on the Leased Premises during the term hereof. Subtenant
agrees to pay all applicable real property taxes assessed against the Leased
Premises during the term hereof.
8. Indemnification and Insurance. Sublandlord shall not be liable
or responsible for any personal property of Subtenant, or of its employees,
agents, customers or other invitees of Subtenant, wherever located in or about
the Leased Premises. Subtenant agrees that it will at all times defend,
indemnify and save and keep Sublandlord Harmless from and against any and all
loss, cost, damage, liability or expense (including but not limited to
attorney's fees) occasioned by any act or neglect by Subtenant or anyone
claiming under Subtenant, or by any breach of Subtenant's obligations
hereunder, or arising out of any accident causing death or injury to any person
whomsoever or damage to any property whatsoever resulting from the occupancy
and/or any use of the Leased Premises by Subtenant or by any person or persons
holding under Subtenant or by any of their employees, agents, customers or
other invitees. Subtenant further agrees to pay all attorney's fees and
expenses incurred by Sublandlord in collecting the rent or other moneys due
hereunder and enforcing any of the other obligations of Subtenant hereunder.
Subtenant shall not be responsible for any claim or action caused by or
resulting from the negligent acts of Sublandlord, its employees or agents.
Subtenant shall, at its expense, maintain with a reputable insurance company or
companies authorized to do business in the State of Louisiana the following
insurance coverage:
(1) Comprehensive general public liability insurance against claims
for bodily injury, death or property damage occurring on, in or about the
Leased Premises or the adjoining streets and sidewalks, in amounts not less
than $1,000,000 for injury or death to more than one person arising out of any
one occurrence, and $1,000,000 for property damage arising out of any one
occurrence;
(2) Workers' compensation insurance covering the statutory liability
of Subtenant with respect to persons employed in connection with any work done
on or about the Leased Premises.
(3) All risk property policy, insuring against any loss of damage
caused by fire, windstorm, lightning, riot, civil commotion, malicious
mischief, vandalism, water damage, and such other and usual customary coverage
included in all-risk property coverage; written at full insurable value, with
replacement cost endorsement, including theft; covering all of Subtenant's
personal property at the Leased Premises (including, without limitation,
equipment, trade fixtures, inventory, supplies, floor coverings, furniture and
other property removable by Subtenant under the provisions of this Sublease)
and any improvements installed in the Leased Premises by or on behalf of
Subtenant.
(4) Comprehensive boiler and machinery equipment policy.
Subtenant shall deliver to Sublandlord upon execution of this Sublease
certificates of insurance evidencing the coverages required to be maintained
hereunder, and shall provide updated certificates as necessary or upon
Sublandlord's request. Subtenant agrees to name Sublandlord and Landlord as
additional assureds under all applicable insurance policies, and Subtenant
agrees to waive all of its subrogation rights against Sublandlord and Landlord.
-3-
<PAGE> 4
9. Environmental Assessment: An environmental assessment of the
Leased Premises has been conducted by Sublandlord, and a copy of the report
issued dated October 25, 1993 has previously been furnished to Subtenant and
accepted by Subtenant. Subtenant shall conduct any environmental assessment of
the Leased Premises immediately after the termination of this Lease. The
method and procedures utilized in both assessments shall be substantially the
same. If after comparing the two assessments there is an increase in the level
of Hazardous Material (as hereinafter defined), or if there appears the
presence of a Hazardous Material which was not present in the initial
assessment, then Subtenant agrees to remediate the presence of the Hazardous
Material. Subtenant's obligations under this provision are limited to the
presence of Hazardous Material or, as the case might be, increased level of
Hazardous Material as a result of the negligent actions or failure to act or
wilful misconduct of the Subtenant, its officers, employees or agents, but
shall not include negligent actions or failure to act or wilful misconduct of
adjacent land owners, the Sublandlord or the Landlord. Subtenant hereby
defends, indemnifies and holds Sublandlord and Landlord and their respective
officers, directors and employees harmless from any and all claims, judgments,
damages, penalties, fines, costs and liabilities in connection with or related
to Subtenant's possession and/or use of the Leased Premises and the presence of
Hazardous Materials on the Leased Premises pursuant to this provision. For
purposes of this Sublease, "Hazardous Material" shall mean any pollutant, toxic
substance, solid waste, hazardous waste, hazardous material, hazardous
substance or oil as defined in or pursuant to the Resource Conservation and
Recovery Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the Federal Clean Water Act, as
amended, or any other federal, state or local environmental law, regulation,
ordnance, rule or by-law, whether existing as of the date hereof, previously
enforced or subsequently enacted.
10. Assignment and Subletting. Subtenant shall not assign this
Sublease or sublet the Leased Premises or any part thereof without the prior
written consent of Sublandlord and Landlord.
11. Default. If Subtenant fails to pay the rent when due and
payable, and the same shall remain unpaid for five (5) days thereafter, or in
case Subtenant shall neglect or fail to perform or observe any of the other
covenants, terms and conditions imposed on Subtenant by this Sublease and
failure to remedy and/or remove said breach, within fifteen (15) days after
receipt of notice from Sublandlord; or in the event that Subtenant makes an
assignment for the benefit of creditors; or if Subtenant is adjudged as
bankrupt; or a debtor reorganization, arrangement or similar petition or
proceeding shall be filed by or against Subtenant under any chapter or
provision of the Federal Bankruptcy Code, so called; or in the event any
receiver is appointed over the assets of said Subtenant, or said Subtenant's
leasehold interest shall be attached or levied upon, and such receivership,
attachment or levy is not vacated and/or removed within fifteen (15) days
thereafter; then in any of the above cases, it shall be lawful for Sublandlord
thereupon, or any time thereafter at Sublandlord's option, and notwithstanding
any waiver of any prior breach of any covenant, term or condition, to enter
into or upon the Leased Premises or any part thereof, in the name of the whole,
repossess the same of its former state, and to expel Subtenant and those
claiming by, through or under Subtenant, and remove its effects, without being
guilty of any manner of trespass, or Sublandlord may send written notice to
Subtenant of the termination of this Sublease, and upon entry of the aforesaid,
or in the event that Sublandlord shall send to Subtenant notice of the
termination as above provided, on the tenth (10th) day next following the date
of sending the notice, this Sublease shall terminate.
In case of such termination, Subtenant will indemnify Sublandlord each
month against all loss of rent and all obligations which Sublandlord may incur
by reason of any such termination between the time of termination and the
expiration of the term of this Sublease, or at the election of Sublandlord,
exercised at the time of termination, or any time thereafter, Subtenant, in
addition to any amounts due by reason of such indemnification up to the time of
such election, will pay the Sublandlord as liquidated damages, such amounts as
at the time of said election will represent the difference between the rent
reserved hereunder for the unexpired portion of the term and the then fair and
reasonable value of the Leased Premises for the same period. At the time of
termination, or at any time thereafter, Sublandlord may rent the Leased
Premises, and for a term which may expire after the expiration of the term of
this Sublease without releasing Subtenant from any liability whatsoever, and
the Subtenant shall be liable for any expenses incurred by Sublandlord in
connection with obtaining the possession of the Leased Premises, with removing
from the Leased Premises property of Subtenant and persons claiming by, through
or under it (including warehouse charges), and with putting the Leased
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<PAGE> 5
Premises in good condition for reletting, including, without limitation,
reasonable attorneys' fees and brokers' fees, and any monies collected from any
reletting shall be applied first to the foregoing expenses, and then to the
payment of rent, and all of the payments due from Subtenant to Sublandlord.
12. Prior Agreements Superseded. This Sublease constitutes the sole
and only agreement of the parties hereto and any and all prior understanding or
written or oral agreements, representations and promises between the parties
representing the within the subject matter.
13. Amendments. No amendment, modification, or alteration of the
terms of this Sublease shall be binding unless the same be in writing, dated
subsequent to the date hereof, and duly executed by the parties hereto.
14. Successors. This Sublease shall be binding on the heirs,
executors, successors and assigns of the parties hereto.
15. Governing Law. This agreement shall be construed under and in
accordance with the laws of the State of Texas.
16. Notices. Unless otherwise provided herein, any notice, tender of
delivery to be given hereunder by either party to the other may be effected in
writing by personal delivery, registered or certified mail, postage prepaid,
return receipt requested, or by telefax, with confirmation of receipt. Notice
shall be deemed received when received by the party to be notified. For
purposes of notice, the addresses of the parties shall, until changed as herein
provided, be as follows:
For Sublandlord:
Weatherford U.S., Inc.
1360 Post Oak Blvd., Suite 1000
Houston, TX 77056
Attention: Manager, Administrative Services
Telefax: (713) 621-0994
With a copy to:
Weatherford International Incorporated
1360 Post Oak Blvd., Suite 1000
Houston, Texas 77056
Attn: H. Suzanne Thomas
Telefax: (713) 622-0913
For Subtenant:
American Oilfield Divers, Inc.
130 E. Kaliste Saloom Road
Lafayette, LA 70508
Attn: Quinn J. Hebert
Telephone: (318) 234-4590
Telefax: (318) 232-7306
However, the parties hereto shall have the right from time to time to change
their respective addresses by giving at least fifteen (15) days written notice
to the other party.
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<PAGE> 6
17. Incorporation and Assumption of Master Lease.
(a) Subtenant hereby acknowledges and consents to the
performance and assumption of any and all obligations, covenants and agreements
of Sublandlord as set forth in the Master Lease, except for those obligations
incurred by Sublandlord prior to the commencement of the term of this Sublease
and provided that Subtenant shall not be bound by any amendments or
modifications to the Master Lease after the date of this Sublease unless agreed
to in writing by Subtenant. Subtenant hereby agrees to defend, indemnify and
hold Sublandlord harmless against any claim or liability asserted against
Sublandlord by reason of Subtenant's failure to perform Sublandlord's
obligations, covenants and agreements under the Master Lease.
(b) Sublandlord does not assume the obligations of
Landlord under the provisions of the Master Lease, but shall exercise due
diligence in attempting to cause Landlord to perform its obligations under the
Master Lease for the benefit of Subtenant. Sublandlord represents and warrants
to Subtenant that it is the "Lessee" under the Master Lease and is authorized
to enter into this Sublease and consummate the transactions contemplated hereby
this Sublease, subject to obtaining Landlord's consent hereto.
(c) Sublandlord represents that Exhibit "A" is a true and
correct copy of the Master Lease relating the Leased Premises and that there is
not, nor will there be up to and including commencement date of the term of
this Sublease, other agreements or obligations, written or otherwise, between
Sublandlord and Landlord, except for Landlord's Consent. Subtenant shall not
assume any obligations, covenants or agreements to relating to the Master Lease
other than those expressly assumed pursuant to this Sublease.
(d) Sublandlord represents and warrants to Subtenant that
Sublandlord has satisfied all of its financial and other obligations under
the Master Lease up to and including the date of this Sublease and Sublandlord
shall indemnify and hold Subtenant harmless from any liability, claims,
damages, costs or expenses incurred or suffered by Subtenant in connection
with, arising out of, or relating to Sublandlord's obligations under the Master
Lease which were incurred prior to execution of this Sublease.
(e) Sublandlord hereby indemnifies and agrees to hold
Subtenant harmless and to defend Subtenant against any and all liabilities,
claims, losses, costs, damages, expenses, including attorneys' fees, demands
and judgments (including but not limited to claims, demands, suits, costs and
expenses for bodily injury, illness, disease, death or loss of services,
property or wages and costs associated with hazardous waste site clean up) to
which Subtenant may be subject as a result of toxic substances or hazardous
wastes, presently existing, known or unknown to Sublandlord, located on or
beneath the Leased Premises, unless caused by the wilful acts or omissions or
fault of Subtenant, provided that Sublandlord's obligation to indemnify and to
hold Subtenant harmless on the terms stated herein shall be limited to One
Million Dollars ($1,000,000.00) and shall mirror Landlord's obligation to
Sublandlord under Section 11 of the Master Lease. Sublandlord's obligation
hereunder shall survive the termination of this Sublease.
18. Sublandlord will pay Latter & Blum ("Agent") a cash commission
equal to 6% of the scheduled gross rentals owed by Subtenant under this
Sublease, to be paid annually in advance. Sublandlord further agrees to pay
the same percentage commission, payable in like manner, in the event of any and
all renewals, extensions, expansions or new subleases made with Subtenant or
any nominee, sublessee or assignee thereof. In the event Sublandlord assigns
its interest in this Sublease during the term hereof, Sublandlord shall ensure
that is assignee assumes and of its obligations hereunder to Agent, and shall
guarantee that such payments will be made.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease
Agreement in duplicate as of the date first above written.
SUBTENANT: SUBLANDLORD:
AMERICAN OILFIELD DIVERS, INC. WEATHERFORD U.S., INC.
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<PAGE> 7
By: /s/ Tom M. Kellahan By: /s/ Jon Nicholson
------------------------------- ----------------------------------
Name: Tom Kellahan Name: Jon Nicholson
Title: General Manager, Operations Title: Vice President
Date: February 14, 1995 Date: February 13, 1995
Landlord's Consent
The undersigned warrants and represents that it is the true and lawful
owner of the underlying premises which are the subject matter of the Sublease,
to which this Consent is appended, and that it has the full right and authority
to consent to the Sublease. Accordingly, the undersigned does hereby grant its
consent to said Sublease, without releasing Weatherford U.S., Inc. (Homco
International, Inc.) from any liability under the Master Lease.
LANDLORD
RATHBORNE PROPERTIES, INC.
By: /s/ Gregory C. Lier
--------------------------------
Name: Gregory C. Lier
Title: Vice President
Date: 2/14/95
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<PAGE> 8
EXHIBIT "A"
A certain parcel of ground situated in the Parish of Jefferson, State of
Louisiana, near the unincorporated village of Harvey, in Section "C", Block "G-
I", Rathborne Land Company, Inc., Industrial Subdivision, said parcel located
on the southeast corner of Eighth Street and St. Joseph Lane, this being the
point of beginning; going east a distance of 123', thence south a distance of
321', thence west a distance of 93', thence northwest a distance of 56' (more
or less), thence a distance of 275' to point of beginning, together with all
improvements located thereon, including a 46' x 140' building (Building 1); and
All of the above and foregoing shall be collectively referred to as the
"Leased Premises".
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<PAGE> 9
Exhibit B to Sublease
SUPPLEMENTAL
MEMORANDUM TO LEASE
MEMORANDUM OF LEASE, made this 16th day of August, 1989, between Rathborne
Properties, Inc., a Louisiana corporation, having its principal place of
business at 100 Pailet Drive, Harvey, Louisiana 70058, (hereinafter "Lessor")
and HOMCO International, Inc., a Delaware corporation, having its principal
place of business at 4710 Bellaire Boulevard, Suite 200 Bellaire, Texas 77401,
(hereinafter "Lessee").
WITNESSETH:
WHEREAS, Lessor entered into a lease (hereinafter "Lease") with Lessee as of
October 14, 1988 leasing unto Lessee all that certain premises located near the
unincorporated village of Harvey, Parish of Jefferson, State of Louisiana, as
more particularly described as follows:
A certain parcel of ground situated in the Parish of Jefferson, State of
Louisiana, near the unincorporated village of Harvey, in Section "C", Block "G-
1", Rathborne Land Company, Inc., Industrial Subdivision, said parcel located
on the southeast corner of Eighth Street and St. Joseph Lane, this being the
point of beginning; going east a distance of 123.07', thence south a distance
of 515.91', thence west a distance of 58', then north a distance of 195',
thence west a distance of 35', thence northwest a distance of 58.36', thence a
distance of 275' to point of beginning, together with all improvements located
thereon, including a 46' x 140' building (Building 1); and a warehouse building
measuring 50' x 200' newly constructed on above site as per plans and
specifications attached to original lease as Exhibit "A" (the "Leased
Premises").
WHEREAS, the Lease and said Memorandum of Lease provide that Lessor and Lessee
would record a Supplemental Memorandum of Lease stating the commencement date
and the term of the Lease and certain other dates relating to Lessee's option
to extend the term of the lease.
NOW, THEREFORE, Lessor and Lessee hereby agree and state for recording that:
1. The date of commencement of the Lease was August 1, 1989, and the
original term of the Lease shall expire on July 31, 1999, unless sooner
terminated.
2. Pursuant to the Lease, Lessee may extend the term of the Lease as
follows:
Lessee is hereby granted the privilege of revewing this lease for two
additional periods of five (5) years or form a period of six (6) months under
the following terms and conditions:
(a) At least ninety (90) days prior to the expiration of this lease,
Lessee shall give Lessor, by certified United States mail, addressed to Lessor
at Harvey, Louisiana, written notice of its election to renew, or not to renew,
for the next ensuring five (5) year term or for a six (6) month term.
(b) If Lessee elects to renew for an additional term of five years,
Lessee and Lessor shall meet not later than thirty (30) days after the receipt
of said certified notice to determine the rental for the renewal period, which
yearly rental shall in no case be less than the preceding year's rental.
If Lessor and Lessee are unable to agree upon the new rental, they shall
each designate an appraiser to arbitrate said rent. Any such arbitrated rent
shall be based on the fair rental value of the property for the first year,
which yearly
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<PAGE> 10
rental shall in no case be less than the rent for the preceding year's rental,
adjusted upward by 3%. Should said appraisers be unable to agree upon the new
renal, a third appraiser shall be appointed by the New Orleans Real Estate
Board and the decision of any two of the said appraisers shall be final and
binding on Lessor and Lessee. Lessor and Lessee shall each pay the fee of
their appraiser, and the fee of the appraiser selected by the President of the
New Orleans Real Estate Board shall be pro rated equally between Lessor and
Lessee.
3. This Supplemental Memorandum of Lease is solely for recording
purposes and shall not be construed to alter, modify or supplement the Lease,
of which this is a memorandum.
IN WITNESS WHEREOF, this Supplement Memorandum of Lease has been duly
executed by the parties hereto the day and year first above written.
WITNESSES: RATHBORNE PROPERTIES, INC.:
/s/ Leander E. Horizon By: /s/ Robert E. Becker
- ---------------------------------- ------------------------------------
Robert E. Becker, President
/s/ Barbara M. Miller
- ----------------------------------
/s/ Suzanne L. Lewallen HOMCO INTERNATIONAL, INC.:
- ----------------------------------
/s/ Charles B. Martin By:/s/ Burton S. Dubowy
- ---------------------------------- -------------------------------------
Burton S. Dubowy
Vice President
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<PAGE> 11
EXHIBIT "A"
Specifications
2620 Eighth Street
METAL BUILDING DESCRIPTION
WIDTH: 50'
LENGTH: 200'
HEIGHT: 16'
ROOF SLOPE: 1/12
BAY SPACING: 25'
ROOF COVERING: 26 gauge standard seam roof sheets which are zinc
aluminum having a UL 90 rating roof and a 20 year
declining warranty.
WALL COVERING: Will be a standard 26 gauge colored wall panels.
LIVE LOAD: 20 PSF
WIND LOAD: 20 PSF
Building will receive gutters and downspouts. This building will have three
(3) downspouts on each side of building.
Building will receive 2" vinyl insulation on roof and walls.
METAL BUILDING DESCRIPTION
Building will receive two (2) each 3070 metal doors with standard locking.
Building will receive three (3) 14' x 14' sectional overhead doors with hi-lift
tracking. Building will receive eight (8) 9" x 10' monovents with birdscreens
and dampers. Building will receive thirty (30) wall lights approximately 3' x
5'. Columns of building will be beefed up in order to receive one (1) 3 ton
top running crane. Building will receive approximately 400 feet of beam,
eighteen (18) braces, four (4) wheels stop and necessary hook bolts to attach
rails to beam. The crane will be supplied by Homco International, Inc. to fit
crane rails. Metal Building will receive two (2) 48" wall mounted fans and
louvers.
FOUNDATION
Slab to consist of 3,000 PSI concrete, 6" thick with 6 x 12 0/1 highway mesh.
Slab will receive 6 mil. visqueen for waterproofing purposes. All exterior and
interior beams will receive four (4) #5 rods running continuously with #3
stirrups at 4 foot on center. There will be fourteen (14) interior footing in
order to carry the load of building and crane systems. These foootings will be
4 x 4 x 20" deep with five (5) #5 running each way. In wall footing, will
consist of six (6) 3 x 3 x 20" deep having four (4) #5 running each way.
ELECTRICAL
FURNISH AND INSTALL:
14 each 250 watt Mercury Vapor Hi Bay Fixtures.
14 each 110V duplex outlets.
5 each single pole switches.
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<PAGE> 12
1 each circuit for bridge crane.
1 each 15 KVA transformer single phase.
1 each 20 circuit 120-240V breaker panel.
1 each 200 AMP 480V 30 4 wire breaker panel.
2 each wall mount fans with shutters.
Incoming service to be 400 AMP 480V 30 4 wire overhead. Includes all necessary
breakers and circuits for above mentioned lights, outlets, fans and duplex
outlets.
DRAINAGE AND OUTSIDE PAVING
Work includes aproximately 4,000 square feet of outside paving. This concrete
will be 3,000 PSI and have keyway joint at fifteen (15) foot on center and this
concrete will be 6" thick. Also included is sub-surface drainage which will
consist of one (1) manhole, two (2) catch basin, 30 feet of 23" rc/pipe and 110
feet of 10" PVC/pipe.
NOTE:
Slab of small building to right of property will be removed. Building is to be
removed by Lessee.
The Builder on this project shall be:
Landmark Builders, Inc.
5127 Taravella Road, Suite A
Marrero, Louisiana 70072
They shall furnish us with all workmen's compensation, builder's risk and
liability insurance, all parish and fire marshall permits and survey's to set
corners of building.
They shall also include drawing plans for the purpose of getting parish and
fire marshall approval, said plans to be stamped by licensed engineer or by
architect.
/s/ C. Martin 11/4/88
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<PAGE> 13
LEASE AMENDMENT
This amendment entered into by and between Rathborne Properties, Inc., a
Louisiana corporation herein acting by and through Robert E. Becker, its
President, (hereinafter referred to as Lessor), and Homco International, Inc.
(hereinafter called Lessee) herein represented by Burton Dubowy its Vice
President:
WITNESSETH
1. That certain lease agreement between the parties hereto
dated October 14, 1988 covering a parcel of land measuring 123' fronting Eighth
Street in Harvey, Louisiana together with improvements, is hereby amended by
changing Paragraph 2 of said lease to read as follows:
2. Premises
A certain parcel of ground situated in the Parish of Jefferson,
State of Louisiana, near the unincorporated village of Harvey, in Seciton "C",
Block "G-1", Rathborne Land Company, Inc., Industrial Subdivision, said parcel
located on the southeast corner of Eighth Street and St. Joseph Lane, this
being the point of beginning; going east a distance of 123.07', thence south a
distance of 515.91', thence west a distance of 58', thence north a distance of
195', thence west a distance of 35', thence northwest a distance of 58.36',
thence a distance of 275' to point of beginning, together with all improvements
located thereon, including a 46' x 140' building (Building 1); and
A warehouse building measuring 50' x 200' (Building 2) which
Lessor, at Lessor's sole cost and expense, shall have constructed on the above
site as per plans and specifications attached (to original lease) and referred
to as Exhibit "A" (the Plans and Specifications"). This construction shall
conform to all state and local ordinances that apply.
All of the above and foregoing shall be collectively referred to
as the "Leased premises."
This lease shall also include certain additional improvements to
Building 2 requested by Lessee which include: The installing of four gas fire
unit heaters, having a capacity of 200,000 BTU input each. The installation
shall include running gas lines, electrical and thermostat work.
2. Said lease dated October 14, 1988 is hereby further
amended by changing paragraph 5 to read as follows:
5. Rent
Rental for the first five years of this lease shall be at the
rate of Thirty-Four Thousand Two Hundred Twenty-Four ($34,224.00) Dollars per
year, payable at the monthly rate of Two Thousand Eight Hundred Fifty-Two and
No/100 ($2,852.00) Dollars each month in advance. Rental for the second five
year period shall be increased by the amount of increase, if any, in the Gross
National Product Implicit Price Deflator Index published by the U.S. Department
of Commerce. The index published for January 1988 shall be considered the base
index for this purpose, and the index for January, 1993 shall be used to
determine the amount of rental increase, if any, for the second five years of
this lease. In no event shall any adjustment hereunder cause a reduction in
the rental payable to Lessor.
This amendment shall become effective upon the commencement of
that certain lease agreement between the parties hereto dated October 14, 1988.
IN WITNESS WHEREOF the parties have hereunto affixed their
signatures as of this 28th day of December, 1988.
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<PAGE> 14
WITNESSES: RATHBORNE PROPERTIES, INC.
/s/ Leander E. Horizon By: /s/ Robert E. Becker
- -------------------------------- -----------------------------------
Robert E. Becker, President
/s/ Barbara M. Miller
- --------------------------------
- -------------------------------- HOMCO INTERNATIONAL, INC.
/s/ Mary Jane Leard By: /s/Burton Dubowy
- -------------------------------- -----------------------------------
Burton Dubowy, Vice President
[BLUEPRINT OF PROPERTY]
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<PAGE> 15
LEASE OF COMMERCIAL PROPERTY
1. Parties
RATHBORNE PROPERTIES, INC. (hereinafter called Lessor) represented
herein by Robert E. Becker, its President, duly authorized by resolution of the
Board of Directors of said Corporation annexed hereto, hereby leases to HOMCO
INTERNATIONAL, INC. (hereinafter called Lessee) herein represented by Burton
Dubowy, its Vice President duly authorized, the following described premises:
2. Premises
A certain parcel of ground situated in the Parish of Jefferson, State of
Louisiana, near the unincorporated village of Harvey, in Section "C", Block "G-
I", Rathborne Land Company, Inc., Industrial Subdivision, said parcel located
on the southeast corner of Eighth Street and St. Joseph Lane, this being the
point of beginning; going east a distance of 123', thence south a distance of
321', thence west a distance of 93', thence northwest a distance of 56' (more
or less), thence a distance of 275' to point of beginning, together with all
improvements located thereon, including a 46' x 140' building (Building 1); and
A warehouse building measuring 50' x 200' (Building 2) which Lessor, at
Lessor's sole cost and expense, shall have constructed on the above described
site as per plans and specifications attached and referred to as Exhibit "A"
(the "Plans and Specifications"). This construction shall conform to all
state and local ordinances that apply.
All of the above and foregoing shall be collectively referred to as the
"Leased Premises".
3. Term
This lease is for a term of ten (10) years, commencing on the day on
which lessor delivers to Lessee possession of the Leased Premises broom clean,
including Building 2 substantially completed (which shall be defined to mean
fully complete except for punch list items, which are limited to small items
that would not prevent Lessee from fully occupying the Leased Premises for the
purposes for which intended) by Lessor in accordance with the Plans and
Specifications. The taking of possession of the Leased Premises shall not
constitute a waiver by Lessee of any defects in the Leased Premises or any
failure by Lessor to perform its agreement herein contained. Lessor shall be
obligated to complete fully Building 2 in accordance with the Plans and
Specifications, and Lessee, at any time within one (1) year thereafter, may
require Lessor to perform all of its agreements and repair any such defects
with respect to Building 2.
4. Delayed Possession
Should Lessee be unable to obtain possession through no fault of Lessor,
but because of delays of tenants, or because the contractor or workmen have not
brought Building 2 or other improvements to be constructed by lessor hereunder
to a condition permitting occupancy, whether by the fault and neglect of such
workmen or contractor, or because of the occurrence of events such as Acts of
god, floods, strikes, wars, etc., there will be no liability on the part of
Lessor for such delay, and Lessee is obligated to accept the Leased Premises
for occupancy and rentals will commence upon the substantial completion (as
defined in Section 3 above) of the improvements, including the repairs to
Building 1 as specified below and construction of Building 2 in accordance with
the Plans and Specifications.
Lessor, at no cost to Lessee, shall, prior to delivery of possession of
the Leased Premises to Lessee, make the following repairs to Building 1:
(i) Replace all exterior doors, including two roll up doors
and two personnel doors;
(ii) Replace all broken glass in all exterior and interior
windows;
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<PAGE> 16
(iii) Repair all leaks in the roof and seal roof;
(iv) Remove "Continental Emsco" logo from Building;
(v) Replace interior tile floor; and
(vi) Place plumbing and wiring in good working order.
Notwithstanding the foregoing, should Lessor fail to substantially
complete the construction required hereunder for any reason within six (6)
months after Lessor's contractor has obtained a building permit, then Lessee
may terminate this lease on thirty (30) days written notice to Lessor and
thereafter Lessor and lessee shall have no further obligations hereunder.
Lessor, at least ten (10) days prior to the date that Building 2 shall
be substantially completed, shall give written notice to Lessee of the date on
which lessor anticipates that it will substantially complete Building 2 and
deliver possession thereof to Lessee. Lessee shall have the right to rely upon
the date so designated by Lessor in planning for Lessee's opening and in the
event Lessor cannot meet such date for any reason whatsoever (except for delays
occurring due to events beyond the reasonable control of Lessor, in which event
Lessor immediately will take such reasonable steps and actions to overcome the
delay), Lessee shall have the right to enter the Leased Premises in order to
install its furniture, fixtures, appliances and equipment at this time, without
incurring any obligation to pay rent until Building 2 is substantially
completed in accordance with the Plans and Specifications.
Lessor shall prepare and deliver to Lessee one sepia and one complete
set of "as built" final Plans and Specifications as soon as the same are
available following the completion of Building 2.
5. Rent
Rental for the first five years of this lease shall be at the rate of
Thirty-Three Thousand Two Hundred Four and No/100 ($33,204.00) Dollars per
year, payable at the monthly rate of Two Thousand Seven Hundred Sixty-Seven and
No/100 ($2,767.00) Dollars each month in advance. Rental for the second five
year period shall be increased by the amount of increase, if any, in the Gross
National Product Implicit Price Deflator Index published by the U.S. Department
of Commerce. The index published for January 1988 shall be considered the base
index for this purpose, and the index for January, 1993 shall be used to
determine the amount of rental increase, if any, for the second five years of
this lease. In no event shall any adjustment hereunder cause a reduction in
the rental payable to Lessor.
6. Use of Premises
The Leased Premises herein leased are to be used for the purpose of
providing commercial and/or industrial manufacturing, sales, supplies and
services, and the property shall never be used for the sale of intoxicating
liquors. Lessee is obligated not to use the Leased Premises for any purpose
that is unlawful.
7. Condition and Maintenance
Unless otherwise provided, Lessee agrees to keep the improvements on the
Leased Premises in the same order as received during the term of his lease,
normal wear and tear excepted. The care, maintenance and repairs of the Leased
Premises, unless damaged by lessor or its agents and except as otherwise
provided herein, are assumed by Lessee. Lessee, however, shall not be
obligated to repair or replace the foundations, the load-bearing walls and the
exterior walls of the Buildings and the roofs of the Buildings, unless damaged
by Lessee or its agents, nor shall Lessor be responsible for any such repairs
(except as otherwise provided for in this lease) unless damaged by Lessor or
its agents. Lessee agrees to pay all bills for utilities, including water,
sprinkler service, electricity, gas and other service, and to comply, at
Lessee's expense, with all ordinances and laws, now existing or to be enacted,
and at the termination or cancellation
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<PAGE> 17
of this lease to return the Leased Premises broom clean and free from trash and
in like good order as received by actual delivery of the keys to Lessee, the
usual decay, wear and tear excepted.
Lessor shall, without cost to Lessee, make all repairs to Building 2
caused by lessor's or its employee's, agents' licensees' or contractors'
failure to construct Building 2 in accordance with the Plans and Specifications
or any defects in workmanship or as the result of the act, default or
negligence of Lessor, its employees, agents, licensees or contractors.
Lessor's obligation to make repairs to Building 2 as provided for herein shall
not extend for more than one year after the commencement of this lease.
8. Insurance
Lessee hereby assumes liability for personal injury and/or property
damage arising on the Leased Premises during the term of this lease and agrees
to indemnify and hold Lessor harmless from any and all claims, demands,
damages, costs or causes of action for personal injury and/or property damages
arising on the Leased Premises, unless caused by the willful acts or omissions
or gross negligence of Lessor, its employees or agents. Lessee shall maintain
at least $500,000 bodily injury and property damage liability insurance through
an insurance carrier or on a self-insured basis. Lessor shall be furnished
with a certificate of insurance with a 30-day notice of cancellation or
material change in coverage for Lessee's umbrella coverage. Lessor in his sole
judgment shall determine the insurable value of the building and improvements
on the Leased Premises and Lessor shall maintain flood, fire, lightning and
extended coverage insurance for said amount providing such insurance can be
procured; and Lessee shall pay to Lessor, as additional rental, the actual
amount of the yearly premium on said insurance, provided, however, that Lessee
shall be obligated to put nothing on the Leased Premises which would forfeit
the insurance. Should the Lessee's occupation or business render the Lessor
unable to secure proper insurance, then Lessee hereby grants to Lessor the
option of cancelling this lease, Lessee waiving all delays and agreeing to
surrender possession at once if notified by lessor to do so. Lessee shall be
further obligated to notify Lessor, in writing, any time the Leased Premises
will be unoccupied, so that necessary vacancy permits may be obtained from
Lessor's insurers and failure to comply with this provision shall make Lessee
liable for any loss or damage sustained by Lessor.
Nothing herein shall prevent Lessee from obtaining additional insurance
for the benefit of Lessee upon improvements or contents on or i the Leased
Premises.
If the improvements on the Leased Premises are lost or damaged by fire
or other casualty and such loss or damages may be repaired or replaced within
one hundred twenty (120) days from date of such fire or casualty, Lessor shall
have the option either to repair or to replace the improvements at its costs or
to notify Lessee, in writing, within thirty (30) days from date of such loss or
damage that it will not undertake to repair or replace such loss or damage.
Should Lessor refuse to make said repairs or replacements, Lessee shall, at its
option, have the right to cause such loss or damage to be repaired or replaced
within one hundred twenty (120) days from date of loss or damage, at Lessee's
expense; provided, however, that upon completion of said repair or replacement,
Lessee shall certify to Lessor that all items of repair or replacement have
been completed and the total cost thereof, and within ten (10) days of receipt
of such certification, Lessor shall remit to Lessee either (a) the proceeds
received by Lessor from the policy or policies of insurance covering said
improvements or (b) the cost of such repair or replacement, whichever is less.
If neither Lessor nor Lessee undertakes such repair or replacement this
lease shall terminate as of the date of such loss or damage.
Should either Lessor or Lessee undertake the repair or the replacement
of improvements under this lease, such repair or replacement shall return the
premises to as nearly like their condition prior to such damage as shall be
practical unless the parties agree otherwise in writing.
If the whole or any part of the Leased Premises shall be damaged or
destroyed or rendered untenantable after the commencement of this lease through
no fault of Lessee, then Lessee shall be entitled to a reduction or remission
of
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<PAGE> 18
rent in the proportion that the portion of the Leased Premises of which Lessee
shall be deprived on account of such damage or destruction bears to the total
Leased Premises, based on the following percentages: 23% of the rent shall be
allocated to Building 1; 46% of the rent shall be allocated to Building 2; and
31% of the rent shall be allocated to the remainder of the Leased Premises.
This reduction or remission shall terminate upon the completion of repairs.
9. Taxes
For every year (or part of year) that this lease is in effect, Lessee
agrees to pay as additional rental, all taxes on both the land and improvements
leased herein and on any improvements placed upon the Leased Premises by either
Lessee or Lessor during the life of this lease, including all ad valorem taxes
and ad valorem assessments and, in addition, the installment amount including
principal and interest, for each lease year of all assessments now existing or
hereafter assessed against the leased land on an acreage, front footage, or
other than ad valorem basis. All such additional rent shall be paid by Lessee
to lessor within thirty (30) days after lessor has provided Lessee with a
complete copy of a bill from the taxing authority stating that the taxes are
due. It is distinctly understood and agreed that Lessor shall have the right
to join with other sin requesting improvements on or adjacent to the Leased
Premises to be paid for on an assessment basis and the fact that Lessor so
joins in such requests shall not in any manner relieve Lessee of the
obligations with respect to payment of the amount of all assessments hereafter
assessed against the leased land on an acreage, front footage or other than ad
valorem basis. Should a "one time only" assessment be hereafter assessed
against the Leased Premises, Lessee shall only be obligated to pay one-tenth
(1/10) of said assessment per year for the remainder of the lease term or ten
(10) years whichever is shorter.
Lessee, at its own cost and expense, may contest by appropriate
proceedings the amount of any such tax and Lessee may, if it shall so desire,
endeavor at any time by appropriate proceedings to obtain a reduction in the
assessed valuation of the Leased Premises for tax purposes. However, Lessee
may not withhold payment of tax to Lessor. In the event that Lessee's efforts
cause a rebate or refund of tax to Lessor, Lessor shall refund in like manner
to Lessee.
Nothing contained in this lease shall require Lessee to pay any estate,
inheritance, succession, capital levy, corporate franchise, sales, use, gross
receipts, transfer or income tax of Lessor or any tax payable by lessor in
rentals, nor shall any of the same be deemed real estate taxes.
10. Public Taking
If after the execution of this lease and prior to the expiration of the
term hereof, the whole of the Leased Premises shall be taken under power of
eminent domain by any public or private authority, or conveyed by lessor to
said authority in lieu of such taking, then this lease and the term hereof
shall cease and terminate as of the date of such taking; subject, however, to
the right of Lessee, at its election, to continue to occupy the Leased
Premises, subject to the terms and provisions of this lease, for all or such
part, as Lessee may determine, of the period between the date of such taking
and the date when possession of the Leased Premises shall be conveyed to the
condemning authority and any unearned rent or other charges, if any, paid in
advance, shall be refunded to Lessee.
If, after the execution of this lease and prior to the expiration of the
term hereof, any public or private authority shall, under the power of eminent
domain, make a taking of, or Lessor shall convey to said authority in lieu of
such taking, any portion of the Leased Premises, then this lease and the
obligation to pay rent hereunder shall terminate as to the part so taken as of
the date the condemning authority takes title or possession, whichever first
occurs. If such taking (i) results in any reduction of Building 1 or 2; (ii)
results in a reduction of 15% or more of the land constituting the Leased
Premises other than the land under Buildings 1 and 2; or (iii) results in a
taking of the access roads to the Leased Premises that substantially impedes or
substantially interferes with access to the Leased Premises, then Lessee may,
at its election, terminate this lease by giving Lessor notice of the exercise
of Lessee's election within thirty (30) days after Lessee shall receive notice
of such taking. In the event of termination by Lessee, this lease and the term
hereof shall cease and terminate as of the date of such taking, subject to the
right of Lessee, at its election, to continue to occupy the Leased Premises,
subject to the terms and provisions of this lease, for all or such part, as
Lessee may
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<PAGE> 19
determine, of the period between the date of such taking and the date when
possession shall be taken by the condemning authority of the Leased Premises,
and any unearned rent or other charges, if any, paid in advance by Lessee shall
be refunded to Lessee. However, in order to keep this lease in force and
effect, lessor shall have the option of substituting equivalent premises, fit
for the use for which Lessee was using the premises so taken and located within
the same municipal block as the Leased Premises, in an equal amount and in at
least as good a condition as that portion of the Leased Premises taken.
11. Indemnity
Lessor hereby indemnifies and agrees to hold Lessee harmless and to
defend Lessee against any and all liabilities, claims, losses, costs, damages,
expenses, including attorneys' fees, demands and judgments (including, but not
limited to, claims demands, suits, costs and expenses for bodily injury,
illness, disease, death or loss of services, property or wages and costs
associated with hazardous waste site clean-up) to which Lessee may be subject
as a result of toxic substances or hazardous wastes, presently existing, known
or unknown to Lessor, located on or beneath the Leased Premises, unless caused
by the willful acts or omissions or fault of Lessee. Lessor's obligation to
indemnify and to hold Lessee harmless on the terms stated above shall be
limited to One Million ($1,000,000.00) Dollard and shall survive the term of
this lease.
12. Notice
Any notices, demands or citations under this lease are to be in writing
and addressed as follows: To Lessor -- Rathborne Properties, Inc., P. O. Box
157, Harvey Louisiana 70059; to Lessee -- Homco International, Inc., P. O. Box
2442, Houston, Texas 77252 and P. O. Box 663, Harvey, Louisiana 70059.
13. Signs or Decorations
Lessee is obligated not to display in, on or above the Leased Premises
any sign or decoration, the nature of which, in the judgment of Lessor, is
dangerous, unsightly or detrimental to the property. Lessee is prohibited from
painting any signs on the Leased Premises without the written consent of
Lessor, and Lessee is obligated to promptly remove at or before the expiration
of this lease, any and all signs painted or placed in or upon any part of the
Leased Premises to Lessor's satisfaction, and Lessee is obligated to pay the
cost of said removal, plus attorney's fees, in the event of failure to carry
out this obligation.
Lessee must allow prospective purchasers authorized by Lessor or agent
to visit the premises in view of buying during the term of this lease from 10
A.M. to 5 P.M. on business days. Lessor also reserves the right to keep on the
Leased Premises "For Rent" cards during the ninety (90) days preceding the
expiration of this lease; and Lessee must allow parties authorized by Lessor or
its agent to visit the Leased Premises in view of renting for ninety (90) days
prior to expiration, from 10 A.M. to 5 P.M. on business days. Lessor shall
give Lessee twenty-four (24) hours oral notice prior to visiting the Leased
Premises.
14. Responsibility for Damages
Lessor will not be responsible for damage caused by defects in the
sprinkler systems, by leaks in the roof, by bursting of pipes, by freezing or
otherwise, or by any vices or defects of the Leased Premises or the
consequences thereof, except in the case of positive neglect or failure to take
action toward the remedying of such defects as are required by the lease to be
remedied by Lessor within reasonable time after having received written notice
from Lessee of such defects and the damage caused thereby. Should Lessee fail
to promptly so notify Lessor, in writing of any such defects, Lessee will
become responsible for any damage resulting to Lessor or other parties. Lessee
shall be subrogated to the rights of Lessor against third parties to the extent
of any damages suffered by Lessee.
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<PAGE> 20
15. Vacating Premises
In the event of Lessee being absent from the Leased Premises, Lessor or
his agent shall be notified in writing where keys may be had in order that the
Leased Premises may be shown to prospective tenants or purchaser. Should Lesse
not allow prospective tenants or purchasers to inspect the property, as
provided herein, Lessor has the option to consider this lease renewed for one
year under the same terms and conditions, or may hold Lessee responsible for
damages, and Lessor or agent has the further option to enter the premises by
any means, without responsibility to Lessee for any loss or damage resulting
therefrom.
Should the Leased Premises be vacated or abandoned by Lessee because of
ejectment for breach hereof, then the rent for the unexpired term with
attorney's fees, shall at once become due and exigible, and Lessor, at his
option, has the right to cancel the lease, or re-enter and let the Leased
Premises for such price and on such terms as may be immediately obtainable and
apply the net amount realized to the payment of the rent. Notwithstanding the
foregoing, should Lessee vacate the Leased Premises but continue to be in
compliance with all other conditions of this lease, Lesee shall not be deemed
to be in breach of this lease and Lessor shall not have available the remedies
set forth in this Section 15 or Section 18 of this lease.
16. Surrender of Premises
At the expiration of this lease, or its termination for other causes,
Lessee is obligated to immediately surrender possession, and should Lessee fail
to do so, he consents to pay any and all damages, but in no case less than five
95) times the rent per day, with attorney's fees, costs, etc. Lessee also
expressly waives any notice to vacate at the expiration or termination of this
lease and all legal delays, and hereby confesses judgment with costs placing
Lessor in possession to be executed at once. Should Lessor allow or permit
Lessee to remain on the Leased Premises after the expiration or termination of
this lease, this shall not be construed as a reconduction of this lease, and
the lease shall continue in effect but on a month-to-month basis. In the event
of any such month-to-month continuance, the rent may be changed or the lease
terminated upon thirty (30) days prior written notice. The time of the lease
shall not be reconducted but all other conditions thereof shall continue to
govern on a month-to-month basis.
17. Sublease
Lessee shall not be permitted to mortgage its leasehold interest or any
improvements upon the Leased Premises, to assign this lease, to rent or sublet
or grant use or the possession of the Leased Premises to any other party,
without the written consent of the Lessor, which consent shall not be
unreasonably withheld, and then only in accordance with the terms of this
lease. Any such sublease shall be handled by Lessor at expense of Lessee.
No auction sales, or any sales of furniture, fixtures, etc., shall be
conducted on the premises without the written consent of the Lessor or agent.
18. Non-Payment of Rent, Etc.
In the event Lessee shall at any time be in default of the payment of
rent or other charges herein required to be paid by Lessee for a period of ten
(10) days after notice to Lessee in writing of such default; or upon the
adjudication of Lessee in bankruptcy, the appointment of a receiver for Lessee,
the filing of a bankruptcy, receivership or respite petition by Lessee, or upon
Lessee's suspension, failure or insolvency, and such condition shall continue
for a period of thirty (30 days after notice to Lessee in writing; or should
Lessee at any time be in default in the observance or performance of any of the
conditions of this lease required to be observed or performed by Lessee and
such default shall continue for a period of thirty (30) days (or such longer
period if necessary to cure such default, so long as Lesse has taken steps
within such thirty day period to cure such default), after notice to Lessee in
writing of such default then, at the option of Lessor, the rent for the whole
unexpired term of this lease shall at once become due and exigible; and Lessor
shall have the further option to at once demand the entire rent for the whole
term, or to immediately cancel this lease, or to proceed for past due
installments only, reserving the right to later proceed for the remaining
installments, all without putting Lessee in default, Lessee to remain
responsible for all damages or losses suffered by Lessor, Lessee
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<PAGE> 21
hereby assenting thereto and expressly waiving the legal notices to vacate the
premises. Should an agent or attorney be employed to give special attention to
the enforcement or protection of any claim of Lessor arising from this lease,
Lessee shall pay, as fees and compensation to such agent or attorney an
additional sum of 33 1/3% of the amount of such claim, the minimum fee,
however, to be $500.00 or if the claim be not for money, the such sum as will
constitute a reasonable fee, together with all costs, charges and expenses.
Failure to strictly and promptly enforce these conditions shall not
operate as a waiver of Lessor's rights, Lessor expressly reserving the right to
always enforce prompt payment of rent, or to cancel this lease, regardless of
any indulgences or extensions previously granted. The receiving by lessor, or
Lessor's representative of any rent in arrears, or after notice of institution
of any suit for possession, or for cancellation of this lease, will not be
considered as a waiver of such notice of suit, or of any of the rights of
Lessor.
19. Additional Improvements
Lessee is obligated not to make any additions or alterations whatever to
the Leased Premises without Lessor's written approval. All additions,
alterations or improvements made by Lessee with or without consent of Lessor,
no matter how attached must remain the property of Lessor, unless otherwise
stipulated herein or agreed to by the parties. Lessee expressly waiving all
rights to compensation therefor. It is stipulated and agreed that the
additions and improvements specified on Exhibit "B" attached hereto shall be
and remain the property of Lessee and shall be removed by Lessee upon the
termination of this lease. The Lessor at his option, may require the buildings
to be replaced in its original condition, normal wear and tear excepted.
Lessor or agent or workmen shall have the right to enter the Leased Premises at
any time for the purpose of making repairs necessary for the preservation of
the property.
20. Renewal Option
Lessee is hereby granted the privilege of renewing this lease for two
additional periods of five (5) years or for a period of six (6) months under
the following terms and conditions:
(a) At least ninety (90) days prior to the expiration of this lease,
Lessee shall give Lessor, by certified United States mail, addressed to Lessor
at Harvey, Louisiana, written notice of its election to renew, or not to renew,
for the net ensuring five (5) year term or for a six (6) month term.
(b) If Lessee elects to renew for an additional term of five years,
Lessee and Lessor shall meet not later than thirty (30) days after the receipt
of said certified notice to determine the rental for the renewal period, which
yearly rental shall in no case bed less than the preceding year's rental.
If Lessor and Lessee are unable to agree upon the new rental, they shall
each designate an appraiser to arbitrate said rent. Any such arbitrated rent
shall be based on the fair rental value of the property for the first year,
which yearly rental shall in no case be less than the rent for the preceding
year's rental, adjusted upward by 3%. Should said appraisers be unable to
agree upon the new rental, a third appraiser shall be appointed by the New
Orleans Real Estate Board and the decision of any two of the said appraisers
shall be final and binding on Lessor and Lessee. Lessor and Lessee shall each
pay the fee of their appraiser, and the fee of the appraiser selected by the
President of the New Orleans Real Estate Board shall be pro rated equally
between Lessor and Lessee.
21. Quiet Enjoyment
Lessor covenants and agrees with lessee that upon Lessee's paying the
rent and observing and performing all of the terms, covenants and conditions on
Lessee's part to be observed and performed hereunder, Lessee may peaceably and
quietly have, hold, occupy and enjoy the Leased Premises without hindrance or
molestation from lessor or any persons lawfully claiming through Lessor.
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<PAGE> 22
22. Recordation
Simultaneously herewith, Lessor and Lessee have entered into a
memorandum of lease for recording purposes and Lessor and Lessee agree, upon
the commencement of the term of this lease, to enter into a recordable
agreement in the form attached hereto as Exhibit "C" supplementing the lease
and specifying the commencement date of the lease and the dates relating to
Lessee's option to extend the term of the lease.
Lessee shall pay all filing fees and costs with respect to recording the
memorandum of lease and any supplements or amendment. Lessee covenants and
agrees not to record this lease or otherwise disclose the terms thereof.
23. Sole Agreement
This lease, together with attached exhibits, constitutes the sole
agreement between Lessor and Lessee and supersedes any prior agreements with
regard to the Leased Premises. All modifications of this agreement shall be
without effect, unless made in writing and signed by authorized representatives
of both Lessor and Lessee respectively, Lessee to furnish in writing such
authorized representatives.
IN WITNESS WHEREOF, the parties hereto hereunto affixed their signatures
as of this 14 day of October, 1988.
RATHBORNE PROPERTIES, INC.
By: /s/ Robert E. Becker, President
------------------------------------
Robert E. Becker, President
HOMCO INTERNATIONAL, INC.
By: /s/ Burton Dubowy
------------------------------------
Burton Dubowy, Vice President
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<PAGE> 1
EXHIBIT 10.6
STANDARD COMMERCIAL LEASE
NET NET NET
1. PARTIES.
This Lease, dated AUGUST 30, 1994 is entered between ROBERT THORNBURGH
("Landlord") and AMERICAN PACIFIC MARINE, INC., a Delaware Corporation and a
subsidiary of AMERICAN OILFIELD DIVERS, INC., ("Tenant").
2. NOTICES.
Any notice required hereunder shall be in writing and served either
personally or sent registered or certified United States mail, postage prepaid,
addressed as follows:
LANDLORD ROBERT THORNBURGH TENANT AMERICAN PACIFIC MARINE
BOX 1053 741 E. ARCTURUS AVENUE
PALOS VERDES ESTATES OXNARD
CALIFORNIA, 90274 CALIFORNIA, 93033
3. PREMISES.
3.1 Landlord leases to Tenant and Tenant leases from Landlord, on
the terms and conditions hereinafter set forth, that certain demised premises
and other improvements located thereon situated in the City of OXNARD County of
VENTURA State of California, commonly known as 741 E. ARCTURUS AVENUE AND
ADJOINING 1.44 ACRE VACANT LOT TO THE SOUTH WEST.
3.2 Landlord shall provide Tenant with possession of the Premises
on September 1, 1994, and the rent payments as required herein shall commence
upon that date. If Tenant causes a delay in planning or construction of
standard or above-standard Tenant improvements, then there shall be no
adjustment to the commencement date of this Lease nor Tenant's obligation to
make rent payments.
3.3 Tenant's Premises consists of two land parcels, one with
improvements of approximately 24,000 rentable square feet. The legal
description of the Premises is set forth in Exhibit "A" which is attached to
this Lease.
4. TERM.
4.1 The term of this Lease is for 3 years 0 months, commencing on
September 1, 1994 and ending on August 31, 1997, unless sooner terminated as
hereinafter provided.
5. MONTHLY RENT.
5.1 Tenant shall pay Landlord as monthly "base rent" for the
Premises the sum of ELEVEN THOUSAND ($11,000,000) dollars per month, in advance
of the first day of each month during the term hereof. Rent for any period
during the term of this Lease which is for less than one (1) month shall be a
prorata portion of the monthly installment. Said proration shall be calculated
on the basis of a thirty (30) day month. Rent shall be payable without notice
or demand and without any deduction, off-set, or abatement in lawful money of
the United States to the Landlord at the address stated herein for notices or
to such other persons or such other places as the Landlord designates to Tenant
in writing.
6. COST OF LIVING RENTAL ADJUSTMENTS.
6.1 The monthly "base rent" in Article 5 shall be increased on the
annual anniversary date of this Lease by the greater of three percent (3%) or
the percentage the United States Department of Labor Bureau of Labor
Statistics, Consumer Price Index for "all Urban Consumers" (for all items in
the Los Angeles/Long Beach/Anaheim areas) ("Index") has increased from the
first month of the Lease term through the month in which the rent is to be
increased, but shall not exceed five percent (5%) in any one year.
SAMPLE RENT CALCULATION:
a. Assume for purposes of example that the
beginning index number (month number 1 of the
Lease Term) is 208 and extension index
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 2
number (month number 13 of the Lease Term) is
219 and the rent is $1000.00.
b. The fraction would be equal to the extension
index divided by the beginning index, and
would be represented as 219/208 X $1,000.00 =
$1,053.00.
c. The new rent would be $1,053.00. 6.2 The
Index for the month in which the rent is to be increased
may not be available on such rental adjustment date. At such time as the Index
is available, written notice shall be given by Landlord to Tenant, and the
necessary rental adjustment payment shall be made by Tenant to Landlord within
fifteen (15) days of said written notice.
6.3 (a) If, at any such rental adjustment date, there does
not exist an Index in the same format as herein mentioned or if the components
of the Index have been materially changed over the period from the commencement
date of the Lease to such rental adjustment date, then the parties shall
substitute therefor an official index or indices published by the Bureau of
Labor Statistics or its successor that is substantially similar to the Index
mentioned herein and which achieves the same intended purpose of that Index.
(b) If the parties are unable to agree upon a substitute
or supplemental index, the choice of such index shall be referred to conclusive
and binding arbitration pursuant to the rules and regulation of the American
Arbitration, the cost of which shall be borne equally by the parties.
7. ANNUAL RENTAL ADJUSTMENT FOR EXPENSES.
7.1 There shall be no adjustments to Tenants base rent for
expenses other than those specifically outlined in Article 6 and Article 28 of
this lease.
8. SECURITY DEPOSIT.
8.1 Tenant shall deposit with Landlord upon execution of this
Lease the sum of ELEVEN THOUSAND ($11,000.00) dollars as a security deposit for
the Tenant's faithful performance of the provisions of this Lease. The amount
required as security deposit shall be equivalent to ONE (1) months' rent.
8.2 If Tenant fails to pay rent or the charges due hereunder, or
otherwise defaults with respect to any provision of this Lease. Landlord may
use, apply or retain all or any portion of said deposit for:
(a) the payment of any rent or other charge in default,
or
(b) the payment of any other sum for which Landlord may
become obligated by reason of Tenant's default, or
(c) to compensate Landlord for any loss or damage which
Landlord may suffer thereby.
8.3 Tenant shall immediately upon written demand pay to Landlord
the sum equal to that portion of the security deposit expended or applied by
Landlord which was provided for in this paragraph so as to maintain the
security deposit in the sum initially deposited with Landlord. Tenant's
failure to do so shall be a material breach of this Lease. Such reimbursement
shall be payable in cash or by way of a certified money order, or cashiers
check.
8.4 If Tenant performs all of Tenant's obligations under this
Lease, the security deposit or that portion thereof which has not previously
been applied by the Landlord, shall be returned to Tenant within twenty one
(21) days after the expiration of the term of this Lease, or after Tenant has
vacated the Premises, which ever is later.
9. USE AND USES PROHIBITED.
9.1 Tenant shall use the Premises only for GENERAL ENGINEERING
CONTRACTING SERVICES and for no other use without the Landlord's prior written
consent.
9.2 Tenant shall not do, bring or keep anything in or about the
Premises that will cause a cancellation of any insurance covering the Premises
or the building in which the Premises are located. If the rate of any
insurance carried by the Landlord is increased solely as a result of Tenant's
use, Tenant shall pay to Landlord within ten (10) days after written demand
from Landlord, the amount of any such increase.
9.3 Tenant shall comply with all laws concerning the Premises or
Tenant's use of the Premises, including without limitation, the obligation at
Tenant's cost to alter, maintain or restore the Premises in compliance and
conformity with all laws relating to the condition, use, or occupancy of the
premises by Tenant during the term of this Lease.
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 3
9.4 Tenant shall not use or permit the use of the Premises in any
manner that will tend to create waste or a nuisance or, if there shall be more
than one Tenant of the building containing the Premises, which shall
unreasonably disturb any other Tenant.
9.5 Tenant shall not dump, spill or allow to be dumped or spilled
any paint, oil, fuel, waste, toxic waste refuse, or other materials, on, in or
around the premises which might adversely affect the environment.
10. TENANT ACCEPTANCE OF PREMISES AND COMPLIANCE WITH LAW.
10.1 Tenant accepts the Premises in their condition existing as of
the date that Tenant possesses the Premises, subject to all applicable zoning,
municipal, county and state laws, ordinances, regulations governing the use of
the Premises and accepts this Lease subject thereto and all matters disclosed
thereby.
10.2 Tenant shall be responsible for complying with any such laws,
ordinances or regulations prior to taking possession of the Premises.
10.3 Tenant acknowledges that neither Landlord nor its agent(s) has
made any representations or warranty as to the condition of the Premises or the
suitability of the Premises for the conduct of Tenant's business.
10.4 Tenant acknowledges that the terms of this lease are governed
by the laws of the State of California, County of Ventura, and City of Oxnard.
11. TAXES
11.1 Real Property Taxes. Tenant shall pay, prior to delinquency,
all real property taxes and assessments levied and assessed against the
Premises during the term of this Lease.
11.2 Personal Property Taxes. Tenant shall pay, prior to
delinquency, all taxes assessed against and levied upon fixtures, furnishings,
walls (which shall be defined as movable walls and partitions). Equipment and
all other personal property of Tenant contained in the Premises. Tenant shall
cause said fixtures, furnishings, walls, equipment and all other personal
property to be assessed and billed separately from the real property of the
Landlord. In the event that any or all of Tenant's fixtures, furnishings,
walls, equipment or other personal property shall be assessed and taxed with
Landlord's real property or with Landlords personal property, Tenant shall pay
to Landlord Tenant's share of such taxes within ten (10) days after delivery to
Tenant by Landlord of a statement in writing, setting forth the amount of such
taxes applicable to the Tenant's personal property.
12. UTILITIES AND SERVICES.
12.1 Tenant shall make all arrangements and pay for all janitorial,
landscaping, water, sewer, refuse, gas, heat, light, power, telephone, cable
TV, computer linkage, and other utility services supplied to the Premises
together with any taxes thereon and for all connection charges.
13. MAINTENANCE AND REPAIRS.
13.1 By entering into the Premises, Tenant shall be deemed to have
accepted the Premises as being in good and sanitary order, condition and
repair.
13.2 Landlord's Obligations.
(a) Except as provided in Article 19, and except for
damage caused by any negligent or intentional act or omission of Tenant,
Tenant's agents, employees or invitees, Landlord at its sole cost and expense
shall keep in good condition and repair the foundation, exterior walls,
exterior roofs, and sidewalks.
13.3 Tenant's Obligations.
(a) Tenant, at Tenant's expense, shall keep in good
order, condition and repair the Premises and every part thereof (whether or not
the damaged portion of the Premises or the means of repairing same are
reasonable or readily accessible to Tenant) including, without limiting the
generality of the foregoing, all plumbing, heating, ventilating, air
conditioning, and security systems (Tenant shall procure and maintain, at
Tenant's expense, ventilating, air conditioning and security system maintenance
contracts), electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surfaces of exterior wall,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Landlord reserves the right to procure and maintain the ventilating,
air conditioning, and security system maintenance contracts and if Landlord so
elects, Tenant shall reimburse Landlord, upon demand, for the cost thereof.
(b) Tenant shall resurface and restripe the parking area
on or adjacent to the Premises when necessary.
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(c) If Tenant fails to perform Tenants obligations under
paragraph 13.3 or under any other paragraph of this lease, Landlord may enter
upon the Premises after ten (10) days prior written notice to Tenant (except in
the case of emergency, in which no notice shall be required), perform such
obligation on Tenant's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Landlord
together with Tenant's next Base Rent installment.
14. ALTERATIONS AND ADDITIONS.
14.1 Tenant shall not, without Landlord's prior written consent,
make any alterations, improvements or additions in or about the Premises.
(a) As a condition to giving consent, Landlord may
require Tenant to remove, at Tenant's sole cost, any such alterations,
improvements, or additions at the expiration of the term, and to restore the
Premises to their prior condition by giving Tenant thirty (30) days written
notice prior to the expiration of the term that Landlord requires Tenant to
remove itself from the Premises.
15. FREE FROM LIENS.
15.1 Tenant shall keep the Premises and the property in or on which
the Premises are located free from any liens arising out of any work performed,
material furnished, or obligation incurred by Tenant. Tenant shall not record
this Lease without Landlord's consent.
16. TENANT'S PERFORMANCE.
16.1 With the exception of rental payments due herein, if Tenant
fails to adhere to any time limits set forth in this Lease to complete work or
perform any other requirement herein provided to be performed by Tenant during
the term of this Lease or prior to the beginning of this Lease, or if Tenant
causes a delay in the completion of any work performed by any person on the
Premises or its appurtenances, then Landlord shall provide Tenant with written
notice of Tenant's violation of this Lease provision.
(a) If the violation is not corrected within ten (10)
days after notice, Landlord shall have, in its discretion, the right to
exercise any of the legal and equitable remedies set forth in Article 22 or
otherwise provided by law.
(b) In addition, Landlord shall be entitled to retain as
liquidated damages all security deposits made hereunder and any such
alterations, improvements or additions that Tenant may have annexed to the
Premises that cannot be removed without damage thereto (subject to the
provisions of Article 14 above).
17. FORCE MAJEURE.
17.1 If either party to this Lease is delayed or prevented from the
performance of any act required hereunder, including, without limitation, such
reason as Acts of God, lockouts, labor strikes, inability to procure materials,
restrictive governmental laws, ordinances or regulations, or any other cause
which is beyond the control of the party obligated to perform, then performance
shall be temporarily excused until such time as performance can be had without
such restriction. This shall not be interpreted as excusing Tenant from the
prompt and timely payment of rents or other charge(s) due under this Lease.
17.2 Each party shall use reasonable diligence to avoid any delay
as described in Paragraph 16.1 and shall resume performance under this Lease as
promptly as possible after any such delay.
18. INSURANCE INDEMNITY.
18.1 Fire Insurance.
(a) Tenant at its cost shall maintain during the term of
the Lease on the Premises a policy or policies of standard fire and extended
coverage insurance to the extent of at least one hundred (100) percent of full
replacement value thereof but may include a total of one, one thousand
($1,000.00) dollar deductible provision. Said insurance policies shall be
issued in the names of Landlord and Tenant, as their interests may appear.
(b) Tenant at its cost shall maintain during the term of
this Lease on all its personal property, Tenant's improvements, and alterations
in or about the Premises, a policy of standard fire and extended coverage
insurance, with vandalism and malicious mischief endorsements, to the extent of
their full replacement value. The proceeds from any such policy shall be used
by Tenant for the replacement of personal property or the restoration of
Tenant's improvements or alterations.
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18.2 Liability Insurance.
(a) Tenant at its sole cost and expense shall maintain
during the term of this Lease general public liability insurance to insure
against all liability of Tenant and its authorized representatives arising out
of and in connection with Tenant's use or occupancy of the Premises. The
single combined liability limitation of such insurance shall be not less than:
(1) Five Hundred Thousand ($500,000.00) Dollars
with respect to injury or death of one person, and
(2) One Million ($1,000,000.00) Dollars with
respect to any one accident, and
(3) One Hundred Thousand ($100,000.00) Dollars
with respect to property damage, including theft and a special rider regarding
plate glass windows, if the normal policy does not already cover this item.
(b) The insurance policies shall insure performance by
Tenant of the indemnity provisions in paragraph 18.4 below, but the limits of
such insurance shall not, however, limit the liability of Tenant hereunder.
Both Landlord and Tenant shall be named insureds and the policies shall contain
cross-liability endorsements.
(c) If Tenant fails to procure and maintain insurance,
Landlord may procure and maintain such policies at the expense and cost of
Tenant, bearing interest thereon at the maximum rate permitted by law for an
individual to charge, and which shall be due and payable as additional rental
to Landlord together with Tenant's next rental installment.
18.3 Waiver of Subrogation. Tenant and Landlord each waives any
and all rights of recovery against the other, or against the officers,
employees, agents, and representatives of the other, for loss of or damage to
such waiving party or its property of others under its control, where such loss
or damage is insured against under any insurance policy in force at the time of
such loss or damage. Each party shall cause each insurance policy obtained
hereunder to provide that the insurance company waives all right of recovery by
way of subrogation against either party in connection with any damage covered
by any such policy.
18.4 Hold Harmless.
(a) Tenant shall indemnify and hold Landlord harmless
from and against any and all claims arising from:
(1) Tenant's use or occupancy of the Premises, or
(2) the conduct of Tenant's business, or (3)
from any activity, work, or things which
may be permitted or suffered by Tenant in or about the Premises including all
damages, costs, attorney's fees, expenses and liabilities incurred in the
defense of any claim or action or proceeding arising therefrom.
(b) Except for Landlord's willful or grossly negligent
conduct, Tenant hereby assumes all risk of damage to property or injury to
person in or about the Premises from any cause and Tenant hereby waives all
claims in respect thereof against Landlord.
18.5 Exemption of Landlord from Liability
(a) Except for Landlord's willful or grossly negligent
conduct, Tenant hereby agrees that Landlord shall not be liable for:
(1) any injury to Tenant's business or loss of
income therefrom, or
(2) damage to the goods, wares, merchandise, or
other property of Tenant, or
(3) injury to Tenant's person, employees,
invitees, customers or any person in or about the Premises whether such damage
or injury is caused by or results from fire, water or rain, steam, electricity,
or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air-conditioning, or lighting
fixtures, or from any other cause whether such damage results from conditions
arising upon the Premises or upon other portion of the building in which the
Premises are a part, or from any other source or places.
(b) Landlord shall not be liable to Tenant for any
damages arising from any act or neglect of any other Tenant, if any, of the
building in which the Premises are located.
19. DAMAGE OR DESTRUCTION.
19.1 Damage - Insured.
(a) If the Premises and/or the building and other
improvements in which the Premises are located are totally or partially
destroyed rendering the Premises totally or partially inaccessible or unusable,
and such damage or destruction was caused by a casualty covered under an
insurance policy required to be maintained hereunder, Landlord shall restore
the Premises and/or
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the building and other improvements in which the Premises are located into
substantially the same condition as they were in immediately before such damage
or destruction, provided that the restoration can be made under the existing
laws and can be completed within one hundred twenty (120) working days after
the date of such destruction or damage.
(1) Such destruction or damage shall not
terminate this Lease.
(2) If the restoration cannot be made within
120-day period, then Tenant may terminate this Lease within fifteen (15) days
of such a determination by giving notice to Landlord and the Lease will be
deemed cancelled as of the date of such damage or destruction.
(3) If Tenant fails to terminate this Lease and
the restoration is permitted under existing laws, Landlord, at its option, may
terminate this Lease or restore the Premises and/or any other improvements in
which the Premises are located within a reasonable time and this Lease shall
continue in full force and effect.
(4) If existing laws do not permit restoration,
either party can terminate this Lease immediately by giving notice to the other
party.
(b) Notwithstanding the above, if Tenant is the insuring
party and if the insurance proceeds received by the Landlord are not sufficient
to effect such repair, Landlord shall give notice to Tenant of the amount
required in addition to the insurance proceeds to effect such repair.
(1) Tenant may, at Tenant's option, contribute
the required amount, but upon failure to do so within thirty (30) days
following such notice, Landlord's sole remedy shall be, at Landlord's option
and with no liability to Tenant, to cancel and terminate this Lease.
(2) If Tenant contributes such amount to Landlord
within said thirty (30) days period, Landlord shall make such repairs as soon
as reasonably possible and this Lease shall continue in full force and effect.
Tenant shall in no event have any right to reimbursement for any amount so
contributed.
19.2 Damage - Uninsured.
(a) If the Premises are damaged or destroyed by a
casualty which is not covered by the fire and extended coverage insurance which
is required by Article 18, then Landlord shall restore the same, at Landlord's
sole expense, on the contingency that if the damaged or destruction is to an
extent greater than ten (10%) percent of the replacement cost of the
improvements on the property on which the premises are located (exclusive of
Tenant's trade fixtures and equipment and exclusive of foundation and footing),
then Landlord may elect not to restore and to terminate this Lease.
(b) Landlord shall provide Tenant with written notice of
its intention not to restore and terminate this Lease within thirty (30) days
from the date of such damage or destruction and, if not given, Landlord shall
be deemed to have elected to restore and in such event shall repair any damage
as soon as reasonably possible.
(c) If Landlord elects to cancel and terminate this
Lease, Tenant shall have the right, within ten (10) days after receipt of such
notice, to give written notice to Landlord of Tenant's intent to repair such
damage at Tenant's expense, without reimbursement from Landlord. The Lease
shall continue in full force and effect and Tenant shall make such repairs as
soon as reasonably possible. If Tenant does not give said notice within such
ten (10) day period, this Lease shall be cancelled and be terminated as of the
date of the occurrence of such damage or destruction.
19.3 Damage Near the End of Term
(a) If the Premises are totally or partially destroyed or
damaged during the last twelve (12) months of the term of this Lease, Landlord
may, at Landlord's option, cancel and terminate this Lease as of the date of
the cause of such damage by giving written notice to Tenant of Landlord's
election to do so within thirty (30) days after the date of the occurrence of
such damage. If the damage or destruction occurs within the last twelve (12)
months of the term and if within fifteen (15) days after the date of such
damage or destruction Tenant exercises any option to extend the term, Landlord
shall restore the Premises if obligated to do so as provided in paragraph 19.1
or 19.2 above.
19.4 Abatement of Rent.
If the Premises are partially or totally destroyed or damaged
and Landlord or Tenant repairs or restores them pursuant to the provisions of
this Article 19, the rent payable hereunder for the period during which such
damage repair or restoration continues shall be abated in proportion to the
degree to which Tenant's reasonable use of the Premises is impaired. Except
for the abatement of rent, if any, Tenant shall have no claim against Landlord
for any damages suffered by reason of any such damage, destruction, repair or
restoration.
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19.5 Trade Fixtures and Equipment.
If Landlord is required or elects to restore the Premises as
provided in this Article 19, Landlord shall not be required to restore Tenant's
improvements, trade fixtures, equipment or alterations made by Tenant, such
excluded items being the sole responsibility of Tenant to restore hereunder.
19.6 Total Destruction - Multi-Tenant Building If the Premises are
a part of a Multi-Tenant building and
there is destruction to the Premises and/or the building of which the
Premises are a part from any cause whether or not covered by the insurance
described in Article 18 above, Landlord may elect to terminate this Lease
(whether or not the Premises are destroyed) so long as Landlord terminates the
leases of all other Tenants in the building of which the Premises are a part,
effective as of the date of such damage or destruction.
20. CONDEMNATION.
20.1 If the premises or any part thereof, or if the properties of
Landlord including the Premises or any part thereof, shall be the subject of
condemnation by any governmental or any other authority lawfully exercising the
right of eminent domain, Landlord may terminate this Lease, with respect to
such part of the Premises condemned and Tenant shall not be entitled to receive
any part of any condemnation award in connection therewith. Except for the
abatement of rent, if any, Tenant shall have no claim against Landlord for any
damages suffered by reason of any such condemnation.
21. ASSIGNMENT AND SUBLETTING
21.1 Tenant shall not voluntarily or by operation of law assign,
transfer, sublet, mortgage, or otherwise transfer or encumber all or any part
of Tenant's interest in this Lease or in the Premises without Landlord's prior
written consent which shall not be unreasonably withheld. Any attempted
assignment, transfer, mortgage, encumbrance, or subletting without such consent
shall be void and shall constitute a breach of this Lease.
21.2 Regardless of Landlord's consent, no subletting or assignment
shall release Tenant or Tenant's obligation to pay the rent and to perform all
other obligations to be performed by Tenant hereunder for the term of this
Lease.
(a) The acceptance of rent by Landlord from any other
person shall not be deemed a waiver by Landlord of any provision hereof.
(b) Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting.
21.3 As a condition to Landlord's prior written consent to
assignment or subletting by Tenant, Landlord shall have a first right or
retaking possession of the Premises or, alternatively, Tenant shall provide
Landlord with prior written verification of the terms and conditions of
Tenant's assignment or subletting with the assignee or subleasee and the rental
for the Premises shall remain the same as that provided for in Article 5 above,
and as further modified where appropriate by Article 6 and Article 7 above.
22. DEFAULT.
22.1 Default. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Tenant:
(a) Abandonment and vacation of the Premises (failure to
occupy the Premises for fourteen (14) consecutive days with no intent of
reoccupying shall be deemed an abandonment and vacation).
(b) The vacating of the premises resulting in a
cancellation of any of the insurance coverage provided in Article 18 hereof.
(c) The failure by Tenant to make any payment of rent or
any other payment required to be made by Tenant hereunder, as and when due.
(d) The failure by Tenant to observe or perform any of
the covenants, conditions, or provisions of this Lease to be observed or
performed by Tenant, other than those described in subparagraph 22.1(c) above,
if such failure continues for a period of thirty (30) days after written notice
thereof from Landlord to Tenant unless the nature of Tenant's failure is such
that more than thirty (30) days are reasonably required for its cure. In such
a case, Tenant shall not be deemed to be in default if Tenant commences such
cure within said thirty (30) day period and thereafter diligently completes
such cure.
(e) Any of the following events:
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(1) The making by Tenant of any general
assignment or general arrangement for the benefit of creditors; or
(2) the filing by or against Tenant a petition to
have Tenant adjudicated a bankrupt or a petition for reorganization or
rearrangement under any law relating to bankruptcy unless, in the case of a
petition filed against Tenant, the same is dismissed within thirty (30) days;
or
(3) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where possession is not restored to
Tenant within Thirty (30) days; or
(4) the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where such seizure is not discharged within
thirty (30) days.
Note: If a court of competent jurisdiction determines that any of
the foregoing acts of subparagraph 22.1(e) does not constitute an event of
default under the terms of this Lease, and a trustee is appointed to take
possession of Tenant's interest under this Lease (or Tenant remains a debtor in
possession) and such trustee or Tenant assigns or subleases Tenant's interest
hereunder, then Landlord shall receive, as additional rent, the difference
between the rent or any other consideration paid in connection with such
assignment or sublease and the rent payable by Tenant hereunder. This Lease
and any interest in and to the Premises shall not become an asset of any
proceedings described above and Landlord shall be entitled to exercise any one
or more of the remedies defined in paragraph 22.2.
22.2 Remedies. Landlord shall be entitled to exercise any of the
following remedies if Tenant commits a default under this Lease. These
remedies are not exclusive but are cumulative and in addition to any remedies
now or hereafter allowed by law.
(a) Landlord can continue this Lease in full force and
effect, and the Lease will continue in effect so long as Landlord does not
terminate Tenant's right to possession and the Landlord shall have the right to
collect rent when due.
(1) `During the period that Tenant is in default,
Landlord can enter the Premises and relet them, or any part of them, to third
parties for Tenant's account.
(2) Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in reletting the premises, including,
without limitation, brokers commissions, expenses of remodeling the Premises
required by the reletting, and like costs.
(3) Reletting can be for a period shorter or
longer than the remaining term of this Lease. Tenant shall pay Landlord the
rent due under this Lease on the dates the rent is due, less the rent Landlord
receives from any reletting.
(4) No act by Landlord under this Subparagraph
22.2(a) shall terminate this Lease unless Landlord notifies Tenant that
Landlord elects to terminate this Lease.
(5) After Tenant's default and for so long as
Landlord has not terminated Tenant's right to possession of the Premises, if
Tenant obtains Landlord's consent, Tenant shall have the right ot assume or
sublet its interest in the Lease, but Tenant shall not be released from
liability. Landlord's consent hereunder shall not be unreasonably withheld.
(6) If Landlord elects to relet the Premises as
provided in this Subparagraph 22.2(a), any rent that Landlord receives shall
apply first to the payment of any indebtedness from Tenant to Landlord other
than rent due from Tenant to Landlord: secondly, all costs, including
maintenance, incurred by Landlord in such reletting and third, to any rent due
and unpaid under this Lease.
(7) After deducting the payments referred to in
this Subparagraph 22.2(a), any sum remaining from the rent Landlord receives
from such reletting shall be held by Landlord and applied in a payment of
future rent as rent becomes due under this Lease. In no event shall Tenant be
entitled to any excess rent received by Landlord.
(8) If, on the date rent is due under this Lease
the rent received from the reletting is less than the rent due on that date,
Tenant shall pay to Landlord, in addition to the remaining rent due all costs,
including maintenance, that Landlord shall have incurred in reletting that
remain after applying the rent received from the reletting as provided in this
Subparagraph 22.2(a).
(b) Landlord can, at its option, terminate Tenant's right
to possession of the Premises at any time. No act by Landlord other than by
giving written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, of the appointment of a receiver on
Landlord's initiative to protect Landlord's interest in this Lease shall not
constitute a
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termination of Tenant's right to possession. In the event of such a
termination, Landlord has the right to recover from Tenant:
(1) The worth, at the time of the award, of the
unpaid rent that had been earned at the time of the termination of this Lease:
(2) The worth, at the time of the award, of the
amount by which the unpaid rent that would have been earned after the date of
the termination of this Lease until the time of the award exceeds the amount of
the loss of rent that Tenant proves could have been reasonably avoided:
(3) The worth, at the time of the award, of the
amount by which the unpaid rent for the balance of the term after the time of
the award exceeds the amount of the loss of rent that Tenant proves could have
been reasonably avoided: and
(4) Any other amount, including court costs,
necessary to compensate Landlord for all detriment proximately caused by
Tenant's default.
Note: "The worth at the time of the award," as used in (1) and
(2) of this paragraph is to be computed by allowing interest at the maximum
rate an individual is permitted by law to charge. "The worth at the time of
the award" as referred to in (3) of this paragraph is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus one (1%) percent.
(c) If Tenant is in default under the terms of this
Lease, Landlord shall have the additional right to have a receiver appointed to
collect rent and conduct Tenant's business. Neither the filling of a petition
for the appointment of a receiver nor the appointment itself shall constitute
an election by Landlord to terminate this Lease.
(d) Landlord at any time after Tenant commits a default,
can cure the default at Tenant's cost and expense. If Landlord at any time by
reason of Tenant's default, pays any sum or does any act that requires the
payment of any sum, the sum paid by Landlord shall be due immediately from
Tenant to Landlord at the time the sum is paid, and if paid at a later date
shall bear interest at the maximum rate an individual is permitted to charge
from the date the sum is paid by Landlord until Landlord is reimbursed by
Tenant. The sum, together with interest thereon, shall be considered
additional rent and shall be payable as such.
22.3 Default by Landlord
(a) Landlord shall not be in default unless Landlord
fails to perform its obligation within thirty (30) days after written notice by
Tenant to Landlord or to the holder of any first mortgage or deed of trust
covering the Premises (whose name and address shall have heretofore been
furnished to Tenant in writing) specifying wherein Landlord has failed to
perform such obligation.
(b) If the nature of Landlord's obligation is such that
more than thirty (30) days are required for its cure, than Landlord shall not
be in default if Landlord commences such cure within the 30-day period and
diligently pursues such cure to completion.
22.4 Late Charges.
(a) Tenant acknowledges that late payments by Tenant to
Landlord of rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be impracticable
or extremely difficult to ascertain.
(b) Such costs include, but are not limited to: (1)
processing and accounting charges, and (2) late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
(c) If any installment of rent or any sum in addition to
rent due from Tenant is not received by Landlord within ten (10) days after the
date such amount is due, Tenant shall pay to Landlord a late charge of ten
(10%) percent of total monthly rent plus costs. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant.
(d) All sums of money payable by Tenant to Landlord
hereunder shall be deemed rent for use of the Premises and collectable by
Landlord from Tenant as rent, and shall be due form Tenant to Landlord on the
Lease due date following the month when the late payment occurred.
23. SIGNS AND AUCTIONS.
23.1 Tenant shall not have the right to place, construct or
maintain any sign, advertisement, awning, banner, or other exterior
decorations, lights or sound devices on the building or other improvements that
are a part of the Premises without Landlord's prior, written consent, which
consent shall not be unreasonably withheld. Tenant further agrees that any
construction or maintenance of any sign, advertisement, awning, banner, or
other exterior decorations, lights or sound devices on the building or other
improvements that are a part of the Premises shall be in
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compliance with any and all City, county and local ordinances governing said
construction or maintenance, Tenant further agrees not to conduct or permit to
be conducted any sale by auction in, upon, or from the Premises, whether said
auction be voluntary, pursuant to any assignment for the payment of creditors,
or pursuant to any bankruptcy or other solvency proceeding.
24. PARKING AND COMMON FACILITIES.
Landlord covenants to provide Tenant with an area which shall be used
by Tenant for parking pursuant to the following provisions:
24.1 Tenant shall have the non-exclusive right to use for Tenant's
benefit, its agents, employees, customers, licensees and sub- Tenants, the
parking area and common facilities in conjunction with Landlord, other present
and future owners, Tenants and their agents, employees, customers, licensees
and sub-Tenants during the entire term of this Lease, or any extension hereof,
for ingress and egress, roadway, sidewalk and automobile parking which are
provided for in existing covenants, conditions and restrictions of record.
24.2 The condemnation or other taking by any public authority, or
sale in lieu of condemnation, of any or all of such common facilities and
parking areas shall not constitute a violation of this Article 24.
24.3 Landlord reserves the right to change the entrances, exists,
traffic lanes and the boundaries and locations of such parking are(s):
provided, however, that anything to the contrary notwithstanding acts contained
in this Article 24, said parking area(s) shall at all times be substantially
equivalent to parking area(s) existing on date of this Lease.
24.4 Tenant shall keep said automobile parking and common areas in
a neat, clean and orderly condition, properly lighted and landscaped, and shall
repair any damage to facilities thereof.
24.5 Tenant, in the use of the parking area(s) and common
facilities, agrees to comply with such reasonable rules and regulations as the
Landlord may adopt from time to time for their orderly and proper operation.
25. EARLY POSSESSION
25.1 If Landlord permits Tenant to occupy the Premises prior to the
commencement date of the term of this Lease, such occupancy shall be subject to
all the provisions of this Lease. Early possession shall not advance the
termination date of this Lease.
26. SUBORDINATION
26.1 This Lease, at Landlord's option, shall be subordinated to any
ground lease, mortgage, deed of trust, or any other hypothecation for security
now or hereafter placed upon real property of which the Premises are a part and
to any and all advances made on the security thereof and to all renewal,
modifications, and extensions thereof.
26.2 Notwithstanding any such subordination, Tenant's right to
quiet possession of the Premises shall not be disturbed if Tenant is not in
default and so long as Tenant shall pay the rent and observe and perform all
the other provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms.
26.3 If any mortgagee, trustee, or ground lessor shall elect to
have this Lease prior to the lien of its mortgage or deed of trust or ground
lease, and shall give written notice thereof to Tenant, this Lease shall be
deemed prior to such mortgage, deed of trust or ground lease, whether this
Lease is dated prior to or subsequent to the date of such mortgage, deed of
trust or ground lease, or the date of recording thereof.
26.4 Tenant agrees to execute any documents required to effect such
subordination or to make this Lease prior to the lien of any mortgage, deed of
trust, or ground lease, as the case may be, and failing to do so within ten
(10) days after written demand from Landlord does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name,
place and stead to do so.
27. SURRENDER
27.1 On the last day of the term of this Lease, or on any sooner
termination, Tenant shall surrender the Premises to Landlord in good condition,
broom clean, ordinary wear and tear accepted.
(a) Tenant shall repair any damage to the Premises
occasioned by its use thereby, or by the removal of Tenant's trade fixtures,
furnishings and equipment which repair shall include the patching and filling
of holes and repair of structural damage.
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 11
(b) Tenant shall remove all of its personal property and
fixtures on the Premises prior to the expiration of the term of this Lease and
if required by Landlord pursuant to Article 14 above, any alterations
improvements or additions made by Tenant to the Premises.
27.2 Landlord may, at its option, apply the provisions of Article 8
in covering the costs relative to Tenant's failure to adhere to the provisions
of this Article 27.
27.3 If Tenant fails to surrender the Premises to Landlord on the
expiration of the Lease as required by this paragraph, Tenant shall hold
Landlord harmless from all damages from Tenant's failure to vacate the
Premises, including, without limitation, claims made by any succeeding Tenant
resulting from Tenant's failure to surrender the Premises.
28. HOLDING OVER.
28.1 If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof without express written consent
of Landlord, such occupancy shall be a tenancy from month to month at a rental
in the amount of one hundred twenty-five percent (125%) of the last monthly
rent installment, plus all other additional rent and other charges payable
hereunder, and upon all the terms hereof applicable to a month-to- month
tenancy.
29. BINDING ON SUCCESSORS AND ASSIGNS.
29.1 The terms, conditions, and covenants of this Lease shall be
binding upon and shall inure to the benefit of each of the parties hereto their
heirs, personal representatives, successors and assigns.
30. LANDLORD'S RIGHT TO INSPECTION.
30.1 Landlord and Landlord's agent shall have the right to enter
the Premises at reasonable times for the purpose of:
(a) inspecting the Premises.
(b) showing the Premises to prospective purchasers or
lenders, and
(c) making such alterations, repairs, improvements or
additions to the Premises or to the building of which the Premises are a part
as Landlord may deem necessary or desirable.
32. ATTORNEY'S FEES.
32.1 If either Landlord or Tenant becomes a party to any litigation
or arbitration concerning this Lease, the Premises, or building or other
improvements in which the Premises are located, by reason of any act or
omission of the other party or its authorized representatives, the losing party
shall be liable to the prevailing party for reasonable attorney's fees and
costs of suit.
33. LANDLORD'S LIABILITY.
33.1 The term "Landlord" as used in this Lease shall mean only the
owner or owners at the time in question of the fee title, and in the event of
any transfer of such title, Landlord herein named shall be relieved from and
after the date of such transfer of all liability in respect to Landlord's
obligations thereafter to be performed. The obligations contained in this Lease
to be performed by Landlord shall be binding upon the Landlord's successors and
assigns, only during their respective periods of ownership.
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 12
34. WAIVERS.
34.1 No waiver by Landlord of any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision.
34.2 Landlord's consent to or approval of any act shall not be
deemed to render unnecessary the obtaining of Landlord's consent to or approval
of any subsequent act by Tenant.
34.3 The acceptance of rent hereunder by Landlord shall not be a
waiver of any preceding breach by Tenant of any provision hereof, other than
failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of its acceptance of
such rents.
35. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS.
35.1 This Lease contains all agreements of the parties with respect
to any matter mentioned herein. No prior agreements or understandings
pertaining to any such matter shall be effective. This Lease may be modified
in writing only, signed by the parties in interest at the time of modification.
Any other attempted modification of this Lease shall be void.
36. TIME.
36.1 Time is of the essence of this Lease.
37. SEVERABILITY.
37.1 The unenforceability, invalidity or illegality of any
provision of this Lease shall not render the other provisions hereof
unenforceable, invalid or illegal.
38. ESTOPPEL CERTIFICATES.
38.1 Each party, within five (5) days after notice from the other
party, shall execute and deliver to the other party a certificate sating that
this Lease is unmodified and in full force and effect, or in full force and
effect as modified, and stating the modification. This certificate shall also
state the amount of minimum monthly rent, the dates to which rent has been paid
in advance, and the amount of any security deposit or prepaid rent, if any, as
well as acknowledging that there are not, to that party's knowledge, any
uncured defaults on the part of the other party, or specifying such defaults,
if any, which are claimed. Failure to deliver such a certificate within the
five (5) day period shall be conclusive upon the party failing to deliver the
certificate to the benefit of the party requesting the certificate that this
Lease is in full force and effect, that there are no uncured defaults
hereunder, and has not been modified except as may be represented by the party
requesting the certificate.
39. COVENANTS AND CONDITIONS.
39.1 Each provision of this Lease performable by Tenant shall be
deemed both a covenant and a condition.
40. JOINT AND SEVERAL LIABILITY.
40.1 "Party" shall mean Landlord and Tenant; and if more than one
person or entity is the Landlord or Tenant, obligations imposed on the party
shall be joint and several.
41. OPTION TO EXTEND.
41.1 Provided that Tenant shall not then be in default hereunder,
Tenant shall have the option to extend the term of this Lease for 2 additional
3 year periods upon delivery by Tenant to Landlord of written notice of its
election to exercise such option at least one hundred twenty (120) days prior
to the expiration of the original term hereof.
41.2 If Tenant exercises the option right as described above, then
the parties hereto agree that the terms and conditions of this Lease, including
the minimum monthly rent, shall be negotiable items requiring written mutual
consent of Landlord and Tenant.
42. BROKER'S FEE.
42.1 No brokers are associated with this lease.
43. CHOICE OF LAW.
43.1 This lease shall be governed by the laws of the state where
the Premises are located
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 13
44. ADDENDUM.
44.1 Exhibits "A", "B" and "C" are incorporated by reference and
may modify, explain, add to or delete from the terms of this Lease.
44.2 Addenda shall be amended or modified only in writing and as
acknowledged by Landlord and Tenant.
44.3 Any addendum attached hereto and either signed or initialed by
all parties shall be deemed a part hereof and shall supersede any conflicting
terms or provisions contained in this Lease.
The parties hereof have executed this Lease on this date first above
written.
LANDLORD:ROBERT THORNBURGH TENANT: AMERICAN PACIFIC MARINE, INC.
a Delaware Corporation and
a subsidiary of
AMERICAN OILFIELD DIVERS, INC.
By /s/ Robert Thornburgh By
----------------------- -----------------------------------------
ROBERT THORNBURGH TOM THOMAS, PRESIDENT
By
-----------------------------------------
TED ROCHE, VICE PRESIDENT
CONSULT YOUR ATTORNEY FOR ASSURANCE THAT YOUR RIGHTS ARE PROTECTED HEREUNDER.
NO REPRESENTATION OR RECOMMENDATION IS MADE BY LANDLORD ITS AGENT(S) OR
REPRESENTATIVES, AS TO THE LEGAL SUFFICIENCY OR EFFECT, OR TAX CONSEQUENCES OF
THIS DOCUMENT OR THE TRANSACTION RELATING THERETO. THESE ARE QUESTIONS FOR
YOUR ATTORNEY.
To avoid any misunderstandings concerning your Lease Agreement, the Landlords
policy is not to enter into any oral agreements or make any oral
representations. All agreements are always expressed in writing, This policy
also applies to representations or agreements make subsequent to execution of a
Lease Agreement. Tenant is advised to check with the controlling governmental
agencies related to his/her/its business operation. Neither Landlord nor their
agent(s) make any representations regarding any requirements, including
parking, that the City or other governmental agencies might impose on Tenant's
type of business. Accordingly, the Landlord request Tenant to sign this
document confirming his/her/its understanding of this policy and that neither
the Landlord nor Tenant are relying on prior discussions, representation,
advertising or otherwise which have not been set out in this Lease agreement
and its attachments.
Dated this _____ day of SEPTEMBER 1994, ________________ California
By By
----------------------- ----------------------------
TOM THOMAS, PRESIDENT TED ROCHE, VICE PRESIDENT
------------------------- ------------------------------
Print Name Print Name
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 14
EXHIBIT "A"
LEGAL DESCRIPTION: LOT NO. 5, TRACT 3406, APN 223-042-105
LOT NO. 5, TRACK 3406, APN 223-042-055
EXHIBIT "A" - PAGE 1
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 15
EXHIBIT "B"
As a concession to Landlord, Tenant will allow Landlord to store one vehicle (a
38' Motor Coach) on or in the Premises. In addition the Landlord may wish to
erect a structure on the lot to store the Motor Coach. This structure would be
built in an area of the lot so as to cause the least inconvenience, and
interference to Tenant and Tenant's normal conduct and usage of Premises.
Landlord shall maintain adequate insurance on said vehicle at all times
independent and separate from any insurance Tenant is required to provide.
EXHIBIT "B" PAGE 1 OF 1
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 16
EXHIBIT "C"
LAND PARCEL (APN 223-042-055)
It is understood by both Tenant and Landlord that the term of this Lease will
not be binding upon Tenant until such time as Landlord acquires title to land
parcel APN 223-042-055 (the "lot") and until such time, Tenancy shall be "month
to month," at $85,00.00 per month rent. Once title is acquired by Landlord,
rent will increase to $11,000.00 per month as stipulated in this Lease
agreement. Failure of Landlord to acquire title to the lot shall not relieve
Tenant of its obligations under the terms, conditions, and covenants of this
Lease, and Tenants sole remedy shall be to terminate this Lease. This Lease
shall continue in full force and effect for 30 days after written notice of
Tenants intention to terminate this Lease, as allowed in exhibit "C."
As of the date of this Lease Landlord is very optimistic with respect to said
acquisition. The City is anxious and is reacting favorably with respect to
said acquisition. The planning department has not discouraged but rather was
very helpful in advising Landlord with steps toward obtaining a conditional or
modified use permit.
Actual acquisition may take longer than expected and tenant
understands and agrees that if the lot is not acquired by January 31, 1995
through no fault of Landlord, Tenant will allow Landlord the additional time
necessary to complete said acquisition. Should acquisition be delayed for an
unlimited period of time, Tenant may exercise Tenant's rights as allowed in
exhibit "C."
Rent shall be deposited into an escrow account and held by said escrow until
acquisition of the lot is completed, at which time all funds held by escrow and
due escrow will be paid out to Landlord. If Tenant exercises Tenant's rights
as allowed in Exhibit "C" all rent paid into said escrow account through Jan
31, 1995 shall be paid out to Tenant. If tenant does not exercise Tenants
termination rights as allowed in exhibit "C" by Jan 1, 1995 Tenant shall be
deemed to have accepted the term tenancy, and any rents due after Jan 31, 1995
whether due for month to month or term tenancy shall be paid directly to
Landlord.
EXHIBIT "C" PAGE 1 OF 2
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 17
Tenant understands that Landlord will not be able to acquire the lot until the
City completes its foreclosure process against the current title holders of the
lot. Tenant understands that the foreclosure process may take as little as 30
days from the date the City files "notice of trustee's sale," to more than 120
days depending on the courts requirements as the City may have to restart the
foreclosure process.
Tenant understands and agrees that once the foreclosure process has begun that
the lot will definitely be available at the end of said process.
Tenant understands the City attorney has indicated Nov. 1, 1994 as the probably
date the City will initiate its foreclosure process.
BLOCK WALL
Landlord agrees to reimburse Tenant for 50% of the actual cost to construct a
cement block wall on two sides of the lot. The block wall is to be between
eight (8) and ten (10) feet in height and constructed in accordance with City
regulation. Full cost of said wall is not to exceed $33 per lineal foot. All
other Tenant improvements and the cost thereof, including but not limited to
driveway entrance, roads, gates, rock base, lighting, electrical, plumbing,
sewer, are entirely the responsibility of the Tenant. All bids and final plans
for block wall to be reviewed and approved by Landlord.
EXHIBIT "C" PAGE 1 OF 2
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 18
EXHIBIT "C"
GUARANTEE OF LEASE
Whereas, a Lease Agreement dated August 30, 1994 is entered between
Robert Thornburgh (Landlord) and American Pacific Marine, a Delaware
Corporation and a subsidiary of American Oilfield Divers, Inc. ("Tenant"); and
Whereas, Landlord leases to Tenant and Tenant leases from landlord
that certain demised premises and other improvements located thereon situated
in the City of Oxnard, County of Ventura, State of California, Commonly known
as: 741 E. Arcturus Avenue; and
Whereas, Landlord requires as a condition to the execution of the
Lease the undersigned's guarantee of the full and faithful performance of the
obligations of the Tenant under the lease;
Now, therefore, in consideration of the execution of said Lease by
Landlord, the undersigned unconditionally guarantees the full and faithful
performance of each and every provision, covenant and condition of the Lease to
be kept and performed by Tenant, including the payment of all rentals and other
charges to accrue thereunder.
The undersigned further agrees that this guarantee of the Lease
Agreement shall continue in favor of Landlord notwithstanding any extension,
modification, or alteration of the Lease entered into and by the parties
thereto, their successors or assigns.
In witness whereof, the undersigned executes this guarantee this 30th
day of September, 1994.
- ---------------------------------------------
AMERICAN OILFIELD DIVERS, INC., GUARANTOR
By /s/ Steven P. Weems
--------------------------------------------------------
Type/Print STEVEN P. WEEMS, V.P., CHIEF FINANCIAL OFFICER
STATE OF LOUISIANA )
CITY OF LAFAYETTE )
)ss.
PARISH OF LAFAYETTE )
On September 30, 1994, before me, Quinn J.
Hebert, Notary Public personally appeared STEVEN WEEMS,
personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacity, and that
by his signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Quinn J. Hebert
-------------------------------------------
Signature
QUINN J. HEBERT
NOTARY PUBLIC
STATE OF LOUISIANA
MY COMMISSION IS ISSUED FOR LIFE
EXHIBIT "C" PAGE 2 OF 2
August 30, 1994 INITIAL
Landlord ___ Tenant ___
<PAGE> 1
EXHIBIT 10.7
THIS LEASE dated as of the 1st day of August, 1994.
BETWEEN:
KEITH BUSINESS CENTRE LTD. (Incorporation Number 330740), a
British Columbia corporation with its registered and records
offices at 200 - 133 West 17th Street, North Vancouver,
British Columbia, V7M 1V5
(the "Landlord")
- and -
HARD SUITS INC. (Incorporation Number 312506), a British
Columbia corporation having its main location of business at
#3 - 1225 East Keith Road, North Vancouver, British Columbia,
V7J 1J3
(the "Tenant")
WITNESSES that in consideration of the mutual covenants, conditions
and agreements herein contained, the Landlord and Tenant covenant and agree as
follows:
ARTICLE ONE
DEFINITIONS
1.01 Definitions. In this lease, unless there is something in the context
inconsistent therewith:
(a) "Basic Rent" means the rent referred to in Section 3.01;
(b) "Building" means the building located on the Lands;
(c) "Commencement Date" means September 1, 1994.
(d) "Common Areas and Facilities" means those areas, facilities,
utilities, improvements, equipment and installations on the
Lands which: (i) from time to time, are not designated or
intended by the Landlord to be leased to tenants of the
Building, and (ii) serve or are for the benefit of the tenants
of the Building, and which are designated or intended by the
Landlord from time to time to be part of the Common Areas and
Facilities
<PAGE> 2
2
of the Building. Common Areas and Facilities can be located
outside the Building itself but on the Lands and include,
without limitation, all areas, facilities, utilities,
improvements, equipment, furniture, furnishings and
installations which are provided or designated by the Landlord
for the use or benefit of the tenants of the Building, their
employees, customers and other invitees in common with others
entitled to the use or benefit thereof in the manner and for
the purposes permitted by this lease. Without limiting the
generality of the foregoing, Common Areas and Facilities
include the roof, exterior wall assemblies, including weather
walls, exterior and interior structural elements and bearing
walls in the Building including, without limitation: truck
courts, driveways, delivery passages, loading docks and
related areas, pedestrian sidewalks, exit stairways, shuttle
elevator and main escalator areas, landscaped and planted
areas, main entrance area, public seating and service areas,
corridors, and amenity areas, stairways, ramps, and elevators
and other transportation equipment and systems; public
washrooms, electrical, telephone, meter, valve, mechanical,
storage, service and janitor rooms; music, fire prevention,
security, switchboard and communication systems; general
signs, columns, pipes, electrical, plumbing, drainage,
security and life support system; building automation systems,
computers and central control apparatus as well as the
structures housing the same (including, without limitation,
the heating, ventilating and air conditioning systems of the
Building); emergency water facilities, generators, mechanical
and all other equipment installations or services located
therein or related thereto;
(e) "Common Costs" means the total, without duplication, of the
costs incurred by the Landlord during the Term, in accordance
with generally accepted accounting principles consistently
applied, for the continued maintenance, repair,
replacement, management and operation of the Common Areas and
Facilities and the Building excluding structural repairs, but,
including, without limitation, the costs of the following:
(i) non-structural repairs, replacements, and maintenance
except where the cost thereof is directly
attributable to inherent structural defects or
weaknesses and except in respect of items for which
the Landlord has elected to take depreciation but
only to the extend of the depreciation taken and with
the further exception of repairs for damage caused by
the Tenant, its servants, agents, patrons,
<PAGE> 3
3
invitees, or suppliers which shall be the
responsibility of the Tenant alone to bear the
Landlord's costs of repairing;
(ii) landscaping and gardening, rental or purchase of
signs and equipment, the uniforms of the personnel
referred to in Section 1.01(e)(iii) and the cleaning
and pressing thereof, supplies, lighting, security
protection, traffic control, refuse, removal, removal
of snow and ice, painting and window cleaning and
otherwise maintaining the Common Areas and
Facilities, and operating and maintaining any loading
and receiving areas and truck docks;
(iii) wages and compensation paid for maintenance, security
and operating personnel, including, without
limitation, payments for workers' compensation,
unemployment insurance, vacation pay, Canada Pension
Plan and fringe benefits whether statutory or
otherwise but to the extend only that such wages and
compensation are directly attributable to the
maintenance, operation, repair, replacement and
management of the Building;
(iv) service contracts with independent contractors in
respect of the maintenance, operation, repair (other
than structural repair), security enforcement,
replacement and management of the Building;
(v) operating, maintaining, repairing and replacing
security and life support systems, plumbing,
electrical, heating, water, sewer, air conditioning,
sprinkler and other utility systems and services in
respect of the Building including the building
automation system;
(vi) insurance coverage obtained by the Landlord from time
to time pursuant to section 11.04 of this lease;
(vii) real property taxes, charges, duties and assessments
or grants in lieu thereof that may be levied,
charged or assessed against or in respect of the
Building and against or in respect of the Common
Areas and Facilities and improvements thereon and
therein to the extent reasonably allocable to the
Building or against or in respect of any right or
interest of any occupier thereof; all local
<PAGE> 4
4
improvement rates and charges; frontage, water,
school, hospital and other taxes and assessments both
general and special, ordinary and extraordinary, and
foreseen or unforeseen, now or which may hereafter be
levied, imposed, rated, charged or assessed by any
federal, provincial, municipal, regional, school or
other statutory authority during the Term and
reasonable legal fees and appraising fees incurred
directly or indirectly by the Landlord in contesting
or appealing the amount or legality of any such
taxes;
(viii) corporation capital tax calculated as if the Building
were the sole asset of the Landlord;
(ix) supplying steam, electricity, water, sewer services,
natural gas and other fuel and utility services to
the Building. Should individual meters or apparatus
for measurement of consumption for such fuel and
utilities consumed on the Premises by the Tenant not
be provided, there shall be included the total cost
of supplying such fuel and utilities to the Building;
(x) accounting costs incurred in connection with
maintenance and operation including computations
required for the imposition of charges to tenants of
the Building and audit charges required to be
incurred for the conclusive determination of any
costs incurred hereunder, and reasonable reserves in
connection with any operating expense;
(xi) cleaning the Building and supplies and equipment used
in connection therewith;
(xii) costs otherwise attributable to capital account on
improvements, machinery and equipment which
substantially reduce Common Costs as herein defined;
(xiii) a management fee equal to FIVE (5%) PERCENT of the
monthly heat, light and power costs and basic rent as
defined in paragraph 3.01 monthly.
provided that Common Costs will not include any costs incurred by or on behalf
of or at the request of any individual tenant or tenants and resulting in a
benefit to such individual tenant or
<PAGE> 5
5
tenants which is not of general application to all tenants of the Building
costs incurred by the Landlord solely to lease premises in the Building
including costs of leasing commissions, lease incentive, costs of installation
of demising walls and refurnishing vacant premises and wages and compensation
reasonably allocated by the Landlord to persons retained by the Landlord for
purposes of leasing the building. There shall be deducted from Common Costs:
(aa) all net recoveries by the Landlord, which reduce the expenses incurred
by the Landlord in operating and maintaining the Building and Common
Areas and Facilities, including recoveries from tenants other than the
Tenant as a result of any act, omission, default or negligence of such
tenants or by reason of a breach by such tenants of provisions in
their respective leases but excluding recoveries from tenants under
clauses in their respective leases similar to Section 3.02 or for
supervision and management performed in respect of work done for or on
behalf of a tenant;
(bb) net proceeds received by the Landlord from insurance policies taken
out by the Landlord to the extent that such proceeds relate to the
costs and expenses incurred in the maintenance and operation of the
Building; and
(cc) debt service incurred by the Landlord;
further provided that if any of the Common Costs or costs of a like nature at
any time or from time to time apply disproportionately to one or more tenants
of the Building then the Landlord in its sole discretion acting reasonably, may
allocate all or portion of those costs to the tenant to whom the costs
disproportionately apply;
(f) "Lands" means those lands located in the City of Vancouver,
British Columbia, legally described as:
City of North Vancouver
Parcel Identifier 013-965-816, Lot 6, (except portions in
Plans 22282 and 22694) Block F, District Lot 272, Plan 22257
(g) "Premises" means that portion of the Building on the lands
located on the main floor and consisting of approximately:
(1) Four Thousand and Twenty (4,020) square feet of
warehouse and office space as shown outlined in red
on the plan annexed hereto as Schedule "A" and
forming part of this lease;
<PAGE> 6
6
(h) "Proportionate Share" means that proportion expressed as a
fraction, the numerator of which is the rentable area of the
Premises and the denominator of which is the aggregate of all
rentable areas of the Building as designated by the Landlord
and whether rented or not. The Proportionate Share of the
Tenant is [5.86 %] (4,020/68,555.2 X 100 = 5.86)
(i) "Term" means the term of years and months commencing on the
Commencement date as set forth in Article 2.02.
ARTICLE TWO
DEMISE AND TERM
2.01 Demise. The Landlord, in consideration of the rents, covenants,
agreements and conditions herein to be paid, observed and performed by the
Tenant, docs hereby demise and lease to the Tenant the Premises for the Term.
2.02. Term. Subject to the terms and conditions of this lease, the Tenant
shall have and hold the Premises for a term of THREE (3) years and THREE
months from and including the 1st day of SEPTEMBER, 1994, to and including
NOVEMBER 30, 1997.
ARTICLE THREE
RENT, TAXES AND OTHER CHARGES
3.01 Basic Rent. The Tenant will pay to the Landlord in advance in lawful
money of Canada as monthly Basic Rent the sum of TWO THOUSAND SIX HUNDRED AND
EIGHTY ($2,680.00) DOLLARS commencing on SEPTEMBER 1, 1994 and a like sum on
the first day of each and every month thereafter up to and including NOVEMBER
1, 1997. Lessee agrees to pay to the Lessor monthly together with the rent and
as part of the rent, GOODS AND SERVICES TAX at a rate equal to that determined
to be due and payable by Revenue Canada, Taxation or any other competent taxing
authority.
3.02 Additional Rent for Common Costs. Commencing on SEPTEMBER 1, 1994,
and continuing on the first day of each month thereafter during the term of
this lease the Tenant will pay to the Landlord the Tenant's Proportionate Share
of Common Costs in addition to the Basic Rent. Prior to the commencement of
each calendar year of the Term, the Landlord will deliver to the Tenant a
statement setting forth in reasonable detail the Landlord's reasonable estimate
of the Tenant's Proportionate Share of Common Costs for such year and
thereafter during such year the Tenant will pay to the Landlord monthly in
advance on the first day of each and every
<PAGE> 7
7
month during the Term, an amount equal to the product produced by multiply in a
fraction (the numerator of which is one and the denominator of which is the
number of full months in the Term contained in that year) by the Tenant's
Proportionate Share of Common Costs for such year. The Landlord shall also
have the right to reasonably adjust its estimate of Common Costs and the
Tenant's Proportionate Share thereof during such year. Tenant agrees to pay
its proportionate share of common costs for the period from the date of
possession of the premises to September 1, 1994 on the date last mentioned.
3.03 Reporting on Tenant's Proportionate Share of Common Costs. As soon as
reasonably practicable after the end of each fiscal year of the Landlord during
the Term, the Landlord will deliver to the Tenant a statement showing the
actual amount of the tenant's Proportionate Share of Common Costs and setting
forth in reasonable detail the Common Costs incurred by the Landlord during
such year. If an overpayment of the Tenant's Proportionate Share of Common
Costs has been made by the Tenant, the Landlord will credit such amount to the
Proportionate Share of Common Costs for the next ensuing period and, if there
is no ensuing period, such amount will be forthwith paid to the Tenant. If an
amount remains owing to the Landlord in respect of the Tenant's Proportionate
Share of Common Costs, the Tenant will pay such amount forthwith to the
Landlord. The covenants contained in this Section 3.03 will survive the
termination or expiration of this lease.
3.04 Additional Rent. All monies which from time to time may be owing by
the Tenant to the Landlord pursuant to this lease are hereby deemed to be
additional rent. The Tenant will pay any such money to the Landlord upon demand
by the Landlord unless other terms for payment are expressly stipulated in this
lease. If the Tenant fails to pay any additional rent, as and when due, the
Landlord will have the same remedies for the collection thereof as it has for
the recovery of Basic rent in arrears. If the Tenant at any time or from time
to time fails to pay to any person any sum which the Tenant is obliged to pay
pursuant to this lease the Landlord may pay any such sum on behalf of the
Tenant and same will then be a debt owing by the Tenant to the Landlord from
and including the date of payment by the Landlord.
3.05 Irregular Periods. If for any reason, it becomes necessary to
calculate Basic Rent or additional rent for irregular periods, an appropriate
pro rata adjustment will be made on a daily basis.
3.06 Interest on Amounts in Arrears. When Basic Rent or additional rent,
including any interest accrued thereon, payable hereunder is in arrears, the
same will bear interest at a rate equal to 5% above the prime rate being
charged by The Royal Bank of Canada, 1025 West Georgia Street, Vancouver, B.C.,
as its "prime rate" to its most favoured commercial customers at the time such
Basic Rent or additional rent became due, compounded monthly from the date
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such rent became due to and including the date of such payment. The Landlord
will have all remedies for the collection of such interest as it has for the
recovery of Basic Rent in arrears.
3.07 Tenant's Taxes and Other Charges. The Tenant will pay, as and when
due, to the authority or person to which same are owing:
(a) all taxes, license fees, duties and assessments imposed,
assessed or levied by any lawful authority during the Term
relating to the business carried on in and the use and
occupancy of the Premises by the Tenant including those
relating to personal property and all business and trade
fixtures and other improvements owned or installed by or on
behalf of the Tenant in, on, or affixed to the Premises,
whether any such taxes, license fees, rates, duties and
assessments are payable by law by the Tenant or by the
Landlord or whether or not the same are allocated separately
in respect of the Premises; and
(b) all charges, levies and assessments imposed, assessed or
levied by any lawful authority during the Term in respect of
utilities of whatsoever nature or kind (including works and
services in connection therewith) used in or supplied to the
Premises except to the extent such charges, rates, levies and
assessments are included in Common Costs.
The Tenant will indemnify and save harmless the Landlord from and
against any and all taxes imposed by lawful taxing authority in respect of
gross rent paid by the Tenant to the Landlord provided that such taxes are not
classified as taxes upon the income of the Landlord. Upon request by the
Landlord, the Tenant will deliver promptly to the Landlord, for inspection,
receipts for payment of all charges payable by the Tenant pursuant to this
Section 3.07.
3.08 Landlord as Supplier. Should the Landlord supply or elect to supply
steam, water, gas, fuel, electricity, or sewage facilities and services or any
other utility used or consumed on the Demised Premises or pay the same on a
bulk basis on behalf of the Building or any part thereof such service shall be
charged, at rates not in excess of public utility rates for the same service if
supplied to the Tenant only. In no event will the Landlord have any
obligations or liability in connection with the cessation or unavailability or
interruption or suspension of any service or utilities at any time whether or
not supplied by the Landlord.
3.09 Net Lease. The Tenant will pay to the Landlord duly and punctually
all Basic Rent and additional rent required to be paid pursuant to this lease
without any deduction, abatement or set-off whatsoever, it being the intention
of the Landlord and the Tenant that this lease is a
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completely carefree net lease to the Landlord. All expenses, costs, payments
and outgoings occurred in respect of or relating to the Premises whether or not
referred to herein and whether or not within the contemplation of the Landlord
and the tenant will be borne by the Tenant so that Basic Rent will be
absolutely net to the Landlord except as otherwise specifically provided in
this lease.
3.10 Dispute as to Costs. If the Tenant disputes the amount of any monies
to be paid by the Tenant to the Landlord pursuant to this lease, the
certificate of a chartered accountant appointed or acceptable to the Landlord
to determine such amount will be conclusive and binding upon the Landlord and
the Tenant. The cost of obtaining such certificate shall be for the account of
the Tenant if the amount of money to be paid by the Tenant, as established in
the certificate, is more than 95% of the amount claimed by the Landlord.
3.11 Landlord's Taxes. Subject to the obligation of the Tenant to pay its
Proportionate Share of Common Costs, the Landlord will pay real property taxes
with respect to the Lands as and when due, subject to lawful deferral.
3.12 Security Deposit. The Landlord acknowledges receipt of a deposit of
$5,735.20 including G.S.T. from the Tenant which deposit shall be credited to
the first and last months of Basic Rent and additional rent payable hereunder.
ARTICLE FOUR
QUALITY AND USE OF THE PREMISES
4.01 Possession and Use of Premises. The Landlord will use its best
efforts to make the Premises available to the Tenant for its fixturing on or
before AUGUST 15, 1994.The Tenant will not use or permit the Premises to be
used for any purpose other than for the purpose of light manufacturing of
atmosphere diving suits and associated offices. Without limiting the generality
of the foregoing, the Tenant will not carry on any business which would, in the
reasonable opinion of the Landlord, tend to lower the character of the
Building.
4.02 Lighting. The Tenant shall at its own expense be responsible for and
shall maintain and replace from time to time as may be necessary during the
Term all light fixtures, tubes, ballasts and starters in the Premises.
4.03 No Nuisance, Overloading or Waste. The Tenant will not carry on or
permit or suffer to be carried onto or in the Premises anything which is
noxious or offensive or which would constitute a public or private nuisance or
which would annoy or disturb or cause nuisance or damage to any other tenants
of the Building. The Tenant will not cause any waste or damage
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to the Premises and will not permit any overloading on the floor of the
Premises.
4.04 Windows. The Tenant will cause the windows of the Premises to be
screened to the satisfaction of the Landlord. The Landlord shall replace any
glass in the outside windows and doors of the perimeter of the Premises
(including perimeter windows in the exterior walls) with as good quality and
size and in the case of perimeter windows, with glass of the same type and
colour with the expense to be deemed a Common Cost during the continuance of
this lease, unless the glass shall be broken by the Tenant, invitees, employees
or agents on its behalf, in which event the Tenant shall forthwith reimburse
the Landlord for such costs.
4.05 Condition of Premises. The Tenant will not permit the Premises to
become untidy or unsightly and will not permit waste or refuse to accumulate
therein.
4.06 Not to Affect Landlord's Insurance. The Tenant will not do or omit to
do or permit to be done or omitted to be done in the Premises or on the Lands
anything which would directly or indirectly cause the insurance premiums in
respect of the Premises or the Landlord's premiums for liability insurance to
be increased. If any insurance premium is thereby increased the Tenant will
pay to the Landlord the amount by which the insurance premiums are so
increased. The Tenant will not store or permit to be stored upon the Premises
anything of a dangerous, inflammable or explosive nature or anything which
would have effect of increasing the Landlord's insurance premiums or of leading
to the cancellation of the Landlord's insurance. In the event that an
insurance policy of the Landlord is cancelled by reason of any act or omission
of the Tenant, the Landlord shall have the right at its option to terminate
this lease by giving seven days written notice of termination to the Tenant
and, at its option, the Landlord may rectify the situation causing such
cancellation. In the event that Landlord exercises its right to terminate
pursuant to this Section 4.08, Basic Rent and additional rent will be
apportioned and paid in full to the date of expiration of such notice (the
"Expiration Date") together with an amount equal to the Basic Rent which would
have been payable hereunder for the next three ensuing months had the Landlord
not terminated this lease and all other monies owing hereunder as of the
Expiration Date.
4.07 Compliance with Laws. The Tenant, during the Term at its own expense,
will promptly comply with all statutory requirements of every competent
federal, provincial, municipal, regional and other statutory authority and all
requirements of fire insurance underwriters in force from time to time during
the Term which relate to the Tenant's equipment, operation use of the Premises
or the making by the Tenant of any alterations, replacements, changes,
improvements, repairs or additions to the Premises or the conduct of any
business conducted in or from the Premises.
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4.08 Signs. The Tenant will not erect, paint, display, place, affix or
maintain or permit to be erected, painted, displayed, placed, affixed or
maintained any sign, decoration, picture, lettering, symbol or notice of any
nature or kind whatsoever (herein called the "Signs") either on the exterior
walls Away the Premises if same are visible from the exterior thereof or in
the Building or Common Areas and Facilities or on the Lands without first
obtaining the Landlord's written consent, which consent shall not be
unreasonably withheld.
The Tenant, at its cost, will acquire all requisite statutory permits
which may be required to erect or maintain any such approved Signs. The Tenant
will cause any Signs to be maintained in a proper state of repair and will
indemnify and save harmless the Landlord from all personal injuries or property
damage or loss to any person caused by the existence of such Signs.
4.09 Deliveries, Loading and Shipping. The Tenant will permit deliveries
to the Premises and loading and unloading to be done only in and from loading
areas designated by the Landlord and only in accordance with the rules and
regulations the Landlord from time to time may prescribe. The delivery or
shipping of merchandise, supplies and fixtures to and from the Premises will be
subject to such rules and regulations as in the sole judgment of the Landlord
are necessary for the proper operation of the Premises and the Building.
4.10 Landlord's Services. So long as the Tenant is not in default under
this lease, the Landlord will provide the services set forth in this Article
Four provided that the Landlord will have the right at any time, without
liability or obligation to the Tenant, to discontinue or modify any services
required of it under this Article Four or elsewhere in this lease during such
times as may be necessary, or as the Landlord may deem reasonably advisable, by
reason of accident or for the purpose of effecting repairs, replacements,
alterations or improvements. Without limiting the foregoing, the Landlord will
not be liable to the Tenant for failure for any reason to supply the said
services or any of them provided that the Landlord will correct any such
failure with reasonable diligence.
4.11 Electric Current and Lighting Fixtures. The Landlord (subject to its
ability to obtain same from its principal supplier) will cause the Premises to
be supplied with electric current for power to electrical equipment and for
lighting to customary building standards, which the Tenant agrees to take and
receive from the Landlord.
4.12 Air Conditioning and Heating. The Landlord will a provide heating
system capable of maintaining a reasonable temperature in the Premises.
Provided always that the obligations of the Landlord hereunder will be
conditional upon the following:
(a) the average amount of electrical energy consumed by the Tenant
will be
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that amount required for normal fluorescent lighting and
power; and
(b) the interior or partitioning of the Premises will not impede
heating.
If the apparatus or any part thereof used in heating the Premises becomes
damaged, destroyed or inoperative, the Landlord will have a reasonable time
within which to repair the damage or repair the apparatus and the Landlord will
not in any event be liable to the tenant or its officers or employees for any
direct, indirect or consequential damage or damages for personal discomfort or
illness arising by reason of the interruption of such service.
4.13 Use of Current. The Tenant covenants and agrees that at all times its
use of electric current will not exceed the capacity of the electrical wiring
serving the Building.
4.14 Floor Covering. The Tenant will maintain and repair the floor
covering in the Premises in as good a condition as reasonable use will permit,
reasonable wear and tear only excepted; and whether or not installed by the
Landlord.
4.15 Cleaning. The Landlord will cause the Common Areas and Facilities to
be kept clean and tidy and reasonably free of debris. The Tenant will cause
the Premises to be kept clean and tidy and reasonably free of debris.
4.16 Special Equipment. The Tenant shall be responsible for the
installation, operation and maintenance of any special equipment required by
its occupancy, including telephone, computers and special communications
facilities.
ARTICLE FIVE
ASSIGNING AND SUB-LETTING
5.01 Assigning and Sub-Letting by Tenant. The Tenant will not assign this
lease in whole or in part, nor sublet all or any part of the Premises, nor
mortgage or encumber this lease or the Premises or any part thereof, nor suffer
or permit the occupation of, or part with or share possession of all or any
part of the Premises by any person (all of the foregoing being collectively
referred to in this Article 5 as a "Transfer"), without the prior written
consent of the Landlord in each instance. No request for consent will be
considered by the Landlord unless the Tenant has notified the Landlord of all
the terms and conditions with the proposed transferee. Subject to the
covenant, creditworthiness, and business reputation of the transferee being at
least equal to that of the Tenant, the Landlord's consent may not be
unreasonably withheld. The consent by the Landlord to any Transfer, if
granted, shall not constitute a waiver of the necessity for such consent to any
subsequent Transfer. This prohibition against a Transfer is to be
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construed so as to include a prohibition against:
(a) a change in the direct or indirect effective voting control of
the Tenant from the persons holding voting control at the date
of this lease (or if the Tenant is not a corporation, at the
date of the assignment of this lease to a corporation); and
(b) any Transfer by operation of law.
In the event of a Transfer consented to by the Landlord, the Landlord may
collect rent from the transferee and apply the net amount collected to the
Basic Rent and additional rent required to be paid pursuant to this lease, but
no acceptance by the Landlord of any such payments shall be deemed a release of
the Tenant from the further performance by the Tenant of the covenants or
obligations on the part of the Tenant herein contained. Notwithstanding any
Transfer consented to by the Landlord, the Tenant shall be jointly and
severally liable with the transferee on this lease and shall not be released
from performing any of the terms, covenants and conditions of this lease.
5.02 Landlord's Conveyance. Should the Landlord convey or assign or
otherwise divest itself of its interest in the Building then to the extent that
the transferee or assignee thereof assumes the covenants and obligations of the
Landlord herein, the Landlord will be relieved of its obligations under this
lease from and after the effective date of such conveying, assigning or
divesting, save and except for the obligation to account to the Tenant for any
monies then due and payable to the Tenant by the Landlord pursuant to this
lease.
ARTICLE SIX
BUILDERS' LIENS
6.01 Builder's Liens. The Tenant will not suffer or permit any lien under
the Builders' Lien Act to be registered against title to the Tenant's leasehold
interest in the Lands and Premises or against title to the Lands by reason of
labour, services or materials supplied to the Tenant. The Tenant will permit
the Landlord to post and keep posted any notices pursuant to the Builders Lien
Act in conspicuous places on the premises as determined by the Landlord during
the course of construction of any improvements on the premises.
ARTICLE SEVEN
REPAIRS AND MAINTENANCE
7.01 Repair and Maintenance by Tenant. The Tenant, throughout the Term at
is own expense,
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will repair, maintain and keep the Premises and all improvements, appurtenances
and equipment therein and thereon in good repair and condition, excepting from
such standard of repair and maintenance damage by fire and other insurable
risks, (only to the extent that the Landlord is insured against such perils),
reasonable wear and tear, and repairs for which the Landlord is
responsibilities under this lease.
7.02 Repair and Maintenance by the Landlord. The Landlord will, at all
times throughout the Term, but subject to reasonable wear and tear, maintain
and repair, or cause to be maintained and repaired, as would a prudent owner
of a reasonably similar commercial development having regard to the size, age
and location, the structure of the Building and the Common Areas and
Facilities, including, without limitation, the foundations, exterior wall
assemblies, including weather walls, sub-floor, roof, bearing walls, and
structural columns and beams of the Building.
7.03 Repair Where the Tenant is at Fault. Notwithstanding any other terms,
covenants and conditions contained in this lease, if the Premises or any part
of the Lands, or any equipment, machinery, facilities or improvements contained
therein or made thereto, require repair or become damaged or destroyed through
the negligence, carelessness or misuse of the Tenant (or those for whom it is
in law responsible), the cost of resulting repairs, replacements or alterations
plus a sum equal to 15% of the cost thereof representing the Landlord's
overhead, shall be paid by the Tenant to the Landlord as additional rent
forthwith upon presentation of an account of such expenses incurred by the
Landlord.
7.04 Inspection and Emergencies. The Landlord, by its representatives, may
enter upon the Premises at all reasonable times and during any emergency to
inspect the state of repair and maintenance.
7.05 Landlord's Approval of the Tenant's Repairs and Work. The Tenant
shall not make any repairs, alterations, replacements, fixed decorations or
improvements to any part of the Premises without first obtaining the Landlord's
written approval, such approval not to be unreasonably withheld. The Tenant
shall provide to the Landlord not later than September 1, 1994 with plans and
specifications showing details of any proposed leasehold improvements to be
made to the Premises by the Tenant, including interior layout, mechanical
specification, and decor or the Tenant's Work, for prior approval by the
Landlord. The Tenant shall submit to the Landlord:
(a) details of any proposed work including drawings and
specifications conforming to good construction practice and
approved by the Landlord or consultants designated by the
Landlord;
(b) such indemnification against liens, costs, damages and
expenses the
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Landlord requires; and
(c) evidence satisfactory to the Landlord that the Tenant has
obtained, at its expense, all necessary consents, permits,
licenses and inspections from all governmental and regulatory
authorities having jurisdiction.
Except as otherwise agreed by the Landlord, all Tenant's Work, repairs,
replacements, alterations or improvements by the Tenant to the Premises
approved of by the Landlord shall be performed:
(i) at the sole cost of the Tenant;
(ii) by workmen and trades approved by the Landlord
provided that such approval shall not be
unreasonably withheld if the workmen are competent
and their labour union affiliations are compatible
with others employed by the Landlord and its
contractors provided that the Tenant's workmen shall
not be required to submit to restrictive practices in
contravention of the Labour Code of British Columbia
in force at the time of their employment;
(iii) in a good and workmanlike manner;
(iv) in accordance with the drawings and specifications
approved by the Landlord or its consultants; and
(v) subject to the reasonable regulations, controls and
inspection of the Landlord.
Any such work, repair, replacement, alteration, decoration or improvement made
by the Tenant without the prior written consent of the Landlord or which is not
made in accordance with the drawings and specifications approved by the
Landlord or its consultants shall, if requested by the Landlord, be promptly
removed by the Tenant at the Tenant's expense and the Premises restored to
their previous condition. Failing such removal, the Landlord shall be entitled
to remove the same forthwith without notice and at the Tenant's sole cost and
expense.
Notwithstanding anything contained in this lease, if any such work, repair,
maintenance, alterations, decorations, additions or improvements to the
Premises or to any improvements installed by or on behalf of the Tenant for the
benefit of the Premises which are approved by the Landlord, affect the
structure of the Premises or any part of the Building other than the Premises
<PAGE> 16
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or are installed outside the Premises, such work shall at the option of the
Landlord be performed only by the Landlord, at the Tenant's sole cost and
expense. From time to time during the course of construction, the Tenant shall
pay to the Landlord upon demand, both the Landlord's costs relating to any such
work, repairs, alterations, decorations, additions or improvements including
the fees of any architectural and engineering consultants plus a sum equal to
fifteen percent of the total cost thereto representing the Landlord's overhead.
No work, repairs, alterations, additions, decorations, or improvements to the
Premises by or on behalf of the Tenant shall be permitted which, in the
Landlord's opinion, may weaken or endanger the structure or adversely affect
the condition or operation of the Premises or the Building or diminish the
value thereof, or restrict or reduce the Landlord's coverage for zoning
purposes.
7.06 Remodeling. Without limiting the rights of the Landlord pursuant to
Section 7.05, the Landlord will have the right at any time during the Term to
repair, remodel, alter or improve the Building and the Common Areas and
Facilities (or to change or acquiesce in the change of the location of
entrances to the Building or the configuration of premises therein) without
compensation or responsibility to the Tenant and to enter into, pass through,
work upon and attach scaffolds or other temporary structures to the Premises
putting the Tenant to as little disturbance or inconvenience as is reasonably
practicable.
7.09 Tenant's Fixturing. Subject to Section 19.16, the Tenant will cause
the Tenant's work and leasehold improvements (collectively referred to as the
"Tenant's Work") to commence within 30 days of the date on which the Premises
are made available to the Tenant for installing its leasehold improvements and
the Tenant shall cause the Tenant's Work to be completed in a good and
workmanlike manner, with all expedition and within 60 days of such date. The
Tenant shall have a 60 day fixturing period immediately following the
Commencement Date. During this fixturing period, the Tenant shall not be
responsible for the payment of Basic Rent or its Proportionate Share of Common
Costs. All leasehold improvements done, at any time during the term of the
lease by the Tenant, shall be paid for by the Tenant.
ARTICLE EIGHT
COMMON AREAS AND ALTERATIONS TO BUILDING
8.01 Storage. The Tenant will not store or leave anything of whatsoever
nature or kind on or within the Common Areas and Facilities.
8.02 Use of Common Areas. Subject to this lease, including the rules and
regulations contained in Schedule B, and to such other reasonable regulations
not inconsistent with the terms of this lease as the Landlord may adopt
pertaining to the use of the Common Areas and Facilities, the Tenant will have
for itself and its licensees and invitees the non-exclusive right
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to use the Common Areas and Facilities, in common with others entitled thereto
for their proper and intended purposes during normal business hours as
reasonably stipulated by the Landlord. The Tenant acknowledges that the Common
Areas and Facilities are subject to the exclusive control and management of the
Landlord.
8.03 Reservation to Landlord. All outside walls of the Premises and any
space in the Premises used for stairways and passageways to other adjoining
premises, shafts, stacks, pipes, conduits, ducts and other building facilities,
the heating, electrical, plumbing, air conditioning and other building systems,
and the use thereto as well as access thereto through the Premises for the
purpose of use, operation, maintenance and repair, are expressly reserved to
the Landlord.
ARTICLE NINE
SURRENDER OF PREMISES AND REMOVAL OF FIXTURES
9.01 Surrender. Upon the expiration or earlier termination of this lease
and the Term and any period of overholding, the Tenant will surrender to the
Landlord possession of the Premises, in good order and a clean condition,
subject to the provisions of Article 9.02.
9.02 Removal of Fixtures. If the Tenant is not then in default hereunder,
the Tenant, at the expiration of the Term, may remove from the Premises all
trade fixtures and trade equipment installed by the Tenant. If the Tenant
damages the Premises or the Buildings during such removal the Tenant will make
good such damage at its expense. In no event will the Tenant remove from the
Premises any fixtures installed by the Landlord, or any partitions, floor
coverings, window coverings, local wiring, including floor ducts, telephone
conduits or plumbing, heating, electrical or ventilation plant or equipment or
other building services whether installed by the Landlord or the Tenant; save
and except that the Landlord will be entitled upon the expiration or earlier
termination of this lease to require the Tenant to, and the Tenant will, remove
forthwith all or some of its installations, alterations, additions, partitions
and fixtures and anything in the nature of improvements made or installed by
the Tenant or by the Landlord on behalf of the Tenant to or in the Premises,
and to make good any damage caused to the Premises by such removal at the
Tenant's cost. If the Tenant does not so remove, the Landlord may do so and
the Tenant will be responsible for the cost of such removal and for any
necessary storage charges. The Landlord will not be responsible for any damage
caused to the Tenant's property by reason of such removal.
ARTICLE TEN
LIABILITY AND INDEMNIFICATION
10.01 Non-Liability of Landlord. Except for the negligence of the Landlord,
the Landlord will
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not be liable or responsible in any way for any personal injury that may be
sustained by the Tenant or any invitee or licensee of the Tenant, or of any
other person who may be upon the Premises or sidewalks, parking areas or
loading areas adjacent thereto, or for any loss of or damage or injury to
property belonging to or in the possession of the Tenant or any invitee or
licensee of the Tenant or any other person, and without limiting the generality
of the foregoing, the Landlord will not be liable or responsible in any way for
any injury, loss or damage to person or property caused by smoke, steam, water,
ice, rain, snow or fumes which may leak, issue or flow into, through or from
the Premises or from the water sprinkler, drainage or smoke pipes or plumbing
equipment therein or from any other place or quarter or caused by or
attributable to the condition or arrangement of any electrical or other wiring
or the air conditioning equipment, or, for any matter or thing of whatsoever
nature or kind arising from the Tenant's use and occupation of the Premises or
otherwise. Notwithstanding anything contained in this lease, the liability of
the Landlord for its negligence will under no circumstances extend to any
business loss or to any consequential loss or damage or to any property other
than normal office furniture and manufacturing equipment. The Landlord will
not be responsible for anything lost or stolen howsoever such loss or theft
occurs.
10.02 Indemnification. Notwithstanding any other terms, covenants and
conditions contained in this lease, the Tenant will indemnify and same harmless
the Landlord and those ~ or whom it is in law responsible from and against any
and all liabilities, damages (including loss of all rent payable by the Tenant
hereunder), costs, expenses, causes of action, claims, suits and judgments
which the Landlord may incur or suffer or be put to by reason of or in
connection with or arising from:
(a) any breach, violation or non-performance by the Tenant of any
obligation contained in this lease to be observed or performed
by the Tenant;
(b) any damage to the property of the Tenant, any sub-tenant,
licensee, or any person claiming through or under the Tenant
or any sub-tenant or licensee, or any of them, or damage to
any other property howsoever occasioned by the condition, use,
occupation, repair or maintenance of the Premises;
(c) any injury to any person, including death resulting at any
time therefrom, occurring in or about the Premises;
(d) any wrongful act or neglect of the Tenant, its invitees and
licensees, in and about the Premises and Lands. Should the
Landlord without fault on its part, be made a party to any
litigation commenced by or against the Tenant, then the Tenant
shall protect, indemnify and hold the Landlord
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harmless and shall promptly pay all costs, expenses and
reasonable legal fees incurred or paid by the Landlord in
connection with such litigation as additional rent on demand.
The Tenant shall also promptly pay as additional rent upon
demand all costs, expenses and legal fees (on a solicitor and
his client basis) that may be incurred or paid by the Landlord
in enforcing the terms, covenants and conditions in this
lease, unless a Court shall decide otherwise.
10.03 Survival of Indemnification. Such indemnification will survive any
termination of this lease, despite anything in this lease to the contrary.
ARTICLE ELEVEN
INSURANCE
11.01 Tenant's Insurance. The Tenant, at its own expense, will obtain and
keep in force throughout the Term:
(a) fire insurance with extended coverage endorsement covering all
the Tenant's property in the Premises including, without
limitation, its improvements, furniture, equipment, fittings,
fixtures and stock-in- trade; and
(b) comprehensive general liability insurance against claims for
personal injury, death or property damage occurring upon or in
or about the Premises; and
(c) any other form of insurance and such higher limits as the
Landlord, acting reasonably, requires from time to time in
amounts and for insurance risk against which a prudent tenant
would insure.
11.02 Policies. The Tenant will effect all policies with insurers
reasonably satisfactory to the Landlord. The Tenant will on demand furnish to
the Landlord copies of all policies, or insurance certificates in lieu thereof.
The Tenant will pay the premium for each policy. If the Tenant fails to
purchase or to keep in force such insurance the Landlord may effect such
insurance, at the Tenant's expense.
11.03 Landlord as Insured and Subrogation. The Tenant will cause all
insurance policies obtained by it pursuant to this lease as to contain:
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(a) a waiver of subrogation clause in favour of the Landlord, the
Landlord's mortgagee or mortgagees and those for whom they are
in law responsible; and
(b) a clause requiring the insurer not to cancel or change the
insurance without first giving the Landlord 30 days written
notice thereof.
The liability policy will include the Landlord as an additional named insured
with a cross-liability clause. The fire insurance policy on tenant's
betterments and improvements will name the Landlord and the mortgagees 0 ~ the
Landlord as loss payees as their respective interest may appear.
11.04 Landlord to Insure. The Landlord shall, at all times throughout the
Term carry:
(a) "all risk" insurance on the machinery, boilers and equipment
contained in the Building and owned by or leased to the
Landlord (specifically excluding any property with respect to
which the Tenant and other tenants are obliged to insure
pursuant to Section 11.01 or similar sections of their
respective leases) in such reasonable amounts and with such
reasonable deductions as would be carried by a prudent owner
of a reasonably similar commercial building, having regard to
size, age and location;
(b) public liability and property damage insurance with respect to
the Landlord's operations in the Building in such reasonable
amounts and with such reasonable deductions as would be
carried by a prudent owner of a reasonably similar commercial
building, having regard to size, age and location;
(c) rental insurance in respect of the tenants of the Building to
cover rents and Common Costs for such reasonable lengths of
time as would be carried by a prudent owner of a reasonably
similar commercial building having regard to size, age and
location; and
(d) such other form or forms of insurance as the Landlord
reasonably considers advisable.
Notwithstanding any contribution by the Tenant to the cost of insurance
premiums provided herein, the Tenant acknowledges and agrees that no insurable
interest is conferred upon the Tenant under this lease ~ or purposes of any
policies of insurance carried by the Landlord and
<PAGE> 21
21
the Tenant has no right to receive any proceed of any such insurance policies
carried by the Landlord.
ARTICLE TWELVE
DAMAGE OR DESTRUCTION
12.01 Damage to Premises. If the Premises are damaged or destroyed by any
cause whatsoever and if, in the reasonable opinion of the Landlord, the
Premises cannot be repaired or rebuilt within 180 days of the date of the
damage or destruction, the Landlord, at its option, may terminate this lease by
giving to the Tenant, within 90 days of the date of such damage or destruction,
notice of termination requiring vacant possession of the Premises within 30
days after delivery of such notice. The Tenant will deliver up possession of
the Premises to the Landlord in accordance with such notice. The Landlord,
with all reasonable diligence, will repair or rebuild the Premises unless this
lease is terminated pursuant to this Article 12.01.
12.02 Rent Abatement. If the Premises or any part thereof, shall at any
time during the Term be damaged by fire or otherwise so as to render the same
unfit for the purpose of the Tenant, the rent payable hereunder shall abate to
the extent of any recovery by the Landlord under its rental interruption
insurance in respect of the Premises.
ARTICLE THIRTEEN
QUIET ENJOYMENT
13.01 Quiet Enjoyment. If the Tenant duly and punctually pays the Basic
Rent and additional rent and complies with its obligations under this lease,
the Tenant will be entitled to peaceably possess and enjoy the Premises during
the Term without any interruption or disturbance from the Landlord or any
person or persons claiming by, through or under the Landlord.
ARTICLE FOURTEEN
DEFAULT
14.01 Landlord May Perform Covenants. If the Tenant is in default of any of
its obligations under this lease, then the Landlord, without limiting any other
remedy which it may have, will have the right to remedy any such default and
for such purpose may at any time enter upon the Demised Premises. No entry for
such purpose will be deemed to cause a forfeiture or termination of this lease
or shall be deemed a trespass. In order to cure such default, the Landlord may
do such things as are necessary and reasonable to cure the default and such
things as may be incidental thereto (including, without limitation, the right
to make repairs and to expend monies). The Tenant will reimburse the Landlord
for the aggregate of all expenses
<PAGE> 22
22
incurred by the Landlord in remedying any such default. The Landlord will be
under no obligation to remedy any default of the Tenant and will not incur any
liability to the Tenant for any action or omission in the course of its
remedying or attempting to remedy any such default unless such act amounts to
intentional misconduct or gross negligence on the part of the Landlord.
14.02 Right of Termination. If and whenever:
(a) any Basic Rent or additional rent remains unpaid more than
five days after delivery of notice by the Landlord to the
Tenant specifying such breach;
(b) the Tenant has on more than one occasion in any calendar year
not paid Basic Rent or additional rent on the day on which the
same ought to have been paid;
(c) there is a breach of any of the Tenant's obligations hereunder
(other than as set out in the other clauses of this Article)
which is not cured within 15 days after delivery of written
notice by the Landlord to the Tenant specifying such breach;
(d) the Term or any goods and chattels on the Premises are at any
time seized or taken in execution or attachment;
(e) the Tenant makes a sale in bulk of its assets on the Premises
other than a sale to a transferee permitted in accordance with
Article 5;
(f) the Tenant abandons the Premises, or sells or disposes of the
trade fixtures, goods or chattels of the Tenant or removes or
commences, attempts or threatens to remove them from the
Premises so that there would not in the event of such sale or
disposal be sufficient trade fixtures, goods or chattels of
the Tenant on the Premises, subject to distress, to satisfy
all Basic Rent and additional rent due or accruing hereunder
for a period of at least three months; or
(g) the Tenant assigns, sub-lets or parts with possession of the
Premises without the Landlord's consent as required herein;
then the Landlord, at is option, may cancel this lease by written notice to the
Tenant, whereupon all rights and interest hereby created or then existing or
derived under this lease will thereupon
<PAGE> 23
23
terminate and the Landlord lawfully may take possession of the Premises,
provided that if any default of the Tenant can only be cured by the performance
0~ work or the furnishing of materials and if such work cannot reasonably be
completed or such materials reasonably obtained and utilized within said 15
days then such default will not be deemed to continue if the Tenant proceeds
promptly with such work as may be necessary to cure the default and continues
diligently to complete such work.
14.03 Bankruptcy. If and whenever:
(a) a receiver, guardian, trustee in bankruptcy or any other
similar officer is appointed to take charge of all or any
substantial part of the Tenant's property by a court of
competent jurisdiction;
(b) a petition is filed for the re-organization of the Tenant
under any provision of the Bankruptcy Act or any law of Canada
or any province thereof or of the jurisdiction in which the
Tenant as the case may be is incorporated relating to
bankruptcy or insolvency, then in force;
(c) the Tenant becomes insolvent; or
(d) if any application or petition or certificate or order is made
or granted for the winding up or dissolution of the Tenant,
voluntarily or otherwise;
then in any such case this lease, at the option of the Landlord, will thereupon
terminate and the term will immediately become forfeited and void and the
current month's Basic Rent and additional rent and the next ensuing three
months', and all other monies then owing hereunder will immediately become due
and payable and the Landlord, without notice or any form of legal process, may
re-enter and take possession of the Premises or any part thereto in the name of
the whole and expect the Tenant and those claiming under it and remove its or
their effects (forcibly if necessary) without being deemed guilty of trespass,
any statute or law to the contrary notwithstanding.
14.04 Waiver of Benefit of Legislation and Seizure. The Tenant irrevocably
waives and renounces the benefit of any present or future law taking away or
diminishing the Landlord's privilege on the property of the Tenant and the
right of distress and agrees with the Landlord, notwithstanding any such law,
that the Landlord may seize and sell the Tenant's goods and property, whether
within the Premises or not, and apply the proceeds of such sale upon rent and
upon the cost of the seizure and the sale in the same manner as might have been
done if such law had not been passed.
<PAGE> 24
24
14.05 Re-Entry and Damages. In the case the Landlord shall re-enter the
Premises prior to the expiry of this lease by reason of default by the Tenant
hereunder, the Tenant shall be liable to the Landlord for the amount of the
Basic Rent and additional rent for the remainder of the Term of this lease as
if such re-entry had not been made less the actual amount received by the
Landlord after such re-entry in respect of subsequent leasing applicable to the
remainder of the Term.
14.06 Legal Fees. If the Landlord retains a lawyer or other person
reasonably necessary for the purpose of assisting the Landlord in enforcing any
of its rights under this lease in the event of default by the Tenant, the
Landlord will be entitled to collect from the Tenant as additional rent the
costs of all such services.
14.07 Remedies of Landlord are Cumulative. The remedies of the Landlord in
this lease are cumulative and not in addition to any remedies of the Landlord
at law or in equity. No remedy will be deemed to be exclusive and the Landlord
may from time to time have recourse to one or more of the available remedies
specified herein or at law or in equity.
ARTICLE FIFTEEN
IMPOSSIBILITY OF PERFORMANCE
15.01 Non-Performance. Whenever the parties hereto are unable to fulfill
any obligation hereunder in respect of the provision of any service, utility,
work or repair by reason of being unable to obtain the materials, goods,
equipment, service, utility or labour required to enable it to fulfill such
obligation or by reason of any law or regulation or by reason of any other
cause beyond its reasonable control (other than lack of money), such party will
be entitled to extend the time for fulfillment of such obligation by a time
equal to the duration of the delay or restriction.
ARTICLE SIXTEEN
OVERHOLDING
16.01 Overholding. If the Tenant remains in possession of the Premises
after the expiration of the Term and without the execution and delivery of anew
lease or without the express consent in writing by the Landlord, the Landlord
may re-enter and take possession of the Premises and remove the Tenant
therefrom without being liable for any loss or damage occasioned thereby.
While the Tenant remains in possession of the Premises after the expiration of
the Term, the tenancy, in the absence of written agreement, will be from month
to month at a rent per month equal to two times the rent payable in respect of
the month immediately preceding expiration of the Term payable in advance on
the 1st day of each month and the Tenant will be subject to all
<PAGE> 25
25
terms of this lease, except that the tenancy will be from mont to month and a
tenancy from year to year will not be created by implication of law or
otherwise.
ARTICLE SEVENTEEN
RULES AND REGULATIONS
17.01 Rules and Regulations. The Tenant and its licensees and invitees will
be bound by all such reasonable rules and regulations not inconsistent with the
terms of this lease as the Landlord may from time make of which written notice
is given to the Tenant including those set out in Schedule "B". Nothing in
this lease will be construed so as to oblige the Landlord to enforce such rules
and regulations against other tenants in the Building and the Landlord will not
be liable to the Tenant for violation of the rules and regulations by such
tenants or their invitees or licensees.
ARTICLE EIGHTEEN
INSPECTION
18.01 Inspection. The Landlord or its representatives may exhibit the
Premises upon reasonable notice and at reasonable times to prospective tenants
during the last six months of the Term and may also exhibit the Premises at
reasonable times throughout the Term for the purpose of the Landlord's own
financing and to prospective purchasers.
ARTICLE NINETEEN
MISCELLANEOUS
19.01 Waiver. No waiver of any default will be binding unless acknowledged
in writing by the party waiving the default.
19.02 Condoning. Any condoning, excusing or overlooking by one party of any
default of the other party will not operate as a waiver of that party's rights
hereunder in respect of any subsequent default.
19.03 Subordination. This lease at the request of the Landlord will be
subject, subordinated and postponed to all mortgages, deeds of trust and
mortgages securing bonds and all indentures supplemental thereto which may now
or thereafter charge or affect the Lands or the Premises and to all renewals,
modifications, consolidations, replacements and extensions of same, to the
extent of such mortgages, deeds of trust and supplemental indentures and all
renewals, modifications, consolidations, replacements and extensions thereof
will have priority over this lease notwithstanding the respective dates of
execution or registration thereof. The Tenant will
<PAGE> 26
26
execute promptly any document in confirmation of such subordination,
postponement and priority which the Landlord may request.
19.04 Acknowledgment by Tenant. The Tenant will execute promptly, whenever
requested by the Landlord, a certificate in favour of any prospective mortgagee
or purchaser of the Landlord certifying the status of this lease, any
modifications or breaches of this lease in the knowledge of the Tenant and the
status of the rent account, all with the intent that such certificate may be
relied upon by any party to whom it is directed.
19.05 Representations and Entire Agreement. The Tenant acknowledges that
there have been no representations made by the Landlord which are not set out
in this lease and that nothing contained in this lease shall be construed so as
to prevent the Landlord from altering the location of parking areas, driveways
and sidewalks form time to time or from erecting additional buildings or
extending buildings after the Commencement Date and without limiting the
foregoing, the Landlord shall have the unrestricted right to add additional
lands which upon such addition will be included in the definition of "Lands",
add or change any building, alter the ingress or egress to the Lands or change
the loading or unloading Facilities and service entrances from time to time
without in any way being responsible to the Tenant, provided only that the
Landlord shall at all times provide reasonable access to the Premises across
and through the Lands and Common Areas and Facilities for the Tenant, its
servants, agents, clients and customers. The Tenant further acknowledges that
this lease constitutes the entire agreement between the Landlord and the Tenant
and may not be modified except herein explicitly provided or except by
subsequent agreement in writing duly signed by the Landlord and the Tenant.
19.06 Severability. If any provision of this lease is found to be illegal
or invalid or unenforceable at law it will be deemed to be severed from this
lease and the remaining provisions will continue to have full force and effect.
19.07 Headings. All headings in this lease are inserted for convenience of
reference only and will not affect the construction and interpretation of this
lease.
19.08 Notices. Any notice, request or demand herein provided or permitted
to be given will be sufficiently given if personally served or mailed by
prepaid registered post as follows:
(a) to the Landlord
Suite 101 - 2609 Westview Drive
North Vancouver, British Columbia
V7N 4M2
<PAGE> 27
27
Attention: Barry Jackson
(b) to the Tenant
#3 - 1225 Keith Road
North Vancouver, British Columbia
Attention:
Any notice mailed as aforesaid will be presumed, for the purposes of this
lease, to have been given three business days following the day on which such
notice is mailed. Any party may at any time give written notice to the others
of any change of address and after the giving of such notice the address
therein specified will be deemed to be the address of such party for the
purpose of giving notices hereunder.
19.09 Time of Essence. Time will be of the essence of this lease.
19.10 Governing Law. This lease will be construed and governed by the laws
of British Columbia.
19.11 Gender. Words in the singular will include the plural and words in
the plural will include the singular and words in the masculine gender will
include feminine and neuter genders and vice versa where the context so
requires.
19.12 Registration. At its sole expense, the Tenant shall be entitled to
register this lease in the Land Title Office. Any plan required by the Tenant
to register the lease shall be provided by the Tenant at the tenant's expense.
19.13 Renewal Provision. The Landlord covenants and agrees with the Tenant
that if the Tenant is not in default of any provisions under this lease and
provided that the Tenant continues in occupancy of the Premises at the
expiration of the term then underway the Landlord will at the expiration of the
term upon the Tenant's written request delivered to the Landlord not later than
six months prior to the expiration of the term then underway grant to the
Tenant one renewal lease of the Premises of a term of THREE years and ONE month
upon all the terms, covenants, agreements and proviso contained in this lease
EXCEPT:
(a) the Basic Rent, which Basic Rent shall be the annual rental
which could reasonably be obtained by the Landlord for such
space from a willing Tenant dealing at arm's length with the
Landlord, having regard to all the
<PAGE> 28
28
relevant circumstances. If the Landlord and Tenant have not
mutually agreed on the amount of such Basic Rent ninety days
prior to the renewal term such Basic Rent shall be decided by
binding arbitration pursuant to Article 1914 provided that the
annual Basic Rent payable during the renewal term shall not be
less than the annual Basic Rent payable during the last year
of the immediately preceding term; and
(b) this right of renewal; and
(c) inducements of any kind whatsoever paid or granted to the
Tenant by the Landlord at the commencement of the initial Term
of this lease;
19.14 Arbitration. If there is a dispute between the Tenant and the
Landlord with respect to any provision of this lease, such dispute shall be
referred to an arbitrator appointed by both the Tenant and the Landlord or,
failing agreement between the parties, to be appointed by a Judge of the
Supreme Court of British Columbia. The determination of the arbitrator shall
be final and binding upon the Tenant and the Landlord. Each party shall pay
one-half of the fees and expenses of the arbitrator. The provisions of this
section shall be deemed to be a submission to arbitration within the provisions
of the Commercial Arbitration Act from time to time, provided that any
limitation on the remuneration of the arbitrator imposed by such legislation
shall not be applicable.
19.15 DEMOLITION. NOT APPLICABLE.
19.16 Permits and Licenses. The Tenant will obtain, at its sole cost, all
building permits and approvals required by the City of North Vancouver in
respect to the Tenant's Work (the "Permits and Licenses"). All Permits and
Licenses must be obtained by the Tenant prior to the commencement of any of the
Tenant's Work. The Tenant will apply, at its sole cost, to the City of North
Vancouver for a certificate of occupancy in respect of the Tenant's Work.
19.17 Enuring Effect. This lease and everything herein contained will enure
to the benefit of and be binding upon the parties hereto and each of their
respective heirs, executors, administrators, successors and permitted assigns.
19.18 Inducement - Landlord to Tenant. Except as set forth herein, the
premises are leased as is and all other improvements, including inter alia,
installation, operation and maintenance of any special equipment required by
its occupancy including inter alia telephone, computers and special
communication facilities shall be an expense of the Tenant.
<PAGE> 29
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19.19 Mezzanine Floor. Landlord agrees that Tenant, at its option, may
request the Landlord to install a mezzanine floor and re-negotiate the lease
rate.
IN WITNESS WHEREOF the parties hereto have executed this lease as of
the day and year first above written.
SIGNED, SEALED AND DELIVERED )
by the authorized signatory of )
KEITH BUSINESS CENTRE LTD. )
in the presence of )
) Keith Business Centre Ltd.
/s/ Jackie Cockran ) Per:
- ---------------------------------------
Name )
) /s/ Barry Jackson
---------------------------------
875 Jefferson Ave. )
- --------------------------------------
Address )
)
- ------------------------- )
Occupation )
SIGNED, SEALED AND DELIVERED )
by the authorized signatory of )
HARD SUITS INC. )
in the presence of )
) Hard Suits Inc.
/s/ Lisa Court ) Per:
- ------------------------------------------
Name )
) /s/ G. W. Liddell
---------------------------------
#3-1225 East Keith Road )
- -----------------------------------------
Address )
)
Executive Assistant )
- -----------------------------------------
Occupation
<PAGE> 30
30
SCHEDULE "A"
[Blueprint of Property]
<PAGE> 31
31
SCHEDULE "B"
RULES AND REGULATIONS
The Tenant shall observe the following Rules and Regulations (as
amended, modified or supplemented from time to time by the Landlord as provided
in the lease):
1. The Tenant shall not use or permit the use of the Premises in such
manner as to create any objectionable noises, odours or other nuisance or
hazard, or breach any applicable provisions of municipal by-laws or other
lawful requirements applicable thereto or any requirement of the Landlord's
insurers, shall not permit the Premises to be cooking (except with the
Landlord's prior written consent or unless carrying on the business of a
restaurant) or for sleeping, shall keep the Premises tidy and free from
rubbish, shall deposit rubbish in receptacles which are either designated or
clearly intended for waste and shall have the Premises at the end of each
business day in a condition such as to facilitate the performance of the
Landlord's janitor services in the Premises (where such services are to be
provided by the Landlord).
2. The Tenant shall not abuse, misuse, or damage the Premises or any of
the improvements or facilities therein, and in particular shall not deposit
rubbish in any plumbing apparatus or use it for other than purposes for which
it is intended, and shall not deface or mark any walls or other parts of the
Leased Premises.
3. The Tenant shall not perform, patronize or (to the extent under its
control) permit any canvassing, soliciting or peddling in the Building, shall
not install in the Premiss any machines vending or dispensing refreshments or
merchandise and shall not permit food or beverages to be brought to the
Premises except by such means, at such times and by such persons as have been
authorized by the Landlord.
4. The entrance, lobbies, elevators, staircases and other facilities of
the Building are for use only for access to the Premises and other parts of the
Building and the Tenant shall not obstruct or misuse such facilities or permit
them to be obstructed or misused by its agents, employees, invitees or others
under its control.
5. No sale or heavy equipment shall be moved by or for the Tenant unless
the consent of the Landlord is first obtained and unless all due care is taken.
Such equipment shall be moved upon the appropriate steelbearing plates, skids
or platforms and subject to the Landlord's direction, and at such times, by
such means and by such persons as the Landlord shall have approved. And with
such load bearing support as may be directed by the Landlord. No furniture,
freight or
<PAGE> 32
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bulky matter of any description shall be moved in or out of the Premises or
carried on the elevators except during such hours, as the Landlord shall have
approved. Hand trucks and similar appliances shall be equipped with rubber
tires and other safeguards approved by the Landlord and shall be used only by
prior arrangement with the Landlord.
6. At the request of the Landlord, the Tenant shall permit and
facilitate the entry of the Landlord, or those designated by it, into the
Premises for the purpose of inspection, repair, window cleaning and the
performance of other janitor services, and shall not permit access to main
ducts, janitor and electrical closets and other necessary means of access to
mechanical, electrical and other facilities to be obstructed by the placement
of furniture or otherwise. The Tenant shall not place any additional locks or
other security devices upon any doors of the premises without the prior written
approval of the Landlord and subject to any conditions imposed by the Landlord
for the maintenance of necessary access.
7. The Landlord may require that all or any persons entering and leaving
the Building at any time other than normal business hours satisfactorily
identify themselves and register in books kept for the purpose and may prevent
any person from entering the Premises unless provided with a key thereto and a
pass or other authorization from the Tenant in a form satisfactory to the
Landlord and may prevent any person removing any goods therefrom without
written authorization. The Tenant will ensure that the Premises and the
parking area are locked on Sundays, holidays and between the hours of 5:00 p.m.
to 7:00 a.m. Monday through to Saturday.
8. The Tenant shall refer to the Building only by the name from time to
time designated by the Landlord for it and shall use such name only for the
business address of the Premises and not for any promotion or other purpose.
9. The Tenant shall not interfere with window coverings and awnings, if
any, installed upon exterior windows by the Landlord and shall close or permit
to be closed such window coverings during such hours from dusk to dawn as the
Landlord may require.
10. No awnings or other projection shall be attached to the outside walls
of the Building. All curtains, blinds, shades, or screens attached to or hung
in, or used in connection with, any window or door of the Premises shall be
horizontal Venetian type blinds, specifically Levolor (make), Riverra (model),
Cathy Pearl 1382 (colour) blinds, or equivalent, subject to the written
approval of the Landlord.
11. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules without the prior written consent of the Landlord.
<PAGE> 33
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12. The washrooms and other plumbing fixtures shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein. All damages
resulting from any misuse of the fixtures shall be borne by the Tenant who or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
13. No animals of any kind shall be brought into or kept in or about the
Premises or the Building.
14. Neither the Tenant nor any of the Tenant's servants, employees,
agents, visitors or licensees, shall at any time bring or keep upon the
Premises any inflammable, combustible or explosive fluid, chemical or
substance.
15. If the Tenant desires telegraphic or telephonic connections, the
Landlord will direct the electricians as to where and how the wires are to be
introduced, and without such directions no boring or cutting for wires will be
permitted. No gas pipe or electric wire will be permitted which has not been
ordered or authorized by the Landlord. No outside radio or television aerials
shall be allowed on the Premises without authorization in writing by the
Landlord. Notwithstanding the foregoing, the Tenant shall be permitted to erect
two antenna towers.
16. The Tenant agrees to the foregoing Rules and Regulations, which are
hereby made a part of this lease, and each of them, and agrees that for such
persistent infraction of them, or any of them, as may in the opinion of the
Landlord be calculated to annoy or disturb the quiet enjoyment of any other
tenant, or for gross misconduct upon the part of the Tenant, or anyone under
it, the Landlord may declare a forfeiture and cancellation of the lease and may
demand possession of the Premises upon one week's notice.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated August 6, 1996 relating
to the financial statements of American Oilfield Divers, Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedules for the three years ended October 31, 1995 listed
under Item 14(a) of the American Oilfield Divers, Inc. Annual Report on Form
10-K for the year ended October 31, 1995 when such schedules are read in
conjunction with the financial statements referred to in our report. We also
consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New Orleans, Louisiana
January 13, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated March 8, 1996 relating to
the consolidated financial statements of Hard Suits Inc., which appears in such
Prospectus.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Vancouver, British Columbia, Canada
January 13, 1996
