November 3, 2004
Via U.S. mail and Fax (504) 566-0210
Virginia Boulet
Adams and Reese LLP
4500 One Shell Square
New Orleans, Louisiana 70139
Re: UNIFAB International, Inc.
Schedule 13E-3
File No. 5-53539
Filed October 6, 2004
Dear Ms. Boulet:
We have reviewed the filing listed above and have the following
comments. Where indicated, we think you should revise your
document in response to these comments. If you disagree, we will
consider your explanation as to why our comment is inapplicable or a
revision is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing. We
look forward to working with you in these respects. We welcome any
questions you may have about our comments or on any other aspect
of our review. Feel free to call me at the telephone number listed
at the end of this letter.
General
1. We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be certain that they have provided all information investors require.
Since the filing persons are in possession of all facts relating
to their disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please provide, in
writing, a statement from the filing persons acknowledging that:
* the filing persons are responsible for the adequacy and accuracy
of the disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the filing persons may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
Schedule 13E-3
General
2. As you may be aware, Rule 13e-3(a)(3) defines a going private
transaction as "any transaction or series of transactions...which
has either a reasonable likelihood or purpose of producing" the
effects specified in paragraph (a)(3)(ii) of the Rule. A going
private transaction may take place in multiple steps. Explain
supplementally why the reverse stock split on August 1, 2003, the
exercise of Midland`s rights under the November 30, 1999 UNIFAB
Credit Agreement on August 13, 2003 and the issuance of UNIFAB common
stock to Midland on August 13, 2003, and/or the September, 2004
conversions of debentures into shares should not be considered the
first steps in this going private transaction. See Q&A No. 4, in
SEC Release 34-17719 (April 13, 1981). We may have further comment
after reading your response.
3. We do not see a Schedule 13D filing or a Schedule 14f-1 filing
for the corporate events that took place in April, 2002. Please
advise.
4. We do not see a Schedule 13D filing or an amended filing on
August 13, 2003 explaining the transactions that took place when the
Midland Agreement was consummated. Please advise us as to the reasons
no filing was made, or file the Schedule 13D promptly.
5. We note in this regard that no Schedule 13D filing was made in
the months following the August 13 transactions, but we further note
that your disclosure indicates that it was Midland, rather than the
board of the company, who retained Chaffe & Associates in June of 2004.
Please advise us as to why no filing was made.
6. We note that Jeanne M. Hines McDaniel is named as a filing
person but has expressed no opinion as to the fairness of the merger.
Item 1014(a) of Regulation M-A requires that an affiliate state whether
he or she reasonably believes that the transaction is fair to the
unaffiliated shareholders, and Instruction 1 to Item 1014 states
that "a statement that the...affiliate has no reasonable belief as to
the fairness of the...transaction to unaffiliated security holders
will not be considered sufficient disclosure in response to paragraph
(a) of this section." Revise your document to include Ms. McDaniel`s
belief as to the fairness of the transaction, including the
reasonable basis for the belief and the factors considered in
reaching it, as required by Item 1014. If Ms. McDaniel reached
her conclusions regarding fairness in reliance on the analysis or
opinion of any other party, then she must expressly adopt the analysis
and the conclusion in the disclosure.
7. Tell us what consideration you have given to including the
company as a filing person on the Schedule 13E-3. We note in this
regard that the company is controlled by its affiliate, Midland, and
that Chaffe & Associates discussed the structure of the transaction
with both Midland and company management.
8. Tell us what consideration you have given to providing a
background section that sets forth the events leading up to the
merger, beginning with Midland`s acquisition of UNIFAB`s debt and
including a full description of the filing persons` consideration
of "certain alternatives to acquiring the minority shareholder
interest in UNIFAB..." The present disclosure is conclusory and
difficult to follow, and it does not meet the requirements of Item
1013 of Regulation M-A.
Summary Term Sheet, page i
9. Revise your first paragraph to make clear that your summary
term sheet provides an overview of all material matters presented in
the accompanying documents. You should disclose prominently in the
summary section that this transaction was not reviewed by a
special committee, nor is it subject to any vote of the unaffiliated
shareholders.
10. State clearly in the Summary that the price offered in the
merger is substantially below the trading price of the stock. Disclose
the trading price as of a recent date.
The Filing Persons` Position as to the Fairness of the Merger,
Page ii
11. It is not clear how certain of the reasons expressed in this
section as to the fairness of the merger support a finding of
fairness. For example, how does the existence of a 90%
shareholder indicate that the transaction is fair? Please revise.
Conditions to the Merger, page iii
12. Provide sufficient disclosure for a shareholder to determine
what conditions there are to Midland`s obligation to consummate the
merger. In addition, provide more detailed disclosure concerning
the circumstances in which Midland might terminate the transaction.
Your statement that "Midland has no legal obligation to consummate
the merger..." does not offer shareholders much information.
Introduction, page 1
13. You state on page 2 that the outstanding options and warrants
will be cancelled on the effective date of the merger, and on page
5 that you intend to "request that the holders of these options
agree to a cancellation of the options". Tell us how the board was
able to determine that the cancellation of these securities was fair
to the option and warrant holders, and why they believe that the option
holders will agree to the cancellation.
Special Factors, page 2
14. Expand your discussion of the background of the transaction to
describe all meetings, negotiations, contacts, etc., among the
filing persons, the board and management. Identify the participants
in and initiator of each meeting or contact, disclose the date of each
meeting or contact and revise your discussion of those meetings to
provide the reader with more of a sense of the content of those
discussions. The revised disclosure should include the following,
which is not intended to be an exhaustive list:
* who first proposed the possibility of going private and when
this occurred;
* the relationship between Midland and the company`s board and
management;
* how the offer price was selected; and
* what specific issues, if any, were addressed by Midland with
Chaffe during its presentation.
Purposes, Alternatives, Reasons and Effects, page 2
15. The factors supporting the merger must be explained in enough
detail for investors to understand them. Conclusory statements or
listing of generalized areas of consideration, such as "market
conditions in UNIFAB`s business have made it difficult for UNIFAB
to increase its revenues and operating profit margins...." are not
acceptable. Please revise the first section explain how each of
the factors listed support or do not support the decision to approve
the merger.
16. We note that Midland has determined that the costs of
maintaining UNIFAB as a public company outweigh potential future
benefits, particularly since the enactment of the Sarbanes-Oxley Act
of 2002. Quantify the increased costs associated with the Sarbanes-Oxley
Act.
Factors Considered in Determining Fairness, page 8
17. Please revise your discussion of the factors considered by the
filing persons to include two lists. Clearly identify one list of
factors favoring the merger transaction and one list of factors
not supporting the transaction.
18. Please supplementally send us a copy of the board books and
any other materials prepared by Chaffe & Associates to assist Midland
in evaluating the merger. All materials that Chaffe prepared and
distributed to Midland should be filed as exhibits to the Schedule
13E-3.
19. Expand this section to discuss in detail each filing persons`
purpose for engaging in the transaction, and the reasons for
undertaking the transaction now. Consider Instruction 1 to Item
1013 of Regulation M-A in drafting your disclosure.
20. In response to Item 1013(d) of Regulation M-A, disclose the
benefits and detriments of the transaction for each of: (i) the
company; (ii) the affiliates; and (iii) the unaffiliated security
holders of the company. Quantify your response as much as
possible. See Instruction 2 to Item 1013 of Regulation M-A.
21. In your disclosure regarding fairness determinations made by
filing persons, state whether each filing person has determined
that the proposed transaction is procedurally fair despite the absence
of the safeguards identified in Item 1014(c) of Regulation M-A, the
approval of the unaffiliated security holders, and Item 1014(d) of
Regulation M-A, the appointment of an unaffiliated representative
to negotiate on behalf of the unaffiliated security holders. The
conclusory statements included in your disclosure regarding
procedural fairness on page 10 of your filing do not address this
point.
22. Revise your disclosure to specifically include each filing
person`s determination regarding fairness of the transaction to
unaffiliated shareholders in accordance with Item 1014(a) of
Regulation M-A. To the extent that any filing person individually
or the board of directors of the company is relying upon the analysis
of Chaffe & Associates, they should expressly adopt such analysis.
See Item 1014(b) of Regulation M-A and Q&A Nos. 5 and 21 in SEC
Release No. 34-17719 (April 13, 1981).
23. Instruction 3 to Item 1014 of Regulation M-A provides that
"conclusory statements...will not be sufficient disclosure for
Item 1014(b)." The discussion of factors considered in determining the
fairness of the proposed transaction should therefore address the
factors set forth in General Instruction 2 to Item 1014 of
Regulation M-A. While we note that the filing persons considered most
of these factors, to the extent that the company is a filing person,
it is not clear what consideration the company`s board gave to the
factors. Further, the filing persons appear to have concluded that
whenever the analysis yielded a zero value, the analysis necessarily
implied that the merger consideration was fair. Expand your discussion
to explain in greater detail why the filing persons and the board
reached the conclusions they did, and to state specifically how
the board determined the transaction to be fair. If either the filing
persons` or the board`s conclusion was that one or more of the
omitted factors were material, please disclose the bases for such
conclusions. See Q&A No. 21 in SEC Release No. 17719 (April 13,
1981).
24. Your disclosure in response to the question of what
consideration the filing persons gave to prior purchases as required
by Instruction 2(vi) to Item 1014 of Regulation M-A is conclusory.
Please revise to address the disparity between the prior purchase
prices and the merger consideration.
25. In your discussion of the filing persons` consideration of the
current and historical market prices for the company`s securities,
provide a recent quotation of the current market price, and
highlight the fact that the offer price is significantly below the
market price.
26. In your description of the comparable companies analysis,
provide the names of the companies included in the peer group of four
publicly traded companies included in Chaffe & Associates opinion.
Provide either a brief description of the analysis or a cross
reference to the fairness advisor`s disclosure.
27. Quantify your disclosure regarding breakup and liquidation
analysis.
28. Each filing person must address the factors itemized in
Instruction 2 to Item 1014 of Regulation M-A in support of their
fairness determination. To the extent that they are relying on
the analysis of another with respect to any of the factors, the
filing person must adopt the analysis of the other party. Accordingly,
to the extent that any filing person is relying on the analysis of
the fairness advisor or the board to satisfy their Item 1014
requirements, they must specifically adopt the analysis as their
own. To the extent that a filing person did not consider one or more
of the factors addressed in Instruction 2, the disclosure must state
that person`s reasons for believing the factor was irrelevant.
29. Provide more detailed disclosure concerning the effort to
obtain a third party offer for the company. Describe what business
the interested parties were in, how they were approached, and the
reasons that no offer was made for the company. State whether UNIFAB
actively sought another buyer, and if so, what steps the company
took to interest a third party. Clarify the timing of these
discussions and the reasons for Midland`s rejection of these proposals.
30. We do not understand why the absence of a third party buyer
necessarily implies that the merger is "the only likely source of
prompt liquidity." Please revise your disclosure to provide the
reasons for this conclusion.
Reports, Opinions, Appraisals and Negotiations, page 11
31. Provide all of the information required by Item 1015(b)(1)-(6)
of Regulation M-A with respect to Chaffe & Associates.
32. Describe all of the reports that Chaffe made to the board and
to Midland, both oral and written, in connection with the
transaction. In this regard, describe the differences in valuation in
the September 14 and September 29, 2004 reports. Confirm that you
have filed all of these materials. See Item 1015(a) and (b) of
Regulation M-A.
33. Disclose the amount of the fee paid to Chaffe and Associates,
including any amount that is contingent on the closing of the
transaction.
34. Please disclose what Midland and the board concluded from each
analysis performed by Chaffe & Associates.
35. In your discussion of Chaffe & Associates` assumptions
underlying the effects of the proposed merger, you note that the
assumption with respect to the conversion price for the convertible
debentures was $3.50 per share. Disclose how the board was able to
reconcile this apparent disparity with the merger price of $0.20
per share.
36. Disclose in detail the criteria for selecting the comparable
companies in this portion of Chaffe`s analysis, and the reasons
why they were deemed to be comparable. Given the disparity in size
and performance indicators, it is not clear from your disclosure why
any of these companies is comparable to UNIFAB. Please revise.
37. Disclose whether Midland and the board considered the
comparable company analysis for UNIFAB to be meaningful in spite of
the fact that UNIFAB`s negative enterprise value did not produce any
comparable multiples.
38. Provide further detail concerning the breakup/liquidation
analysis. How did Chaffe determine the values that may be
available upon a liquidation of UNIFAB? What assumptions did Chaffe
make concerning the liquidation? Quantify your disclosure.
39. Amend your disclosure to clarify that DCF indicates
"discounted cash flow". Quantify the analysis in this section.
40. Quantify the amount of consideration Chaffe received in
connection with the sale of Alan Tank, Inc. to UNIFAB and in the
Midland transaction.
Exhibits
41. Disclose whether Chaffe & Associates has consented to the
inclusion of its opinion as an exhibit to the Schedule 13E-3
Closing Comments
As appropriate, please amend your documents in response to
these comments within 10 business days or tell us when you will
provide us with a response. You may wish to provide us with
marked copies of the amendment, if required, to expedite our review.
Please furnish a cover letter with your amendment that keys your
responses to our comments and provides any requested supplemental
information. Detailed cover letters greatly facilitate our review.
Please understand that we may have additional comments after reviewing
your amendment and responses to our comments.
You may contact me at (202) 942-1762, with any questions.
Sincerely,
Julia E. Griffith
Special Counsel
Office of Mergers
and Acquisitions