EXHIBIT 99.2
CHAFFE & ASSOCIATES LETTERHEAD
July 23, 2002
Board of Directors
UNIFAB International, Inc.
0000 Xxxx Xxxx
Xxx Xxxxxx, XX 00000
Gentlemen:
We understand that UNIFAB International, Inc. ("Unifab") and Midland Fabricators
and Process Systems, L.L.C. ("Midland") have entered into a Preferred Stock
Purchase, Debt Exchange and Modification Agreement dated April 26, 2002 (the
"Agreement"), which provides for, among other things, (a) the issuance of 738
shares of Unifab convertible preferred stock to Midland in exchange for the
cancellation of $10.0 million of the Company's outstanding senior debt, and (b)
the conversion of the Company's remaining senior debt into a convertible
debenture. Xxxxxxx is currently the owner of the senior debt.
Midland has also acquired approximately $5.5 million of Unifab's trade payables,
and we understand Xxxxxxx has agreed to settle such payables with Unifab for
approximately $2.75 million. In addition, Midland has agreed to assist Unifab in
establishing a line of credit of $7.0 million to be used for working capital
purposes, which line of credit shall be guaranteed by Midland. A portion of this
line of credit will be used to fund Unifab's settlement of the trade payables
with Midland.
Each share of Unifab preferred stock will be mandatorily convertible into
100,000 shares of Unifab common stock at such time as the Company's shareholders
authorize additional shares of common stock. In the meantime, each share of
Unifab preferred stock will have the right to cast 100,000 votes, voting with
the common shares on any matter coming before the shareholders of the Company.
After the initial phase of the proposed transaction is consummated, Midland's
beneficial ownership of Unifab's voting power will be approximately 90%, and
Midland will control Unifab. Further, Midland will have the option to convert
all or any portion of the debenture into shares of Unifab common shares at a
price of $0.35 per share. After a conversion of the debenture, Midland would own
approximately 93% of the common stock of the Company.
Additionally, Midland has agreed that after the initial phase of the proposed
transaction is consummated, it will cause the Company to offer all shareholders
(other than Midland) the right to purchase up to a total of 16.5 million
additional shares of common stock at a price of $0.35 per share (the
"Subscription Option").
You have asked our opinion as to whether on the date hereof, from a financial
point of view, the "Transaction", subject to the other terms and conditions of
the Agreement, is fair to the "Holders of Unifab Common Stock". The above
outlined phases of the proposed transaction, when taken together as a whole,
shall be defined as the
"Transaction". The "Holders of Unifab Common Stock" shall be defined to include
all holders of Unifab common stock other than Midland, Xx. Xxxxxxx X. Xxxxx or
any affiliates of either.
Chaffe & Associates, Inc. ("Chaffe"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, security financings, and valuations for estate, corporate, and
various other purposes. Neither Chaffe nor any of its principal officers or
shareholders haven ownership interest in Unifab or Midland. In 1998, Xxxxxx
performed certain financial advisory services for Xxxxx Tank, Inc. in its sale
to Unifab, for which we received customary compensation. In the current matter,
we are financial advisors to the Board of Directors of Unifab in connection with
the Transaction, and we will receive a fee for our services, which include the
rendering of this opinion. Our compensation for our services, including the
preparation and delivery of this opinion, is not dependent or contingent upon
the completion of a transaction and is not related to or based upon the nature
of the findings made herein. Unifab has agreed to indemnify us for certain
liabilities that may arise out of rendering this opinion.
In connection with rendering our opinion, Chaffe, among other things: (i)
reviewed a copy of the Agreement; (ii) reviewed and analyzed Company audited
financial statements for the years ending March 31, 1997 through 2000, the nine
months ending December 31, 2000,and the year ending December 31, 2001, and
internally-prepared financial statements for the five months ending May 31,
2002, as well as other financial and operating data concerning the Company
prepared by its management, including pro forma financial projections dated as
of July 23, 2002, for the Transaction and for fiscal year 2002; (iii) reviewed
independent appraisals of certain Unifab property, plant and equipment; (iv)
reviewed and discussed the past and current operations, financial condition and
prospects of the Company with members of the Company's senior management; (v)
reviewed and discussed the strategic rationale for the Transaction with members
of the Company's senior management; (vi) reviewed the reported prices and
trading activity for the Company common stock; (vii) compared the financial
performance of the Company and the prices and trading activity of the Company
common stock with those of certain comparable publicly-traded companies and
their securities; (viii) reviewed the financial terms, to the extent publicly
available, of certain comparable business combinations among oil and gas service
companies specifically, and other industries generally; (ix) evaluated the
potential pro forma financial impact of the Transaction on Unifab; and (x)
performed such other analyses and examinations, and considered such other
financial, economic and market criteria as Chaffe deemed appropriate to this
opinion.
In our review, Chaffe relied, without independent verification, upon the
accuracy and completeness of the historical and projected financial information,
appraisals and all other information reviewed by us for purposes of our opinion.
Xxxxxx did not conduct a physical inspection of the properties and facilities of
Unifab, nor did we perform an independent verification of the value of the
Company's assets or liabilities. With respect to the Company's projected
financial results, Xxxxxx has assumed that they were reasonably prepared on
bases reflecting the Company management's best currently available estimates and
judgments of future financial performance. We have further relied upon the
assurances of Company management that they are not aware of any facts that would
make such information inaccurate, incomplete or misleading. We have also relied
on Midland's representation in the Agreement regarding its ability to perform
under the Agreement.
In connection with the preparation of our opinion, we were not authorized to
solicit, and did not solicit, third-parties regarding alternatives to the
Transaction. We have not considered the relative merits of the Transaction as
compared to any other business plan or opportunity that might be available to
Unifab or the effect of any other arrangement in which Unifab might engage,
although we are aware of discussions that Unifab has had over the last year with
other potential transaction partners. We have assumed that the Transaction will
be consummated on substantially the same terms set forth herein. For purposes of
our opinion, we have assumed that no shareholders of Unifab exercise their
Subscription Options. Our opinion is necessarily based upon economic, market,
monetary, regulatory and other conditions as they exist and can be evaluated as
of the date
Board of Directors July 23, 2002
UNIFAB INTERNATIONAL, INC. Page 3
hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. Further, we express no opinion as to the prices or trading ranges
at which Unifab common stock will trade at any time.
This letter does not constitute a recommendation to any shareholder as to
whether such holder should exercise his or her Subscription Option, and should
not be relied upon by any shareholder as such.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purposes without our
prior written consent.
Based upon and subject to the foregoing and based upon such other matters as we
considered relevant, it is our opinion as of the date hereof that, from a
financial point of view, the Transaction is fair to the Holders of the Unifab
Common Stock.
Very truly yours,
CHAFFE & ASSOCIATES, INC.
/s/ Chaffe & Associates, Inc.
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