AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 2001
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
GREAT LAKES DREDGE & DOCK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1600 13-3634726
(State or other jurisdiction (primary standard industrial (I.R.S. Employer
(of incorporation or classification code number) Identification No.)
organization)
See Table Of Additional Registrants Below
2122 YORK ROAD
OAK BROOK, ILLINOIS 60523
(630) 574-3000
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
MR. DOUGLAS B. MACKIE
PRESIDENT & CHIEF EXECUTIVE OFFICER
GREAT LAKES DREDGE & DOCK CORPORATION
2122 YORK ROAD
OAK BROOK, ILLINOIS 60523
(630) 574-3000
(Name, address, including zip code, and telephone number, including area code,
of agent or service)
--------------------------
WITH COPIES TO:
JOHN D. LAROCCA, ESQ.
Dechert
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103
(215) 994-4000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
Series D 11 1/4% Senior Subordinated Notes due
2008............................................ $155,000,000 100% $155,000,000 $38,750
Guarantee of Series D 11 1/4% Senior Subordinated
Notes due 2008 by each of the Registrants other
than Great Lakes Dredge & Dock Corporation (see
table below).................................... $155,000,000 -- -- None(2)
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee.
(2) Pursuant to Rule 457(n), no separate fee is payable for the guarantees.
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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- --------------------------------------------------------------------------------
TABLE OF ADDITIONAL REGISTRANTS
STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER; JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
ADDRESS, INCLUDING ZIP CODE; AND TELEPHONE NUMBER, INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION
INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES ORGANIZATION NUMBER NUMBER
- ----------------------------------------------------- ------------------- ------------------- ---------------
Great Lakes Dredge & Dock Company................. New Jersey 1600 36-1163930
2122 York Road
Oak Brook, IL 60523
(630) 574-3000
Great Lakes Caribbean Dredging, Inc............... Delaware 1600 36-4347352
2122 York Road
Oak Brook, IL 60523
(630) 574-3000
Dawson Marine Services Company.................... Delaware 1600 36-3503893
2122 York Road
Oak Brook, IL 60523
(630) 574-3000
North American Site Developers, Inc............... Massachusetts 1795 04-2598486
2122 York Road
Oak Brook, IL 60523 (630) 574-3000
Fifty-Three Dredging Corporation.................. New Jersey 1600 36-3177787
2122 York Road
Oak Brook, IL 60523
(630) 574-3000
[Logo of Great Lakes Dredge And Dock Corporation]
OFFER TO EXCHANGE
ALL OF OUR OUTSTANDING
REGISTERED 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
AND
UNREGISTERED 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES C
FOR
REGISTERED 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES D
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 2001 UNLESS EXTENDED
------------------------
We hereby offer, on the terms and conditions described in this prospectus
and in the accompanying letter of transmittal, to exchange all of our
outstanding registered 11 1/4% Senior Subordinated Notes due 2008, Series B and
all of our outstanding unregistered 11 1/4% Senior Subordinated Notes due 2008,
Series C for $155.0 million in aggregate principal amount of our registered
11 1/4% Senior Subordinated Notes Due 2008, Series D. The Series B notes were
issued in a publicly registered exchange on February 5, 1999 and, as of the date
of this prospectus, an aggregate principal amount of $115.0 million is
outstanding. The Series C notes were issued in a private transaction on
April 24, 2001 and, as of the date of this prospectus, an aggregate principal
amount of $40.0 million is outstanding. If all Series B and Series C notes are
exchanged for Series D notes in this exchange, a single series of registered
notes will be outstanding.
We do not intend to list the exchange notes on any securities exchange and
no active public market for the exchange notes is therefore anticipated.
INFORMATION ABOUT THE EXCHANGE NOTES
- Maturity: The exchange notes will mature on August 15, 2008.
- Interest: We will pay interest on the exchange notes semi-annually on
February 15 and August 15 of each year beginning August 15, 2001.
- Optional Redemption: On or after August 15, 2003, we may redeem the
exchange notes at the redemption prices listed in "Description of Exchange
Notes--Optional Redemption." Prior to August 15, 2001, we may redeem up to
35% of the exchange notes with the proceeds of certain offerings of our
common equity at the price specified in "Description of Exchange
Notes--Optional Redemption."
- Mandatory Redemption: If we experience specific kinds of changes in
control, we must offer to repurchase the exchange notes at the prices
listed in "Description of Exchange Notes--Repurchase at the Option of
Holders--Change of Control--Asset Sales."
- Subsidiary Guarantees: The exchange notes will be jointly and severally
guaranteed on a senior subordinated basis by NASDI, our 80% owned
subsidiary, all of our existing wholly-owned domestic subsidiaries and all
of our future domestic restricted subsidiaries.
- Subordination: The exchange notes will be our general unsecured
obligation, will rank subordinate in right of payment to all of our senior
debt and will rank senior or equal in right of payment to any of our
future subordinated indebtedness. The subsidiary guaranties will rank
subordinate in right of payment to all senior debt of each subsidiary
guarantor, including each subsidiary guarantor's guarantee of indebtedness
under our senior credit facility.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR EXISTING NOTES.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these notes or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2001
TABLE OF CONTENTS
PAGE
--------
SUMMARY..................................................... 1
RISK FACTORS................................................ 15
THE ACQUISITION AND THE FINANCING........................... 27
USE OF PROCEEDS............................................. 29
CAPITALIZATION.............................................. 30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................ 31
SELECTED FINANCIAL DATA..................................... 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 40
THE EXCHANGE OFFER.......................................... 54
BUSINESS.................................................... 63
MANAGEMENT.................................................. 76
OWNERSHIP OF CAPITAL STOCK.................................. 79
DESCRIPTION OF CAPITAL STOCK................................ 80
DESCRIPTION OF THE NEW CREDIT FACILITY...................... 82
DESCRIPTION OF NEW BONDING AGREEMENT........................ 83
DESCRIPTION OF EXCHANGE NOTES............................... 86
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................... 121
PLAN OF DISTRIBUTION........................................ 123
LEGAL MATTERS............................................... 123
EXPERTS..................................................... 123
AVAILABLE INFORMATION....................................... 124
FORWARD-LOOKING STATEMENTS.................................. 124
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
Until , 2001 (90 days after the date of this prospectus), all
dealers effecting transactions in the notes, whether or not participating in
this distribution, may be required to deliver a prospectus. This is in addition
to the obligation of dealers to deliver a prospectus when acting as underwriters
with respect to their unsold allotments or subscriptions.
Based on certain interpretive letters issued by the staff of the SEC to
third parties in unrelated transactions, we are of the view that holders of the
existing notes (other than any holder who is an "affiliate" of our company or
any guarantor within the meaning of Rule 405 under the Securities Act) who
exchange their existing notes for exchange notes pursuant to the exchange offer
generally may offer such exchange notes for resale, resell such exchange notes
and otherwise transfer such exchange notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided:
- the exchange notes are acquired in the ordinary course of the holders'
business; and
- the holders have no arrangement with any person to participate in a
distribution of such exchange notes.
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivery of a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, at it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
exchange notes received in exchange for existing notes where such existing notes
were acquired by such broker-dealer as a result of market-making activities
i
or other trading activities. We have agreed that, for a period of 180 days after
the expiration date of this exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
The exchange offer is not conditioned upon any minimum principal amount of
existing notes being tendered for exchange pursuant to the exchange offer. We
will pay all the expenses incident to the exchange offer.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION.
IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD
NOT RELY ON IT. WE ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED, WHERE THE PERSON MAKING
THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY BE
OFFERED THE SECURITIES. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS
PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
ii
SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE ACCOMPANYING NOTES) APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES:
- "WE", "US" AND "THE COMPANY" REFER TO GREAT LAKES DREDGE & DOCK
CORPORATION AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AFTER THE
ACQUISITION OF NORTH AMERICAN SITE DEVELOPERS, INC. ("NASDI") DESCRIBED
BELOW;
- "GREAT LAKES" REFERS TO GREAT LAKES DREDGE & DOCK CORPORATION AND ITS
SUBSIDIARIES ON A CONSOLIDATED BASIS PRIOR TO THE THE ACQUISITION OF
NASDI;
- ON APRIL 24, 2001, GREAT LAKES PURCHASED 80% OF NASDI (THE
"ACQUISITION");
- "BID MARKET SHARE" INCLUDES THE VALUE OF DREDGING CONTRACTS BID UPON
AND WON BY US DIVIDED BY THE VALUE OF ALL DREDGING CONTRACTS UPON WHICH
WE BID, INCLUDING THOSE WE DID NOT WIN VALUED AT THE PRICE AT WHICH THE
CONTRACTS WERE AWARDED. AS SUCH, BID MARKET SHARE DATA DOES NOT REFLECT
MARKET SHARE DATA FOR ALL DREDGING ACTIVITIES; AND
- PRO FORMA DATA FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 GIVES PRO
FORMA EFFECT TO THE ACQUISITION AND THE APRIL 2001 SERIES C NOTE
OFFERING.
THE COMPANY
We are the largest provider of dredging services in the United States.
Dredging generally involves the enhancement or preservation of navigability of
waterways or the protection of shorelines through the removal or replenishment
of soil, sand or rock. The U.S. dredging market consists of three primary types
of dredging work: Capital, Maintenance and Beach Nourishment, in which
activities we achieved a combined U.S. bid market share of 37% in 2000. In
addition, we are the only U.S. dredging contractor with significant
international operations, which represented approximately 21% of our dredging
contract revenues in 2000. Our fleet of over 220 vessels, including 28 dredges,
31 material transportation barges, 3 drillboats, and numerous other specialized
support vessels, is the largest and most diverse fleet in the U.S. We believe
that our fleet would have a replacement cost in excess of $750 million.
On April 24, 2001 we acquired 80% of NASDI. According to the ENGINEERING
NEWS RECORD, NASDI is one of the three largest providers of commercial and
industrial demolition, or CID, services in the United States, based on 1999
revenues. We believe that the Acquisition will provide us with the following
benefits:
- STRENGTHENS AND DIVERSIFIES OUR BUSINESS. The Acquisition enables us to
increase our revenues and cash flow by utilizing our core competencies in
a related business segment and also diversifies our customer base. Similar
to our dredging activities, NASDI's CID activities involve the removal,
transportation and disposal of materials using specialized equipment,
employing a unionized workforce and requiring special operating permits,
licenses and skills. Many of the larger and more complex demolition
projects that make up a majority of NASDI's revenue require sophisticated
estimating methods and systems that are also required in our estimation of
dredging projects. The Acquisition also provides us with exposure to the
attractive market dynamics of the CID business. NASDI's customers are
generally non-government entities for whom CID is a critical function.
NASDI is also a leader in the developing market for the demolition of
aging industrial infrastructure, particularly power generation plants, to
allow for the construction of new and more efficient replacements on the
same sites.
- POSITIONS NASDI FOR INCREASED GROWTH. By integrating and supplementing
certain of NASDI's administrative functions (such as contract cost and
performance tracking, contract administration, and risk management), we
can better enable the management of NASDI to focus
1
on exploiting new business opportunities, which will further contribute to
our combined revenues and earnings.
For the year ended December 31, 2000, after giving pro forma effect to the
Acquisition, we generated revenues of $411.7 million, EBITDA (as defined) of
$71.5 million and net income of $13.9 million. In addition, as of December 31,
2000, we had a dredging contract backlog in excess of $198.0 million and a CID
contract backlog in excess of $23.3 million.
DREDGING ACTIVITIES
Over our 110-year life, we have grown to be the leader in each of our
primary dredging activities in the U.S., including:
- CAPITAL--U.S. AND FOREIGN (approximately 57% of pro forma 2000
revenues). Capital dredging projects are primarily port expansion
projects, which involve the deepening of channels to allow access by
larger, deeper draft ships and the providing of land fill for building
additional port facilities, thereby enhancing port profitability and
competitiveness. The U.S. capital market includes "Deep Port" projects
authorized under the 1986 Water Resource Development Act, or WRDA,
which initially authorized the deepening of 39 ports. Subsequent WRDA
bills, most recently in December 2000, have authorized additional port
deepening projects and expanded previously authorized projects. We
achieved a 60% cumulative bid market share of Deep Port projects over
the past five years. Our bid market share of total U.S. capital
projects was 35% in 2000.
- MAINTENANCE (approximately 18% of pro forma 2000 revenues). Maintenance
dredging consists of the redredging of previously deepened waterways
and harbors to remove silt, sand and other accumulated sediments. Due
to natural sedimentation, active channels generally require maintenance
dredging every one to three years, thus creating a continuous source of
dredging work that is typically non-deferrable if optimal navigability
is to be maintained. Our bid market share of U.S. maintenance projects
was 27% in 2000.
- BEACH NOURISHMENT (approximately 8% of pro forma 2000 revenues). Beach
nourishment dredging projects generally involve moving sand from the
ocean floor to shoreline locations when erosion has progressed to a
stage that threatens substantial shoreline assets. Our bid market share
of U.S. beach nourishment projects was 53% in 2000.
We believe that we benefit from a number of favorable trends in the U.S.
dredging market:
- DEEP PORT CAPITAL PROJECTS. The average controlling depth of the ten
largest U.S. ports (as measured by annual container volume) is 40.4
feet, compared to 52.7 feet for the ten largest non-U.S. ports. Without
significant deepening efforts, most major U.S. ports risk being unable
to efficiently accommodate larger cargo vessels, which renders them
less competitive. In 1997, the United States Army Corps of Engineers,
or the Corps, which has the primary responsibility for maintaining and
improving the nation's waterways, ports and shorelines, announced new
Deep Port projects and the expansion of existing projects with an
estimated aggregate revenue value in excess of $2.0 billion to be
completed through 2005.
- INCREASING NEED FOR BEACH NOURISHMENT. Beach erosion is a continuous
problem and there is a growing awareness among state and local
governments as to the importance of beachfront assets to the
multi-billion dollar tourist industry. To date, a significant amount of
funding has been allocated by local governments to restore and preserve
eroding beachfront.
- ADDITIONAL SIGNIFICANT LONG TERM OPPORTUNITIES. There are significant
capital dredging opportunities related to projects to contain the
erosion of wetlands and coastal marshes (particularly in Louisiana) and
to provide land reclamation for the San Francisco airport expansion.
These long term projects have the potential to add substantial revenue
to the dredging market over the next several years.
2
COMMERCIAL AND INDUSTRIAL DEMOLITION ACTIVITIES
CID activities conducted by NASDI accounted for approximately 18% of our pro
forma 2000 revenues. NASDI offers a comprehensive array of specialized services,
including: interior and exterior demolition of commercial and industrial
buildings; salvage and recycling of related materials; and removal of hazardous
substances and materials. NASDI's specialized fleet of rented and owned
demolition equipment includes excavators equipped with shears, pulverizers,
processors, grapples and hydraulic hammers. Since NASDI can satisfy a
significant amount of its equipment needs through rental and utilizes hourly
workers on a project basis, NASDI has a highly variable cost structure, which
provides the flexibility to adjust costs to the level of project activity. From
1998 to 2000, NASDI increased its contract revenue and Adjusted EBITDA (as
defined) at compound annual growths rates of 54.8% and 115.9%, respectively. For
the fiscal year ended December 31, 2000, NASDI generated contract revenue of
$72.6 million and Adjusted EBITDA (as defined) of $23.3 million.
NASDI's operations have historically been concentrated in the New England
region where NASDI has a significant share of the Massachusetts CID market. We
believe that NASDI is one of the few CID providers in its region of operation
with the required licenses, operating expertise, equipment fleet and access to
bonding to execute larger, highly profitable industrial projects.
COMPETITIVE STRENGTHS
We possess a number of competitive strengths that have allowed us to develop
and maintain our leading position within the dredging industry, including the
following:
- FLEXIBLE PORTFOLIO OF DREDGING ASSETS. Our dredging fleet is the largest
in the United States and one of the largest in the world. Our U.S. fleet
consists of over 200 pieces of equipment, including the largest number of
hopper dredges, most of the large hydraulic dredges, the only two large
electric dredges, and the only drillboat capable of operating in offshore
conditions in U.S. waters. The size, versatility and technical
capabilities of our fleet improve our competitiveness as they generally
permit us to select the most efficient equipment for a particular job. To
maintain the value and effectiveness of our fleet, we emphasize proactive
maintenance that results in less downtime, increased profitability,
enhanced vessel life and relatively low capital expenditure requirements.
To this end, in 2000, we incurred $25.9 million of maintenance expense
(which is included in costs of contract revenues) in addition to capital
expenditures of $14.1 million.
- FAVORABLE COMPETITIVE DYNAMIC. We are the largest U.S. provider of
dredging services and have maintained the largest cumulative bid market
share in the industry since 1991. In 2000, we had a 37% bid market share,
which was substantially greater than our nearest competitor's share of
those contracts. In addition, we believe that we benefit from:
- FAVORABLE COMPETITIVE ENVIRONMENT. The requirements of the Dredging Act
of 1906 and the Jones Act of 1920 effectively prohibit foreign dredges
and foreign-owned dredging companies from competing in the U.S. In
addition, we believe that we are one of only four dredging providers
that can obtain performance bonds in an amount greater than
$50 million, which we believe provides us with a competitive advantage
in bidding for larger projects due to the job bonding requirements
imposed by many state and federal agencies. Moreover, there is a long
lead time and a high capital cost associated with the construction of a
new dredge, which we estimate to be two years and between
$18.0 million and $50.0 million, respectively.
- STRONG REPUTATION AND UNEQUALLED EXPERTISE. We have never failed to
complete a project over our 110-year operating history. Our long
history as a leader in the industry has enabled us to develop a
proprietary database that contains detailed bidding and technical
information on most domestic dredging projects since 1970, which our
management believes allows us, among other things, to be more accurate
than our competitors in predicting contract costs prior to bidding.
3
- SPECIALIZED CAPABILITY IN CAPITAL PROJECTS. We believe that we are the
leader in capital dredging projects which generally require specialized
engineering expertise and specific combinations of equipment and
experience in performing complex projects.
- PROVEN EXPERIENCED MANAGEMENT TEAM. Our senior managers have an average of
20 years of experience in the dredging industry. We believe that our
experienced management team provides us with a significant advantage over
our competitors, many of whom are family owned and managed. Our management
group owns approximately 14% of our issued and outstanding common stock.
BUSINESS STRATEGY
Our strategy is to continue to grow contract revenues and cash flow and
strengthen our competitive position worldwide. The principal elements of our
strategy include:
- CONTINUE TO GROW IN DOMESTIC DREDGING MARKETS. We expect to strengthen our
domestic leadership position by leveraging (i) the size, diversity and
technical capabilities of our fleet, (ii) our industry-leading operating
experience, (iii) our engineering expertise, and (iv) our efficient and
safe project management practices.
- CAPITALIZE ON OPPORTUNITIES CREATED BY STRATEGIC ASSET ACQUISITIONS.
During the last several years, we have successfully acquired several key
pieces of equipment which will further enhance our operating capabilities
by providing additional tools for capital projects and strengthening our
ability to perform maintenance and beach nourishment projects. These
acquisitions include:
- certain hydraulic dredging assets, including the dredge "Texas", which
we acquired in 1998. In 2000, we increased the cutter power of the
dredge Texas, making it the most powerful cutter dredge in the U.S.,
capable of handling the type of rock work expected in certain of the
upcoming port deepening projects;
- the dredge "New York", a newly-built backhoe dredge, which we took
delivery of under a long-term lease in July 1999. The "New York" has
performed successfully on the Kill Van Kull channel deepening in New
York and will be working on the Wilmington, North Carolina and San
Juan, Puerto Rico channel deepening projects in 2001;
- the drillboat "Apache" which we constructed in 2000. The "Apache" has
increased drilling efficiency and capacity, is capable of working in
offshore conditions and is the only drillboat of its type in use in
U.S. waters; and
- the dredge "Liberty Island", a new 5,000 cubic meter hopper dredge, to
accommodate anticipated growth in domestic hopper dredging attributable
to the reduction of the Corps' hopper fleet, additional Deep Port work
and related maintenance dredging, potential increased beach nourishment
work, and the aging of the industry's hopper fleet. The new hopper
dredge is expected to be delivered by the end of 2001 under a long-term
lease.
- GROW ESTABLISHED FOREIGN DREDGING MARKET BASE. Since the early 1990s, a
consolidation among certain foreign competitors, together with an increase
in foreign governments' port infrastructure investments, have resulted in
new overseas dredging opportunities for us. In 2000, we recorded
approximately $71.8 million in revenue from non-U.S. dredging projects. We
intend to continue to selectively pursue international opportunities that
offer us the potential to increase the utilization of our asset base, to
leverage our project management capabilities and to increase our
international revenues.
- EXPLOIT GROWTH OPPORTUNITIES IN CID MARKET. We believe that our experience
in bidding for and completing large projects in multiple markets and our
significant infrastructure will be particularly valuable in helping NASDI
to execute large CID projects and increase its market share. In
particular, our national presence, purchasing power and administrative
capabilities will
4
facilitate NASDI's ability to obtain licenses and pre-qualifications
necessary to operate in new geographic markets. Thus, we believe that
under our ownership NASDI will be well positioned to selectively enter
attractive new geographic markets, generally with a contracted project
from an existing customer.
RECENT OPERATING RESULTS
Great Lakes' revenues and operating income for the quarter ended March 31,
2001 were $72.6 million and $8.6 million compared to $88.9 million and
$10.6 million, respectively, for the quarter ended March 31, 2000. Depreciation
for the quarter ended March 31, 2001 was $3.2 million compared to $3.1 million
for the quarter ended March 31, 2000, resulting in EBITDA (as defined) for the
respective periods of $11.8 million and $13.7 million.
NASDI is in the process of finalizing operating results for the quarter
ended March 31, 2001. Based on NASDI's books and records, NASDI expects to have
first quarter revenues of $8.7 million, operating income of $2.6 million, and
EBITDA (as defined) of $2.9 million, which amounts do not reflect accruals for
stockholder bonuses relating to first quarter earnings under pre-Acquisition
employment agreements. Such quarterly results are not necessarily indicative of
Great Lakes' or NASDI's annual results.
THE TRANSACTION
On April 24, 2001, we purchased 80% of the capital stock of NASDI. We
purchased a portion of the holdings of NASDI management stockholders and all of
the holdings of the other stockholders of NASDI. The purchase consideration for
the Acquisition included (1) $35.0 million in cash, subject to certain downward
adjustments, payable to the stockholders of NASDI and (2) two notes totaling
$3.0 million from NASDI payable to the NASDI management stockholders, which
notes are guaranteed by Great Lakes, but not the subsidiaries of Great Lakes. We
funded the cash portion of the acquisition price and the related fees and
expenses, as well as repayment of a portion of our outstanding borrowings under
our revolving credit facility, with the proceeds of our April 2001 Series C note
offering. In that offering, we issued $40.0 million in aggregate principal
amount of our unregistered Series C notes and received proceeds (net of
discounts and fees) from the issuance of these notes of approximately
$38.7 million. NASDI is a subsidiary guarantor of these Series C notes and
certain of our other existing indebtedness. We effected the acquisition of NASDI
through a newly-formed acquisition subsidiary which was merged into NASDI
following consummation of the Acquisition. We retained an 80% interest in the
surviving entity and the NASDI management stockholders retained a 20% non-voting
interest. The NASDI management stockholders will continue to operate NASDI under
the terms of multi-year employment agreements and can earn substantial incentive
bonuses if certain earnings levels are achieved. See "The Acquisition and the
Financing".
The following table sets forth the sources and uses of funds for the
April 2001 Series C note offering and the Acquisition:
AMOUNT
-------------
(IN MILLIONS)
SOURCES OF FUNDS:
Series C notes............................................ $39.7
NASDI Seller Notes........................................ 3.0
-----
TOTAL SOURCES........................................... $42.7
=====
USES OF FUNDS:
Purchase of 80% of NASDI stock............................ $38.0
Repay a portion of outstanding revolving loan balance..... 1.6
Fees and expenses......................................... 3.1
-----
TOTAL USES.............................................. $42.7
=====
5
SPONSOR
As a result of a recapitalization in July 1998, Vectura Holding Company LLC
acquired over 80% of our common stock. The membership interests of Vectura
Holding Company LLC are owned by 399 Venture Partners Inc., an affiliate of
Citicorp Venture Capital Ltd., and certain other investors.
* * *
The principal executive offices of the Company are located at 2122 York
Road, Oak Brook, Illinois 60523 and the telephone number is (630) 574-3000.
THE EXCHANGE OFFER
Securities To Be Exchanged................ On August 19, 1998 we issued $115.0 million in aggregate
principal amount of unregistered 11 1/4% Senior
Subordinated Notes due 2008, or the Series A notes, to
an initial purchaser in a transaction exempt from the
registration requirements of the Securities Act
of 1933. Subsequently in February 1999, we conducted an
exchange offer in which we offered to exchange the
Series A notes for Series B notes, which were
substantially identical to the Series A notes in all
respects except that the Series B notes offered in the
February 5, 1999 exchange offer were registered with
Securities and Exchange Commission and do not contain
any legends restricting their transfer. The Series B
notes are currently governed by the terms of an
indenture dated as of August 19, 1998, as supplemented.
On April 24, 2001, we issued $40.0 million in aggregate
principal amount of unregistered Series C notes to an
initial purchaser in a transaction exempt from the
registration requirements of the Securities Act
of 1933. The Series C notes are currently governed by
the terms of the August 19, 1998 indenture.
We are now conducting this exchange offer so that the
holders of the registered Series B notes and the holders
of the unregistered Series C notes can exchange their
existing notes for exchange notes, which are
substantially identical to the existing notes in all
respects except as noted below. If all holders of
Series B and Series C notes elect to tender their
existing notes, then there will be $155.0 million in
aggregate principal amount of exchange notes
outstanding. The existing notes and the exchange notes
are governed by the terms of the same indenture dated as
of August 19, 1998.
The Exchange Offer........................ We are offering to exchange $1,000 principal amount of
exchange notes for each $1,000 principal amount of
existing notes. As of the date hereof, $155.0 million
aggregate principal amount of existing notes are
outstanding. The terms of the exchange notes are the
same in all material respects as the terms of the
existing notes except that interest on the exchange
notes shall accrue from the most recent date to which
interest has been paid on the existing notes surrendered
6
in exchange therefor, or if no interest has been paid on
the existing notes, from the original date of issuance
of the existing notes, and, with respect to the
Series C notes, the exchange notes will be registered
under the Securities Act of 1933, as amended, and will
not contain any legends restricting their transfer.
Expiration Date; Withdrawal Of Tender..... The exchange offer will expire at 5:00 p.m., New York
City time, on , 2001 or such later date and
time to which we extend the exchange offer. The tender
of existing notes pursuant to the exchange offer may be
withdrawn at any time prior to such date. Any existing
notes not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or
termination of the exchange offer.
Interest On The Exchange Notes And The
Existing Notes.......................... Interest on the exchange notes will accrue from the date
of issuance of the existing notes for which the exchange
notes are exchanged or from the date of the last
periodic payment of interest on the existing notes,
whichever is later. Interest on the exchange notes will
be at the same rate and on the same terms as interest on
the existing notes. No additional interest will be paid
on the existing notes tendered and accepted for
exchange.
Certain Conditions To The Exchange
Offer................................... Our obligation to accept for exchange, or to issue
exchange notes in exchange for any existing notes is
subject to certain customary conditions relating to
compliance with any applicable law or any applicable
interpretation by the staff of the Securities and
Exchange Commission, the receipt of any applicable
governmental approvals and the absence of any actions or
proceedings of any governmental agency or court which
could materially impair our ability to consummate the
exchange offer. We currently expect that each of the
conditions will be satisfied and that no waivers will be
necessary. See "The Exchange Offer--Certain Conditions
to the Exchange Offer."
Procedures For Tendering Existing Notes... Each holder of existing notes wishing to accept the
exchange offer must complete, sign and date the letter
of transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such letter of transmittal, or
such facsimile, together with such existing notes and
any other required documentation, to the exchange agent
at the address set forth herein. Persons holding the
existing notes through the Depository Trust
Company ("DTC") and wishing to accept the exchange offer
must do so pursuant to the DTC's Automated Tender Offer
7
Program, by which each tendering participant will agree
to be bound by the letter of transmittal.
By executing or agreeing to be bound by the letter of
transmittal, each holder will represent to us that,
among other things:
- the exchange notes acquired pursuant to this
exchange offer are being obtained in the ordinary
course of business of the person receiving such
exchange notes, whether or not such person is the
registered holder of the tendered Series B notes
or Series C notes;
- the holder is not engaging in and does not intend
to engage in a distribution of such exchange notes;
- the holder does not have an arrangement or
understanding with any person to participate in
the distribution of such exchange notes; and
- the holder is not an "affiliate," as defined under
Rule 405 promulgated under the Securities Act, of
the Company.
We will accept for exchange any and all existing notes
which are properly tendered (and not withdrawn) in this
exchange offer prior to 5:00 p.m., New York City time,
on , 2001. The exchange notes issued
pursuant to this exchange offer will be delivered
promptly following this expiration date. See "The
Exchange Offer--Terms of the Exchange Offer and
Procedures for Tendering Existing Notes."
Use Of Proceeds........................... We will not receive any proceeds from the exchange of
existing notes pursuant to the exchange offer.
Exchange Agent............................ The Bank of New York is serving as the exchange agent
(the "exchange agent") in connection with the exchange
offer.
Federal Income Tax Consequences........... The exchange of existing notes pursuant to the exchange
offer should not be a taxable event for federal income
tax purposes. See "Certain Federal Income Tax
Considerations."
Effect Of Not Tendering................... Series B notes that are not tendered or that are
tendered but not accepted, following the completion of
this exchange offer, (1) will continue to be subject to
the terms of the indenture dated as of August 19, 1998;
(2) will continue to be registered securities; and
(3) may have their liquidity impaired as a result of
fewer Series B notes outstanding after the exchange
offer is completed. Series C notes that are not tendered
or that are tendered but not accepted will, following
the completion of the exchange offer, continue to be
subject to the existing restrictions upon their
transfer. See "The Exchange Offer--Purpose and Effect'
and "Risk Factors".
8
THE EXCHANGE NOTES
The summary below describes the principal terms of the exchange notes.
Certain of the terms and conditions described below are subject to important
limitations and exceptions. The "Description of Exchange Notes" section of this
prospectus contains a more detailed description of the terms of the exchange
notes.
Issuer.................................... Great Lakes Dredge and Dock Corporation
Securities Offered........................ $155.0 million in aggregate principal amount of 11 1/4%
Senior Subordinated Notes due 2008.
Maturity Date............................. August 15, 2008.
Interest Rate............................. The exchange notes will bear interest at the rate of
11 1/4% per annum, payable semi-annually on February 15
and August 15 of each year, commencing August 15, 2001.
Subsidiary Guarantees..................... The exchange notes will be jointly and severally
guaranteed on a senior subordinated basis by NASDI and
all of our existing wholly owned domestic subsidiaries.
Subordination............................. The exchange notes will be our general unsecured
obligations, will rank subordinate in right of payment
to all senior debt and will rank senior or equal in
right of payment to any of our future subordinated
indebtedness. The subsidiary guarantees will rank
subordinate in right of payment to all senior debt of
each subsidiary guarantor, including each subsidiary
guarantor's guarantee of indebtedness under the senior
credit facility. The exchange notes and the subsidiary
guarantees will be effectively subordinated to all
liabilities, including trade payables, of our
subsidiaries that are not subsidiary guarantors. As of
December 31, 2000, on a pro forma basis after giving
effect to the Acquisition, the exchange notes would have
been subordinated to $38.4 million of senior debt,
exclusive of contingent obligations, and effectively
subordinated to $18.0 million of liabilities of our
subsidiaries that are not subsidiary guarantors. As of
December 31, 2000 after giving effect the Acquisition
and the April 2001 Series C note offering,
approximately $53.8 million would have been available
for additional borrowing under the senior credit
facility. See "Risk Factors--Subordination."
Optional Redemption....................... On or after August 15, 2003, we may redeem the exchange
notes at the redemption prices listed in "Description of
Exchange Notes--Optional Redemption." Prior to
August 15, 2001, we may redeem up to 35% of the
exchange notes originally issued with the proceeds of
certain offerings of our common equity at the price
specified in "Description of Exchange Notes--Optional
Redemption."
Change Of Control......................... If we sell certain assets and fail to use the proceeds
of those sales for specified purposes or if we
experience specific kinds of changes in control, we must
offer to repurchase the exchange notes at the prices
listed in "Description of
9
Exchange Notes--Repurchase at the Option of Holders--
Change of Control."
Certain Covenants Of Indenture............ We will issue the exchange notes under an indenture with
Bank of New York, as trustee. The indenture governing
the notes will, among other things, restrict our ability
to:
- pay dividends or make certain other restricted
payments;
- borrow money;
- incur liens;
- sell certain assets or merge with or into other
companies;
- enter into transactions with affiliates; and
- make certain investments.
For more details, see "Description of Exchange
Notes-Certain Covenants."
Registration Rights Agreement............. We have agreed to exchange the existing notes for the
exchange notes and to use our best efforts to have a
registration statement covering this exchange declared
effective with the Securities and Exchange Commission by
October 19, 2001. We have agreed to use our best efforts
to consummate this exchange within 30 business days from
the date on which the registration statement is declared
effective. We have also agreed to file under certain
circumstances a shelf registration statement to cover
resales of Series C notes and to cause the registration
statement to be declared effective as promptly as
possible by the Securities and Exchange Commission. If
we fail to satisfy these obligations, we have agreed to
pay liquidated damages to holders of the Series C notes
in certain circumstances. See "Description of Exchange
Notes--Registration Rights; Liquidated Damages."
For a discussion of certain risks that should be considered in evaluating an
investment in the exchange notes, see "Risk Factors."
10
SUMMARY CONDENSED FINANCIAL AND OTHER DATA
The following tables set forth summary condensed financial and other data of
Great Lakes and NASDI. The historical financial data of Great Lakes (except for
EBITDA and Adjusted EBITDA) for each of the three years ended December 31, 2000
have been derived from, and should be read in conjunction with, the audited
consolidated financial statements of Great Lakes and the related notes thereto
included elsewhere in this prospectus. The historical financial data of Great
Lakes (except for EBITDA and Adjusted EBITDA) for each of the two years ended
December 31, 1997, have been derived from the audited financial statements of
Great Lakes which are not contained herein. The historical financial data of
NASDI (except for Adjusted EBITDA) for the eleven months ended December 31, 1998
and each of the two fiscal years ended December 31, 2000 were derived from, and
should be read in conjunction with, the audited financial statements of NASDI
and the related notes thereto included elsewhere in this prospectus. The pro
forma financial data have been derived from the Unaudited Pro Forma Condensed
Combined Financial Statements and notes thereto included elsewhere herein. The
pro forma statement of operations data for the period presented was prepared to
give effect to the Acquisition as if it occurred on January 1, 2000, and the pro
forma balance sheet data was prepared to give effect to the Acquisition as if it
had occurred on December 31, 2000, and do not purport to represent what the
Company's operating results or financial position would have been or to project
its operating results or financial position for any future date. See "Unaudited
Pro Forma Condensed Combined Financial Statements," "Selected Financial and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical financial statements and the related
notes thereto (the "Historical Financial Statements") included elsewhere in this
prospectus.
11
SUMMARY CONDENSED FINANCIAL AND OTHER DATA
GREAT LAKES DREDGE & DOCK CORPORATION
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------------------------------------- DECEMBER 31,
1996 1997 1998 1999 2000 2000
-------- -------- -------- -------- -------- ------------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Contract revenues............................. $235.9 $258.3 $289.2 $302.3 $339.1 $411.7
Gross profit.................................. 27.2 29.9 48.6 57.5 57.4 83.7
Operating income.............................. 10.8 11.0 8.3 35.6 35.1 55.4
OTHER DATA:
EBITDA(1)..................................... $ 24.7 $ 24.6 $ 22.2 $ 47.6 $ 47.8 $ 71.5(2)
Adjusted EBITDA(1)............................ 26.2 28.8 41.1 -- -- --
Depreciation and amortization(3).............. 13.9 13.6 13.9 12.0 12.7 16.1
Maintenance expense(4)........................ 14.7 17.3 22.7 27.2 25.9 25.9
Capital expenditures(5)....................... 5.4 11.5 29.1 15.0 14.1 15.1
PRO FORMA DATA:
Cash interest expense(6)............................................................................ $ 22.5
Ratio of pro forma EBITDA to cash interest expense.................................................. 3.2x
Ratio of total debt to pro forma EBITDA(7).......................................................... 2.8x
AS OF
DECEMBER 31, 2000
---------------------
PRO
ACTUAL FORMA
---------- --------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1.1 $ 1.8
Working capital........................................... 11.8 16.9
Total assets.............................................. 248.7 300.9
Total debt(8)............................................. 155.0 197.7
Total stockholders' deficit............................... (32.3) (32.3)
NORTH AMERICAN SITE DEVELOPERS, INC.
YEAR END DECEMBER 31,
------------------------------
1998(9) 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Contract revenues......................................... $30.3 $45.5 $72.6
Gross profit.............................................. 5.8 11.2 26.3
Operating income (loss)................................... (0.4) 2.1 4.5
OTHER DATA:
Adjusted EBITDA(1)........................................ $ 5.0 $10.1 $23.3
Depreciation and amortization............................. 1.3 1.4 1.4
Capital expenditures...................................... 0.9 0.9 1.0
- ------------------------
(1) "EBITDA", as provided for herein, represents earnings from continuing
operations before interest expense, net, income taxes and depreciation and
amortization expense and excludes equity in earnings of joint ventures and
minority interests. EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles in the
United States of
12
America. EBITDA is included in the prospectus as it is a basis upon which we
assess our financial performance, and certain covenants in our borrowing
arrangements are tied to similar measures. "Adjusted EBITDA" excludes the
effects of certain items on our historical EBITDA that are not expected to
recur in our ongoing activities. Adjusted EBITDA is presented to provide
additional information with respect to our ability to meet future debt
service, capital expenditures and working capital requirements, but is not
necessarily a measure of our ability to fund our cash needs. EBITDA and
Adjusted EBITDA should not be considered in isolation or as an alternative
to net income, cash flows from continuing operations, or other consolidated
income or cash flow data prepared in accordance with generally accepted
accounting principles as measures of our profitability or liquidity. EBITDA
and Adjusted EBITDA as defined in this prospectus may differ from similarly
titled measures presented by other companies.
The components of EBITDA and Adjusted EBITDA are set forth below for the
periods indicated.
GREAT LAKES DREDGE & DOCK CORPORATION
YEAR END DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
Operating income......................................... $10.8 $11.0 $ 8.3 $35.6 $35.1
Depreciation and amortization............................ 13.9 13.6 13.9 12.0 12.7
----- ----- ----- ----- -----
EBITDA................................................... 24.7 24.6 22.2 47.6 47.8
Management fees paid to former stockholder(a)............ 0.5 0.5 0.3
Legal and other expenses related to the Chicago flood
litigation(b).......................................... 0.6 1.8
Disposed operations(c)................................... 1.5 1.9 0.9
Other corporate charges(d)............................... (1.1)
Equity incentive plan and other compensation
expenses(e)............................................ 8.2
Recapitalization related expenses(f)..................... 9.5
----- ----- ----- ----- -----
Adjusted EBITDA.......................................... $26.2 $28.8 $41.1 $47.6 $47.8
===== ===== ===== ===== =====
NORTH AMERICAN SITE DEVELOPERS, INC.
YEAR END DECEMBER 31,
------------------------------
1998(9) 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Operating income (loss)..................................... $(0.4) $ 2.1 $ 4.5
Depreciation and amortization............................... 1.3 1.4 1.4
----- ----- -----
EBITDA...................................................... 0.9 3.5 5.9
Bonuses(g).................................................. 4.1 6.6 17.4
----- ----- -----
Adjusted EBITDA............................................. $ 5.0 $10.1 $23.3
===== ===== =====
- ------------------------
(a) MANAGEMENT FEES PAID TO FORMER STOCKHOLDER. During the periods
presented, we paid a management fee to a former st3ockholder. In
1998, we effected a recapitalization of the Company and have not paid
such a fee as of that date.
(b) LEGAL AND OTHER EXPENSES RELATED TO THE CHICAGO FLOOD LITIGATION. In
1992, an underwater utility tunnel located beneath the Chicago Loop
failed adjacent to a construction site completed by us in the fall of
1991. The failure resulted in a flooding of the tunnel and
13
building basements served by the tunnel. Numerous suits were filed
against us for claims of flood damage and losses due to business
interruption. We incurred substantial legal expenses along with other
expenses as a result of the Chicago flood litigation. During 1997,
all remaining claims were settled relating to the Chicago flood
litigation.
(c) DISPOSED OPERATIONS. In 1996, we sold a marine construction business.
The adjustments reflect the elimination of the impact on EBITDA
attributable to the disposal of this business.
(d) OTHER CORPORATE CHARGES. In 1996, we offered a voluntary early
retirement program and incurred a charge of $0.6 million relating
thereto. Additionally, in that year we terminated our defined benefit
pension plan and recognized a net gain of $1.7 million.
(e) EQUITY INCENTIVE PLAN AND OTHER COMPENSATION EXPENSES. In 1998,
options granted in a prior year were exercised. A portion of these
shares was then sold to Vectura in connection with a recapitalization
resulting in $5.2 million in non-cash compensation expense.
Additionally, we approved and paid bonuses of $3.0 million to certain
members of our management.
(f) RECAPITALIZATION RELATED EXPENSES. In 1998, pursuant to the terms of
an agreement for recapitalization, we paid fees and expenses of
$3.6 million and bonuses to certain members of our management of
$5.9 million.
(g) BONUSES. In 1998, 1999 and 2000, NASDI paid discretionary bonuses to
all stockholders, including bonuses to management stockholders in
excess of amounts required under their employment agreements then in
effect. We do not intend to pay such discretionary bonuses.
(2) Pro forma EBITDA for the year ended December 31, 2000 includes Great Lakes'
2000 EBITDA of $47.8 million and NASDI's 2000 pro forma EBITDA of
$23.7 million. NASDI's 2000 pro forma EBITDA of $23.7 million is equal to
NASDI's 2000 Adjusted EBITDA of $23.3 million plus an additional
$0.4 million to reflect the add-back of certain bonus payments that would
not have been paid had the employment agreements following the Acquisition
been in effect.
(3) Effective January 1, 1999, we made changes in the estimated useful lives of
certain dredging equipment to better reflect the remaining period over which
we anticipate utilizing this equipment with normal repairs and maintenance.
Thus, depreciation for 1999 and 2000 is approximately $2.9 million less than
it would have been using the previous lives.
(4) Represents amount expended for maintenance included in costs of contract
revenues.
(5) Capital expenditures in 1998 included $19.3 million for certain dredging
assets acquired from a competitor and construction related to a new backhoe
dredge. We subsequently financed these acquisitions through sale-leaseback
arrangements.
(6) Pro forma cash interest is defined as interest expense exclusive of
amortization of deferred financing fees.
(7) The ratio of total debt to pro forma EBITDA was calculated based on pro
forma debt as of December 31, 2000 of $197.7 million. See "Capitalization."
(8) Total debt includes long-term debt and the current maturities of long-term
debt and excludes contingent obligations.
(9) Amounts presented for 1998 are for the eleven-months ended December 31,
1998.
14
RISK FACTORS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALTHOUGH
WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH
PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM OUR FORWARD LOOKING STATEMENTS
ARE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENT SET FORTH BELOW.
RISKS RELATED TO THE EXCHANGE NOTES
OUR SUBSTANTIAL DEBT COULD IMPAIR OUR FINANCIAL CONDITION AND OUR ABILITY TO
FULFILL OUR DEBT OBLIGATIONS.
We have a significant amount of indebtedness, which was further increased in
connection with the Acquisition. The following chart sets forth certain
significant credit statistics and is presented assuming we had completed the
April 2001 Series C note offering and the Acquisition as of the dates or at the
beginning of the periods specified below.
AT DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
---------------------
PRO FORMA
---------------------
Total debt................................................ $197.7
Stockholders' deficit..................................... $(32.3)
FOR THE YEAR ENDED
DECEMBER 31, 2000
------------------
PRO FORMA
------------------
Ratio of earnings to fixed charges (including preferred
stock).................................................... 1.55x
In addition, on a pro forma basis, after giving effect to the April 2001
Series C note offering, the use of proceeds from the April 2001 Series C note
offering and the Acquisition, as of December 31, 2000, we would have had
approximately $53.8 million of unused availability under our senior credit
facility. As a joint venture partner of Amboy Aggregates, we are liable for 50%
of the liabilities of Amboy Aggregates (other than non-recourse liabilities).
Our portion of such liabilities was approximately $4.0 million as of
December 31, 2000, which included approximately $3.1 million of outstanding
indebtedness that we have guaranteed.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Moreover, failure to comply with those covenants
15
could result in an event of default which, if not cured or waived, could
have a material adverse effect on us.
WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR DEBT.
Our future cash flow may be insufficient to meet the payment obligations
under the exchange notes. Our ability to pay or to refinance our indebtedness
will depend upon our future operating performance, which will be affected by
general economic, financial, competitive, legislative, regulatory, business and
other factors beyond our control.
If we are unable to meet our debt service obligations, we could be forced to
restructure or refinance our indebtedness, seek additional equity capital or
sell assets. We may be unable to obtain financing or sell assets on satisfactory
terms, or at all.
In addition, subject to the restrictions and limitations contained in our
credit facility and the indenture governing the exchange notes, we may incur
significant additional indebtedness, which could adversely affect our operating
cash flow and our ability to service indebtedness.
ADDITIONAL BORROWINGS ARE AVAILABLE AND WE AND OUR SUBSIDIARIES WILL BE ABLE
TO INCUR MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur additional indebtedness in the
future. Although the indenture governing the exchange notes contains
restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions; and the indebtedness
incurred in compliance with these such restrictions could be substantial. Also,
these restrictions do not prevent us from incurring obligations that do not
constitute indebtedness. As of December 31, 2000, on a pro forma basis after
giving effect to the Acquisition, the consummation of the April 2001 Series C
note offering and the repayment of a portion of our debt under our existing
revolving credit facility, we had $53.8 million of unused additional borrowing
capacity under our senior credit facility. To the extent new debt is added to
our and our subsidiaries' currently anticipated debt levels, the substantial
risks associated with our indebtedness described above would increase. See
"Capitalization," "Selected Financial Data," "Description of Exchange Notes" and
"Description of Certain Indebtedness."
RESTRICTIVE COVENANTS IN THE SENIOR CREDIT FACILITY, THE INDENTURE GOVERNING
THE EXCHANGE NOTES AND THE BONDING AGREEMENT MAY REDUCE OUR OPERATING
FLEXIBILITY.
The senior credit facility, the indenture governing the exchange notes and
the bonding agreement currently contain various covenants that limit our ability
to engage in certain transactions. Our senior credit facility and bonding
agreement also require us to maintain specified financial ratios and satisfy
other financial conditions. Our ability to meet those financial ratios and
conditions can be affected by events beyond our control, and therefore we may be
unable to meet those ratios and conditions. Our breach of any of these covenants
or our failure to meet any of these ratios or conditions could result in a
default under our senior credit facility, the exchange notes, the bonding
agreement and/or other indebtedness, any of which could cause defaults under
other of our indebtedness. Upon the occurrence of an event of default under our
senior credit facility, the lenders could elect to declare all amounts
outstanding under our senior credit facility to be immediately due and payable
and terminate all commitments to extend further credit. If we were unable to
repay those amounts, the lenders could proceed against the collateral granted to
them to secure that indebtedness, which would constitute an event of default
under the indenture. If the lenders under our senior credit facility accelerate
the repayment of borrowings, we may not have sufficient assets to repay our
senior credit facility and our other indebtedness, including the exchange notes.
Similarly, upon the occurrence of an event of default under the indenture, the
holders of at least 25% in principal amount of the then outstanding exchange
notes could elect to declare all amounts outstanding under the indenture to be
immediately due and payable. In addition, pursuant to the bonding agreement
between us and the subsidiary guarantors, our
16
obligations and the subsidiary guarantors' obligations are secured by a security
interest in certain of our fixed assets. If we or any of the subsidiary
guarantors fail or are unable to complete the work under a bonded contract or
breach the bonding agreement, the bonding company may proceed against the
collateral, in addition to pursuing other remedies.
THE EXCHANGE NOTES ARE NOT SECURED BY OUR ASSETS OR THOSE OF OUR
SUBSIDIARIES, AND THE LENDERS UNDER THE SENIOR CREDIT FACILITIES WILL BE
ENTITLED TO REMEDIES AVAILABLE TO A SECURED LENDER WHICH GIVES THEM PRIORITY
OVER THE NOTE HOLDERS TO COLLECT AMOUNTS DUE ON OUR DEBT.
In addition to being subordinated to all of our existing and future senior
debt, the exchange notes and the subsidiary guaranties will not be secured by
any of our assets. Our obligations under our senior credit facility are secured
by, among other things:
- a first priority lien in vessels and equipment approved by the credit
facility agent and having appraised orderly liquidation value of
approximately $65.0 million;
- a second priority lien in all vessels and equipment (with the exception of
those vessels and equipment operated by our NATCO Limited Partnership
subsidiary) securing our bonding company; and
- a security interest in our accounts receivable.
Our obligations under our bonding agreement are secured by:
- a first priority lien in vessels and equipment having a fair market value
of approximately $61.0 million;
- a second priority lien on vessels and equipment operated by NATCO Limited
Partnership; and
- a security interest in our accounts receivable.
If we become insolvent or are liquidated, or if payment under our senior
credit facility, the obligations under the bonding agreement or under any other
secured senior indebtedness is accelerated, the lenders under our senior credit
facility, the bonding agreement or holders of other secured senior indebtedness
will be entitled to exercise the remedies available to a secured lender under
applicable law (in addition to any remedies that may be available under
documents pertaining to our senior credit facility, the bonding agreement or
other senior debt). Upon any default under our senior credit facility or the
bonding agreement (and even without accelerating the indebtedness under our
senior credit facility), the lenders may be able to prohibit the payment of the
exchange notes and guaranties under the subordination provisions contained in
the indenture governing the exchange notes, or otherwise limit our ability to
use our cash flow to make payments on the exchange notes. See "Description of
Certain Indebtedness" and "Description of Exchange Notes."
YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES IS JUNIOR TO OUR AND
THE SUBSIDIARY GUARANTORS' EXISTING SENIOR INDEBTEDNESS AND POSSIBLY ALL OF OUR
AND THEIR FUTURE BORROWINGS. FURTHERMORE, CLAIMS OF CREDITORS OF OUR
NON-GUARANTOR SUBSIDIARIES WILL GENERALLY HAVE PRIORITY WITH RESPECT TO THE
ASSETS AND EARNINGS OF SUCH SUBSIDIARIES OVER YOUR CLAIMS.
The exchange notes and the subsidiary guaranties will be subordinated to the
prior payment in full of our, and the subsidiary guarantors', as the case may
be, current and future senior indebtedness to the extent set forth in the
indenture. As of December 31, 2000, after giving pro forma effect to the
Acquisition, the consummation of the April 2001 Series C note offering and the
repayment of a portion of our debt under our existing revolving credit facility,
we and our guarantor subsidiaries would have had about $38.4 million of senior
indebtedness (including borrowings under the senior credit facility but
excluding letters of credit, guarantees and outstanding bond obligations), and
approximately $53.8 million would have been available for additional borrowing
under the senior credit facility. Senior debt will also include our letters of
credit, guarantees and bonding obligations in effect from time to
17
time. The indenture permits the incurrence of additional indebtedness, including
senior debt, by us and our restricted subsidiaries in the future. See
"Description of Other Indebtedness." Because of the subordination provisions of
the exchange notes, in the event of the bankruptcy, liquidation or
reorganization of our Company or any subsidiary guarantor, our assets or the
assets of the subsidiary guarantors would be available to pay obligations under
the exchange notes only after all payments had been made on our or the
subsidiary guarantors' senior indebtedness. Sufficient assets may not remain
after all such payments have been made to make any payments on the exchange
notes, including payments on interest when due.
In addition, all payments on the exchange notes and the guaranties will be
prohibited in the event of a payment default on certain of our senior
indebtedness (including borrowings under the senior credit facilities) and, may
be blocked for up to 179 days each year, upon the occurrence of other defaults
under such indebtedness. We conduct a portion of our business through our
subsidiaries. With the exception of NASDI, our non-wholly owned subsidiaries and
our foreign subsidiaries are not guaranteeing the exchange notes or the credit
facility. Claims of creditors of the non-guarantor subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness, and claims of
preferred stockholders (if any) of the non-guarantor subsidiaries will generally
have priority with respect to their assets and earnings over the claims of
creditors of our company, including holders of the exchange notes, even if the
obligations of the subsidiaries do not constitute senior indebtedness, except to
the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. As of December 31, 2000, such
subsidiaries had approximately $18.0 million of liabilities (including trade
payables) and other liabilities outstanding. In addition, after payment to
creditors, the Company's rights against non-guarantor subsidiaries will
effectively rank PARI PASSU with minority interests in the Company's
subsidiaries which are not subsidiary guarantors. As a joint venture partner of
Amboy Aggregates, the Company is liable for 50% of the liabilities of Amboy
Aggregates (other than non-recourse liabilities). Our portion of such
liabilities aggregated approximately $4.0 million as of December 31, 2000. See
"Description of Exchange Notes--General" and "Description of Exchange
Notes--Subordination."
WE MAY BE UNABLE TO PURCHASE THE EXCHANGE NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of "change of control" events specified in the
"Description of Exchange Notes--Repurchase at the Option of Holders--Change of
Control," you may require us to purchase your exchange notes at 101% of their
principal amount, plus accrued and unpaid interest and liquidated damages, if
any. The terms of our senior credit facility and our bonding agreement limit our
ability to purchase your exchange notes in those circumstances. Any of our
future debt agreements may contain similar restrictions and provisions.
Accordingly, we may be unable to satisfy our obligations to purchase your
exchange notes unless we are able to refinance or obtain waivers under our
senior credit facility, our bonding agreement and other indebtedness with
similar restrictions. We may not have the financial resources to purchase your
exchange notes, particularly if a change of control event triggers a similar
repurchase requirement for, or results in the acceleration of, other
indebtedness. Our senior credit facility currently provides that certain change
of control events will constitute a default and could result in the acceleration
of our indebtedness under our senior credit facility. A default under our senior
credit facility would likely cause a cross default under our bonding agreement
which would trigger certain remedies in favor of our bonding company.
18
THE EXCHANGE NOTES AND THE SUBSIDIARY GUARANTIES MAY NOT BE ENFORCEABLE
UNDER FEDERAL AND STATE FRAUDULENT CONVEYANCE LAWS THAT ALLOW COURTS, UNDER
CERTAIN CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE THE RETURN OF PAYMENTS
RECEIVED FROM US OR THE SUBSIDIARY GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a court could void all or a portion of the obligations
under the exchange notes and subsidiary guaranties or subordinate the
obligations under the exchange notes and the subsidiary guaranties to other
existing, and future indebtedness if, among other things, the debtor or
guarantor, at the time it incurred the indebtedness evidenced by the exchange
notes or guaranty:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness; and
- were insolvent or rendered insolvent by reason of such incurrence;
- were engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
The measures of insolvency for purposes of fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a debtor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets, or
- if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature, or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that after giving effect to the indebtedness
incurred in connection with the Acquisition, neither we, nor the subsidiary
guarantors will be insolvent, we will not have unreasonably small capital for
the business in which we are engaged and will not have incurred debts beyond our
ability to pay such debts as they mature. We cannot assure you, however, what
standard a court would apply in making such determinations or that a court would
agree with our conclusions in this regard.
HOLDERS OF ALL OF THE EXISTING NOTES MAY NOT PARTICIPATE IN THE EXCHANGE
OFFER.
We believe that many of the existing notes will be tendered in this exchange
offer; however, we cannot assure you that a significant amount of the existing
notes will be tendered. Failure of a significant amount of the existing notes to
be tendered could affect the liquidity of the market for the exchange notes.
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES.
The existing notes were not listed on any securities exchange. Before the
April 2001 Series C note offering, there had been no market for the Series C
notes. Since the issuance there has been a limited trading market for the
Series C notes and there can be no assurance that such market will provide
adequate liquidity for holders who want to sell their Series C notes.
The exchange notes will not be listed on any securities exchange. The
exchange notes are new securities for which there is currently no market. Prior
to this exchange offer, there was no public market for the exchange notes. We
have been informed by initial purchaser that they intend to make a
19
market in these notes after this exchange offer is completed. However, the
initial purchaser may cease their market-making at any time without notice. In
addition, the liquidity of the trading market in these notes, and the market
price quoted for these notes, may be adversely affected by changes in the
overall market for the high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for these notes. If no trading market develops, you may not be able to
resell your exchange notes at their fair market value or at all.
SERIES C NOTES THAT ARE NOT EXCHANGED FOR EXCHANGE NOTES IN THE EXCHANGE
OFFER WILL REMAIN RESTRICTED SECURITIES AND WILL CONTINUE TO BE SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND LIMITATION OF RIGHTS.
The Series C notes that are not exchanged in this exchange offer will remain
subject to the following restrictions on transfer and limitations on rights:
- the Series C notes may be resold only if registered pursuant to the
Securities Act, if an exemption from registration is available thereunder,
or if neither such registration nor such exemption is required by law;
- the Series C notes will bear a legend restricting transfer in the absence
of registration or an exemption therefrom; and
- a holder of Series C notes who wishes to sell or otherwise dispose of all
or any part of its Series C notes under an exemption from registration
under the Securities Act of 1933, must deliver to us on our request, an
opinion of counsel reasonably satisfactory in form and substance to us,
that such exemption is available.
Consequently, the Series C notes will have less liquidity than the exchange
notes but will bear interest at the same rate as that borne by the exchange
notes.
SERIES B NOTES THAT ARE NOT EXCHANGED MAY EXPERIENCE DECREASED LIQUIDITY
AFTER THE CONSUMMATION OF THE EXCHANGE OFFER.
The Series B notes that are not exchanged will continue to be registered
securities, but the total principal amount of Series B notes may be reduced by
this exchange offer which in turn may reduce the liquidity of the Series B notes
outstanding after the exchange offer.
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE NASDI INTO OUR BUSINESS, WE COULD
INCUR UNANTICIPATED COSTS, OUR OPERATIONS COULD BE DISRUPTED AND OUR ABILITY TO
PAY PRINCIPAL AND INTEREST ON THE EXCHANGE NOTES MAY BE IMPAIRED.
The Acquisition has significantly increased our size and diversified our
scope of operations. Our ability to integrate NASDI with our existing business
will impact the future success of our business and our ability to pay principal
and interest on the exchange notes.
We will only achieve the increased revenues and earnings and other benefits
that we expect to result from the Acquisition if we can successfully integrate
NASDI's administrative, finance, technical and marketing organizations, and
implement appropriate operations, financial and management systems and controls.
The integration of NASDI into our operations will involve a number of risks,
including:
- the possible diversion of our management's attention from other business
concerns;
- the potential inability to successfully pursue some or all of the
anticipated revenue opportunities associated with the Acquisition;
- the possible loss of NASDI's key professional employees;
20
- insufficient management resources to accomplish the integration;
- increased complexity and diversity compared to our operations prior to the
Acquisition; and
- unanticipated problems or legal liabilities.
The occurrence of any of the above events, as well as any other difficulties
which may be encountered in the transition and integration process, could have a
material adverse effect on our business, financial condition and results of
operations.
IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES AND OTHER PERSONNEL, OUR GROWTH
MAY BE HINDERED.
Our success is largely dependent on maintaining our staff of qualified
professionals. The market for qualified professionals is competitive and we may
not be able to continue to be successful in our efforts to attract and retain
such professionals. Our future operations could be harmed if any of our senior
executives or other key personnel ceased working for us.
With respect to NASDI, certain executives including the Chief Executive
Officer, Christopher Berardi, and the General Manager, Joseph Berardi, are key
personnel. Together, Messrs. Berardi own 20% of NASDI and continue in leadership
roles with the support of additional senior leadership and administrative staff
from Great Lakes. On November 6, 2000, Joseph Berardi pleaded guilty to tax
evasion relating to tax years 1994 and 1995. He has made payments of
$1.34 million, which includes payment of all back taxes, penalties and interest.
In connection with the final resolution of the matter, on April 4, 2001, he was
sentenced to 12 months of work release, beginning May 9, 2001. He is currently
working for NASDI on a full time basis and the terms of his sentence allow him
to continue to do so.
Our success depends in part on key customer relationships forged by members
of our senior management. We cannot assure you that we will be able to continue
to maintain these relationships if members of senior management leave the
company.
OUR BUSINESS COULD SUFFER IN THE EVENT OF A WORK STOPPAGE BY OUR UNIONIZED
LABOR FORCE.
A significant portion of our hourly work force is represented by various
unions. Certain of these unions have had strikes from time to time. See
"Business--Employees." Future strikes, employee slowdowns or similar actions by
one or more unions could have a material adverse effect on us.
WE ARE DEPENDENT ON OUR ABILITY TO CONTINUE TO OBTAIN GOVERNMENT DREDGING
CONTRACTS, AND INDIRECTLY, ON THE AMOUNT OF GOVERNMENT FUNDING FOR NEW
GOVERNMENT DREDGING PROJECTS.
Substantially all of our dredging revenues have been, and are expected to
continue to be, attributable to contracts with federal, state and other
government agencies or with companies operating under contracts with such
government agencies. Government contracts are typically subject to termination
at any time, on relatively short notice, at the election of the applicable
government agency involved even if we are performing our contractual
obligations. Cancellation of significant dredging contracts or our failure to
win significant dredging contracts could have a material adverse effect on us.
In addition, our dredging operations depend on project funding by various
government agencies and may be adversely affected by the level and timing of
such funding. Lack of funding has, in the past, substantially delayed scheduled
projects, including projects that have been put up for bid. Recently the Corps
has scheduled in excess of $2.0 billion of dredging projects to be bid on and
completed by 2005. Overall, these projects have been bid and/or executed
according to the published schedules to date; however, there is no assurance
that they will continue to follow the schedules in the future.
Substantially all of our dredging contracts are, and are expected to
continue to be, awarded based on competitive bidding. In the United States,
dredging contracts are awarded to the lowest adequately bonded bidder,
regardless of a bidder's relationship with the project sponsor, work on past
projects, reputation or similar factors. There can be no assurance that our
competitors will not bid more
21
aggressively than us for contracts or that we will continue to achieve bid
market shares at the levels that we have achieved historically.
Some government dredging contracts are awarded through a negotiated
procurement process in which the contractor submits a proposal and cost and
pricing data to the government, and the contractor and the government negotiate
the contract price. Under such contracts, the government has the right, after
award and/or completion of the contract, to audit the contractor's books and
records, including, the proposal and data available to the contractor during
negotiations to ensure compliance with the contract and applicable federal
legislation, rules and regulations. The government may seek a price adjustment
based on the results of such audit.
WE ARE DEPENDENT ON KEY CUSTOMERS AND LARGE CONTRACTS IN OUR CID ACTIVITIES.
We are dependent on key customer relationships and the ability to obtain
large contracts in our CID business. For the year ended December 31, 2000, 40%
of NASDI's revenues related to one large contract with one customer. This
contract was completed in 2000. NASDI management believes that such
relationships will continue and that similar large contracts will be available
for bid in 2001; however, there can be no assurance that NASDI will be able to
maintain such relationships or successfully obtain such large contracts. The
inability to maintain these relationships and/or obtain such replacement
contracts would have a material adverse effect on NASDI's revenues.
WE ARE DEPENDENT ON OUR ABILITY TO OBTAIN BONDING FOR FUTURE PROJECTS.
We, like all dredging service providers, generally are required to post
bonds in connection with our dredging contracts to insure job completion if we
should fail to finish a project. We have entered into a bonding agreement with
Travelers Property Casualty ("Travelers") pursuant to which Travelers acts as
surety, issues bid bonds, performance bonds and payment bonds and obligates
itself upon other contracts of guaranty required by us in the day-to-day
operations of our dredging and marine construction business. However, Travelers
is not obligated under the bonding agreement to issue bonds for us. No bond
issued on our behalf has ever been drawn upon in our 110-year history. However,
our business would be materially and adversely affected if we were unable to
obtain bonding for future projects.
In addition, if we were to default on a contract, the bonding company would
be required either to complete the contract or to reimburse the project sponsor
for the cost of completion. We would be obligated to reimburse the bonding
company for the amount it expended as a result of our default. Pursuant to the
bonding agreement between us and the subsidiary guarantors, our obligations and
the subsidiary guarantors' obligations are secured by a security interest in
certain of our fixed assets. NASDI is also an obligor under our bonding
agreement. In the event we or any of the subsidiary guarantors fail or are
unable to complete the work under a bonded contract or breach the bonding
agreement, the bonding company may proceed against the collateral, cause the
performance of such bonded contract by subletting it in our name or in the name
of our subsidiary guarantors and seek reimbursement from us and our subsidiary
guarantors for costs incurred on the subletting or performance of such bonded
contract. The bonding agreement contains financial and operating covenants that
limit our ability to incur indebtedness, create liens, pay dividends and to take
certain other corporate actions. The total amount of bonds outstanding varies
with the dollar value of contracts in process; however, the face amount of
outstanding bonds typically overstates the associated contingent liability to
the extent of the portion of the related projects which we have completed. We
estimate that as of December 31, 2000, approximately $500 million of bonds were
outstanding. "Business--Bonding and Foreign Projects Guarantees" and
"Description of Other Indebtedness."
THE AMOUNT OF OUR ESTIMATED BACKLOG IS SUBJECT TO CHANGE AND NOT NECESSARILY
INDICATIVE OF FUTURE SALES. OUR PROFITABILITY IS SUBJECT TO INHERENT RISK
BECAUSE OF THE FIXED PRICE NATURE OF MOST OF OUR CONTRACTS.
22
Our dredging contract backlog represents our estimate of the revenues which
will be realized under contracts remaining to be performed based upon estimates
relating to, among other things, the time required to mobilize the necessary
assets at the project site, the amount of material to be dredged and the time
necessary to demobilize the project assets. However, such estimates are
necessarily subject to fluctuations based upon the amount of material which
actually must be dredged, as well as factors affecting the time required to
complete each job. Consequently, backlog is not necessarily indicative of future
revenues. In addition, because a majority of our dredging backlog relates to
government contracts, our order backlog can be canceled at any time without
penalty, except, in some cases, the recovery of our actual committed costs and
profit on work performed up to the date of cancellation.
Our CID contract backlog represents our estimate of the revenues which will
be realized under contracts remaining to be performed based upon estimates of
the resources and time necessary to complete the projects. However, such
estimates are necessarily subject to fluctuations based upon the actual
resources and time required to complete each job. Consequently, backlog is not
necessarily indicative of future revenues.
Further, the estimated size of any contract is not necessarily indicative of
the profitability of that contract. Substantially all of our contracts with our
customers are fixed-price contracts. Under a fixed-price contract, the customer
agrees to pay a specified price for our performance of the entire contract.
Fixed-price contracts carry inherent risks, including risks of losses from
underestimating costs, operational difficulties and other changes that may occur
over the contract period. One of the most significant factors which can affect
the profitability of a dredging project is the weather at the project site.
Inclement or hazardous weather conditions can result in substantial delays in
dredging and additional contract expenses. There can be no assurance that we
will be able to perform our obligations under such fixed-price contracts without
incurring additional expenses. If we were to significantly underestimate the
cost of one or more significant contracts, the resulting losses could have a
material adverse effect on us.
WE ARE DEPENDENT ON SUBCONTRACTORS IN OUR CID BUSINESS.
We are dependent on subcontractors in our CID business. Our business
activities include interior and exterior demolition and asbestos and other
hazardous substance and material removal. We sometimes subcontract hazardous
substance and material removal and other demolition activities to licensed,
insured subcontractors. We could experience a material adverse effect on our CID
business if: (i) we are unable to find qualified subcontractors in the future;
(ii) subcontractors upon which we rely fail to complete jobs in a timely manner;
and/or (iii) subcontractors upon which we rely for the removal of asbestos
and/or other hazardous substances or materials improperly transport, treat,
store or dispose of such substances and materials. In addition, disputes with
subcontractors that have failed to complete jobs have resulted, and in the
future may result, in litigation. There can be no assurances that we will not be
required to pay significant sums in connection with such disputes and there can
be no assurances as to the outcome of these disputes or the effect it will have
on our CID business.
OUR BUSINESS IS SUBJECT TO SIGNIFICANT OPERATING RISKS.
The businesses of dredging and demolition are generally subject to a number
of risks and hazards, including environmental hazards, industrial accidents,
labor disputes, encountering unusual or unexpected geological formations,
cave-ins of below water tunnels, collisions with fixed objects, disruption of
transportation services and flooding. These risks could result in damage to, or
destruction of, dredges, transportation vessels, other buildings, personal
injury, environmental damage, performance delays, monetary losses and possible
legal liability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." For example, in 1992, an underwater
utility tunnel located beneath the Chicago Loop failed adjacent to a
construction site completed by us in the fall of 1991. The failure resulted in a
flooding of the tunnel and building basements serviced by the tunnel. Numerous
suits were filed against us for claims of flood damage and losses due to
business
23
interruption. Although all remaining claims relating to the Chicago flood
litigation were settled in 1997, there can be no assurance that the Company's
operations will not be adversely affected in the future by similar or other
conditions attributable to these or similar risks. Although we maintain
insurance within ranges of coverage consistent with industry practice, we cannot
assure you that such insurance will be available at economically feasible
premiums.
WE ARE SUBJECT TO RISKS RELATED TO OUR INTERNATIONAL OPERATIONS.
Approximately 17% of our dredging revenues over the last three years were
generated by operations conducted abroad. International operations subject us to
risks customarily associated with foreign operations, including:
- currency fluctuations;
- import and export license requirements;
- changes in tariffs and taxes;
- restrictions on repatriating foreign profits back to the United States;
- unfamiliarity with foreign laws and regulations;
- difficulties in staffing and managing international operations; and
- political, cultural and economic uncertainties.
In addition, we have benefited in recent years from the substantial
investment in foreign port infrastructure, particularly in the Pacific Rim.
Because many international dredging contractors have concentrated significant
assets in the Pacific Rim projects, we have enjoyed less competition in areas
such as the Middle East, Africa and South America. However, there can be no
assurances that this favorable competitive dynamic will continue.
OUR DREDGING OPERATIONS MAY FLUCTUATE DUE TO SEASONALITY AND OTHER FACTORS.
Quarterly and yearly dredging results can fluctuate significantly based upon
the number and size of contracts undertaken and the timing of performance of
projects under such contracts. We have historically realized lower contract
revenues and earnings in the first and fourth quarters of each year, due to a
number of factors including variation in weather conditions and government
funding cycles, which affect the timing and execution of projects. We have seen
the trend of this historical seasonality diminish over the past three years,
with the increase in Deep Port work and the impact of environmental windows,
which require that we perform certain work in winter months to protect wildlife
habitats. We have been able to respond to these changing market factors since we
have the flexibility to move our equipment around as weather conditions and
environmental restrictions dictate. However, in the future, seasonality may
become more of a factor if the project mix changes and we are not able to be as
flexible in utilizing our equipment. Substantial fluctuations in our results in
operations may adversely affect our ability to service our debt or satisfy other
liquidity needs in a particular period, which could have a material adverse
effect on us.
IF OUR DEMOLITION BUSINESS IS UNABLE TO COMPETE EFFECTIVELY, OUR DEMOLITION
REVENUES MAY DECLINE AND WE MAY BE UNABLE TO SUSTAIN OUR GROSS PROFIT MARGINS IN
OUR DEMOLITION BUSINESS.
The CID business is highly competitive. NASDI's ability to compete depends
heavily on elements outside its control, such as general economic conditions
affecting the construction industry. NASDI's principal competitors include large
construction companies that perform in-house demolition services, large national
demolition companies, regional demolition companies, and smaller independent
demolition businesses. Some of NASDI's competitors are more geographically
diverse, have greater name recognition than NASDI, have greater financial and
other resources available to them and may be substantially less leveraged than
NASDI. There can be no assurance that NASDI will not encounter
24
increased competition from existing competitors or new market entrants, such as
large construction companies that develop in-house demolition capabilities, that
may be significantly larger and have greater financial resources than NASDI.
Competitive pressures may result in a decline in our demolition revenues and
adversely affect our gross profit margins in our demolition business.
ALTHOUGH WE INSURE AGAINST THE RISK OF CERTAIN LIABILITIES IN OUR BUSINESS,
WE CANNOT BE SURE THAT ACTUAL LIABILITIES WILL NOT EXCEED OUR INSURANCE
COVERAGE.
We insure our own risks up to certain policy limits and subject to certain
deductibles. We make estimates and assumptions that affect the reported amount
of liability and the disclosure of contingent liabilities. As claims develop, it
is possible that the ultimate results of these claims may differ from our
estimates. We cannot assure you that the dollar amount of our liabilities will
not materially exceed the insurance policy limits.
In addition, premiums and deductibles for liability insurance could increase
to the point that such insurance becomes prohibitively expensive, or
unavailable. The failure to obtain adequate insurance could affect our ability
to bid on, or execute, significant projects, or obtain adequate bonding or
financing.
ENVIRONMENTAL MATTERS COULD FORCE US TO INCUR SIGNIFICANT CAPITAL AND
OPERATIONAL COSTS.
Our operations and facilities are subject to various environmental laws and
regulations, relating to dredging operations, the disposal of dredged material,
wetlands, storm and waste water discharges, demolition activities, asbestos
removal, transportation and disposal of certain other hazardous substances and
materials and air emissions. We are also subject to laws designed to protect
certain species and habitats. Compliance with these statutes and regulations can
delay appropriation with respect to, and performance of, particular projects and
increase related expenses.
Our projects may involve demolition, excavation, transportation, disposal
and management of hazardous waste substances and materials. Various laws
strictly regulate the removal, treatment and transportation of hazardous
substances and materials and impose liability for contamination caused by such
substances. While our CID business requires the Company to transport and dispose
of hazardous substances and materials, the Company's risks are limited to the
proper execution of such tasks. The Company's CID customers and the hazardous
waste sites retain the risks associated with the remediation of the materials.
Additionally, the transportation of the hazardous waste material is typically
performed by other entities which accept the risks associated with these tasks.
Services rendered in connection with hazardous substance and material
removal and site development may involve professional judgments by licensed
experts about the nature of soil conditions and other physical conditions,
including the extent to which toxic and hazardous substances and materials are
present, and about the probable effect of procedures to mitigate problems or
otherwise affect those conditions. If the judgments and the recommendations
based upon those judgments are incorrect, we may be liable for resulting damages
that our clients incur.
Based on our experience, we believe that the future cost of compliance with
existing environmental laws and regulations (and liability for known
environmental conditions) will not have a material adverse effect on our
business, financial condition or results of operations. However, we cannot
predict:
- what environmental legislation or regulations will be enacted in the
future;
- how existing or future laws or regulations will be enforced, administered
or interpreted; or
- the amount of future expenditures which may be required to comply with
these environmental or health and safety laws or regulations or to respond
to future cleanup matters or other environmental claims. See
"Business--Environmental Matters."
25
A LIMITED NUMBER OF PEOPLE CONTROL OUR COMPANY, AND MAY EXERCISE THEIR
CONTROL IN A MANNER ADVERSE TO YOUR INTERESTS.
Vectura owns approximately 53.2% of our outstanding voting capital stock and
all of the non-voting capital stock. Pursuant to the Stockholders' Agreement
among us, Vectura, management investors and certain other stockholders of the
Company, Vectura has the right to appoint up to two of our five directors.
Vectura and our directors, our executive officers and other employees, whom
we refer to as our management investors and their affiliates, control all of the
voting power represented by our outstanding shares of capital stock. By virtue
of this stock ownership, they have the ability, if acting in concert, to control
the outcome of all matters presented for approval to our stockholders. Such
concentration of ownership may have the effect of preventing a change in
control. Because a limited number of people control us, transactions could be
difficult or impossible to complete without the support of those persons. It is
possible that these persons will exercise control over us in a manner that is
adverse to your interests. See "Management," "Ownership of Capital Stock" and
"Description of Capital Stock."
26
THE ACQUISITION AND THE FINANCING
On April 24, 2001, we purchased 80% of the capital stock of NASDI. We
purchased a portion of the holdings of NASDI management stockholders and all of
the holdings of the other stockholders of NASDI. The purchase consideration for
the Acquisition included (1) $35.0 million in cash, subject to certain downward
adjustments, payable to the stockholders of NASDI and (2) two notes totaling
$3.0 million from NASDI payable to the NASDI management stockholders, which
notes are guaranteed by Great Lakes, but not the subsidiaries of Great Lakes. We
funded the cash portion of the acquisition price and the related fees and
expenses, as well as repayment of a portion of our outstanding borrowings under
our revolving credit facility, with the proceeds of our April 2001 Series C note
offering. In that offering, we issued $40.0 million in aggregate principal
amount of our unregistered Series C notes and received proceeds (net of
discounts and fees) from the issuance of these notes of approximately
$38.7 million. NASDI is a subsidiary guarantor of these Series C notes and
certain of our other existing indebtedness. We effected the acquisition of NASDI
through a newly-formed acquisition subsidiary which was merged into NASDI
following consummation of the Acquisition. We retained an 80% interest in the
surviving entity and the NASDI management stockholders retained a 20% non-voting
interest. The NASDI management stockholders will continue to operate NASDI under
the terms of multi-year employment agreements and can earn substantial incentive
bonuses if certain earnings levels are achieved. NASDI's management
stockholders, Christopher Berardi and Joseph Berardi, owned approximately 50% of
NASDI prior to the Acquisition.
NASDI SELLER NOTES
Upon closing, NASDI issued two junior subordinated promissory notes to the
NASDI management stockholders, in an aggregate principal amount of
$3.0 million. These notes bear interest at the greater of 6% per annum or the
applicable federal rate, payable annually on each anniversary of the notes. All
outstanding principal and unpaid interest on these notes will be payable in a
single installment for each note on March 31, 2004; however, this payment date
may be deferred to December 31, 2004 if NASDI has failed to meet certain
financial performance levels for each of the three preceding years. NASDI may
prepay the NASDI seller notes at any time without premium or penalty. NASDI's
obligations under the NASDI seller notes is a guaranteed by Great Lakes, but not
the subsidiaries of Great Lakes.
EMPLOYMENT AGREEMENTS
Each of the two NASDI management stockholders entered into a three-year
employment agreement with NASDI, containing non-compete provisions should the
NASDI management stockholders leave NASDI. The employment agreements are
renewable on an annual basis, unless sooner terminated by either party giving
30 days written notice prior to the end of the then current term. The employment
agreements provide for payment of salary of $175,000 per year to each of the
NASDI management stockholders, plus substantial incentive bonuses if certain
earnings levels are achieved as well as benefits as provided from time to time
to other NASDI senior executives.
STOCKHOLDERS AGREEMENT
We and the NASDI management stockholders entered into a stockholders
agreement relating to the ownership of NASDI capital stock. The NASDI
stockholders agreement contains provisions which, with certain exceptions,
restrict the ability of the NASDI management stockholders to transfer their
NASDI common stock, which have no voting rights. In addition, so long as we and
the NASDI management stockholders continue to own, in the aggregate, more than
50% of NASDI, the NASDI management stockholders will have the right, during the
two-month period following April 15, 2006, to require us to acquire their NASDI
common stock at a price equal to the greater of (i) $2.0 million or (ii) a
formula based on NASDI's financial performance. In addition, each NASDI
management stockholder has the right to require us to purchase his NASDI common
stock following a termination
27
of his employment, at a price based upon certain formulas, depending upon the
reason for the termination. Following an initial public offering of our common
stock, if we and the NASDI management stockholders continue to own, in the
aggregate, more than 50% of NASDI, the NASDI management stockholders have the
right to exchange their NASDI common stock for our common stock which is
registered in the initial public offering, at a conversion price based upon
NASDI's financial performance, unless the initial public offering occurs prior
to December 31, 2002, and then based upon an appraised value.
We have the right to acquire the NASDI common stock held by each NASDI
management stockholder in the following circumstances:
- termination of employment of such management stockholder;
- certain types of changes of control;
- our initial public offering, where such management stockholder does not
convert his NASDI common stock into our registered shares; or
- for any reason after December 31, 2008.
The purchase price at which we can exercise these call rights will be a
formula based on NASDI's financial performance, an appraised value, or
$2.0 million, depending upon the timing and the event giving rise to the call.
Under the NASDI stockholders agreement, if we decide to sell NASDI at a
price which would result in the NASDI management stockholders receiving an
aggregate amount of at least $2.0 million, then the NASDI management
stockholders will agree to consent to the sale and tender their NASDI common
stock for such consideration. In addition, the NASDI management stockholders
have the right to participate in certain sales by us of our NASDI common stock.
The stockholders agreement provides that transactions between us and NASDI, with
certain exceptions, will be on fair and equitable terms. The board of directors
of NASDI shall be composed of three persons nominated by Great Lakes, and so
long as the NASDI management stockholders own at least 5% of the issued and
outstanding NASDI capital stock, the NASDI management stockholders shall
designate one board member who shall be acceptable to Great Lakes.
INTERCOMPANY DEBT
In connection with the closing of the Acquisition, NASDI and Great Lakes
entered into an intercompany credit agreement. Upon closing of the Acquisition,
NASDI was deemed to have borrowed from Great Lakes approximately $32.0 million,
which reflects Acquisition-related indebtedness. The intercompany note bears
interest at 10% per annum, with principal and interest payable quarterly and
will mature on March 31, 2006.
TAX ALLOCATION AGREEMENT
We entered into a tax allocation agreement with NASDI. The agreement
requires, in general, that NASDI's federal and certain state tax liabilities be
payable to us and determined as if NASDI filed its own returns.
28
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The gross proceeds
of $39.7 million received by us from the sale of the Series C notes, were used
by us to: (1) finance the cash Acquisition price, (2) repay a portion of our
outstanding borrowings, under our revolving credit facility, and (3) pay related
fees and expenses.
29
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of December 31, 2000, on an actual basis and on a pro
forma basis giving effect to the Acquisition, the consummation of the
April 2001 Series C note offering and the repayment of a portion of our debt
under our existing revolving credit facility as if these events all occurred on
December 31, 2000. You should read this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Other Indebtedness" and our historical financial statements and
accompanying notes incorporated by reference herein.
AS OF DECEMBER 31,
2000
-----------------------
ACTUAL PRO FORMA
-------- ---------
(DOLLARS IN MILLIONS)
Cash and cash equivalents................................... $ 1.1 $ 1.8
------ ------
Debt:
Senior credit facility(l).................................
Revolving credit facility(2)............................ $ 9.0 $ 7.4
Term loan............................................... 31.0 31.0
11 1/4% Senior Subordinated Notes due 2008, net of
discount................................................ 115.0 154.7
NASDI Seller Notes(3)..................................... -- 3.0
Equipment debt............................................ -- 1.6
------ ------
Total debt(4)........................................... 155.0 197.7
Minority interests.......................................... 3.4 5.0
Stockholders' deficit....................................... (32.3) (32.3)
------ ------
Total capitalization.................................... $126.1 $170.4
====== ======
- ------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and "Description of Other
Indebtedness."
(2) As of December 31, 2000, on a pro forma basis giving effect to the
Acquisition, the consummation of the April 2001 Series C note offering and
the repayment of a portion of our debt under our existing revolving credit
facility, approximately $8.8 million face amount of letters of credit were
issued and outstanding and approximately $53.8 million of borrowings was
available to us under our senior credit facility. As of March 31, 2001, the
outstanding balance under our revolver was $18.5 million, and $45.3 million
of borrowings was available to us under such facility. In addition, the
outstanding balance under our term loan was $29.0 million as of March 31,
2001.
(3) Issued by NASDI and guaranteed by Great Lakes, but not the subsidiaries of
Great Lakes.
(4) Total debt includes long-term debt and the current maturities of long-term
debt and excludes contingent obligations.
30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements of
the Company consist of an Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 2000 and Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 2000, and were derived from Great
Lake's and NASDI's historical financial statements included elsewhere herein, as
adjusted to illustrate the effects of the Acquisition, the completion of the
April 2001 Series C note offering, and repayment of a portion of our outstanding
borrowings under our revolving credit facility.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31,
2000 gives effect to the Acquisition, the completion of the April 2001 Series C
note offering, and repayment of a portion of our outstanding borrowings under
our revolving credit facility as if such transactions had occurred on
December 31, 2000. The Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 2000 gives effect to the Acquisition,
the completion of the April 2001 Series C note offering, and the repayment of a
portion of our outstanding borrowings under our revolving credit facility as if
such transactions occurred on January 1, 2000. The unaudited pro forma
adjustments are based upon currently available information and upon certain
assumptions that we believe are reasonable under the circumstances.
Additionally, the unaudited pro forma adjustments assume issuance of the notes
at a discount. The Unaudited Pro Forma Condensed Combined Financial Statements
do not purport to represent what our actual results of operations, net income or
actual financial position would have been if the Acquisition in fact occurred on
such dates or to project our results of operations or financial position for any
future period or date. The Unaudited Pro Forma Condensed Combined Financial
Statements do not give effect to any other transactions other than the
Acquisition and those related transactions as discussed in the notes to the
Unaudited Pro Forma Condensed Combined Financial Statements set forth below.
The Unaudited Condensed Combined Financial Statements and accompanying notes
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the historical consolidated
financial statements of Great Lakes and related notes thereto included in this
prospectus, the historical financial statements of NASDI and related notes
thereto included in this prospectus, and other financial information included
elsewhere in this prospectus.
31
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
NASDI
COMPANY NASDI ACQUISITION OFFERING
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ---------- -------- ----------- ----------- ---------
ASSETS
Cash and equivalents............... $ 1.1 $ 1.8 $ 2.9 $(1.1)(a) $ 1.8
Marketable securities.............. 1.4 1.4 1.4
Accounts receivable, net........... 40.5 9.5 50.0 50.0
Contract revenues in excess of
billings......................... 18.6 1.8 20.4 20.4
Inventories........................ 14.7 14.7 14.7
Other current assets............... 17.2 0.6 17.8 17.8
------ ----- ------ ----- ----- ------
Total current assets............. 92.1 15.1 107.2 (1.1) 106.1
Property and equipment............. 137.7 3.3 141.0 2.1 (b) 143.1
Inventories........................ 6.8 6.8 6.8
Investment in joint venture........ 6.4 6.4 6.4
Other assets and intangibles....... 5.7 0.1 5.8 30.4 (b) 2.3(e) 38.5
------ ----- ------ ----- ----- ------
Total assets..................... $248.7 $18.5 $267.2 $31.4 $ 2.3 $300.9
====== ===== ====== ===== ===== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable................... $ 37.8 $ 4.3 $ 42.1 $ 42.1
Accrued expenses and other......... 33.5 3.6 37.1 37.1
Current maturities of long-term
debt............................. 9.0 1.0 10.0 10.0
------ ----- ------ ----- ----- ------
Total current liabilities........ 80.3 8.9 89.2 89.2
Long-term debt..................... 146.0 0.6 146.6 41.1(f) 187.7
Deferred income taxes.............. 44.3 44.3 44.3
Other.............................. 7.0 7.0 7.0
------ ----- ------ ----- ----- ------
Total liabilities................ 277.6 9.5 287.1 41.1 328.2
Minority interests................. 3.4 3.4 1.6 (c) 5.0
Stockholders' equity (deficit)..... (32.3) 9.0 (23.3) (9.0)(d) (32.3)
------ ----- ------ ----- ----- ------
Total liabilities and
stockholders' equity
(deficit)...................... $248.7 $18.5 $267.2 $(7.4) $41.1 $300.9
====== ===== ====== ===== ===== ======
- --------------------------
32
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
(a) To record distribution of excess cash to prior NASDI stockholders as
required under the purchase agreement for the Acquisition.
(b) Represents purchase accounting adjustments to reflect 80% of NASDI's
property and equipment at the estimated fair market value and to record
excess purchase price as goodwill, as follows:
Purchase price for 80% of NASDI stock:
Cash...................................................... $35.0
NASDI Seller Notes........................................ 3.0
Acquisition costs......................................... 0.8
-----
Total purchase price.................................... 38.8
80% of net assets acquired.................................. (6.3)
Increase property and equipment to estimated fair market
value..................................................... (2.1)
-----
Goodwill.................................................... $30.4
=====
(c) To record remaining 20% of NASDI net assets to minority interests.
(d) To reflect the net impact of pro forma adjustments on stockholders' equity:
Distribution of excess cash to NASDI stockholders........... $(1.1)
80% of net assets acquired.................................. (6.3)
Remaining 20% of NASDI net assets to minority interests..... (1.6)
-----
Total................................................... $(9.0)
=====
(e) To record offering costs of the April 2001 Series C notes and amendment
costs of the bank credit facility.
(f) To record the impact of the Acquisition on debt, as follows:
Issuance of April 2001 Series C notes....................... $39.7
Issuance of NASDI Seller Notes.............................. 3.0
Repayment of a portion of borrowings under the revolving
credit facility........................................... (1.6)
-----
Total................................................... $41.1
=====
33
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
NASDI
ACQUISITION
COMPANY NASDI AND OFFERING
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA
---------- ---------- -------- ------------ ---------
Contract revenues............................... $339.1 $72.6 $411.7 $411.7
Cost of contract revenues....................... 281.7 46.3 328.0 328.0
------ ----- ------ ------
Gross profit.................................. 57.4 26.3 83.7 83.7
General and administrative expenses............. 22.3 1.8 24.1 2.0 (a) 26.1
Bonuses......................................... 20.0 20.0 (17.8)(b) 2.2
------ ----- ------ ------- ------
Operating income.............................. 35.1 4.5 39.6 15.8 55.4
Interest income (expense), net.................. (18.6) 0.4 (18.2) (5.0)(c) (23.2)
Other expense................................... (0.8) (0.8) (0.8)
------ ----- ------ ------- ------
Income before income taxes and minority
interests................................... 15.7 4.9 20.6 10.8 31.4
Income taxes.................................... (7.4) (0.3) (7.7) (7.0)(d) (14.7)
Minority interests.............................. (1.0) (1.0) (1.8)(e) (2.8)
------ ----- ------ ------- ------
Net income...................................... $ 7.3 $ 4.6 $ 11.9 $ 2.0 $ 13.9
====== ===== ====== ======= ======
Ratio of earnings to fixed charges(f)........... 1.55x
Other data:
Depreciation and amortization................. $ 12.7 $ 1.4 $ 14.1 $ 2.0 (a) $ 16.1
EBITDA(g)..................................... 47.8 5.9 53.7 17.8 (b) 71.5
- --------------------------
34
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS)
(a) To record annual amortization of goodwill of $30.4 million related to the
Acquisition, assuming an estimated useful life of fifteen years.
(b) To adjust NASDI historical bonuses to reflect bonuses that would have been
paid based on NASDI performance for the period assuming the contractual
terms of Employment Agreements with NASDI management stockholders were in
effect. The Employment Agreements were entered into as part of the purchase
agreement for the Acquisition.
(c) To record interest expense on the April 2001 Series C notes, interest
expense on the Seller Notes, a reduction of interest expense from the
repayment of a portion of borrowings under the revolving loan facility and
amortization of the deferred offering costs and bank credit facility
amendment costs:
Interest expense on $40.0 million April 2001 Series C notes
at 11 1/4%................................................ $ 4.5
Interest expense on Seller Notes of $3.0 million at 6.0%.... 0.2
Reduction of interest expense on $1.6 million reduction of
revolving loan facility at 8.57% average interest rate
over the year............................................. (0.1)
Amortization of deferred offering and amendment costs....... 0.4
-----
Total..................................................... $ 5.0
=====
(d) To record estimated tax effect to change NASDI from Subchapter S-Corporation
to C-Corporation and certain other pro forma adjustments:
Estimate of U.S. federal income tax on NASDI income before
taxes of $4.9 million at 35%.............................. $ 1.7
Pro forma adjustments at estimated effective rate of 41%.... 5.3
-----
Total..................................................... $ 7.0
=====
(e) To record 20% of NASDI pro forma income attributable to minority interest
holders.
(f) Earnings used in computing the ratio of earnings to fixed charges consists
of earnings before income taxes and minority interests. Fixed charges are
defined as interest expense, including the amortization of deferred
financing costs, and preferred stock dividends.
(g) "EBITDA", as provided for herein, represents earnings from continuing
operations before interest expense, net, income taxes and depreciation and
amortization expense and excludes equity in earnings of joint ventures and
minority interests. EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles in the
United States of America. EBITDA is included in the prospectus as it is a
basis upon which we assess our financial performance, and certain covenants
in our borrowing arrangements are tied to similar measures. Pro forma
EBITDA, as provided for herein, reflects EBITDA adjusted for effect of the
Acquisition, the completion of the April 2001 Series C note offering, and
the repayment of a portion of our outstanding borrowings under our revolving
credit facility as if such transactions took place on January 1, 2000. Pro
forma EBITDA is presented to provide additional information with respect to
our ability to meet future debt service, capital expenditures and working
capital requirements, but is not necessarily a measure of our ability to
fund our cash flow needs. Pro forma EBITDA should not be considered in
isolation or as an alternative to net income, cash flows from continuing
operations, or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles as measures of our
profitability or liquidity. Pro forma EBITDA as defined in this prospectus
may differ from similarly titled measures presented by other companies.
35
SELECTED FINANCIAL DATA
The following tables present selected historical financial and other data of
Great Lakes and NASDI for the periods indicated. The selected financial data
presented below (except for EBITDA and Adjusted EBITDA) were derived from the
audited consolidated financial statements of Great Lakes and audited financial
statements of NASDI for the periods indicated. The following selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Great Lakes' consolidated
financial statements and NASDI's financial statements, and the notes related
thereto, included elsewhere in this prospectus.
GREAT LAKES DREDGE & DOCK CORPORATION
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Contract revenues............................. $ 235.9 $ 258.3 $ 289.2 $ 302.3 $ 339.1
Costs of contract revenues.................... (208.7) (228.4) (240.6) (244.8) (281.7)
------- ------- ------- ------- -------
Gross profit................................ 27.2 29.9 48.6 57.5 57.4
General and administrative expenses........... (16.4) (18.9) (22.6) (21.9) (22.3)
Equity incentive plan and other compensation
expenses.................................... -- -- (8.2) -- --
Recapitalization related expenses............. -- -- (9.5) -- --
------- ------- ------- ------- -------
Operating income............................ 10.8 11.0 8.3 35.6 35.1
Interest expense, net......................... (6.0) (6.0) (9.9) (18.1) (18.6)
Equity (loss) in earnings of joint ventures... 1.1 3.1 1.2 0.2 (0.8)
------- ------- ------- ------- -------
Income (loss) before income taxes, minority
interests, discontinued operations and
extraordinary item........................ 5.9 8.1 (0.4) 17.7 15.7
Provision for income taxes.................... (2.4) (2.6) (0.7) (8.5) (7.4)
Minority interests............................ (0.4) (1.7) (2.7) 0.5 (1.0)
------- ------- ------- ------- -------
Income (loss) from continuing operations
before extraordinary item................... 3.1 3.8 (3.8) 9.7 7.3
Discontinued operations, net of tax benefit... (1.1) -- -- -- --
Extraordinary item, net of income tax
benefit..................................... -- -- (0.9) -- --
------- ------- ------- ------- -------
Net income (loss)........................... $ 2.0 $ 3.8 $ (4.7) $ 9.7 $ 7.3
======= ======= ======= ======= =======
Ratio of earnings to fixed charges(7)......... 1.9x 2.0x -- 1.4x 1.1x
OTHER DATA:
EBITDA(1)..................................... $ 24.7 $ 24.6 $ 22.2 $ 47.6 $ 47.8
Adjusted EBITDA(1)............................ 26.2 28.8 41.1 -- --
Net cash flows from operating activities...... 24.7 13.6 20.2 25.3 17.5
Depreciation and amortization(2).............. 13.9 13.6 13.9 12.0 12.7
Maintenance expense(3)........................ 14.7 17.3 22.7 27.2 25.9
Capital expenditures(4)....................... 5.4 11.5 29.1 15.0 14.1
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 1.9 $ 1.7 $ 0.8 $ 1.5 $ 1.1
Working capital............................... 22.0 38.4 22.3 13.2 11.8
Total assets.................................. 222.1 245.6 235.1 241.4 248.7
Total debt(5)................................. 52.4 57.6 170.4 159.2 155.0
Stockholders' equity (deficit)................ 74.4 78.2 (48.7) (39.6) (32.3)
36
NORTH AMERICAN SITE DEVELOPERS, INC.
YEARS ENDED DECEMBER 31,
------------------------------
1998(6) 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Contract revenues......................................... $ 30.3 $ 45.5 $ 72.6
Costs of contract revenues................................ (24.5) (34.3) (46.3)
------ ------ ------
Gross profit............................................ 5.8 11.2 26.3
General and administrative expenses....................... (1.6) (1.5) (1.8)
Bonuses................................................... (4.6) (7.6) (20.0)
------ ------ ------
Income (loss) from operations........................... (0.4) 2.1 4.5
Other income, net......................................... 0.1 -- 0.4
------ ------ ------
Income (loss) before income taxes....................... (0.3) 2.1 4.9
State income taxes........................................ -- (0.2) (0.3)
------ ------ ------
Net income (loss)....................................... $ (0.3) $ 1.9 $ 4.6
====== ====== ======
OTHER DATA:
Adjusted EBITDA(1)........................................ 5.0 10.1 23.3
Net cash flow from operating activities................... (1.0) 4.9 4.2
Depreciation and amortization............................. 1.3 1.4 1.4
Capital expenditures...................................... 0.9 0.9 1.0
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 0.7 $ 1.2 $ 1.8
Working capital........................................... 3.8 4.7 6.2
Total assets.............................................. 14.5 19.9 18.5
Total debt(5)............................................. 1.9 2.1 1.6
Stockholders' equity...................................... 4.2 6.1 9.0
- ------------------------
(1) "EBITDA", as provided for herein, represents earnings from continuing
operations before net interest expense, income taxes and depreciation and
amortization expense and excludes equity in earnings of joint ventures and
minority interests. EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles in the
United States of America. EBITDA is included in the prospectus as it is a
basis upon which we assess our financial performance, and certain covenants
in our borrowing arrangements are tied to similar measures. "Adjusted
EBITDA" excludes the effects of certain items on our historical EBITDA that
are not expected to recur in our ongoing activities. Adjusted EBITDA is
presented to provide additional information with respect to our ability to
meet future debt service, capital expenditures and working capital
requirements, but is not necessarily a measure of our ability to fund our
cash needs. EBITDA and Adjusted EBITDA should not be considered in isolation
or as an alternative to net income, cash flows from continuing operations,
or other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles as measures of our profitability or
liquidity. EBITDA and Adjusted EBITDA as defined in this prospectus may
differ from similarly titled measures presented by other companies.
37
The components of EBITDA and Adjusted EBITDA are set forth below for the
periods indicated.
YEAR END DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
GREAT LAKES DREDGE & DOCK CORPORATION
Operating income................................. $10.8 $11.0 $ 8.3 $35.6 $35.1
Depreciation and amortization.................... 13.9 13.6 13.9 12.0 12.7
----- ----- ----- ----- -----
EBITDA........................................... 24.7 24.6 22.2 47.6 47.8
Management fees paid to former stockholder(a).... 0.5 0.5 0.3
Legal and other expenses related to the Chicago
flood litigation(b)............................ 0.6 1.8
Disposed operations(c)........................... 1.5 1.9 0.9
Other corporate charges(d)....................... (1.1)
Equity incentive plan and other compensation
expenses(e).................................... 8.2
Recapitalization related expenses(f)............. 9.5
----- ----- ----- ----- -----
Adjusted EBITDA.................................. $26.2 $28.8 $41.1 $47.6 $47.8
===== ===== ===== ===== =====
YEAR END DECEMBER 31,
------------------------------
1998(6) 1999 2000
-------- -------- --------
NORTH AMERICAN SITE DEVELOPERS, INC.
Operating income (loss)..................................... $(0.4) $ 2.1 $ 4.5
Depreciation and amortization............................... 1.3 1.4 1.4
----- ----- -----
EBITDA...................................................... 0.9 3.5 5.9
Bonuses(g).................................................. 4.1 6.6 17.4
----- ----- -----
Adjusted EBITDA............................................. $ 5.0 $10.1 $23.3
===== ===== =====
- ------------------------
(a) MANAGEMENT FEES PAID TO FORMER STOCKHOLDER. During the periods
presented, we paid a management fee to a former stockholder. In 1998, we
effected a recapitalization of the Company and have not paid such a fee
as of that date.
(b) LEGAL AND OTHER EXPENSES RELATED TO THE CHICAGO FLOOD LITIGATION. In
1992, an underwater utility tunnel located beneath the Chicago Loop
failed adjacent to a construction site completed by us in the fall of
1991. The failure resulted in a flooding of the tunnel and building
basements served by the tunnel. Numerous suits were filed against us for
claims of flood damage and losses due to business interruption. We
incurred substantial legal expenses along with other expenses as a result
of the Chicago flood litigation. During 1997, all remaining claims were
settled relating to the Chicago flood litigation.
(c) DISPOSED OPERATIONS. In 1996, we sold a marine construction business.
The adjustments reflect the elimination of the impact on EBITDA
attributable to the disposal of this business.
(d) OTHER CORPORATE CHARGES. In 1996, we offered a voluntary early
retirement program and incurred a charge of $0.6 million relating
thereto. Additionally, in that year we terminated our defined benefit
pension plan and recognized a net gain of $1.7 million.
(e) EQUITY INCENTIVE PLAN AND OTHER COMPENSATION EXPENSES. In 1998, options
granted in a prior year were exercised. A portion of these shares was
then sold to Vectura in connection with a recapitalization resulting in
$5.2 million in non-cash compensation expense. Additionally, we approved
and paid bonuses of $3.0 million to certain members of our management.
38
(f) RECAPITALIZATION RELATED EXPENSES. In 1998, pursuant to the terms of an
agreement for recapitalization, we paid fees and expenses of
$3.6 million and bonuses to certain members of management of
$5.9 million.
(g) BONUSES. In 1998, 1999 and 2000, NASDI paid discretionary bonuses to all
stockholders, including bonuses to management stockholders in excess of
amounts required under their employment agreements then in effect. We do
not intend to pay such discretionary bonuses.
(2) Effective January 1, 1999, we made changes in the estimated useful lives of
certain dredging equipment to better reflect the remaining period over which
we anticipate utilizing this equipment with normal repairs and maintenance.
Thus, depreciation for 1999 and 2000 is approximately $2.9 million less than
it would have been using the previous lives.
(3) Represents amount expended for maintenance included in costs of contract
revenues.
(4) Capital expenditures in 1998 included $19.3 million for certain dredging
assets acquired from a competitor and construction related to a new backhoe
dredge. We subsequently financed these acquisitions through sale-leaseback
arrangements.
(5) Total debt includes long-term debt and the current maturities of long-term
debt and excludes contingent obligations.
(6) Amounts presented for 1998 are for the eleven-months ended December 31,
1998.
(7) Earnings used in computing the ratio of earnings to fixed charges consists
of earnings before provision for income taxes plus distributed income of
joint ventures and fixed charges. Fixed charges are defined as interest
expense, including the amortization of deferred financing costs, and
preference security dividends. For the year ended December 31, 1998,
earnings were insufficient to cover fixed charges by $5.4 million.
39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS,
PARTICULARLY IN "RISK FACTORS." SEE "FORWARD-LOOKING STATEMENTS" AND "RISK
FACTORS." THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES WHICH
APPEAR ELSEWHERE IN THIS PROSPECTUS.
GREAT LAKES DREDGE & DOCK CORPORATION
GENERAL
We are the largest provider of dredging services in the United States.
Dredging generally involves the enhancement or preservation of navigability of
waterways or the protection of shorelines through the removal or replenishment
of soil, sand or rock. The U.S. dredging market consists of three primary types
of work: Capital, Maintenance and Beach Nourishment, and we have experienced a
combined bid market share in the U.S. of 37% in 2000 in these areas. In
addition, we have continued our role as the only U.S. dredging contractor with
significant international operations, which represented an average of 17% of our
contract revenues over the past three years.
Most dredging contracts are obtained through competitive bidding on terms
specified by the party inviting the bid. The nature of the specified services
dictates the types of equipment, material and labor involved, all of which
affect the cost of performing the contract and the price that dredging
contractors will bid.
We recognize contract revenues under the percentage-of-completion method,
based on our engineering estimates of the physical percentage completed of each
project. Costs of contract revenues are adjusted to reflect the gross profit
percentage expected to be achieved upon ultimate completion of each project.
Provisions for estimated losses on contracts in progress are made in the period
in which such losses are determined. Claims for additional compensation are not
recognized in contract revenues until such claims are settled. Billings on
contracts are generally submitted after verification with the customers of
physical quantities completed and may not match the timing of revenue
recognition. The difference between amounts billed and recognized as revenue is
reflected in the balance sheet as either contract revenues in excess of billings
or billings in excess of contract revenues. Significant expenditures incurred
incidental to major contracts are deferred and recognized as costs of contracts
based on contract performance over the duration of the related project. These
expenditures are reported as prepaid expenses.
The components of costs of contract revenues are labor, equipment,
subcontracts, rentals, lease expense, other assets employed (including
depreciation, insurance, fuel, maintenance and supplies) and project overhead.
The hourly labor generally is hired on a per project basis and laid-off upon the
completion of the project. Costs of contract revenues vary significantly
depending on the type and location of work performed and assets utilized.
Generally, capital projects have the lowest costs of contract revenues as a
percent of contract revenues and beach nourishment projects have the highest.
Our cost structure includes significant fixed costs, averaging approximately
20% to 22% of total costs of contract revenues. We can have significant
fluctuations in equipment utilization throughout the year. Accordingly, for
interim reporting, we prepay or accrue fixed equipment costs and amortize the
expenses in proportion to revenues recognized over the year to better match
revenues and expenses. Costs of contract revenues also includes the net gain or
loss on dispositions of property and equipment.
40
We conduct certain hopper dredging activities, primarily maintenance and
beach nourishment projects through the operation of NATCO Limited Partnership,
or NATCO, and North American Trailing Company. Minority interests reflect
Ballast Nedam Group N.V.'s respective 25% and 20% interest in NATCO and North
American.
RESULTS OF OPERATIONS--QUARTERLY BASIS
The following table sets forth the components of net income and EBITDA (as
defined) on a quarterly basis for the years ended December 31, 1999 and 2000.
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
1999
Contract revenues.......................................... $ 72.3 $ 78.0 $ 76.0 $ 76.0
Costs of contract revenues................................. (59.1) (63.9) (60.7) (61.1)
------ ------ ------ ------
Gross profit............................................. 13.2 14.1 15.3 14.9
General and administrative expenses........................ (4.9) (4.8) (5.2) (7.0)
------ ------ ------ ------
Operating income......................................... 8.3 9.3 10.1 7.9
Interest expense, net...................................... (4.4) (4.6) (4.6) (4.5)
Equity in (loss) earnings of joint ventures................ (0.3) -- 0.1 0.4
------ ------ ------ ------
Income before income taxes and minority interests........ 3.6 4.7 5.6 3.8
Provision for income taxes................................. (1.6) (2.5) (2.4) (2.0)
Minority interests......................................... 0.2 0.4 (0.4) 0.3
------ ------ ------ ------
Net income............................................... $ 2.2 $ 2.6 $ 2.8 $ 2.1
====== ====== ====== ======
$ 11.2 $ 12.2 $ 13.0 $ 11.2
====== ====== ====== ======
EBITDA.................................................
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
2000
Contract revenues.......................................... $ 88.9 $ 85.5 $ 81.1 $ 83.6
Costs of contract revenues................................. (72.9) (73.4) (70.1) (65.3)
------ ------ ------ ------
Gross profit............................................. 16.0 12.1 11.0 18.3
General and administrative expenses........................ (5.3) (5.2) (5.2) (6.5)
------ ------ ------ ------
Operating income........................................... 10.7 6.9 5.8 11.8
Interest expense, net...................................... (4.5) (4.7) (4.9) (4.6)
Equity in (loss) earnings of joint ventures................ (0.2) -- 0.1 (0.7)
------ ------ ------ ------
Income before income taxes and minority interests........ 6.0 2.2 1.0 6.5
Provision for income taxes................................. (2.7) (1.0) (0.6) (3.1)
Minority interests......................................... (0.7) -- 0.5 (0.8)
------ ------ ------ ------
Net income................................................. $ 2.6 $ 1.2 $ 0.9 $ 2.6
====== ====== ====== ======
EBITDA.................................................
41
RESULTS OF OPERATIONS--FISCAL YEARS
The following table sets forth the components of net income and EBITDA (as
defined) as a percentage of contract revenues for the years ended December 31:
1998 1999 2000
-------- -------- --------
Contract revenues...................................... 100.0% 100.0% 100.0%
Costs of contract revenues............................. (83.2) (81.0) (83.1)
----- ----- -----
Gross profit......................................... 16.8 19.0 16.9
General and administrative expense..................... (7.8) (7.2) (6.6)
Equity incentive plan and other compensation
expenses............................................. (2.8) -- --
Recapitalization related expenses...................... (3.3) -- --
----- ----- -----
Operating income..................................... 2.9 11.8 10.3
Interest expense, net.................................. (3.4) (6.0) (5.5)
Equity in (loss) earnings of joint ventures............ 0.4 -- (0.2)
----- ----- -----
Income (loss) before income taxes, minority
interests, and extraordinary item.................. (0.1) 5.8 4.6
Provision for income taxes............................. (0.2) (2.8) (2.2)
Minority interests..................................... (1.0) 0.2 (0.3)
----- ----- -----
Income (loss) from continuing operations before
extraordinary item................................. (1.3) 3.2 2.1
Extraordinary item, net of applicable income tax
benefit.............................................. (0.3) -- --
----- ----- -----
Net income (loss).................................... (1.6)% 3.2% 2.1%
===== ===== =====
EBITDA................................................. 7.7% 15.7% 14.1%
===== ===== =====
Adjusted EBITDA(1)..................................... 13.8% 15.7% 14.1%
===== ===== =====
- ------------------------
(1) EBITDA for 1998 has been adjusted for equity incentive plan and other
compensation expenses and recapitalization related expenses.
COMPONENTS OF CONTRACT REVENUES AND BACKLOG
The following table sets forth, by type of work, the Company's contract
revenues for the years ended and backlog as of December 31:
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
REVENUES
Capital--U.S...................................... $ 88.6 $152.9 $161.3
Beach nourishment................................. 81.0 40.5 33.2
Maintenance....................................... 62.0 78.2 72.8
Capital--foreign.................................. 57.6 30.7 71.8
------ ------ ------
$289.2 $302.3 $339.1
====== ====== ======
BACKLOG
Capital--U.S...................................... $149.0 $136.1 $100.2
Beach nourishment................................. 19.3 8.3 31.1
Maintenance....................................... 33.0 22.6 4.4
Capital--foreign.................................. 33.9 100.1 62.6
------ ------ ------
$235.2 $267.1 $198.3
====== ====== ======
42
The Company's overall growth in 2000 revenues is the result of increased
U.S. and foreign capital work, relating to the Deep Port projects and specific
international projects in Ghana and India.
Domestic capital dredging project revenues increased $8.4 million or 5.5% in
2000, when compared to 1999 revenues. Capital projects include large port
deepenings and other infrastructure projects. Due to the significant volume of
capital projects announced and bid in 1999 and 2000, the Company has allocated
more of its resources to these higher margin projects.
In 2000, contract revenues from capital projects included $19.5 million
generated from a large project in Los Angeles, which began work in 1997, and
$26.9 million for the Houston Deep Port project, which was awarded in 1998. Jobs
awarded in 1999 related to Deep Port work in San Juan, Charleston, and New York
generated 2000 contract revenues of $18.8 million, $16.4 million, and
$10.7 million, respectively. Additionally, two Deep Port projects in Wilmington,
which were awarded in the third quarter of 2000, contributed $11.8 million to
2000 contract revenues.
Beach nourishment projects include rebuilding of shoreline areas which have
been damaged by storm activity or ongoing erosion. In 2000, revenues from beach
projects decreased $7.3 million or 18.0%, compared to 1999. This decrease
continued to be primarily a result of the deferral of some key projects by
customers, so that fewer projects were let for bid than in prior years. Despite
the overall decline, the bid market for beach work improved dramatically in the
third and fourth quarters of 2000 when $70 million of new projects were bid. The
Company expects to see additional growth in beach nourishment projects over the
next few years due to growing awareness of the importance of the tourism revenue
to the local economies. Several projects contributed to 2000's beach revenues,
including beach nourishment projects in Brevard, Florida; Tybee Island, Georgia;
and Egg Harbor/Peck Beach, New Jersey, which contributed revenues of
$11.4 million, $6.5 million, and $7.3 million, respectively.
Maintenance projects include routine dredging of ports, rivers and channels
to remove the regular build up of sediment. Revenues from maintenance projects
for the year ended December 31, 2000 decreased $5.4 million or 6.9%, over 1999.
The 2000 maintenance market saw a decline over prior years due to lower than
typical precipitation levels in the Midwest, which affects the Mississippi River
schoaling and dredging from St. Louis south to the Gulf. Significant maintenance
revenues in 2000 were related to projects in Morehead/Wilmington, North
Carolina; South Pass, Louisiana; and Mississippi/Memphis river rentals, which
generated revenues of $6.9 million, $10.0 million, and $11.6 million,
respectively.
Revenues of the Company's NATCO hopper dredging subsidiary for 2000
approximated 1999 levels; however, margins improved by $1.0 million, or 9.5% due
to receipt of claim revenue on the Long Beach project, which was substantially
performed in 1999 and 2000. This project had experienced performance problems in
its early stages since NATCO encountered more compacted material than was
included in the specifications provided by the Corps. The Company expects
NATCO's utilization in 2001 to be comparable to levels experienced in 2000.
However, the hopper market is expected to continue to be highly competitive,
with pricing being impacted by increased restrictions imposed by environmental
windows coupled with the decline in emergency dredging opportunities on the
Mississippi.
Revenues from foreign operations in 2000 increased $41.1 million or 133.8%
compared to 1999. Key foreign projects which contributed to 2000 revenues
included the Company's joint venture project in Egypt, which began in the first
quarter of 1999 and was completed in mid-2000, a project in Dabhol, India which
began in the third quarter of 1999 and will continue into 2001, and a long-term
project in Ghana, West Africa which began in the first quarter of 2000 and is
expected to be completed in 2003. These projects contributed revenue of
$10.2 million, $22.7 million, and $29.0 million, respectively, during 2000.
43
BACKLOG
Our contract backlog represents management's estimate of the revenues which
will be realized under the portion of the contracts remaining to be performed
based upon current estimates. Such estimates are subject to fluctuations based
upon the amount of material actually dredged as well as factors affecting the
time required to complete the job. In addition, because a substantial portion of
our backlog relates to government contracts, our backlog can be canceled at any
time without penalty, except, in some cases, the recovery of our actual
committed costs and profit on work performed up to the date of cancellation.
Consequently, backlog is not necessarily indicative of future results. Our
backlog includes only those projects for which the customer has provided an
executed contract.
Backlog at December 31, 2000 of $198.3 million, while still strong from a
historical perspective, declined 25.8% from our record year-end backlog level of
$267.1 million at December 31, 1999. This decline in backlog reflects the
overall dynamics of the 2000 bid market, which was characterized by an uneven
flow of bidding opportunities. During the first, second and fourth quarters of
fiscal 2000, the dredging industry experienced intensely competitive bidding due
to a reduced number of projects bid. As a result, several projects let for bid
during these quarters were won by our competitors at prices that were lower than
we considered acceptable. During the third quarter, the number of projects let
for bid comprised more than 50% of the total bids for 2000. We won 62% of this
work at more favorable pricing.
The largest portion of our backlog continues to be capital work. The Deep
Port and foreign markets have continued to provide numerous and attractive
project opportunities, which is expected to continue into 2001, as a result of
updates to the WRDA legislation approving and authorizing additional Deep Port
work and the expected commencement of certain significant foreign projects,
particularly in the Middle East. At December 31, 2000, the Company had been low
bidder on additional work valued at $32.5 million which was still pending award,
and therefore excluded from backlog.
Additional significant revenues in backlog at December 31, 2000 relate to
two capital projects in Wilmington for $54.0 million, and capital projects in
San Juan, Puerto Rico for $13.9 million, in Baltimore for $16.0 million, and in
Ghana for $52.6 million. The increase in backlog from beach nourishment work
reflects revenues from bids won in the third and fourth quarters of 2000,
including projects in Sunny Isles, Florida for $14.4 million, Brevard, Florida
for $7.1 million and Patrick Air Force Base, Florida for $4.0 million.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.
CONTRACT REVENUES. Contract revenues increased $36.8 million or 12.2% from
$302.3 million in 1999 to $339.1 million in 2000. The increase in 2000 is due
primarily to a higher level of foreign project activity in 2000, which offset
slight declines in revenues from beach nourishment and maintenance projects.
COSTS OF CONTRACT REVENUES. Costs of contract revenues increased
$36.9 million or 15.1%, from $244.8 million in 1999 to $281.7 million in 2000.
Costs of contract revenues as a percentage of contract revenues was 83.1% in
2000 and 81.0% in 1999. The increase in costs of contract revenues as a
percentage of revenues in 2000 was attributable to a higher mix of lower margin
foreign projects, as well as certain domestic projects which operated below
margin levels experienced in recent years due to competitive pricing pressures
experienced in the first half of the year.
GROSS PROFIT. Gross profit remained level at $57.4 million and
$57.5 million in 2000 and 1999, respectively, due to the impact of the increase
in foreign work and certain capital projects on costs of contract revenues.
44
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $22.3 million and $21.9 million in 2000 and 1999, respectively. As a
percent of sales, general and administrative expenses remained relatively
consistent as 6.6% of sales in 2000 compared to 7.2% in 1999.
OPERATING INCOME. Operating income was $35.1 million in 2000, compared to
$35.6 million in 1999. Operating income declined as a percent of revenues, due
to the reasons stated above.
EBITDA. EBITDA increased only $0.2 million, to $47.8 million for the year
ended December 31, 2000 from $47.6 million for the year ended December 31, 1999.
Although revenues increased 12.2% in 2000, EBITDA as a percentage of revenue
declined due to the higher mix of lower margin foreign work, as well as the
impact of certain domestic projects, which operated below margin levels
experienced in recent years due to competitive pricing pressures encountered in
the first half of the year.
INTEREST EXPENSE, NET. Net interest expense increased $0.5 million or 3.1%,
from $18.1 million in 1999 to $18.6 million in 2000. The increase was due to a
combination of higher working capital investment on the foreign projects and an
increase in the borrowing rates on variable rate debt.
EQUITY IN (LOSS) EARNINGS OF JOINT VENTURES. Equity in (losses) earnings of
joint ventures declined $1.0 million from earnings of $0.2 million in 1999 to a
loss $0.8 million in 2000. In 2000, Amboy recorded additional costs related to
its efforts to obtain new permits and incurred expenses resulting from an
unfavorable outcome on certain litigation.
INCOME TAX EXPENSE. Income taxes decreased $1.1 million, to $7.4 million in
2000 from $8.5 million in 1999. The decrease was a result of decreased taxable
earnings in 2000.
MINORITY INTERESTS. Income attributable to minority interests increased the
Company's allocation to minority interests to $1.0 million in 2000 from a credit
from minority interests of $0.5 million in 1999. The 2000 expense was due to
higher earnings from the NATCO hopper dredging operations in 2000 compared to
losses incurred in 1999.
NET INCOME. Net income decreased $2.4 million, to $7.3 million in 2000 from
$9.7 million in 1999. The 2000 net income reflects the lower margins on the
increased foreign work as well as the reduced margins obtained on certain
domestic projects which were bid at lower margins due to the competitive bid
market in 2000.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
CONTRACT REVENUES. Contract revenues increased $13.1 million or 4.5% from
$289.2 million in 1998 to $302.3 million in 1999. The increase in 1999 is due
primarily to the increased volume of higher margin capital dredging projects
which offset a decline in revenues from beach nourishment and foreign projects.
COSTS OF CONTRACT REVENUES. Costs of contract revenues increased
$4.2 million or 1.8%, from $240.6 million in 1998 to $244.8 million in 1999.
Costs of contract revenues as a percentage of contract revenues was 81.0% in
1999 and 83.2% in 1998. The improvement in costs of contract revenues as a
percentage of revenues in 1999 is primarily attributable to the project mix.
Throughout 1999, there were more higher margin capital dredging projects and
fewer lower margin beach nourishment and foreign projects.
GROSS PROFIT. Gross profit increased $8.8 million or 18.2%, from
$48.6 million in 1998 to $57.5 million in 1999. The improvement in 1999 was
attributable to the increased volume of higher margin capital dredging work.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
remained relatively consistent as 7.2% of sales in 1999 compared to 7.8% in
1998.
45
OPERATING INCOME. Operating income was $35.6 million in 1999, an increase
of $9.6 million compared to 1998 (excluding nonrecurring recapitalization and
equity incentive plan and other compensation expenses totaling $17.7 million
related to the recapitalization of the Company in August 1998). The 1999
increase in operating income was primarily a result of the increased volume of
higher margin capital dredging work.
EBITDA. EBITDA increased $7.7 million or 19.2%, to $47.6 million for the
year ended December 31, 1999 from $39.9 million (excluding recapitalization and
equity incentive plan and other compensation expenses) for the year ended
December 31, 1998. The increase was due to the increased volume of higher margin
work in 1999.
INTEREST EXPENSE, NET. Net interest expense increased $8.2 million or
83.5%, from $9.9 million in 1998 to $18.1 million in 1999. The increase was
related to interest on the additional debt incurred in connection with the
Company's recapitalization effected in August 1998.
EQUITY IN EARNINGS OF JOINT VENTURES. Equity in earnings of joint ventures
declined $1.0 million or 85.0%, from $1.2 million in 1998 to $0.2 million in
1999. The decrease was due to the continued reduction in demand for Amboy
Aggregate's products, combined with commencement of the maintenance phase of the
Riovia S.A. project. The maintenance phase is anticipated to have lower revenues
and margins than the capital phase, which was substantially complete at the end
of 1998. Further, at October 1, 1999, we began accounting for our investment in
Riovia S.A. using the cost method. Equity earnings for Riovia S.A. in 1999 were
insignificant.
INCOME TAX EXPENSE. Income taxes increased $7.8 million, to $8.5 million in
1999 from $0.7 million in 1998. The increase is a result of taxable earnings in
1999 of approximately $17.7 million compared to a loss in 1998 of $0.4 million
which resulted from the inclusion of significant nonrecurring expenses related
to our recapitalization.
MINORITY INTERESTS. Income attributable to minority interests declined to a
loss of $0.5 million in 1999 from income of $2.7 million in 1998. The decrease
was due to lower earnings from the NATCO hopper dredging operations in 1999
compared to 1998.
NET INCOME (LOSS). Net income increased $14.4 million, to $9.7 million in
1999 from a loss of $4.7 million in 1998. The 1999 net income reflects the
improved operating earnings resulting from the favorable project mix, while the
1998 losses reflect the additional nonrecurring expenses related to our
recapitalization in 1998.
SEASONALITY
Prior to the last three years, we have historically realized lower contract
revenues and earnings in the first and fourth quarters of each year. This trend
was due to a number of factors including variation in weather conditions and
government funding cycles, which affected the timing and execution of projects.
We have seen the trend of this historical seasonality diminish over the past
three years, with the increase in Deep Port work and the impact of environmental
windows, which require that certain work be performed in winter months to
protect wildlife habitats. We have been able to respond to these changing market
factors since we have the flexibility to move our equipment around, as weather
conditions and environmental restrictions dictate. However, in the future,
seasonality may become more of a factor if the project mix changes and we may
not be able to be as flexible in utilizing our equipment.
INFLATION
We do not believe that inflation has had a material impact on our operations
in the years ended December 31, 2000, 1999 and 1998.
46
NORTH AMERICAN SITE DEVELOPERS, INC.
GENERAL
NASDI, founded in 1976, is one of the three largest providers of commercial
and industrial demolition services in the United States according to the
ENGINEERING NEWS RECORD (based on 1999 revenues). Nationally, the demolition and
related services industry is comprised mostly of small, regional companies.
NASDI's customers include general contractors who subcontract demolition
services, corporations that commission projects, non-profit institutions such as
universities and hospitals, and local government and municipal agencies. NASDI
has established a network of local contacts with developers and prime
contractors that act as referral sources and frequently enable NASDI to procure
jobs on a sole-source basis. NASDI maintains a strong reputation and is one of
the few firms with the capability to execute large projects. For these reasons,
if it is not the lowest bidder on a contract, NASDI may still be awarded a
project based on its qualifications.
NASDI's core business is exterior and interior demolition. Exterior
demolition involves the complete dismantling and demolition of structures and
foundations. Interior demolition involves removing specific structures within a
building. NASDI owns and maintains a multitude of specialized demolition and
material handling equipment to enable it to perform a comprehensive array of
services. Other business activities include site development and asbestos and
other hazardous material removal. NASDI contracts hazardous material removal to
insured subcontractors and does not take possession of hazardous materials,
which remain the property of the site owner.
CONTRACT REVENUES
Contract revenues will typically include some or all of the following
activities: demolition, asbestos or other hazardous substance and material
removal and site development. Due to their complexity and requirement for
specialized equipment and services, larger CID projects typically generate
higher contract margins. A majority of NASDI's projects are negotiated as fixed
price contracts whereby NASDI provides a contract estimate to a potential
customer for the total cost of the project. Other contracts are obtained through
the competitive bidding process on terms specified by the party inviting the
bid. In all cases, the nature of the specified services dictates the types of
equipment, material and labor involved, all of which affect the cost of
performing the contract and the price charged by NASDI. Additionally, NASDI
generates a significant amount of revenue from change orders, particularly on
larger projects, which are negotiated with the customer. These change orders are
typically executed after the project has commenced and often command higher
margins than the underlying base contract. NASDI may also receive incentive
payments such as bonuses for early completion of a project.
Contract revenues are generally recognized on a percentage of completion
basis. Contracts generally provide for monthly invoicing, retainage ranging from
5% to 10% of the invoiced amount and 30 day payment terms. Additionally, certain
larger projects may include terms for an advanced payment from the customer.
Provisions for contract losses are made in the periods in which such losses are
determined; however, claims for additional compensation due NASDI are not
recognized in contract revenues until such claims are settled.
COSTS OF CONTRACT REVENUES
The largest component of NASDI's costs of contract revenues is its payments
to subcontractors, which NASDI makes on a percentage of completion method.
NASDI's costs of contract revenues also include depreciation and amortization
related to demolition equipment, direct labor (salaries and wages to hourly
workers), material, cost of rental equipment used, other direct costs and
allocated overhead. The hourly labor generally is hired on a project basis and
is laid-off upon the completion of the contract. Costs of contract revenues vary
significantly depending on the type and location of work performed and assets
utilized.
47
GENERAL AND ADMINISTRATIVE EXPENSES
NASDI's general and administrative costs include back office and
administrative expenses such as payroll, human resources, accounting,
information technology and marketing.
BONUSES
Bonuses primarily represent amounts paid to NASDI stockholders. In addition
to amounts paid to management stockholders pursuant to their existing employment
agreements, discretionary bonuses were paid to all NASDI stockholders based on
the results of operations.
OTHER INCOME, NET
Other income consists of dividend and interest income generated by NASDI's
investments in marketable securities, net of interest expense related to NASDI's
equipment financing arrangements and other borrowing facilities.
ADJUSTED EBITDA
Adjusted EBITDA is defined as operating income (loss) plus depreciation and
amortization plus bonuses paid to management and investor stockholders which
were in excess of amounts required under their employment agreements then in
effect.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain
information relating to NASDI's historical operations expressed as percentages
of contract revenues for the period:
YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Contract revenues...................................... 100.0% 100.0% 100.0%
Costs of contract revenues............................. (80.9) (75.4) (63.8)
----- ----- -----
Gross profit........................................... 19.1 24.6 36.2
General and administrative expenses.................... (5.0) (3.3) (2.5)
Bonuses................................................ (15.4) (16.7) (27.5)
----- ----- -----
Operating income (loss)................................ (1.3) 4.6 6.2
Other income, net...................................... 0.3 -- 0.6
Provision for state taxes.............................. -- (0.4) (0.4)
===== ===== =====
Net income (loss)...................................... (1.0)% 4.2% 6.4%
===== ===== =====
Adjusted EBITDA(1)..................................... 16.5% 22.2% 32.1%
- ------------------------
(1) Adjusted EBITDA in 1998, 1999 and 2000 reflects EBITDA (as defined) adjusted
for discretionary bonuses paid to all stockholders, including bonuses to
management stockholders in excess of amounts required under their employment
agreements then in effect. We do not intend to pay such discretionary
bonuses.
BACKLOG
NASDI's backlog represents management's estimate of the revenues which will
be realized under contracts remaining to be performed based upon current
estimates of the resources and time necessary to complete the projects. However,
such estimates are necessarily subject to fluctuations based upon the actual
resources and time required to complete each job. Consequently, backlog is not
necessarily
48
indicative of future revenues. NASDI's backlog includes only those projects for
which the customer has provided an executed contract.
Backlog at December 31, 2000 of $23.3 million represents the work remaining
on contracts in progress. The actual revenue generated by NASDI's contracts
often increases from initial contract prices due to change orders.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.
CONTRACT REVENUES. Contract revenues increased $27.1 million or 59.6% from
$45.5 million for the year ended December 31, 1999 to $72.6 million for the year
ended December 31, 2000. Revenues increased in 2000 in part due to several large
new CID projects which were awarded and commenced in 2000. In addition, two
existing contracts generated a total of $21.0 million more in revenue in 2000
than in 1999, due primarily to revenue generated from change orders. These two
projects were completed in 2000.
COSTS OF CONTRACT REVENUES. Costs of contract revenues increased
$12.0 million or 35.0% from $34.3 million for the year ended December 31, 1999
to $46.3 million for the year ended December 31, 2000. Costs of contract
revenues as a percentage of contract revenues was 75.4% in 1999 and 63.8% in
2000. The decrease in cost as a percentage of revenues in 2000 is primarily
related to change orders on two large projects, which were negotiated and
completed in 2000.
GROSS PROFIT. Gross profit increased $15.1 million or 134.8% from
$11.2 million for the year ended December 31, 1999 to $26.3 million for the year
ended December 31, 2000. The increase is due to the reasons stated above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.3 million or 20.0% from $1.5 million for the year ended
December 31, 1999 to $1.8 million for the year ended December 31, 2000. The
change is related to the increase in 2000 contract activity.
BONUSES. Bonuses increased $12.4 million from $7.6 million for the year
ended December 31, 1999 to $20.0 million for the year ended December 31, 2000.
The change is related to the increase in earnings.
OPERATING INCOME. Operating income increased $2.4 million or 114.3% from
$2.1 million for the year ended December 31, 1999 to $4.5 million for the year
ended December 31, 2000, due to the reasons discussed above.
NET INCOME. Net income increased $2.7 million or 142.1% from $1.9 million
for the year ended December 31, 1999 to $4.6 million for the year ended
December 31, 2000, due to the reasons discussed above.
ADJUSTED EBITDA. Adjusted EBITDA increased $13.2 million or 130.7% from
$10.1 million for the year ended December 31, 1999 to $23.3 million for the year
ended December 31, 2000, due to the reasons stated above.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO ELEVEN MONTHS ENDED DECEMBER 31, 1998
(YEAR ENDED 1998).
CONTRACT REVENUES. Contract revenues increased $15.2 million or 50.2% from
$30.3 million for the year ended December 31, 1998 to $45.5 million for the year
ended December 31, 1999. The increase is primarily related to two large
industrial demolition contracts, which were awarded and commenced in 1999 and
contributed approximately $14.1 million in contract revenue.
49
COSTS OF CONTRACT REVENUES. Costs of contract revenues increased
$9.8 million or 40.0% from $24.5 million for the year ended December 31, 1998 to
$34.3 million for the year ended December 31, 1999. Costs of contract revenues
as a percentage of contract revenues was 80.9% in 1998 and 75.4% in 1999. The
decrease in costs as a percentage of revenues in 1999 is related to the award
and commencement of two large industrial demolition contracts, which were
performed at higher margins than typical smaller contracts.
GROSS PROFIT. Gross profit increased $5.4 million or 93.1% from
$5.8 million for the year ended December 31, 1998 to $11.2 million for the year
ended December 31, 1999, due to the reasons stated above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
remained consistent at $1.5 million for the respective years.
BONUSES. Bonuses increased $3.0 million from $4.6 million for the year
ended December 31, 1998 to $7.6 million for the year ended December 31, 1999.
The change is related to the increase in 1999 earnings.
OPERATING INCOME (LOSS). Operating income (loss) increased $2.5 million,
from a loss of $0.4 million for the year ended December 31, 1998 to income of
$2.1 million for the year ended December 31, 1999, due to the reasons discussed
above.
NET INCOME (LOSS). Net income increased $2.2 million from a net loss of
$(0.3) million for the year ended December 31, 1998 to $1.9 million for the year
ended December 31, 1999. The increase in net income is due to the reasons stated
above.
ADJUSTED EBITDA. Adjusted EBITDA increased $5.1 million or 102.0% from
$5.0 million for the year ended December 31, 1998 to $10.1 million for the year
ended December 31, 1999. The increase in Adjusted EBITDA is attributed to the
reasons discussed above.
SEASONALITY
We do not believe that seasonality has had a material impact on NASDI's
operations in the eleven months ended December 31, 1998 and in the years ended
December 31, 1999 and December 31, 2000.
INFLATION
We do not believe that inflation has had a material impact on NASDI's
operations in the eleven months ended December 31, 1998 and in the years ended
December 31, 1999 and December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
GREAT LAKES DREDGE & DOCK CORPORATION
CASH FLOWS. Our primary sources of liquidity are cash flows from operations
and borrowings under the revolving line of credit provided by the Credit
Agreement. (see Note 7, "Long-term Debt" in the notes to the Consolidated
Financial Statements). Our primary uses of cash are funding working capital,
capital expenditures and debt service.
Our net cash flows from operating activities for the years ended
December 31, 2000, 1999 and 1998 were $17.5 million, $25.3 million and
$20.2 million, respectively. The decrease in cash flows from operating
activities in 2000 compared to 1999 was due to additional working capital
requirements for certain foreign projects, as well as the normal fluctuations in
working capital requirements inherent in our operations. The increase in cash
flows from operating activities in 1999 compared to 1998 was due to favorable
contract operations in 1999 over 1998 and a decrease in working capital
resulting primarily
50
from normal fluctuations in working capital requirements, along with an increase
in billings received in advance of revenue recognition on our Ghana project.
Our net cash flows used in investing activities for the years ended
December 31, 2000, 1999 and 1998, were $13.7 million, $12.8 million, and
$10.6 million, respectively. Uses in 2000 and 1999 relate primarily to capital
expenditures; however, 1999 also included $3.6 million in distributions from
joint ventures, which was offset by $1.7 million paid out as distributions to
minority interests. In 1999, there was an increase in capital additions of
$6.0 million compared to the net capital additions in 1998. Capital expenditures
in 1998 included $13.6 million for two hydraulic dredges and certain support
vessels acquired from a competitor. In December 1998, we entered into a sale
lease-back transaction for this equipment and received proceeds of
$14.5 million. Additionally, in 1998, we contracted to build a new backhoe
dredge to cost approximately $18.0 million. Capital expenditures in 1998
included $5.7 million in costs related to the construction of this dredge. In
October 1998, we sold the $5.7 million in related construction in progress and
entered into a construction agency agreement to complete the backhoe and a long
term operating lease to operate the dredge upon completion.
Our net cash flows used in financing activities for the years ended
December 31, 2000, 1999 and 1998, were $4.2 million, $11.7 million, and
$10.6 million, respectively. The 2000 use of cash related to the scheduled
payments of our term senior debt, offset by net borrowings on our revolver
arrangement. The 1999 use of cash related primary to payments on the term loan
portion of the Credit Agreement, which was amended in October 1999 to allow for
prepayment of a portion of the term loan and increased capacity under the
revolving loan. The use of cash related to financing activities in 1998 is
explained by the recapitalization effected in August of 1998, which extinguished
the debt under the former credit agreement and redeemed the stock of the
majority stockholders with the proceeds from the new Credit Agreement, issuance
of senior subordinated notes and equity investments by new stockholders.
Distributions from and contributions to both Amboy Aggregates and Riovia are
subject to the unanimous consent of the partners in such joint venture. We
received distributions from the joint ventures totaling $0.2 million and
$3.6 million in 2000 and 1999, respectively. No distributions were received from
joint ventures in 1998. In 2000, we made an additional investment in the Riovia
joint venture of $0.3 million representing our share of the cost to buy out one
of the joint venture partners. We recorded (losses) earnings from joint ventures
of $(0.8) million, $0.2 million and $1.2 million in 2000, 1999, and 1998,
respectively. In the first half of 1999, we made distributions to minority
interests of $1.7 million, related to 1998 earnings; such distributions were
made during the fourth quarter of 1997 for 1997 earnings and no distributions
have been made for 1999 or 2000 earnings. We recorded minority interest income
(expense), attributable to subsidiary results, of $(1.0) million, $0.5 million,
and $(2.7) million in 2000, 1999, and 1998, respectively.
We have entered into operating lease agreements for certain dredging assets
and office space, which require annual lease payments through 2011. See
Note 13, "Lease Commitments" in the notes to the Consolidated Financial
Statements. In the fourth quarter of 1999, we secured construction and long-term
lease financing for a new 5,000 cubic meter hopper dredge, expected to be
delivered by the end of 2001. Additionally, we expect to incur annual
maintenance expenses of approximately $25 to $27 million. Amounts expended for
operating leases and maintenance expenses are charged to operations on an annual
basis.
Planned capital expenditures, which primarily include support equipment and
equipment upgrades, are expected to require spending of approximately $12 to
$15 million annually for the foreseeable future.
In connection with the closing of the Acquisition, we entered into an
intercompany agreement with NASDI, under which NASDI was deemed to have borrowed
from us approximately $32.0 million, which reflects the Acquisition-related
indebtedness. NASDI will be required to service this debt with its
51
excess cash until repaid. Cash flow in excess of principal and interest payments
and all cash flow after the debt is fully repaid is expected to be available for
distribution to the Company and the minority interest management stockholders
according to their ownership interests. We and the NASDI management stockholders
entered into a stockholders agreement relating to the ownership of NASDI capital
stock. In accordance with the stockholders agreement, so long as we and the
NASDI management stockholders continue to own, in the aggregate, more than 50%
of NASDI, the NASDI management stockholders will have the right, during the
two-month period following April 15, 2006, to require us to acquire their NASDI
common stock at a price equal to the greater of (i) $2.0 million or (ii) a
formula based on NASDI's financial performance. In addition, each NASDI
management stockholder will have the right to require us to purchase his NASDI
common stock following a termination of his employment, at a price based upon
certain formulas, depending upon the reason for the termination.
We believe cash flows from operations and available credit will be
sufficient to finance operations, planned capital expenditures and debt service
requirements for the foreseeable future. Our ability to fund our working capital
needs, planned capital expenditures and scheduled debt payments, to refinance
indebtedness and to comply with all of the financial covenants under our debt
agreements, depends on our future operating performance and cash flow, which in
turn, are subject to prevailing economic conditions and to financial, business
and other factors, some of which are beyond our control.
NORTH AMERICAN SITE DEVELOPERS, INC.
NASDI's primary source of liquidity has been cash flows from operations.
NASDI's primary uses of cash have been the funding of working capital, capital
expenditures and stockholder distributions.
NASDI's net cash flows from operating activities for the years ended
December 31, 2000, 1999 and 1998 were sources of $4.2 million, $4.9 million and
a use of $1.0 million, respectively. The slight decrease in cash flows from
operating activities in 2000 compared to 1999 is the result of normal
fluctuations in working capital requirements inherent in NASDI's operations. The
increase in cash flows from operating activities in 1999 compared to 1998 was
due to contract operations in 1999 over 1998.
NASDI's net cash flows from investing activities for the years ended
December 31, 2000, 1999 and 1998 were nil, a use of $2.5 million and a use of
$0.9 million, respectively. The change in cash flows from investing activities
between the years 2000, 1999 and 1998 is primarily related to the purchase and
sale of marketable securities. NASDI periodically invests excess cash generated
from operating activities in marketable securities. Capital expenditures for
years ended 2000, 1999 and 1998 were $1.0 million, $0.9 million and
$0.9 million, respectively.
NASDI's net cash flows from financing activities for the years ended
December 31, 2000, 1999 and 1998 were uses of $3.6 million, $1.8 million and a
source of $0.8 million, respectively. The change in cash flows from financing
activities between years 2000 and 1999 is largely attributed to a $1.7 million
increase in distributions to stockholders. The change in cash flows from
financing activities between the years 1999 and 1998 is related to stockholder
advances provided for working capital requirements and subsequent repayments
thereof.
NASDI has entered into operating lease agreements for certain machinery and
equipment, which require annual lease payments through 2003. See Note 6, "Debt
Obligations" in the notes to the Financial Statements.
Planned capital expenditures, which primarily include machinery and
equipment, are expected to require annual spending of approximately
$1.0 million to $1.5 million in 2001 and 2002.
52
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), as amended, which requires that all
derivative instruments be reported in the balance sheet at the fair value and
established criteria for designation and effectiveness of hedge relationships.
The adoption of SFAS 133 resulted in a pre-tax reduction to other comprehensive
income of $1,200 ($626 after tax) related to our fuel hedge arrangements, which
are designated as cash flow hedges. The losses included in accumulated other
comprehensive income as of January 1, 2001 will be reclassified into earnings
over the next thirteen months, the remaining term of the hedge arrangements.
NASDI's adoption of SFAS 133 did not have an impact on its financial position or
operating results.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements," which summarizes certain of the SEC staff's views in applying U.S.
generally accepted accounting principles to revenue recognition in financial
statements. In June 2000, the SEC issued SAB 101B, which delayed the
implementation date of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. Adoption of this SAB has not had
a material impact on the Company's financial statements or those of NASDI.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A portion of our current dredging operations are conducted outside of the
U.S. In 2000 and 1999, 21% and 10%, respectively, of contract revenues were
attributable to overseas operations. It is our policy to hedge foreign currency
exchange risk on contracts denominated in currencies other than the U.S. dollar,
if available. Forward currency exchange contracts, typically with durations of
less than one year, are used to minimize the impact of foreign currency
fluctuations on operations. We do not purchase forward exchange contracts for
trading purposes. At December 31, 2000 and 1999, we had outstanding foreign
currency forward contracts with a notional value of $2.0 million and
$4.3 million, respectively, designated as hedges of our foreign currency
denominated tax liabilities. We expect that gains or losses on the foreign
currency forward contracts should offset gains or losses on the underlying tax
liability being hedged, such that the impact of a change in the exchange rate
would be immaterial to our earnings.
Our obligations under the senior credit facility expose earnings to changes
in short-term interest rates since interest rates on bank debt are variable. If
the variable rates on our outstanding bank debt were to increase by 10% from the
rates at December 31, 2000, for the full year 2001, assuming scheduled principle
payments are made, interest expense would increase $0.4 million and assuming a
38% marginal tax rate, net income would decrease $0.2 million.
The fair value of our fixed rate debt was $114.4 million and $120.2 million
at December 31, 2000 and 1999, respectively, based on quoted market prices.
Assuming a 10% decrease in interest rates from the rates at December 31, 2000,
the fair value of this fixed rate debt would have increased by $7.0 million.
One of our significant operating costs is diesel fuel. During 2000 and 1999,
fuel expenditures represented 5.4% and 4.6%, respectively, of dredging costs of
contract revenues. We use fuel commodity forward contracts, typically with
durations of less than eighteen months, to reduce the impacts of changing fuel
prices on operations. We do not purchase fuel hedges for trading purposes. Based
on our 2001 projected fuel consumption, a one cent change in the average annual
price per gallon of fuel would impact its net income by less than $0.1 million,
after the effect of fuel commodity contracts in place as of December 31, 2000.
At December 31, 2000 and 1999, we had outstanding arrangements to hedge the
price of a portion of its fuel purchases related to work in backlog,
representing approximately 59% of its projected fuel requirements for 2001 and
2000, respectively.
53
THE EXCHANGE OFFER
PURPOSE AND EFFECT
In 1998, we sold the Series A notes in an unregistered transaction which
notes we subsequently exchanged on February 5, 1999 for the registered Series B
notes. We sold the Series C notes on April 24, 2001 in an unregistered
transaction to Credit Suisse First Boston Corporation, as initial purchaser. In
connection with this transaction, we, the subsidiary guarantors and the initial
purchaser entered into a registration rights agreement, pursuant to which we
agreed to prepare and file with Securities and Exchange Commission a
registration statement registering the offer to exchange the Series C notes and
the Series B notes for single class of publicly tradable notes having identical
terms to those of the existing notes not later than June 22, 2001 and to cause
the registration statement to become effective under the Securities Act not
later than October 19, 2001.
The registration statement of which this prospectus is a part is intended to
satisfy in part the Company's obligations with respect to the existing notes
under the registration rights agreement.
Based on certain interpretive letters issued by the staff of the Securities
and Exchange Commission, or the Commission, to third parties in unrelated
transactions, the Company is of the view that holders of the existing notes
(other than any holder who is an "affiliate" of our company or any guarantor
within the meaning of Rule 405 under the Securities Act) who exchange their
existing notes for exchange notes pursuant to the exchange offer generally may
offer such exchange notes for resale, resell such exchange notes and otherwise
transfer such exchange notes without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided:
- the exchange notes are acquired in the ordinary course of the holders'
business; and
- the holders have no arrangement with any person to participate in a
distribution of such exchange notes.
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivery of a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, at it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
exchange notes received in exchange for existing notes where such existing notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. We have agreed that, for a period of 180 days after
the expiration date of this exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Except as provided below, our obligations with respect to the exchange of
the existing notes will terminate upon completion of the exchange offer. A copy
of the registration rights agreement has been filed as an exhibit to the
registration statement, of which this prospectus is a part, and the summary in
this prospectus of the material provisions of the registration rights agreement
does not purport to be complete and is qualified in its entirety by reference to
that agreement. Following the completion of this exchange, except as set forth
below, (A) holders of Series C notes not tendered will continue to be subject to
certain restrictions on transfer and (B) holders of Series B notes not tendered
will not have any further rights under the registration rights agreement.
Accordingly, the liquidity of the market for the existing notes could be
adversely affected upon consummation of this exchange offer.
The registration rights agreement provides that:
- we will file an Exchange Offer Registration Statement with the Commission
on or prior to June 22, 2001;
54
- we will use our best efforts to have the exchange offer registration
statement declared effective by the Commission on or prior to October 19,
2001;
- unless the exchange offer would not be permitted by applicable law or
Commission policy, we will commence the exchange offer and use our best
efforts to issue on or before 30 business days after the date on which the
exchange offer registration statement was declared effective by the
Commission, exchange notes in exchange for all existing notes tendered
prior thereto in the exchange offer; and
- if obligated to file the shelf registration statement with respect to the
Series C notes, we will use our best efforts to file the shelf
registration statement with the Commission on or prior to 60 days after
such filing obligation arises and to cause the shelf registration
statement to be declared effective by the Commission on or prior to
180 days after such obligation arises. We will be permitted to suspend use
of the prospectus that is part of the shelf registration statement during
certain periods of time and in certain circumstances relating to pending
corporate developments and public filings with the Commission and similar
events.
Other than as set forth above, no holder will have the right to participate
in the shelf registration statement nor otherwise require that we register such
holder's shares of unregistered Series C notes under the Securities Act of 1933.
See "--Procedure for Tendering Existing Notes."
In order to have their notes included in the shelf registration statement
and benefit from the provisions regarding Liquidated Damages, holders of
Series C notes will be required to do the following:
- make certain representations to Great Lakes (as described in the
registration rights agreement) in order to participate in the exchange
offer;
- deliver information to be used in connection with the shelf registration
statement; and
- provide comments on the shelf registration statement within the time
periods set forth in the registration rights agreement.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal (which together constitute the
exchange offer), we will accept for exchange existing notes which are properly
tendered on or prior to the expiration date and not withdrawn as permitted
below. As used herein, the term "expiration date" means 5:00 p.m., New York City
time, on, , 2001; provided, however, that if we have extended the
period of time for which the exchange offer is open, the term "expiration date"
means the latest time and date to which the exchange offer is extended.
As of the date of this prospectus, $155.0 million aggregate principal amount
of the existing notes are outstanding. This prospectus, together with the letter
of transmittal, is first being sent on or about , 2001 to all holders of
existing notes known to us. Our obligation to accept existing notes for exchange
pursuant to the exchange offer is subject to certain conditions as set forth
under "--Certain Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for any exchange of any existing notes, by giving notice of such
extension to the holders thereof. During any such extension, all existing notes
previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any existing notes not accepted for exchange for
any reason will be returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination of the exchange
offer.
55
We expressly reserve the right to amend or terminate the exchange offer, and
not to accept for exchange any existing notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified below under "--Certain Conditions to the Exchange Offer." We will give
notice of any extension, amendment, non- acceptance or termination to the
holders of the existing notes as promptly as practicable, such notice in the
case of any extension to be issued no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date.
Holders of existing notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law in connection with the exchange
offer.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to us of existing notes by a holder thereof as set forth below
and the acceptance thereof by us will constitute a binding agreement between the
tendering holder and us upon the terms and subject to the conditions set forth
in this prospectus and in the accompanying letter of transmittal. Except as set
forth below, a holder who wishes to tender existing notes for exchange pursuant
to the exchange offer must transmit a properly completed and duly executed
letter of transmittal, including all other documents required by such letter of
transmittal, to The Bank of New York at one of the addresses set forth below
under "Exchange Agent" on or prior to the expiration date. In addition, either
(i) certificates for such existing notes must be received by the Exchange Agent
along with the letter of transmittal, or (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such existing notes, if
such procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility" or the "Depositary") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the expiration date, or the holder must comply with
the guaranteed delivery procedure described below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR EXISTING NOTES
SHOULD BE SENT TO US.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the existing notes surrendered for exchange
pursuant thereto are tendered:
- by a registered holder of the existing notes who has not completed the box
entitled "Special Issuance Instruction" or "Special Delivery Instruction"
on the letter of transmittal; or
- for the account of an Eligible Institution (as defined below).
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case maybe, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust Company having an office or correspondent in the United
States (collectively, "Eligible Institutions"). If existing notes are registered
in the name of a person other than a signer of the letter of transmittal, the
existing notes surrendered for exchange must be endorsed by, or be accompanied
by a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by us in our sole discretion, duly executed by, the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of existing notes tendered for exchange will be
determined by us in our sole discretion, which
56
determination shall be final and binding. We reserve the absolute right to
reject any and all tenders of any particular existing notes not properly
tendered or to not accept any particular existing notes which acceptance might,
in our or our counsel's judgment, be unlawful. We also reserve the absolute
right to waive any defects or irregularities or conditions of the exchange offer
as to any particular existing notes either before or after the expiration date
(including the right to waive the ineligibility of any holder who seeks to
tender existing notes in the exchange offer). The interpretation of the terms
and conditions of the exchange offer as to any particular existing notes either
before or after the expiration date (including the letter of transmittal and the
instructions thereto) by us shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of existing
notes for exchange must be cured within such reasonable period of time as we
shall determine. Neither we, the Exchange Agent nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of existing notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the letter of transmittal or any existing notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
us, proper evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder of existing notes will represent to us in writing
that, among other things, the exchange notes acquired pursuant to the exchange
offer are being obtained in the ordinary course of business of the holder and
any beneficial holder, that neither the holder nor any such beneficial holder
has an arrangement or understanding with any person to participate in the
distribution of such exchange notes and that neither the holder nor any such
other person is our "affiliate," as defined under Rule 405 of the Securities
Act. If the holder is not a broker-dealer, the holder must represent that it is
not engaged in nor does it intend to engage in a distribution of the exchange
notes. If the holder is a broker-dealer, the holder must represent that it will
receive exchange notes for its own account in exchange for existing notes that
were acquired as a result of market-making activities or other trading
activities. Each broker-dealer that receives exchange notes for its own account
in exchange for existing notes, where such existing notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (an "Exchanging Dealer"), must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. See "Plan of
Distribution."
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
For each existing note accepted for exchange, the holder of such existing
note will receive an exchange note having a principal amount equal to that of
the surrendered existing note. For purposes of the exchange offer, we shall be
deemed to have accepted properly tendered existing notes for exchange when, as
and if we have given oral and written notice thereof to the Exchange Agent.
In all cases, issuance of exchange notes for existing notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the Exchange Agent of certificates for such existing notes or
a timely Book-Entry Confirmation of such existing notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed letter of transmittal and all other required documents. If any
tendered existing notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer or if existing notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged existing notes will be returned without expense to the tendering
holder thereof (or, in the case of existing notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged existing notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration of
the exchange offer.
57
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of existing notes by causing the
Book-Entry Transfer Facility to transfer such existing notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of existing notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the letter of transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the expiration
date or the guaranteed delivery procedures described below must be complied
with.
The Company understands that the Exchange Agent has confirmed with the
Book-Entry Transfer Facility that any financial institution that is a
participant in the Book-Entry Transfer Facility's system may utilize the
Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") to tender
existing notes. The Company further understands that the Exchange Agent will
request, within two business days after the date the exchange offer commences,
that the Book-Entry Transfer Facility establish an account with respect to the
existing notes for the purpose of facilitating the exchange offer, and any
participant may make book-entry delivery of existing notes by causing the
Book-Entry Transfer Facility to transfer such existing notes into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility's ATOP
procedures for transfer. However, the exchange of the existing notes so tendered
will only be made after timely confirmation (a "Book-Entry Confirmation") of
such book-entry transfer and timely receipt by the Exchange Agent of an Agent's
Message (as defined in the next sentence), an appropriate letter of transmittal
with any required signature guarantee, and any other documents required. The
term "Agent's Message" means a message, transmitted by the Book- Entry Transfer
Facility and received by the Exchange Agent and forming part of Book-Entry
Confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from a participant tendering existing notes which are the
subject of such Book-Entry Confirmation and that such participant has received
and agrees to be bound by the terms of the letter of transmittal and that the
Company may enforce such agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the existing notes desires to tender such existing
notes and the existing notes are not immediately available, or time will not
permit such holder's existing notes or other required documents to reach the
Exchange Agent before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if:
- the tender is made through an Eligible Institution;
- prior to the expiration date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of existing notes and the amount of existing notes
tendered, stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange ("NYSE") trading days after the
date of execution of the Notice of Guaranteed Delivery, the certificates
for all physically tendered existing notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
- the certificates for all physically tendered existing notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and
all other documents required by the letter of
58
transmittal are received by the Exchange Agent within five NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of existing notes may be withdrawn at any time prior to the
expiration date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must:
- specify the name of the person having tendered the existing notes to be
withdrawn;
- identify the existing notes to be withdrawn (including the principal
amount of such existing notes); and
- specify (where certificates for existing notes have been transmitted)
specify the name in which such existing notes are registered, if different
from that of the withdrawing holder.
If certificates for existing notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If existing notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn existing notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
existing notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any existing notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or in the case of
existing notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such existing notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the existing notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn existing notes may be retendered by following
one of the procedures described under "--Procedures for Tendering existing
notes" above at any time on or prior to the expiration date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue exchange notes in exchange for, any
existing notes and may terminate or amend the exchange offer if at any time
before the acceptance of such existing notes for exchange or the exchange of
exchange notes for such existing notes, we determine that (i) the exchange offer
does not comply with any applicable law or any applicable interpretation of the
staff of Securities and Exchange Commission, (ii) we have not received all
applicable governmental approvals or (iii) any actions or proceedings of any
governmental agency or court exist which could materially impair our ability to
consummate the exchange offer.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our
reasonable discretion. The failure by us at any time to exercise any of the
foregoing rights shall not be deemed a waiver of such right and each such right
shall be deemed an ongoing right which may be asserted at any time and from time
to time.
In addition, we will not accept for exchange any existing notes tendered,
and no exchange notes will be issued in exchange for any such existing notes, if
at such time any stop order shall be threatened
59
or in effect with respect to the Registration statement of which this prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). In any such event
we are required to use every reasonable effort to obtain the withdrawal of any
stop order at the earliest possible time.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
exchange offer. All executed letters of transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the Exchange Agent addressed as follows:
BY HAND OR OVERNIGHT DELIVERY: FACSIMILE TRANSMISSIONS: BY REGISTERED OR CERTIFIED MAIL:
The Bank of New York (Eligible Institutions Only) The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
New York, New York 10286 (212)571-3080 New York, New York 10286
Corporate Trust Services To Confirm by Telephone
Window or for Information Call:
Ground Level (212) 815-6333
Attention: Reorganization
Section,
Delivery to an address other than as set forth above or transmission via
facsimile to a number other than as set forth above does not constitute a valid
delivery.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
our officers and employees.
The expenses to be incurred in connection with the exchange offer will be
paid by us. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying amount as the
existing notes, which is the principal amount as reflected in our accounting
records on the date of the exchange and, accordingly, no gain or loss will be
recognized. The debt issuance costs will be capitalized and amortized to
interest expense over the term of the exchange notes.
TRANSFER TAXES
Holders who tender their existing notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct us to register exchange notes in the name of, or request that existing
notes not tendered or not accepted in the exchange offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES
Holders of Series C notes who do not exchange their existing notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of such Series C notes as
60
set forth in the legend thereon as a consequence of the issuance of the
Series C notes pursuant to the exemptions from, or in transactions not subject
to, the registration requirements of, the Securities Act and applicable state
securities laws. If we fail to complete this exchange offer, as discussed above,
the holders of the Series C notes are entitled to certain liquidated damages.
See "Description of Exchange Notes--Registration Rights; Liquidated Damages."
Holders of Series B notes who do not exchange their existing notes for
exchange notes pursuant to the exchange offer will continue to hold registered
notes but the total principal amount of Series B notes may be reduced by this
exchange offer, accordingly, the liquidity of the market for a holder's
Series B notes could be adversely affected upon completion of the exchange
offer. Holders of these notes who do not exchange their existing notes will not
have further rights under the registration rights agreement.
Existing notes not exchanged pursuant to the exchange offer will continue to
accrue interest at 11 1/4% per annum and will otherwise remain outstanding in
accordance with their terms. Holders of existing notes do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law in connection
with the exchange offer. In general, the Series C notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws.
We do not currently anticipate that we will register the Series C notes
under the Securities Act. However, we are obligated to file a shelf registration
statement on the appropriate form under the Securities Act relating to the
existing notes:
- if the Initial Purchaser so requests with respect to Series C notes not
eligible to be exchanged for exchange notes in the exchange offer and held
by it following consummation of the exchange offer; or
- if any holder of Series C notes (other than an Exchanging Dealer) is not
eligible to participate in the exchange offer or, in the case of any
holder of Series C notes (other than an Exchanging Dealer) that
participates in the exchange offer, does not receive exchange notes in
exchange for Series C notes that may be sold without restriction under
state and federal securities laws (other than due solely to the status of
such holder as our affiliate within the meaning of the Securities Act).
Based on certain interpretive letters issued by the staff of Securities and
Exchange Commission to third parties in unrelated transactions, we are of the
view that exchange notes issued pursuant to the exchange offer in exchange for
existing notes, may be offered for resale, resold or otherwise transferred by
holders thereof (other than (i) any such holder which is our "affiliate" within
the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that
purchases notes from us to resell pursuant to Rule 144A or any other available
exemption) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such exchange notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the distribution
of such exchange notes. If any holder of such exchange notes has any arrangement
or understanding with respect to the distribution of such exchange notes to be
acquired pursuant to the exchange offer, such holder (i) could not rely on the
applicable interpretations of the staff of Securities and Exchange Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds existing notes that were acquired for its own account as
a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of exchange notes. Each such broker-dealer that
receives exchange notes for its own account in exchange for existing notes,
where such existing notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
61
must acknowledge in the letter of transmittal that it will deliver a prospectus
in connection with any resale of such exchange notes. See "Plan of
Distribution." We have not requested the staff of Securities and Exchange
Commission to consider the exchange offer in the context of a no-action letter,
and there can be no assurance that the staff would take positions similar to
those taken in the interpretive letters referred to above if we were to make
such a no-action request.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Series C exchange notes may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or an exemption
from registration or qualification is available and is complied with. We have
agreed, pursuant to the registration rights agreement and subject to certain
specified limitations therein, to register or qualify the exchange notes for
offer or sale under the securities or blue sky laws of such jurisdictions in the
United States as any selling holder of the notes reasonably requests in writing.
62
BUSINESS
GENERAL
We are the largest provider of dredging services in the United States.
Dredging generally involves the enhancement or preservation of navigability of
waterways or the protection of shorelines through the removal or replenishment
of soil, sand or rock. The U.S. dredging market consists of three primary types
of dredging work: Capital, Maintenance and Beach Nourishment, in which
activities we achieved a combined U.S. bid market share of 37% in 2000. In
addition, we are the only U.S. dredging contractor with significant
international operations, which represented approximately 21% of our dredging
contract revenues in 2000. Our fleet of over 200 vessels, including 28 dredges,
31 material transportation barges, 3 drillboats, and numerous other specialized
support vessels, is the largest and most diverse fleet in the U.S. We believe
that our fleet would have a replacement cost in excess of $750 million.
On April 24, 2001 we acquired 80% of NASDI. According to the ENGINEERING
NEWS RECORD, NASDI is one of the three largest providers of commercial and
industrial demolition, or CID, services in the United States, based on 1999
revenues. We believe that the Acquisition will provide us with the following
benefits:
- STRENGTHENS AND DIVERSIFIES OUR BUSINESS. The Acquisition enables us to
increase our revenues and cashflow by utilizing our core competencies in a
related business segment and also diversifies our customer base. Similar
to our dredging activities, NASDI's CID activities involve the removal,
transportation and disposal of materials using specialized equipment,
employing a unionized workforce and requiring special operating permits,
licenses and skills. Many of the larger and more complex demolition
projects that make up a majority of NASDI's revenue require sophisticated
estimating methods and systems that are also required in our estimation of
dredging projects. The Acquisition also provides us with exposure to the
attractive market dynamics of the CID business. NASDI's customers are
generally non-government entities for whom CID is a critical function.
NASDI is also a leader in the developing market for the demolition of
aging industrial infrastructure, particularly power generation plants, to
allow for the construction of new and more efficient replacements on the
same site.
- POSITIONS NASDI FOR INCREASED GROWTH. By integrating and supplementing
certain of NASDI's administrative functions (such as contract cost and
performance tracking, contract administration, and risk management), we
can better enable the management of NASDI to focus on exploiting new
business opportunities, which will further contribute to our combined
revenues and earnings.
For the year ended December 31, 2000, after giving pro forma effect to the
Acquisition, we generated revenues of $411.7 million and EBITDA (as defined) of
$71.5 million. In addition, as of December 31, 2000, we had a dredging contract
backlog in excess of $198.0 million and a CID contract backlog in excess of
$23.3 million.
DREDGING ACTIVITIES
Over our 110-year life, we have grown to be the leader in each of our
primary dredging activities in the U.S., including:
- CAPITAL--U.S. AND FOREIGN (approximately 57% of pro forma 2000 revenues).
Capital dredging projects are primarily port expansion projects, which
involve the deepening of channels to allow access by larger, deeper draft
ships and the providing of land fill for building additional port
facilities, thereby enhancing port profitability and competitiveness. The
U.S. capital market includes "Deep Port" projects authorized under the
1986 Water Resource Development Act, or WRDA, which initially authorized
the deepening of 39 ports. Subsequent WRDA bills, most
63
recently in December 2000, have authorized additional port deepening
projects and expanded previously authorized projects. We achieved a 60%
cumulative bid market share of Deep Port projects over the past five
years. Our bid market share of total U.S. capital projects was 35% in
2000.
- MAINTENANCE (approximately 18% of pro forma 2000 revenues). Maintenance
dredging consists of the redredging of previously deepened waterways and
harbors to remove silt, sand and other accumulated sediments. Due to
natural sedimentation, active channels generally require maintenance
dredging every one to three years, thus creating a continuous source of
dredging work that is typically non-deferrable if optimal navigability is
to be maintained. Our bid market share of U.S. maintenance projects was
27% in 2000.
- BEACH NOURISHMENT (approximately 8% of pro forma 2000 revenues). Beach
nourishment dredging projects generally involve moving sand from the ocean
floor to shoreline locations when erosion has progressed to a stage that
threatens substantial shoreline assets. Our bid market share of U.S. beach
nourishment projects was 53% in 2000.
We believe that we benefit from a number of favorable trends in the U.S.
dredging market:
- DEEP PORT CAPITAL PROJECTS. The average controlling depth of the ten
largest U.S. ports (as measured by annual container volume) is 40.4 feet,
compared to 52.7 feet for the ten largest non-U.S. ports. Without
significant deepening efforts, most major U.S. ports risk being unable to
efficiently accommodate larger cargo vessels, which renders them less
competitive. In 1997, the United States Army Corps of Engineers (the
"Corps"), which has the primary responsibility for maintaining and
improving the nation's waterways, ports and shorelines, announced new Deep
Port projects and the expansion of existing projects with an estimated
aggregate revenue value in excess of $2.0 billion to be completed through
2005.
- INCREASING NEED FOR BEACH NOURISHMENT. Beach erosion is a continuous
problem and there is a growing awareness among state and local governments
as to the importance of beachfront assets to the multi-billion dollar
tourist industry. To date, a significant amount of funding has been
allocated by local governments to restore and preserve eroding beachfront.
- ADDITIONAL SIGNIFICANT LONG TERM OPPORTUNITIES. There are significant
capital dredging opportunities related to projects to contain the erosion
of wetlands and coastal marshes (particularly in Louisiana) and to provide
land reclamation for the San Francisco airport expansion. These long term
projects have the potential to add substantial revenue to the dredging
market over the next several years.
COMMERCIAL AND INDUSTRIAL DEMOLITION ACTIVITIES
CID activities conducted by NASDI accounted for approximately 18% of our pro
forma 2000 revenues. NASDI offers a comprehensive array of specialized services,
including: interior and exterior demolition of commercial and industrial
buildings; salvage and recycling of related materials; and removal of hazardous
substances and materials. NASDI's specialized fleet of rented and owned
demolition equipment includes excavators equipped with shears, pulverizers,
processors, grapples and hydraulic hammers. Since NASDI can satisfy a
significant amount of its equipment needs through rental and utilizes hourly
workers on a project basis, NASDI has a highly variable cost structure, which
provides the flexibility to adjust costs to the level of project activity. From
1998 to 2000, NASDI increased its contract revenue and Adjusted EBITDA (as
defined) at compound annual growths rates of 54.8% and 115.9%, respectively. For
the fiscal year ended December 31, 2000, NASDI generated contract revenue of
$72.6 million and Adjusted EBITDA (as defined) of $23.3 million.
NASDI's operations have historically been concentrated in the New England
region where NASDI has a significant share of the Massachusetts CID market. We
believe that NASDI is one of the few
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CID providers in its region of operation with the required licenses, operating
expertise, equipment fleet and access to bonding to execute larger, highly
profitable industrial projects.
COMPETITIVE STRENGTHS
We possess a number of competitive strengths that have allowed us to develop
and maintain our leading position within the dredging industry, including the
following:
FLEXIBLE PORTFOLIO OF DREDGING ASSETS. Our dredging fleet is the largest in
the United States and one of the largest in the world. Our U.S. fleet consists
of over 200 pieces of equipment, including the largest number of hopper dredges,
most of the large hydraulic dredges, the only two large electric dredges, and
the only drillboat capable of operating in offshore conditions in U.S. waters.
The size, versatility and technical capabilities of our fleet improve our
competitiveness as they generally permit us to select the most efficient
equipment for a particular job. To maintain the value and effectiveness of our
fleet, we emphasize proactive maintenance that results in less downtime,
increased profitability, enhanced vessel life and relatively low capital
expenditure requirements. To this end, in 2000, we incurred $25.9 million of
maintenance expense (which is included in costs of contract revenues) in
addition to capital expenditures of $14.1 million.
FAVORABLE COMPETITIVE DYNAMIC. We are the largest U.S. provider of dredging
services and have maintained the largest cumulative bid market share in the
industry since 1991. In 2000, we had a 37% bid market share, which was
substantially greater than our nearest competitor's share of those contracts. In
addition, we believe that we benefit from:
- FAVORABLE COMPETITIVE ENVIRONMENT. The requirements of the Dredging Act of
1906 and the Jones Act of 1920 effectively prohibit foreign dredges and
foreign-owned dredging companies from competing in the U.S. In addition,
we believe that we are one of only four dredging providers that can obtain
performance bonds in an amount greater than $50 million, which we believe
provides us with a competitive advantage in bidding for larger projects
due to the job bonding requirements imposed by many state and federal
agencies. Moreover, there is a long lead time and a high capital cost
associated with the construction of a new dredge, which we estimate to be
two years and between $18.0 million and $50.0 million, respectively.
- STRONG REPUTATION AND UNEQUALLED EXPERTISE. We have never failed to
complete a project over our 110-year operating history. Our long history
as a leader in the industry has enabled us to develop a proprietary
database that contains detailed bidding and technical information on most
domestic dredging projects since 1970, which our management believes
allows us, among other things, to be more accurate than our competitors in
predicting contract costs prior to bidding.
SPECIALIZED CAPABILITY IN CAPITAL PROJECTS. We believe that we are the
leader in capital dredging projects which generally require specialized
engineering expertise and specific combinations of equipment and experience in
performing complex projects.
PROVEN EXPERIENCED MANAGEMENT TEAM. Our senior managers have an average of
20 years of experience in the dredging industry. We believe that our experienced
management team provides us with a significant advantage over our competitors,
many of whom are family owned and managed. Our management group owns
approximately 14% of our issued and outstanding common stock.
BUSINESS STRATEGY
Our strategy is to continue to grow contract revenues and cash flow and
strengthen our competitive position worldwide. The principal elements of our
strategy include:
CONTINUE TO GROW IN DOMESTIC DREDGING MARKETS. We expect to strengthen our
domestic leadership position by leveraging (i) the size, diversity and technical
capabilities of our fleet, (ii) our industry-
65
leading operating experience, (iii) our engineering expertise, and (iv) our
efficient and safe project management practices.
CAPITALIZE ON OPPORTUNITIES CREATED BY STRATEGIC ASSET ACQUISITIONS. During
the last several years, we have successfully acquired several key pieces of
equipment which will further enhance our operating capabilities by providing
additional tools for capital projects and strengthening our ability to perform
maintenance and beach nourishment projects. These acquisitions include:
- certain hydraulic dredging assets, including the dredge "Texas", which we
acquired in 1998. In 2000, we increased the cutter power of the dredge
Texas, making it the most powerful cutter dredge in the U.S., capable of
handling the type of rock work expected in certain of the upcoming port
deepening projects;
- the dredge "New York", a newly-built backhoe dredge, which we took
delivery of under a long-term lease in July 1999. The "New York" has
performed successfully on the Kill Van Kull channel deepening in New York
and will be working on the Wilmington, North Carolina and San Juan, Puerto
Rico channel deepening projects in 2001;
- the drillboat "Apache" which we constructed in 2000. The "Apache" has
increased drilling efficiency and capacity, is capable of working in
offshore conditions and is the only drillboat of its type in use in U.S.
waters; and
- the dredge "Liberty Island", a new 5,000 cubic meter hopper dredge, to
accommodate anticipated growth in domestic hopper dredging attributable to
the reduction of the Corps' hopper fleet, additional Deep Port work and
related maintenance dredging, potential increased beach nourishment work,
and the aging of the industry's hopper fleet. The new hopper dredge is
expected to be delivered by the end of 2001 under a long-term lease.
GROW ESTABLISHED FOREIGN DREDGING MARKET BASE. Since the early 1990s, a
consolidation among certain foreign competitors, together with an increase in
foreign governments' port infrastructure investments, have resulted in new
overseas dredging opportunities for us. In 2000, we recorded approximately
$71.8 million in revenue from non-U.S. dredging projects. We intend to continue
to selectively pursue international opportunities that offer us the potential to
increase the utilization of our asset base, to leverage our project management
capabilities and to increase our international revenues.
EXPLOIT GROWTH OPPORTUNITIES IN CID MARKET. We believe that our experience
in bidding for and completing large projects in multiple markets and our
significant infrastructure will be particularly valuable in helping NASDI to
execute large CID projects and increase its market share. In particular, our
national presence, purchasing power and administrative capabilities will
facilitate NASDI's ability to obtain licenses and pre-qualifications necessary
to operate in new geographic markets. Thus, we believe that under our ownership
NASDI will be well positioned to selectively enter attractive new geographic
markets, generally with a contracted project from an existing customer.
CUSTOMERS
DREDGING. Our dredging customers include federal, state, and local
governments, foreign governments, and both domestic and foreign private concerns
such as utilities and oil companies. Most dredging projects are competitively
bid, with the award going to the lowest qualified bidder. There are generally
few economical substitutes that customers can use for dredging services.
The Corps is the largest dredging customer in the U.S. and has
responsibility for federally funded projects related to navigation and flood
control. In addition, the United States Coast Guard and the United States Navy
are responsible for awarding federal contracts with respect to their own
facilities. In
66
2000, approximately 67% of our contract revenues were earned from contracts with
federal government agencies or companies operating under contracts with federal
government agencies.
Foreign governments are the primary dredging customers in international
markets, generally for capital projects relating to infrastructure development.
Approximately 21% of our 2000 contract revenues were earned from contracts with
foreign governments or companies operating under contracts with foreign
governments.
CID SERVICES. NASDI provides demolition services primarily in the private
market, with customers primarily in the construction and power generation
industries. NASDI also provides services to municipal and other entities. NASDI
benefits from key relationships with certain customers. NASDI negotiates the
majority of its demolition contracts as fixed price ("lump sum") contracts with
certain other projects negotiated on a time and expense ("T&E") basis. NASDI
frequently receives revenues from change orders on existing contracts. The
majority of CID services work is currently concentrated in New England. In 2000,
approximately 40% of NASDI's revenues were earned from a contract with one
customer.
BIDDING PROCESS
DREDGING. Most dredging contracts are obtained through competitive bidding
on terms specified by the party inviting the bid. The nature of the specified
services dictates the types of equipment, material and labor involved, all of
which affect the cost of performing the contract and the price that dredging
contractors will bid.
For contracts under its jurisdiction, the Corps typically prepares a cost
estimate based on its understanding of the availability of contractors and their
equipment. The Corps will award the bid to a responsible bidder (i.e., a bidder
that generally has the necessary equipment and experience to successfully
complete the project) submitting the lowest responsive bid that does not exceed
125% of an estimate determined by the Corps to be fair and reasonable. Contracts
for projects that are not administered by the Corps, are generally awarded to
the lowest qualified bidder, provided such bid is no greater than the amount of
funds that are available for such project.
Substantially all of our contracts are competitively bid. However, some
government contracts are awarded by a sole source procurement process through
negotiation between the contractor and the government. Prior to negotiations,
the contractor submits a proposal and cost and pricing data to the government.
Under such contracts, the government has the right, after award and, or
completion of the contract, to audit the contractor's books and records,
including the proposal and data available to the contractor during negotiations,
to ensure compliance with the contract and applicable federal legislation, rules
and regulations. The government may seek a price adjustment based on the results
of such audit. The Corps has recently bid certain projects through a "request
for proposal" (RFP) process. The RFP process is likely to be advantageous for
us, as it allows the project award to be based on technical capability, as well
as prices.
We have operated for 110 years and maintain an extensive historical database
of dredging production records from our own and our competitors' activities and
past bidding results. These prior production records help us predict sediment
composition and optimum equipment requirements. We believe that our extensive
database and our accumulated estimating and bidding expertise allow us to be
more accurate than our competitors in predicting dredging costs prior to bidding
for contracts.
CID SERVICES. NASDI has established a network of local contacts with
developers and prime contractors that act as referral sources and frequently
enable NASDI to procure jobs on a sole-source basis. When NASDI bids a project,
it evaluates the contract specifications and develops a cost estimate to which
it adds profit for the final bid price. NASDI maintains a strong reputation and
is one of the
67
few firms with the capability to execute large projects. For these reasons, if
it is not the lowest bidder on a contract, NASDI may still be awarded a project
based on its qualifications.
NASDI management reviews the cost estimate, including a summary of labor,
equipment and materials for each required task, and bid price of all of the
demolition projects. Cost estimates are based on historical cost reports and
experienced knowledge of demolition requirements.
BONDING AND FOREIGN PROJECT GUARANTEES
DREDGING. For most domestic projects and some foreign projects, dredging
service providers are required to obtain three types of bonds, which are
typically provided by large insurance companies. These bonds are:
- BID BOND. A bid bond is required to serve as a guarantee that if a service
provider's bid is chosen, the service provider will sign the contract. The
amount of the bond is typically 20% of the service provider's bid, up to a
maximum bond of $3.0 million.
- PERFORMANCE BOND. After a contract is signed, the bid bond is replaced by
a performance bond, the purpose of which is to guarantee that the job will
be completed. A performance bond typically covers 100% of the contract
value with no maximum bond amounts. If the service provider fails to
complete a job, the bonding company assumes such obligation and pays to
complete the job, generally by using the equipment of the defaulting
company. A company's ability to obtain performance bonds with respect to a
particular contract depends upon the size of the contract, as well as the
size of the service provider and its financial position.
- PAYMENT BOND. A payment bond is also required to protect the service
provider's suppliers and subcontractors in the event that the service
provider cannot make timely payments. Payment bonds are generally written
at 100% of the contract value.
Our dredging projects had been bonded by Reliance until mid-2000, at which
time Travelers purchased the surety business of Reliance. We have never
experienced difficulty in obtaining bonding from Reliance for any of our
dredging projects and expect this good relationship to continue with Travelers,
a major surety provider. If we were to fail to complete a project, the bonding
company would be required to either permit the customer to complete the job and
reimburse the customer for the cost of completion or complete the defaulted
contract utilizing our equipment and labor force or a third party service
provider. In the event the bonding company were to complete the defaulted
contract, it would be entitled to be paid the contract price directly by the
customer. Additionally, the bonding company would be entitled to be paid by us
for any costs incurred in excess of the contract price.
For most foreign dredging projects, letters of credit or bank guarantees
issued by foreign banks, which are secured by letters of credit issued under our
credit agreement with our senior secured lenders, are required as security for
the bid, performance and, if applicable, advance payment. Foreign bid guarantees
are usually 2% to 5% of the service provider's bid. Foreign performance and
advance payment guarantees are each typically 5% to 10% of the contract value.
CID SERVICES. NASDI's contracts are primarily with private, non-government
customers; thus, it often is not required to secure bonding. Those NASDI
projects that have required bonding have been successfully completed. NASDI's
bonding requirements going forward, will be obtained through Travelers.
COMPETITION
DREDGING. The U.S. dredging industry is highly fragmented but has
experienced significant consolidation in recent years. Approximately 180
entities in the U.S. presently operate more than 600 dredges, most of which are
smaller entities, servicing the inland, as opposed to coastal, waterways and
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therefore do not compete with us. Competition in the dredging market is
determined primarily on the basis of price, and competition is often limited by
the size of the job, equipment requirements, bonding requirements, certification
requirements, or government regulations. Currently, we and three competitors are
the only dredging companies which independently bid on jobs with values in
excess of $50.0 million.
Up until very recently, most dredging competitors have concentrated their
efforts in certain regions and operated only one type of dredge. Regional
concentrations do not allow these competitors to respond to opportunities in
other regions or to diversify their risks in the event of a temporary decline in
the market in their area. In the dredging industry, the unique nature of each
project requires a matching of the equipment to the specific project. While a
dredging company may sometimes bid on a project contemplating the use of
equipment that is not ideal for the job, the bidder with the most appropriate
equipment is most likely to be the low bidder and earn a profit on the contract.
A company with a variety of equipment, such as ours, is better able to respond
to changes in demand for certain types of dredges and can select the most
suitable equipment for any particular project, minimizing its project completion
cost. Additionally, with our extensive fleet and engineering expertise we can
readily meet applicable certification, government and bonding requirements.
In recent years, the consolidation within the domestic dredging market has
allowed two competitors to obtain additional dredging assets, which has enabled
them to expand operations across regions, and bid more competitively. This is
apparent in the Deep Port bid market in which our market share, while still
strong, has declined in the past two years due to the more aggressive
competition presented by these entities.
CID SERVICES. The U.S. demolition and related services industry is highly
fragmented and is comprised mostly of small regional companies. According to the
ENGINEERING NEWS RECORD, NASDI is one of the three largest providers of
commercial and industrial demolition services in the U.S., based on 1999
revenues. NASDI believes that it competes in the demolition and related services
industry primarily on the basis of its experience, reputation, equipment and key
client relationships.
EQUIPMENT
DREDGING. Our fleet of dredges, material barges and other specialized
equipment is the largest and most versatile in the U.S. There are three primary
types of dredging equipment: hopper dredges, hydraulic dredges and mechanical
dredges.
- HOPPER DREDGES. Hopper dredges are self-propelled and have the general
appearance of an ocean-going vessel. The dredge has hollow hulls into
which material is suctioned hydraulically through drag-arms and deposited.
Once the hollow hulls or "hoppers" are filled, the dredge will sail to the
designated disposal site and either bottom dump the material or pump the
material from the hoppers through a pipeline to the designated site.
Hopper dredges can operate in rough waters, are less likely to interfere
with ship traffic and can move quickly from one project to another. We
operate the largest hopper fleet in the U.S., which gives us flexibility
to quickly respond to time-sensitive projects.
- HYDRAULIC DREDGES. Hydraulic dredges remove material using a revolving
cutterhead which cuts and churns the sediment on the ocean floor and
hydraulically pumps the material by pipe to the disposal location. These
dredges are very powerful and can dredge some types of rock. Certain
materials can be directly pumped as far as seven miles with the aid of a
booster pump. Hydraulic dredges work with an assortment of support
equipment which help with the positioning and movement of the dredge,
handling of the pipelines, and the placement of the dredged material. We
operate the only two large electric hydraulic dredges in the U.S., which
makes us particularly competitive in markets with stringent emissions
standards, such as California.
69
- MECHANICAL DREDGES. There are two basic types of mechanical dredges
operating in the U.S.: clamshell and backhoe. In all cases, the dredge
uses a bucket which excavates the material from the ocean floor. The
dredged material is placed by the bucket into material barges or "scows"
for transport to the designated disposal area. The scows are emptied by
bottom-dumping, direct pump-out or removal by a crane with a bucket.
Mechanical dredges are capable of removing hardpacked sediments and debris
and can work in tight areas such as along docks or terminals. Clamshell
dredges with specialized buckets are ideally suited to handle material
requiring controlled disposal. We have the largest fleet of material
barges in the industry which provides cost advantages when dredged
material is required to be disposed far offshore or when material requires
controlled disposal.
We are committed to preventive maintenance, which we believe is reflected in
the long lives of most of our equipment and its low level of downtime on jobs.
Effective January 1, 1999, we increased the estimated useful lives of certain
operating equipment to better reflect the period over which we anticipate
utilizing this equipment with normal repairs and maintenance. In 2000, we
incurred $25.9 million in maintenance expenditures (which are included in costs
of contract revenues), in addition to $14.1 million on capital expenditures.
Our domestic fleet is typically positioned on the east and west coasts with
a smaller number of vessels on the Gulf of Mexico and on inland rivers. The
mobility of our fleet enables us to move equipment in response to changes in
demand. We believe that on average, our dredge equipment capacity utilization
based on actual operating time is among the highest in the industry. Our fleet
includes assets currently positioned internationally in the Middle East, India,
Africa, the Caribbean and Central America.
We are continually assessing the need to upgrade and expand our fleet to
take advantage of improving technology and to address the changing needs of the
dredging market. We believe that our recent significant additions to our fleet's
dredging capacity will enhance our ability to compete for and execute future
Deep Port projects.
CID SERVICES. NASDI owns and operates specialized demolition equipment,
including a fleet of excavators equipped with shears, pulverizers, processors,
grapples, and hydraulic hammers that provide high-capacity processing of
construction and demolition debris for recycling and reclamation. NASDI also
owns and maintains a multitude of skid-steer loaders, heavy-duty large-capacity
loaders, cranes, recycling crushers, off-highway hauling units and a fleet of
tractor-trailers for transporting equipment and materials to and from job sites.
NASDI rents additional equipment on a project-by-project basis, which allows
NASDI flexibility to adjust costs to the level of project activity.
EQUIPMENT CERTIFICATION
The U.S. Coast Guard's certification of equipment and the America Bureau of
Shipping's establishment of the permissible loading capacity are important
factors in our business. Federal regulations provide that many projects, such as
beach nourishment projects with offshore sand, dredging projects in exposed
entrance channels, and dredging projects with offshore disposal areas may be
performed only by dredges or scows that have U.S. Coast Guard certification and
a load line established by the America Bureau of Shipping. The certifications
indicate that the dredge is structurally capable of operating in open waters. We
have more certified vessels than any domestic competitor and we make substantial
investments to maintain these certifications.
PROPERTIES
DREDGING. Our dredging fleet is the largest in the U.S. and one of the
largest fleets in the world. The fleet consists of over 200 pieces of equipment,
including the largest hopper fleet and most of the large hydraulic dredges in
the U.S.
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The following table provides a listing of our current fleet of dredging
equipment.
TYPES OF EQUIPMENT QUANTITY
- ------------------ --------
Hydraulic Dredges........................................... 13
Hopper Dredges.............................................. 7
Clamshell Dredges........................................... 8
Unloaders................................................... 1
Drill Boats................................................. 3
Dump Barges................................................. 22
Hopper Barges............................................... 9
Deck Barges................................................. 34
Other Barges................................................ 31
Booster Pumps............................................... 6
Tugs........................................................ 10
Launches.................................................... 29
Derricks.................................................... 6
Cranes...................................................... 13
Loaders/Dozers.............................................. 13
Survey Boats................................................ 20
---
Total....................................................... 225
===
A significant portion of our dredging equipment is subject to liens by our
senior lenders and the bonding company. See Note 4, "Property and Equipment" and
Note 7, "Long-term Debt" in the Notes to the Consolidated Financial Statements.
We lease approximately 40,000 square feet of office facilities in Oak Brook,
Illinois, which serves as our principal administrative facility. The primary
lease for this property will expire in the year 2008. We also lease waterfront
properties in Baltimore, Maryland, and Green Cove Springs, Florida. These
locations serve as mooring sites for idle equipment and inventory storage.
Annual rental payments on our real estate and equipment leased during the
year ended December 31, 2000 totaled $17.8 million, including other short-term
rentals. See Note 13, "Lease Commitments" in the Notes to the Consolidated
Financial Statements.
CID SERVICES. The following table summarizes the primary equipment used in
NASDI's demolition operations.
TYPES OF EQUIPMENT QUANTITY
- ------------------ --------
Excavators.................................................. 14
Loaders..................................................... 12
Bobcats..................................................... 15
Dozers...................................................... 4
Backhoes.................................................... 3
Trucks/Trailers............................................. 34
--
Total....................................................... 82
==
NASDI rents its primary office facility in Allston, Massachusetts, and a
garage and maintenance facility in Everett, Massachusetts, as well as various
pieces of operating equipment. For the year ended December 31, 2000, NASDI's
rent expense, including operating equipment rentals, totaled $4.4 million.
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GOVERNMENT REGULATIONS
We are subject to government regulations pursuant to the dredging statute
(46 U.S.C. Section 292) which protects the United States dredging industry from
competition from foreign-built dredges. The law prohibits foreign-built vessels
(absent special legislative action) from competing in the United States dredging
market. Dredges operating in the navigable waters of the United States must also
meet the coastwise trade requirements of the Jones Act (Section 27 of the
Merchant Marine Act, 1920) and Section 2 of the Shipping Act, 1916, as amended,
and must have a coastwise endorsement pursuant to the Vessel Documentation Act
(46 U.S.C. Section 12101 et seq.). These acts prohibit vessels owned or
controlled by entities which are less than 75% owned and controlled by United
States citizens from transporting dredged material between points in the United
States.
Our operations and facilities are subject to a variety of federal and state
environmental statutes and regulations. In addition, we are required to comply
with federal and state statutes designed to protect certain species and
habitats.
BACKLOG
Our contract backlog represents our current estimate of the revenues which
will be realized under the portion of our contracts remaining to be performed.
Such estimates are subject to fluctuations based upon the amount of material
actually dredged as well as factors affecting the time required to complete the
job. In addition, because a substantial portion of our backlog relates to
government contracts, our backlog can be canceled at any time without penalty,
except, in some cases, the recovery of our actual committed costs and profit on
work performed up to the date of cancellation. Consequently, backlog is not
necessarily indicative of future results. Our backlog includes only those
projects for which the customer has provided an executed contract. The
components of our backlog are addressed in more detail elsewhere in this
prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
EMPLOYEES
DREDGING. We employ approximately 300 full-time salaried personnel, with
additional hourly personnel, most of whom are unionized and hired on a
project-by-project basis. During 2000, we employed an average of approximately
575 hourly personnel to meet project requirements. Crews are generally available
for hire on relatively short notice.
We are party to more than twenty collective bargaining agreements that
govern our relationships with our hourly personnel. Four primary agreements
apply to more than ninety percent of such employees. We have not experienced any
significant labor disputes in the past five years and believe we have good
relationships with our significant unions; however, there can be no assurances
that we will not experience labor strikes or disturbances in the future.
CID SERVICES. Currently, NASDI employs thirteen full-time salaried
administrative employees, in addition to approximately 150 unionized employees
who are party to four union agreements. The unionized employees are hired on a
project-by-project basis and are generally available for hire on relatively
short notice.
JOINT VENTURES
AMBOY AGGREGATES. We, along with our partner, a New Jersey aggregates
company, each own 50% of Amboy Aggregates. Amboy Aggregates was formed in
December 1984 to mine sand from the entrance channel to the New York Harbor and
to provide sand and aggregate for use in road and building construction. Our
dredging expertise together with our partner's knowledge of the aggregate
72
market formed the basis for the joint venture. Our investment in Amboy
Aggregates is accounted for using the equity method.
Amboy Aggregates is the only east coast aggregate producer to mine sand from
the ocean floor. In 1988, Amboy Aggregates built a specially designed dredge at
a cost of $9.0 million for sand mining, de-watering and dry delivery. No other
vessel of this type operates in the U.S. Amboy Aggregate's ocean-based supply of
sand provides a long-term competitive advantage in the northeast as land-based
sand deposits are depleted or rendered less cost competitive by escalating land
values.
Amboy Aggregates performs its mining operations pursuant to permits granted
to Amboy Aggregates by the federal government and the states of New York and New
Jersey. In recent years, Amboy Aggregates has failed to obtain approval for new
permits to mine sand in new borrow areas. These new sources would have contained
aggregate more closely meeting the specifications for concrete sand which would
require less blending with other materials, thereby reducing the cost of the
final product and improving margins. Despite these recent setbacks, Amboy
Aggregates continues to pursue other avenues for obtaining new permits, but it
is likely that the current sand supply will continue to require additional
blending, and hence additional costs, for the next few years. In 1999, Amboy
Aggregates partnered in a venture intended to provide a steady supply of grit,
the material which is blended with its dredged aggregate. To date, this venture
has performed poorly which has further impacted Amboy Aggregates' performance.
Amboy Aggregates is also pursuing other alternative uses for its current supply
of sand in an effort to provide an additional earnings stream.
ARGENTINE JOINT VENTURE. At December 31, 2000, we had a 20% interest in
Riovia S.A. ("Riovia"), a joint venture with four European dredging firms, to
dredge the Rio Via channel linking Buenos Aires, Argentina and Montevideo,
Uruguay which is important for shipping to Argentina and Uruguay. This venture
was established in 1996, with six other partners originally, and has given us
the opportunity to work with these other international dredging companies to
design, manage and execute this project. During 1999, upon completion of the
capital works portion, Riovia entered into the maintenance phase of the dredging
contract which is expected to continue until 2007. We currently account for our
investment in Riovia at cost.
LEGAL PROCEEDINGS
Although we are subject to various claims and legal actions that arise in
the ordinary course of business, we believe that the outcome of such actions,
proceedings or claims will not have a material adverse effect on our business,
financial condition or results of operations.
ENVIRONMENTAL MATTERS
Our operations and facilities are subject to various environmental laws and
regulations, relating to dredging operations, the disposal of dredged material,
wetlands, storm and waste water discharges, demolition activities, asbestos
removal, transportation and disposal of certain other hazardous substances and
materials and air emissions. We are also subject to laws designed to protect
certain species and habitats. Compliance with these statutes and regulations can
delay appropriation with respect to, and performance of, particular projects and
increase related expenses.
Our projects may involve demolition, excavation, transportation, disposal
and management of hazardous waste substances and materials. Various laws
strictly regulate the removal, treatment and transportation of hazardous
substances and materials and impose liability for contamination caused by such
substances. While our CID business requires us to transport and dispose of
hazardous substances and materials, our risks are limited to the proper
execution of such tasks. Our CID customers and the hazardous waste sites retain
the risks associated with the remediation of the materials. Additionally, the
transportation of the hazardous waste material is typically performed by other
entities which accept the risks associated with these tasks.
73
Services rendered in connection with hazardous substance and material
removal and site development may involve professional judgments by licensed
experts about the nature of soil conditions and other physical conditions,
including the extent to which toxic and hazardous substances and materials are
present, and about the probable effect of procedures to mitigate problems or
otherwise affect those conditions. If the judgments and the recommendations
based upon those judgments are incorrect, we may be liable for resulting damages
that our clients incur.
Based on our experience, we believe that the future cost of compliance with
existing environmental laws and regulations (and liability for known
environmental conditions) will not have a material adverse effect on our
business, financial condition or results of operations. However, we cannot
predict:
- what environmental legislation or regulations will be enacted in the
future;
- how existing or future laws or regulations will be enforced, administered
or interpreted; or
- the amount of future expenditures which may be required to comply with
these environmental or health and safety laws or regulations or to respond
to future cleanup matters or other environmental claims.
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CERTAIN TRANSACTIONS
In July 1999, we issued 125 shares and 30,500 shares of our preferred and
common stock, respectively, to certain members of management at a total cost of
$0.2 million. At December 31, 2000, $0.1 million remains receivable from
Ms. Wensel for a portion of her purchased shares.
NASDI has historically leased equipment from other companies related by
common ownership on an as-needed basis. Equipment rentals from these companies
totaled $0.1 million for the year ended December 31, 2000.
Court Square Capital Limited, an affiliate of 399 Venture Partners, Inc.,
has agreed to provide advisory services to us. Pursuant to the terms of the
advisory agreement, Court Square was paid approximately $100,000 upon
consummation of the transaction.
An investment fund administered by an affiliate of 399 Venture
Partners, Inc. acquired an aggregate principal amount of $5.0 million of
Series C notes in connection with the April 2001 Series C note offering.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below are the names and ages of each of our directors, executive
officers and key employees and the positions they hold:
NAME AGE POSITION
- ---- -------- --------------------------------------------------------
Douglas B. Mackie........... 48 President, Chief Executive Officer and Director
Richard M. Lowry............ 45 Executive Vice President and Chief Operating Officer
Deborah A. Wensel........... 40 Vice President and Chief Financial Officer
William F. Pagendarm........ 50 Vice President--Division Manager
Steven F. O'Hara............ 46 Vice President--Division Manager
Bradley T. J. Hansen........ 48 Vice President--Division Manager
Daniel L. Hussin............ 52 Vice President--Manager of U.S. Business Development
Michael A. Delaney.......... 46 Director
David Wagstaff III.......... 62 Director
Set forth is a brief description of the business experience of each of our
directors, executive officers and key employees.
DOUGLAS B. MACKIE has served as our President, Chief Executive Officer and
as one of our directors since 1995. Mr. Mackie joined the Company in 1978 as
Corporate Counsel. In 1987 he was named Senior Vice President.
RICHARD M. LOWRY has served as our Executive Vice President and Chief
Operating Officer since 1995. Mr. Lowry joined us in 1978 as a Project Engineer
and has since held positions of increasing responsibility in the engineering and
operating areas. In 1990 he was named Senior Vice President and Chief Engineer.
DEBORAH A. WENSEL has served as one of our Vice Presidents, and as our Chief
Financial Officer and Treasurer since April 1999. Ms. Wensel joined the Company
in 1987 as Accounting and Financial Reporting Supervisor. In 1989, she was named
Controller and Chief Accounting Officer.
WILLIAM F. PAGENDARM has served as one of our Vice Presidents and as a
Division Manager since 1985. He joined the Company in 1979 as Project
Superintendent.
STEVEN F. O'HARA has served as one of our Vice Presidents and as a Division
Manager since 1988. He joined the Company in 1978 as Cost Accountant.
BRADLEY T. J. HANSEN has served as one of our Vice Presidents and as a
Division Manager since 1994. Mr. Hansen joined the Company in 1977 as an Area
Engineer. He was named Vice President & General Superintendent of the Company in
1991.
DANIEL L. HUSSIN has served as our Vice President--Manager of U.S. Business
Development since 1995. Mr. Hussin joined the Company in 1972 as an Estimator.
He was named Vice President and Division Manager of the Company in 1993.
MICHAEL A. DELANEY has served as one of our directors since the consummation
of our recapitalization on August 19, 1998. Mr. Delaney has been a Managing
Director of 399 Venture Partners, Inc. and its affiliate Citicorp Venture
Capital Ltd. since 1997. From 1989 through 1997, he
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was a Vice President of Citicorp Venture Capital Ltd. and 399 Venture
Partners, Inc. From 1986 through 1989, he was Vice President of Citicorp Mergers
and Acquisitions. Mr. Delaney is also a director of GVC Holdings, JAC Holdings,
Palomar Technologies, Inc., SC Processing, Inc., MSX International, Delco Remy
International, Inc., International Knife and Saw Inc., Fabri-Steel
Holdings, Inc., ChipPAC Incorporated, and Strategic Industries, LLC.
DAVID WAGSTAFF III has served as one of our directors since the consummation
of our recapitalization on August 19, 1998. Mr. Wagstaff has served as President
and Chief Executive Officer of Vectura Group, Inc. since 1993. He was previously
the Principal in a private consulting business and has worked in various
executive capacities at the Equitable Life Assurance Company and Citicorp.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation for 2000, 1999 and 1998 to our chief executive officer and our next
four highest paid executive officers:
ANNUAL COMPENSATION
------------------------------ OTHER ANNUAL ALL OTHER
NAME AND PRINCIPLE POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION(3)
- --------------------------- -------- -------- -------- --------------- ---------------
Douglas B. Mackie, ................. 2000 $331,000 $309,420 $ $ 161,046
President and Chief Executive 1999 312,000 435,554 -- 145,222
Officer 1998 300,000 420,000 2,512,660(4) 1,512,926(5)
Richard M. Lowry, .................. 2000 287,000 268,290 -- 135,066
Executive Vice President and Chief 1999 270,400 377,480 2,512,660(6) 122,713
Operating Officer 1998 260,000 364,000 1,494,659(7)
Deborah A. Wensel, ................. 2000 153,500 105,250 -- 77,268
Vice President Chief Financial 1999* 130,000 130,128 86,499
Officer and Treasurer
William F. Pagendarm, .............. 2000 150,500 46,000 -- 40,143
Vice President and Division 1999 144,000 50,000 647,273(8) 32,674
Manager 1998 140,000 45,000 53,280
Bradley T. J. Hansen, .............. 2000 143,000 53,000 647,273(9) 39,165
Vice President and Division 1999 135,000 60,000 26,949
Manager 1998 120,000 40,000 48,970
- ------------------------
* Ms. Wensel was named an executive officer in 1999.
(1) Attributable to the reported year, but paid in the subsequent year.
(2) Includes the value of the difference between the price paid and the fair
market value of the stock purchased upon the exercise of options and amounts
reimbursed for the payment of taxes.
(3) Includes bonuses paid pursuant to the terms of the agreement for
recapitalization, employer matching contributions and profit sharing
contributions under Great Lakes' 401(k) plan and payment of lost 401(k)
benefit due to IRS limitations.
(4) Includes the value of the difference between the price paid and the fair
market value of the stock purchased upon the exercise of options of
$1,616,701 prior to the recapitalization.
(5) Includes bonus paid pursuant to the terms of the agreement for
recapitalization of $1,400,000.
(6) Includes the value of the difference between the price paid and the fair
market value of the stock purchased upon the exercise of options of
$1,616,701 prior to the recapitalization.
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(7) Includes bonus paid pursuant to the terms of the agreement for
recapitalization of $1,400,000.
(8) Includes the value of the difference between the price paid and the fair
market value of the stock purchased upon the exercise of options of $518,941
prior to the recapitalization.
(9) Includes the value of the difference between the price paid and the fair
market value of the stock purchased upon the exercise of options of $518,941
prior to the recapitalization.
EXECUTIVE EMPLOYMENT ARRANGEMENTS
We have entered into an Employment Agreement, dated as of January 1, 1992,
with Douglas B. Mackie. The employment agreement provides for an initial term of
three years with automatic renewal for successive one year terms, unless sooner
terminated by either party giving 90 days written notice prior to the end of the
then current term. In addition, either party may terminate the employment
agreement at any time, with or without cause, by giving the other party 30 days
prior written notice.
Mr. Mackie's 2000 base salary under his employment agreement was $331,000,
which is subject to annual increase as determined by the compensation committee
of the Board of Directors, and benefits as provided from time to time to our
senior executives. In the event Mr. Mackie resigns for good reason (defined to
include, among other things, our material breach of the employment agreement) or
we terminate the employment agreement for any reason other than cause, death or
permanent disability, Mr. Mackie will be entitled to receive severance
compensation in the amount equal to the sum of (a) Mr. Mackie's current annual
base salary and (b) a bonus calculated by multiplying current base salary by the
average percentage of Mr. Mackie's base salary represented by the bonuses
Mr. Mackie received during the term of the employment agreement.
During the term of the employment agreement and for one year thereafter,
Mr. Mackie is prohibited from directly or indirectly carrying on, engaging or
having a financial interest in any business which is in material competition
with our business.
We have also entered into an employment agreement with Richard M. Lowry
which contains terms substantially similar to Mr. Mackie's employment agreement,
other than the amount of base salary and the office held. Mr. Lowry's 2000 base
salary under his employment agreement was $287,000.
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OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding the beneficial
ownership of our preferred stock and common stock.
NUMBER AND
PERCENT OF SHARES
PREFERRED STOCK CLASS A STOCK CLASS B STOCK
------------------- ------------------- --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ------------------------ -------- -------- -------- -------- --------- --------
Vectura Holding Company LLC(1) ............... 41,818 93.6% 818,000 53.2% 3,363,900 100%
c/o Great Lakes Dredge & Dock Corporation
2122 York Road
Oak Brook, Illinois 60523
Douglas B. Mackie ............................ 930(2) 2.1% 208,000(2) 13.5% -- --
c/o Great Lakes Dredge & Dock Corporation
2122 York Road
Oak Brook, Illinois 60523
Richard M. Lowry ............................. 930 2.1% 208,000 13.5% -- --
c/o Great Lakes Dredge & Dock Corporation
2122 York Road
Oak Brook, Illinois 60523
Deborah A. Wensel ............................ 130 0.3% 33,000 2.1% -- --
c/o Great Lakes Dredge & Dock Corporation
2122 York Road
Oak Brook, Illinois 60523
William F. Pagendarm ......................... 130 0.3% 33,000 2.1% -- --
Bradley T. J. Hansen ......................... 130 0.3% 33,000 2.1% -- --
All directors and executive officers as a
group ...................................... 2,510 5.6% 581,100 37.8% -- --
- --------------------------
(1) Vectura Holding Company LLC ("Vectura") is a Delaware limited liability
company which beneficially owns the stock of the Company indicated above as
well as other investments. Investors in Vectura hold voting and economic
interests that vary depending on the Vectura investment concerned. With
respect to Vectura's investment in the Company, 49.7% of the voting
interests (including voting power and investment power) are owned by 399
Venture Partners, Inc., a wholly owned indirect subsidiary of
Citigroup Inc. and its affiliates, and 49.1% of the voting interests
(including voting power and investment power) are owned by David Wagstaff
III, a director of the Company and a vice president of Vectura.
(2) Includes certain shares held by family trusts established for the benefit of
the children of Mr. Mackie.
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DESCRIPTION OF CAPITAL STOCK
PREFERRED STOCK
Our Certificate of Incorporation provides that we may issue 250,000 shares
of preferred stock, all of which has been designated as 12% Series A Cumulative
Compounding Preferred Stock. The preferred stock has a stated value of $1,000
per share and is entitled to annual dividends when, as and if declared, which
dividends are cumulative, whether or not earned or declared, and accrue at a
rate of 12%, compounding annually. As of the date of this prospectus, 44,675
shares of our preferred stock were outstanding. The vote of a majority of the
outstanding shares of the preferred stock, voting as a separate class, will be
required to (1) create, authorize or issue any other class or series of stock
entitled to a preference prior to the preferred stock upon any dividend or
distribution or any liquidation, distribution of assets, dissolution or winding
up of the Company, or increase the authorized amount of any such other class or
series, or (2) amend our Certificate of Incorporation if the amendment would
adversely affect the relative rights and preferences of the holders of the
preferred stock. Except as described in the immediately preceding sentence or as
otherwise required by law, the preferred stock is not entitled to vote.
We may not pay any dividend upon (except for a dividend payable in Junior
Stock, as defined below), or redeem or otherwise acquire shares of, capital
stock junior to the preferred stock (including the common stock) ("Junior
Stock") unless all cumulative dividends on the preferred stock have been paid in
full. Upon liquidation, dissolution or winding up, holders of preferred stock
are entitled to receive out of our legally available assets, before any amount
shall be paid to holders of Junior Stock, an amount equal to $1,000 per share of
preferred stock, plus all accrued and unpaid dividends to the date of final
distribution. If such available assets are insufficient to pay the holders of
the outstanding shares of preferred stock in full, such assets, or the proceeds
from the sale of the assets, will be distributed ratably among the holders. The
preferred stock is not mandatorily redeemable prior to the maturity of the
notes. We may redeem, in whole or in part, the Preferred Stock at any time at a
price per share of $1,000, plus accrued and unpaid dividends to the date of
redemption. At our option, the preferred stock may be exchanged for our junior
subordinated debentures, subject to our compliance with the requirements of the
credit facility, the bonding agreement and the notes. We anticipate that the
dividends on the preferred stock will be declared and accrued but not paid. Our
ability to pay cash dividends, and to redeem the preferred stock, is subject to
restrictions contained in the credit facility, the bonding agreement and the
notes.
COMMON STOCK
Our Certificate of Incorporation provides that we may issue 50 million
shares of common stock, divided into two classes consisting of 25 million shares
of Class A Common Stock and 25 million shares of Class B Common Stock. As of the
date of this prospectus, 4,902,700 shares of our common stock were outstanding.
The holders of Class A Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Except as
required by law, the holders of Class B Common Stock have no voting rights.
Under our Certificate of Incorporation, either class of common stock is
convertible into an equal number of shares of the other class of common stock.
In the case of a conversion from Class B Common Stock, which is nonvoting, into
Class A Common Stock, which is voting, the holder of shares to be converted
would be permitted under applicable law to hold the total number of shares of
Class A Common Stock which would be held upon conversion.
STOCKHOLDERS' AGREEMENT
In connection with our 1998 recapitalization, our stockholders entered into
a Securities Purchase and Holders Agreement (the "Stockholders' Agreement")
containing certain agreements among the stockholders regarding our capital stock
and corporate governance.
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According to the Stockholders' Agreement, our board of directors must be
composed of up to five directors as follows: Mr. Mackie (so long as he continues
to be our President and own shares of our common stock or preferred stock); the
President of the Company if Mr. Mackie is no longer serving on our board of
directors; up to two individuals designated by Vectura; and the remaining
directors shall be such independent directors designated by Vectura (to the
extent permitted by applicable law as determined by Vectura in its sole
discretion), provided that in the event that Vectura concludes that it is unable
to designate, or elects not to designate for any reason, one or more of such
independent directors or the election of any such independent director is not
approved by the holders of a majority of the outstanding shares of Class A
Common Stock, these directorship(s) shall not be filed by the remaining members
of the board of directors but shall remain vacant until the election of a
director designated by Vectura to fill such vacancy in accordance with the
Stockholders' Agreement.
The Stockholders' Agreement contains provisions which, with certain
exceptions, restrict the ability of the stockholders to transfer any of our
common stock or preferred stock. If holders of more than 50% of our common stock
approve the sale of the Company each stockholder has agreed to consent to the
sale and, if the sale includes the sale of stock, each stockholder has agreed to
sell all of such stockholder's common stock and preferred stock on the terms and
conditions approved by holders of a majority of our common stock then
outstanding. In the event we propose to issue and sell (other than in a public
offering pursuant to a registration statement declared effective by the
Securities and Exchange Commission) any shares of common stock or any securities
containing options or rights to acquire any shares of our common stock or any
securities convertible into our common stock to Vectura or any of its respective
affiliates, we must first offer to each of the other shareholders a pro rata
portion of these shares. These preemptive rights are not applicable to the
issuance of shares of our common stock upon conversion of shares of one class of
our common stock into shares of the other class. Subject to certain limitations
neither Vectura, nor any of its respective affiliates, may sell any of their
shares of our preferred stock or our common stock without offering the other
stockholders a pro rata opportunity to participate in such sale.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer of our shares by our executive officers and other
employees, whom we refer to as our management investors, including our right to
repurchase certain shares upon termination of the stockholder's employment prior
to 2003, at a formula price, and the grant of a right of first refusal in our
favor in the event a management investor elects to transfer its shares of common
stock.
STOCKHOLDERS' REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Stockholders' Agreement, the
Company, Vectura, the management investors and certain other of our stockholders
entered into a Registration Rights Agreement (the "Stockholders Registration
Rights Agreement"). According to the Stockholders Registration Rights Agreement,
upon the written request of Vectura, we will prepare and file a registration
statement with the Securities and Exchange Commission concerning the
distribution of all or part of the shares held by Vectura and use our best
efforts to cause such registration statement to become effective. If at any time
we file a registration statement for common stock pursuant to a request by
Vectura or otherwise, we will use our best efforts to allow the other parties to
the Stockholders' Registration Rights Agreement to have their shares of Common
Stock (or a portion of their shares under certain circumstances) included in the
registered offering of our Common Stock. We are not bound by this requirement if
we are filing a registration statement on Form S-8, Form S-4 or any similar
form, a registration statement filed in connection with a share exchange or an
offering solely to our employees or existing stockholders, or a registration
statement registering a unit offering (as defined) (a "Qualifying Offering"). We
will pay the registration expenses of the selling stockholders (other than
underwriting fees, brokerage fees and transfer taxes applicable to the shares
sold by such stockholders or in certain cases the fees and expenses of any
accountants or other representatives retained by a selling stockholder).
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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR CREDIT FACILITY
We have a senior credit facility with Bank of America National Trust and
Savings Association, as administrative agent, and certain other financial
institutions. The senior credit facility, as amended, currently provides for
(i) a revolving credit facility in the maximum amount of $70.0 million
($9.0 million was outstanding at December 31, 2000) and (ii) a remaining term
loan facility in the amount of $31.0 million as of December 31, 2000. We had
approximately $8.8 million of face amount of letters of credit outstanding under
the revolving credit facility at December 31, 2000. The revolving credit
facility enables us to obtain revolving credit loans and standby letters of
credit from time to time for working capital, acquisitions and general corporate
purposes. The senior credit facility expires on February 18, 2005. The term loan
facility is subject to amortization of principal in the following annual
amounts: (i) $9.0 million in 2001, (ii) $11.0 million in 2002, and
(iii) $11.0 million in 2003.
INTEREST
The loans under the revolving credit facility bear interest, generally at
our option, at a Base Rate plus a Base Rate Margin or at the applicable
Eurodollar Rate plus Eurodollar Rate Margin. The "Base Rate" equals the higher
of (A) the rate of interest publicly announced from time to time by Bank of
America, or (B) 0.5% per annum above the latest Federal Funds Rate. The "Base
Rate Margin" ranges from 0.0% to 0.75% depending on our ratio of consolidated
total funded debt to cashflow. The "Eurodollar Rate" equals the rate of interest
determined by the senior credit facility agent to be the rate per annum at which
deposits in dollars in immediately available funds are offered to the senior
credit facility agent in the interbank Eurodollar market two business days prior
to the beginning of the applicable interest period. The Eurodollar Rate Margin
ranges from 1.25% to 2.25% depending on our ratio of consolidated total funded
debt to cashflow. At December 31, 2000, the weighted average interest rate with
respect to such indebtedness was approximately 9.7%, including amortization of
deferred financing fees. Amounts repaid under the revolving credit facility with
proceeds from the April 2001 Series C note offering are available for future
borrowings.
COVENANTS
The senior credit facility contains various covenants that restricts us from
various actions and that will require us to achieve and maintain certain
financial covenants. The senior credit facility includes financial covenants
consisting of a total debt to cashflow ratio, a senior debt to cashflow ratio, a
cashflow to interest expense ratio and a minimum net worth test, and limitations
on, among other things, indebtedness, liens, capital expenditures, dividends,
business activities, investments and guarantees, sale of assets, consolidations
and mergers, and amendments or modifications to the bonding agreement or our
certificate of incorporation, bylaws, shareholder agreements, voting trusts or
other similar arrangements.
EVENTS OF DEFAULT
The senior credit facility includes events of default consisting of, among
other things:
- any failure to pay principal or failure in the payment of any
reimbursement obligation under any letter of credit, or to pay interest or
fees within three business days after the date due or any other
obligations within five business days after the date due;
- any failure to pay certain other indebtedness or contingent obligations,
or defaults that result in or permit the acceleration of such indebtedness
or contingent obligations;
- the breach by us or certain of our subsidiaries of covenants,
representations or warranties contained in the credit facility;
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- certain events of bankruptcy, insolvency or dissolution of our Company or
our subsidiaries;
- the incurrence of certain pension related liabilities, including
liabilities with respect to failures to make certain required
contributions when due and termination of, or withdrawal from, certain
pension plans which result in liabilities in excess of specified amounts;
- the invalidity of or any challenge to the validity of the guarantees of
the indebtedness under the credit facility or of the security interests
granted to the Lenders;
- default by our Company or any of our subsidiaries in the payment when due
of any amount due under the bonding agreement or a breach or default with
respect to any other term of the bonding agreement or bonded contracts
that are the subject of such bonding agreement, or the failure of any
surety in connection with the bonding agreement to issue bonds thereunder,
the effect of which is materially adverse to us; and
- a change in control of our Company or our subsidiaries.
GUARANTY/SECURITY
All obligations under the senior credit facility are guaranteed by each of
the subsidiary guarantors. The loans under the credit facility are secured by:
- a perfected first priority lien and security interest (exclusive of all
liens and security interests other than those in favor of the bonding
company) in vessels and equipment approved by the senior credit facility
agent and having appraised orderly liquidation value of at least
$61.0 million;
- a perfected second priority lien and security interest in all vessels and
equipment (with the exception of those vessels and equipment operated by
NATCO) securing the bonding company;
- a perfected second priority lien in certain assets; and
- a security interest in all of our accounts receivable and those of our
subsidiaries.
INTERCREDITOR AGREEMENT
In connection with the execution of the senior credit facility and the
bonding agreement, the senior credit facility agent and the bonding company
under the bonding agreement entered into an intercreditor agreement which
addresses, among other things, the lien priorities of shared collateral, the
substitution of vessels under ship mortgages, the exercise of rights under ship
mortgages and other shared collateral agreements, the application of proceeds of
various classes of shared collateral as well as certain collateral benefiting
only the bonding companies, the exercise of remedies under the credit facility
and the bonding agreement, the release of certain liens, the taking of
additional collateral and other relevant intercreditor provisions. In addition,
the intercreditor agreement provides that the bonding company will have the
right to use all encumbered vessels and other equipment to perform any
outstanding bonded contracts.
BONDING AGREEMENT
We and certain of our subsidiaries have entered into an amended and restated
underwriting and continuing indemnity agreement (the "bonding agreement") with
the bonding company under the bonding agreement, pursuant to which the bonding
company acts as surety, issues bid bonds, performance bonds and payment bonds
and obligates itself upon other contracts of guaranty required by us and our
subsidiaries in the day-to-day operations of our dredging business. The bonding
company's obligations under the bonding agreement are discretionary. As such,
the bonding company is
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not obligated under the bonding agreement to issue bonds on our behalf or on
behalf of any of our subsidiaries.
The bonding agreement contains various covenants that restricts us from
various actions and that requires us to achieve and maintain certain financial
covenants. The bonding agreement includes a current ratio and a minimum net
worth test, and limitations on, among other things, indebtedness and contingent
obligations, cash dividends, liens, business combinations, investments, business
activities, sale of assets, issuances of equity and affiliate transactions.
The bonding agreement includes events of default, consisting of, among other
things:
- the failure to pay any obligation owing to the bonding company;
- the breach of covenants, representations or warranties contained in the
bonding agreement;
- certain events of bankruptcy or insolvency;
- the default of any provision under a bonded contract;
- the failure to pay certain other indebtedness, or defaults that result or
permit the acceleration of such indebtedness or contingent obligation; and
- certain judgments that are not fully covered by insurance or bonded or
discharged.
Our obligations and our wholly owned subsidiaries' obligations under the
bonding agreement are secured by a security interest in our fixed assets. In the
event that we or any of our subsidiaries fail or are unable to complete the work
under a bonded contract or breaches the bonding agreement, the bonding companies
under the bonding agreement may proceed against their collateral, cause the
performance of such bonded contract by subletting it in our name or our
wholly-owned subsidiary and seek reimbursement from us and our wholly owned
subsidiary for costs incurred in the subletting or performance of such bonded
contract.
In connection with the execution of the senior credit facility and the
bonding agreement, the senior credit facility agent and the bonding company
entered into an intercreditor agreement which addresses, among other things, the
lien priorities of shared collateral, the substitution of vessels under ship
mortgages, the exercise of rights under ship mortgages and other shared
collateral agreements, the application of proceeds of various classes of shared
collateral as well as certain collateral benefiting only the bonding companies,
the exercise of remedies under the senior credit facility and the bonding
agreement, the release of certain liens, the taking of additional collateral and
other relevant intercreditor provisions. In addition, the intercreditor
agreement provides that the bonding company will have the right to use all
encumbered vessels and other equipment to perform any outstanding bonded
contracts.
NASDI SELLER NOTES
Upon the closing of the Acquisition, NASDI issued two junior subordinated
promissory notes to the NASDI management stockholders, in an aggregate principal
amount of $3.0 million. These notes bear interest at the greater of 6% per annum
or the applicable federal rate, payable annually on each anniversary of the
notes. All outstanding principal and unpaid interest on these notes will be
payable in a single installment for each note on March 31, 2004; however, this
payment date may be deferred to December 31, 2004 if NASDI has failed to meet
certain financial performance levels for each of the three preceding years.
NASDI may prepay the NASDI seller notes at any time without premium or penalty.
Great Lakes, but not the subsidiaries of Great Lakes, guaranty NASDI's
obligations under the NASDI seller notes.
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ORIGINAL SENIOR SUBORDINATED NOTES
On August 19, 1998, we issued $115 million of senior subordinated notes due
August 15, 2008. These notes were issued in connection with our recapitalization
in 1998 pursuant to an indenture, dated August 19, 1998, with the Bank of New
York, as trustee. Interest on these original notes accrue at a rate of 11 1/4%
per annum, and is payable semi-annually. These notes are general unsecured
obligations of our company, subordinated in right of payment to all existing and
future senior debt, including our senior credit facility and our obligations
under our bonding facility. These notes were exchanged for registered Series B
notes pursuant to an exchange offer by the Company in 1999. The 1998 senior
subordinated notes have the same terms as the Series C notes. The Series C notes
were issued under the same indenture as our previous issuance of 11 1/4% senior
subordinated notes due 2008 and are treated as part of the same class under the
indenture as those notes. See "Description of Exchange Notes." We have agreed to
file a registration statement with the Securities and Exchange Commission
relating to an offer to exchange the notes and our outstanding 11 1/4% Senior
Subordinated Notes due 2008 for a single class of publicly tradable notes having
identical terms to those of the notes and the outstanding 11 1/4% Senior
Subordinated Notes due 2008.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The form and terms of the exchange notes are substantially identical to the
form and terms of the existing notes, except that, unlike the unregistered
Series C notes, the exchange notes will have been registered and will not bear
legends restricting their transfer.
The Series B notes and the Series C notes were issued pursuant to an
Indenture (the "Indenture") among the Company, the Subsidiary Guarantors and The
Bank of New York, as trustee (the "Trustee"). The Series C notes were issued in
a private transaction that is not subject to the registration requirements of
the Securities Act. The Series B Notes are registered securities issued pursuant
to an exchange offer dated February 5, 1999.
The terms of the Indenture apply to the existing notes and the exchange
notes to be issued in exchange therefor pursuant to the exchange offer (the
existing notes and the exchange notes, collectively, the "Notes"). The terms of
the Indenture include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. Copies
of the Indenture and Registration Rights Agreement are available as set forth
below under "--Additional Information." The definitions of certain terms used in
the following summary are set forth below under "--Certain Definitions."
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Debt, including
Indebtedness pursuant to the New Credit Facility. The Company's obligations
under the Notes will be guaranteed (the "Subsidiary Guarantees") on a senior
subordinated basis by the Subsidiary Guarantors. See "--Subsidiary Guarantees."
As of December 31, 2000 on a pro forma basis after giving effect to the
Acquisition and the April 2001 Series C note offering, the Notes would have been
subordinated to $38.4 million of Senior Debt, excluding contingent obligations,
of the Company and the Subsidiary Guarantors and effectively subordinated to
$18.0 million of liabilities of the Company's subsidiaries that are not
Subsidiary Guarantors. Upon closing of the April 2001 Series C note offering,
approximately $53.8 million was available for additional borrowing under the New
Credit Facility. The Indenture permits the incurrence of additional Senior Debt
in the future. See "Risk Factors--Subordination."
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of such Subsidiaries to
meet their obligations, including their obligations under the Notes. In addition
to NASDI, all of the existing domestic Wholly Owned Restricted Subsidiaries of
the Company are, and all future domestic Restricted Subsidiaries are expected to
be, Subsidiary Guarantors. As of the date of the Indenture, all of the Company's
Subsidiaries are Restricted Subsidiaries. However, under certain circumstances,
the Company will be able to designate current or future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants set forth in the Indenture. In addition, the Notes
will be effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and capital lease obligations) of the
Company's foreign Subsidiaries and the Company's Subsidiaries that are not
Wholly Owned Restricted Subsidiaries (other than NASDI). Any right of the
Company to receive assets of any of its foreign Subsidiaries or its Subsidiaries
that are not Wholly Owned Restricted Subsidiaries (other than NASDI) upon such
Subsidiary's liquidation or reorganization (and the consequent right of the
Holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors. As of December 31,
2000, on a
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pro forma basis after giving effect to the Acquisition and the April 2001
Series C note offering, the aggregate amount of liabilities (including trade
payables) of the Company's foreign Subsidiaries and the Company's other
Subsidiaries that are not Subsidiary Guarantors was $18.0 million.
PRINCIPAL, MATURITY AND INTEREST
The Indenture provides for the issuance of up to $165.0 million aggregate
principal amount of notes. If all of the Company's outstanding existing notes
participate in the exchange offer, there will be $155.0 million in aggregate
principal amount of notes issued under the Indenture, $115.0 million of which
were issued on August 19, 1998 and $40.0 million of which were issued on
April 24, 2001 as the existing notes. The Notes will mature on August 15, 2008.
Interest on the Notes issued hereby will accrue at the rate of 11 1/4% per annum
and will be payable semi-annually in arrears on February 15 and August 15 of
each year, commencing August 15, 2001, to Holders of record on the immediately
preceding February 1 and August 1.
Additional Notes may be issued from time to time, subject to the provisions
of the Indenture described below under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock." The
Notes and any Additional Notes subsequently issued would be treated as a single
class for all purposes under the Indenture, including without limitations,
waivers, amendments, redemptions and offers to purchase. Interest on the
exchange notes will accrue from the most recent date to which interest has been
paid on the existing notes, or, if no interest has been paid, from the date of
original issuance of the existing notes. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months. Principal, premium and
Liquidated Damages, if any, and interest on the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of principal,
premium, interest and Liquidated Damages, if any, may be made by check mailed to
the Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes; provided that all payments of principal, premium, interest
and Liquidated Damages, if any, with respect to Notes the Holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred. The Notes will rank PARI PASSU in right of
payment with all other senior subordinated Indebtedness of the Company and
senior in right of payment to all subordinated Indebtedness.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not allowed in such
proceeding) before the Holders of Notes will be entitled to receive any payment
with respect to the Notes, and until all Obligations with respect to such Senior
Debt are paid in full in cash, any distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Debt (except that
Holders of Notes may receive and retain Permitted Junior Securities and payments
made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
87
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt occurs
and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the representatives of the
holders of any Designated Senior Debt. Payments on the Notes may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived in writing and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived in
writing or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and until
(i) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, and interest on the Notes that have come due during such payment
blockage period have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been waived for a period of not less than
90 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Acquisition, the principal amount of Senior Debt
outstanding at December 31, 2000 would have been approximately $38.4 million.
The Indenture limits, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and its
subsidiaries can incur. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock" and "Risk Factors--Subordination."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (the "Subsidiary
Guarantees") by the Subsidiary Guarantors. The Subsidiary Guarantee of each
Subsidiary Guarantor is subordinated to the prior payment in full of all Senior
Debt of such Guarantor. As of December 31, 2000, on a pro forma basis giving
effect to the Acquisition and the April 2001 Series C note offering, the
Subsidiary Guarantors would have had an aggregate of approximately
$38.4 million of Senior Debt outstanding. The Indenture permits the Subsidiary
Guarantors to incur additional Senior Debt, subject to certain limitations. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are
limited so as not to constitute a fraudulent conveyance under applicable law.
See, however, "Risk Factors--Fraudulent Conveyance Statutes."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another Person whether or not affiliated with such Subsidiary Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes, by operation of law or otherwise, all the
obligations of such Subsidiary Guarantor pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the Trustee, under the Notes, the
Subsidiary Guarantees, the Indenture, and the Registration Rights Agreement; and
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists, provided that nothing in the foregoing provisions shall prohibit
the merger or consolidation of a
88
Subsidiary Guarantor with and into the Company or another Wholly Owned
Subsidiary Guarantor where the Company or such other Wholly Owned Subsidiary
Guarantor is the surviving Person.
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Subsidiary Guarantor, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor, then such Subsidiary Guarantor (in
the event of a sale or other disposition, by way of such a merger, consolidation
or otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation or other entity acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Subsidiary
Guarantor) will be released and relieved of any and all obligations under its
Subsidiary Guarantee (and, in the event of a disposition of assets, any Liens in
favor of the Holders will be released); provided that the Net Proceeds of such
sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "--Repurchase at Option of Holders", "--Asset
Sales." In addition, the Indenture provides that, in the event the Company
designates a Restricted Subsidiary to become an Unrestricted Subsidiary in
accordance with the Indenture, then such Restricted Subsidiary shall, in
accordance with the Indenture, be released from its obligations under its
Subsidiary Guarantee upon the effectiveness of such designation.
OPTIONAL REDEMPTION
The Notes are redeemable at any time at the option of the Company, in whole
or in part upon not less than 30 nor more than 60 days' notice, in cash at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on August 15 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2003........................................................ 105.625%
2004........................................................ 103.750%
2005........................................................ 101.875%
2006 and thereafter......................................... 100.000%
Notwithstanding the foregoing, at any time prior to August 15, 2001, the
Company may (but will not have the obligation to) on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes originally issued at
a redemption price equal to 111.250% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that at least 65% of the aggregate principal amount of Notes
originally issued remain outstanding immediately after the occurrence of such
redemption (excluding Notes held by the Company and its Subsidiaries); and
provided, further, that such redemption shall occur within 180 days of the date
of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed or repurchased at any time,
selection of Notes for redemption or repurchase will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. Notices of redemption or repurchase may not
be conditional. If any Note is to be redeemed or repurchased in part only, the
notice of redemption or repurchase that relates to such Note shall state the
portion of the principal amount
89
thereof to be redeemed or repurchased. A new Note in principal amount equal to
the unredeemed or unrepurchased portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Note. Notes called for
redemption or repurchase become due on the date fixed for redemption or
repurchase. On and after the redemption or repurchase date, interest and
Liquidated Damages ceases to accrue on Notes or portions of them called for
redemption or repurchase.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations directly conflict with the provisions of the Indenture relating to
such Change of Control Offer, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent (as
defined in the Indenture) an amount equal to the Change of Control Payment in
respect of all Notes or portions thereof so tendered and (3) deliver or cause to
be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Indenture will provide that, prior to complying with the provisions
of this covenant, but in any event within 90 days following a Change of Control,
the Company will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under the agreements governing outstanding Senior
Debt to permit the repurchase of Notes required by this covenant. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable (and will not affect
the subordination provisions). Except as described above with respect to a
Change of Control, the Indenture does not contain provisions that permit the
Holders of the Notes to require that the Company repurchase or redeem the Notes
in the
90
event of a takeover, recapitalization or similar transaction. The New Credit
Facility currently prohibits the Company from repurchasing any Notes and also
provides that certain change of control events with respect to the Company would
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the New Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes. In addition, the
exercise by Holders of the Notes of their right to require the Company to
repurchase the Notes could cause a default under such Senior Debt, even if the
Change of Control itself does not, due to the financial effect of such
repurchases on the Company. Finally, the Company's ability to pay cash to the
Holders of Notes upon a repurchase may be limited by the Company's then existing
financial resources.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries (determined
on a consolidated basis), in each case, to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than the Company or a Wholly Owned
Restricted Subsidiary or any Principal or a Related Party of a Principal (as
defined below), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company (other than in a transaction which complies with the
provisions described under "--Merger, Consolidation or Sale of Assets"),
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than one or more Principals or their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number of
shares) and the Principals do not beneficially own as much or more of the Voting
Stock of the Company (measured by voting power rather than by number of shares)
than such person or (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance, or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries (determined on a consolidated
basis). Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the
91
Indenture or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election or was
designated by a Principal or a Related Party of a Principal.
"Principals" means (i) CVC and the Management Investors and (ii) any Related
Party of a Person referred to in clause (i).
"Related Party" means (a) with respect to CVC (i) Citicorp, any direct or
indirect wholly owned subsidiary of Citicorp, and any officer, director or
employee of CVC, Citicorp or any wholly owned subsidiary of Citicorp, (ii) any
spouse or lineal descendant (including by adoption and stepchildren) of the
officers, directors and employees referred to in clause (a)(i) above, (iii) any
trust, corporation or partnership 100%-in-interest of the beneficiaries,
stockholders or partners of which consists of one, or more of the persons
described in clause (a)(i) or (ii) above or (iv) Vectura, so long as CVC or any
of its Related Parties described in (i), (ii) or (iii) above holds at least 50%
of the Great Lakes membership interests in Vectura; and (b) with respect to any
officer or employee of the Company or a Subsidiary of the Company (i) any spouse
or lineal descendant (including by adoption and stepchildren) of such officer or
employee and (ii) any trust, corporation or partnership 100%-in-interest of the
beneficiaries, stockholders or partners of which consists of such officer or
employee, any of the persons described in clause (b)(i) above or any combination
thereof.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of
Qualified Proceeds; provided that the aggregate fair market value of Qualified
Proceeds (other than cash or Cash Equivalents), which may be received in
consideration for asset sales pursuant to this clause (ii) shall not exceed
$5.0 million since the date of the Indenture; provided further that the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability
and (y) any securities, Notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received) within 90 days following the closing of such Asset Sale, shall be
deemed to be cash for purposes of this provision, provided further that the 75%
limitation referred to above shall not apply to any Asset Sale in which the cash
and Cash Equivalents portion of the consideration received therefor, determined
in accordance with the foregoing proviso, is equal to or greater than what the
net after-tax proceeds would have been had such Asset Sale complied with the
aforementioned 75% limitation.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any Restricted Subsidiary may apply such Net Proceeds, at its
option, (a) to repay Senior Debt, (b) to the acquisition of a majority of the
assets of, or a majority of the Voting Stock of, another Permitted Business, the
making of a capital expenditure or the acquisition or commitment to acquire
(provided that such commitment or a reasonable replacement thereof is
consummated substantially in accordance with the terms thereof) of other assets
that are used or useful in a Permitted Business or (c) for a combination of uses
described in clauses (a) and (b). Pending the final application of any such Net
Proceeds, the Company and its Restricted Subsidiaries may temporarily reduce
revolving credit borrowings or otherwise invest such Net Proceeds in any manner
that is not prohibited by the
92
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds
$10.0 million, the Company will be required to make an offer to all Holders of
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of repurchase, in
accordance with the procedures set forth in the Indenture. To the extent that
any Excess Proceeds remain after consummation of an Asset Sale Offer, the
Company may use such Excess Proceeds for any general corporate purpose. If the
aggregate principal amount of Notes tendered into such Asset Sale Offer
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than, in each case, dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or a Restricted Subsidiary of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company (other than Equity
Interests owned by the Company or any Restricted Subsidiary of the Company) or
any direct or indirect parent of the Company; (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes (other than any
subordinated indebtedness held by the Company or any Subsidiary Guarantor),
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless:
(a) at the time of and after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted
by clauses (ii), (iii), (iv), (viii), (ix) and (xi) of the next
succeeding paragraph), is less than the sum, without duplication, of
(i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net
93
Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate fair market value of Qualified Proceeds
received by the Company since the date of the Indenture as a contribution
to its equity capital or from the issue or sale of Equity Interests of
the Company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary
of the Company), plus (iii) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or
otherwise liquidated or repaid for Qualified Proceeds, the lesser of
(A) the fair market of the Qualified Proceeds received with respect to
such Restricted Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment, plus (iv) 50% of
any dividends received by the Company or a Wholly Owned Restricted
Subsidiary after the date of the Indenture from an Unrestricted
Subsidiary of the Company, to the extent that such dividends were not
otherwise included in Consolidated Net Income of the Company for such
period, plus (v) to the extent that any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary after the date of the Indenture,
the lesser of (A) the fair market value of the Company's Investment in
such Subsidiary as of the date of such redesignation or (B) such fair
market value as of the date on which such Subsidiary was originally
designated as an Unrestricted Subsidiary.
The foregoing provisions will not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Subsidiary Guarantor, in each case, in exchange for, or out of the net
cash proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of, other Equity Interests of the Company (other than any
Disqualified Stock) or the net cash proceeds of a common equity capital
contribution to the Company; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend or making of any distribution by a Subsidiary of the Company to the
holders of its Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company or any Subsidiary of the Company held by any former member of the
Company's (or any of their Subsidiaries') Board of Directors or any former
officer, employee or director of the Company or any of its Restricted
Subsidiaries pursuant to any equity subscription agreement, stockholder
agreement, stock option agreement, employment agreement or other similar
agreements or employee benefit plan; provided that (A) the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed (1) $2.0 million in any calendar year (with unused amounts in any
calendar year being carried over to succeeding calendar years subject to a
maximum (without giving effect to clause (2)) of $5.0 million, plus (2) in the
case of a repurchase, redemption or other acquisition or retirement of Equity
Interests of the Company, the aggregate cash proceeds received by the Company
during such calendar year from any reissuance of Equity Interests by or the
Company to employees, officers and directors of the Company and its Restricted
Subsidiaries plus the cash proceeds of any "key man" life insurance policy
received by the Company with respect to the owner of, and any cash proceeds paid
to the Company in connection with the issuance or exercise of, any management or
employee Equity Interests so acquired plus (3) in the case of a repurchase,
redemption or other acquisition or retirement of Equity Interests of a
Subsidiary Guarantor, the aggregate cash proceeds received by such Subsidiary
Guarantor during such calendar year from any reissuance of Equity Interests of
such Subsidiary Guarantor to employees, officers, and directors of such
Subsidiary Guarantor plus the cash proceeds of any "key man" life insurance
policy received by such Subsidiary Guarantor with respect to the owner of any
cash proceeds
94
paid to such Subsidiary Guarantor in connection with the issuance or exercise
of, any management or employee Equity Interests so acquired, and (B) no Default
or Event of Default shall have occurred and be continuing immediately after such
transaction; provided, further that the aggregate cash proceeds referred to in
(2) above shall be excluded from clause (c)(ii) of the preceding paragraph;
(vi) any Investment to the extent that the consideration therefor consists of
the net cash proceeds of the substantially concurrent issue and sale (other than
to a Restricted Subsidiary) of Equity Interests of the Company (other than any
Disqualified Stock); (vii) so long as no Default or Event of Default has
occurred and is continuing and the Company can incur at least $1.00 of
additional indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described below under caption
"--Incurrence of Indebtedness and Issuance of Disqualified Stock," the
declaration and payment of dividends to holders of any class or series of
Disqualified Stock of the Company, or any Subsidiary Guarantor issued after the
date of the Indenture in accordance with the covenant described below under the
caption "Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(viii) repurchase of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise price of
such options; (ix) loans to employees of the Company or any Subsidiary Guarantor
not to exceed $2.0 million at any one time outstanding; (x) Restricted Payments
not to exceed $5.0 million since the date of the Indenture and (xi) payments
made pursuant to the Merger Agreement and tax "gross up" payments made pursuant
to the Stockholders Agreement in connection with the Recapitalization, in each
case, as in effect on the date of the Indenture, as the same may be amended,
modified or replaced from time to time so long as such amendment, modification
or replacement does not increase the amount of any such payments from the amount
of such payments provided for in the Merger Agreement or Stockholders Agreement,
as the case may be, as in effect on the date of the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
For purposes of determining compliance with this covenant, in the event that
a Restricted Payment meets the criteria of more than one of the exceptions
described in (i) through (x) above or is entitled to be made pursuant to the
first paragraph of this covenant, the Company shall, in its sole discretion,
classify such Restricted Payment in any manner that complies with the covenant.
The amount of all Restricted Payments (other than cash) shall be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment or return of capital on any
Restricted Subsidiary shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $7.5 million. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed, together with a copy of any fairness opinion or appraisal required by
the Indenture.
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INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may
incur Indebtedness or issue preferred equity if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Subsidiary Guarantors of term
Indebtedness under the New Credit Facility (including any guarantee
thereof by any Subsidiary Guarantor); provided that the aggregate
principal amount of all term Indebtedness outstanding under the New
Credit Facility after giving effect to such incurrence does not exceed
an amount equal to $55.0 million plus (in the case of any refinancing
thereof) the aggregate amount of fees, underwriting discounts, premiums
and other costs and expenses incurred in connection with such
refinancing less the aggregate amount of all scheduled or mandatory
repayments of the principal of any term Indebtedness under the New
Credit Facility (other than repayments that are immediately reborrowed)
that have been made since the date of the Indenture;
(ii) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness and reimbursement obligations in respect of letters of
credit under Credit Facilities (including any guarantee thereof by any
Subsidiary Guarantor); provided that the aggregate principal amount of
all revolving credit or other Indebtedness (other than term
Indebtedness permitted under clause (i) above) (with letters of credit
being deemed to have a principal amount equal to the maximum face
amount thereunder) outstanding under all Credit Facilities after giving
effect to such incurrence does not exceed an amount equal to
$55.0 million;
(iii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence by the Company of Indebtedness represented by the Notes
issued on August 19, 1998, the Series C notes and the incurrence by the
Subsidiary Guarantors of Indebtedness represented by the Subsidiary
Guarantees of such notes;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage or
construction financings or purchase money obligations or similar
financings, in each case incurred for the purpose of financing all or
any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary, in an aggregate principal amount not to exceed
$20.0 million at any time outstanding;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the Indenture to
be incurred under the first paragraph hereof or clauses (iii), (iv),
(v), (vi) or (ix) of this paragraph;
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(vii) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations
with respect to the Notes and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or a Restricted
Subsidiary thereof and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this
clause (vii);
(viii) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging (i) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding, (ii) the value of foreign currencies purchased or received
by the Company or any Restricted Subsidiary in the ordinary course of
business as conducted by the Company or (iii) commodity risk relating
to commodity agreements to the extent entered into in the ordinary
course of business solely to protect the Company and its Restricted
Subsidiaries from fluctuations in the prices of raw materials used in
its business;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by other clauses of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (ix), not to exceed
$25.0 million;
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event
shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company that was not permitted by this
clause (x);
(xi) the Guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or a Subsidiary Guarantor, which
Indebtedness was permitted to be incurred by another provision of this
covenant;
(xii) Indebtedness of the Company or a Restricted Subsidiary owed to
(including obligations in respect of letters of credit for the benefit
of) any Person in connection with worker's compensation, health,
disability or other employee benefits or property, casualty or
liability insurance provided by such Person to the Company or such
Restricted Subsidiary, pursuant to reimbursement or indemnification
obligations to such Person, in each case incurred in the ordinary
course of business and consistent with past practices;
(xiii) the incurrence of Permitted Bonding Obligations;
(xiv) the issuance of preferred stock (other than Disqualified Stock) by any
Subsidiary Guarantor to members of management of such Subsidiary
Guarantor, provided that such preferred stock does not require the
Company or any Restricted Subsidiary to pay dividends thereon other
than in shares of additional preferred stock (other than Disqualified
Stock); and
(xv) the incurrence of Indebtedness arising from agreements of the Company or
any Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or Capital
Stock of a Restricted Subsidiary; provided that the maximum aggregate
liability of such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company and its Restricted
Subsidiaries in connection with any such disposition.
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For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xv) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant. Accrual of interest, accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant; provided, in each
such case, that the amount thereof is included in Fixed Charges of the Company
as accrued.
NO SENIOR SUBORDINATED DEBT
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Indebtedness and senior in any
respect in right of payment to the Notes, and (ii) no Subsidiary Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of such Subsidiary Guarantor and senior in any respect in right of
payment to the Subsidiary Guarantee of such Subsidiary Guarantor; provided that
no Indebtedness will be deemed subordinate or junior in right of payment to any
other Indebtedness solely by reason of the fact that such Indebtedness is
unsecured.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except (i) Permitted Liens, and
(ii) in the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens (with the
same relative priority as such subordinate or junior Indebtedness shall have
with respect to the Notes and the Subsidiary Guarantees) and (y) in all other
cases, the Notes are secured by such Lien on an equal and ratable basis.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the New Credit Facility and Permitted Bonding Obligations as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are not materially more restrictive, taken as a whole, with respect
to such dividend and other payment restrictions than those contained in the New
Credit Facility or in agreements with respect to Permitted Bonding Obligations,
as applicable, as in effect on the date of the Indenture,
98
(c) the Indenture, the Notes and the Subsidiary Guarantees, (d) applicable law,
(e) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary
non-assignment provisions in leases or other similar agreements entered into in
the ordinary course of business and consistent with past practices,
(g) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (h) any agreement for the sale of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are not materially more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced, (j) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that limits the right
of the debtor to dispose of the assets securing such Indebtedness,
(k) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered into
in the ordinary course of business, (1) restrictions on cash or other deposits
or net worth imposed by customers under contracts entered into in the ordinary
course of business, (m) mortgage or construction financing that imposes
restrictions on the transfer of the property acquired or improved,
(n) encumbrances or restrictions imposed by amendments to the contracts,
agreements or obligations referred to in the foregoing clauses (a), (c), (e),
(f), (g), (h), (j), (k) and (n), provided that such amendments are not
materially more restrictive than the agreement so amended; and (o) protective
liens filed in connection with sale-leaseback transactions permitted under the
caption "--Sale and Leaseback Transactions."
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (i) the Company is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation or other entity organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the then existing obligations of the Company
under the Registration Rights Agreement (as defined), the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Subsidiary of the Company, the Company or the Person formed
by or surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Disqualified Stock." The Indenture
provides that the Company will not, directly or indirectly, lease all or
substantially all of its properties or assets to any Person.
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TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $2.0 million, a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the Company and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $7.5 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing. Notwithstanding the foregoing, the following items shall not
be deemed to be Affiliate Transactions: (i) any employment agreement,
compensation, employee benefit arrangements and incentive arrangements or
indemnification agreement or arrangement with any officer, director, member or
employee entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business of the Company or such Restricted Subsidiary,
(ii) transactions between or among the Company and/or its Restricted
Subsidiaries, (iii) payment of reasonable directors fees, (iv) Restricted
Payments (other than Restricted Investments) that are permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments," (v) loans and advances to officers, directors and employees of the
Company or any Restricted Subsidiary for travel, entertainment, moving and other
relocation expenses, in each case made in the ordinary course of business;
(vi) transactions pursuant to the Stockholders' Agreement and the Merger
Agreement, in each case, as in effect on the date of the Indenture as the same
may be amended, modified or replaced from time to time so long as such
amendment, modification or replacement is no less favorable to the Company and
its Restricted Subsidiaries, taken as a whole, than the Stockholders' Agreement
or the Merger Agreement, as the case may be, as in effect on the date of the
Indenture.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company or any of its Restricted Subsidiaries may enter into a
sale and leaseback transaction if (i) the Company or such Restricted Subsidiary
could have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the covenant
described above under the caption "--Incurrence of Additional Indebtedness and
Issuance of Disqualified Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption
"--Liens," (ii) the gross cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors of the Company and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and if applicable, the Company applies
the proceeds of such transaction in compliance with, the covenant described
above under the caption "--Asset Sales." Notwithstanding the foregoing, this
covenant shall not apply to the sale and leaseback of (i) the backhoe dredge
"New York" under construction on the date of the Indenture or (ii) the dredging
assets acquired from T.L. James & Company, Inc. pursuant to the acquisition
agreement in effect on the date of the Indenture, as such
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agreement is in effect on such date, in the case of clauses (i) and (ii), within
120 days of the date of completion of such construction or acquisition of such
assets, as applicable.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another domestic Subsidiary after the date
of the Indenture, then, unless such Subsidiary is properly designated as an
Unrestricted Subsidiary, such newly acquired or created Subsidiary shall become
a Subsidiary Guarantor and execute a Supplemental Indenture and deliver an
opinion of counsel, in accordance with the terms of the Indenture.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee any other Indebtedness of the
Company or a Subsidiary Guarantor unless, if such Restricted Subsidiary is not a
Guarantor, such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for the Guarantee of the
payment of the Notes by such Restricted Subsidiary, which Guarantee shall be
senior to or PARI PASSU with such Subsidiary's Guarantee of such other
Indebtedness unless such other Indebtedness is Senior Debt, in which case the
Guarantee of the Notes may be subordinated to the Guarantee of such Senior Debt
to the same extent as the Notes are subordinated to such Senior Debt.
Notwithstanding the foregoing, any such Subsidiary Guarantee shall provide by
its terms that it shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer, to any Person not an Affiliate
of the Company, of all of the Company's stock in, or all or substantially all
the assets of, such Restricted Subsidiary, which sale, exchange or transfer is
made in compliance with the applicable provisions of the Indenture. The form of
such Subsidiary Guarantee is attached as an exhibit to the Indenture.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly financial information beginning with the quarter ended
March 31, 2001 and annual financial information that would be required to be
contained in a filing with Securities and Exchange Commission on Forms 10-Q and
10-K if the Company was required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its consolidated Subsidiaries (showing in reasonable detail, either on the face
of the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial
101
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with Securities and Exchange
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in Securities and Exchange
Commission's rules and regulations. In addition, following the consummation of
the exchange offer contemplated by the Registration Rights Agreement, whether or
not required by the rules and regulations of Securities and Exchange Commission,
the Company will file a copy of all such information and reports with Securities
and Exchange Commission for public availability within the time periods
specified in Securities and Exchange Commission's rules and regulations (unless
Securities and Exchange Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, (i) at all times Securities and Exchange Commission does
not accept the filings provided for in the preceding sentence or (ii) such
filings provided for in the preceding sentence do not contain the information
required to be delivered upon request pursuant to Rule 144A(d)(4) under the
Securities Act, then, in each case, the Company has agreed that, for so long as
any Notes remain outstanding, it will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not permitted by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not permitted by
the subordination provisions of the Indenture); (iii) failure by the Company or
any of its Restricted Subsidiaries to comply with the provisions described under
the caption "--Change of Control;" (iv) failure by the Company or any of its
Restricted Subsidiaries for 60 days after notice by the Trustee or by the
Holders of at least 25% in principal amount of Notes then outstanding to comply
with any of its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its stated maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated (after giving effect to any applicable grace period), aggregates
$10.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0 million (net
of any amount with respect to which a reputable insurance company with assets
over $100.0 million has acknowledged liability in writing), which judgments are
not paid, discharged or stayed for a period of 60 days after their entry;
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Subsidiaries and (viii) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Subsidiary Guarantor, or any Person acting on behalf of any
Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee.
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If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Subsidiary Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights
of Holders of outstanding Notes to receive payments in respect of the principal
of, premium and Liquidated Damages, if any, and interest on such Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default & Remedies" will no longer constitute
an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
government securities, or a combination thereof, in such amounts as will be
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sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, subject to customary assumptions and exceptions, the Holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and exceptions, the Holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that, subject
to customary assumptions and exceptions, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Subsidiary Guarantees or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
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existing default or compliance with any provision of the Indenture, the Notes or
the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"), (viii) release any Subsidiary
Guarantor from any of its obligations under its Subsidiary Guarantee or the
Indenture, except in accordance with the terms of the Indenture, or (ix) make
any change in the foregoing amendment and waiver provisions. In addition, any
amendment to the provisions of Article 10 and Section 11.02 of the Indenture
(which relate to subordination) requires the consent of the Holders of at least
75% in aggregate principal amount of the Notes then outstanding if such
amendment would adversely affect the rights of Holders of the Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Subsidiary Guarantors, the Company and the Trustee may amend or supplement
the Indenture, the Subsidiary Guarantees or the Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Company's
or a Subsidiary Guarantor's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to provide for the issuance of Additional Notes in accordance with the
provisions set forth in the Indenture on the date of the Indenture, to make any
change that would provide any additional rights or benefits to the Holders of
Notes or that does not adversely affect the legal rights under the Indenture of
any such Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act or to allow any Subsidiary Guarantor to guarantee the Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
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request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at 2122
York Road, Oak Brook, Illinois 60521, Attention: President.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes will be in the form of one or more registered global
notes without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the Trustee, as custodian for
DTC, in New York, New York, and registered in the name of DTC or its nominee, in
each case for credit to the accounts of DTC's Direct and Indirect Participants
(as defined below).
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for Notes in certificated form in certain limited circumstances. See "--Transfer
of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the initial purchaser), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and Cedel Bank. Access to DTC's system is also available to other
entities that clear through or maintain a direct or indirect, custodial
relationship with a Direct Participant (collectively, the "Indirect
Participants"). DTC may hold securities beneficially owned by other persons only
through the Direct Participants or Indirect Participants and such other persons'
ownership interest and transfer of ownership interest will be recorded only on
the records of the Direct Participant and/or Indirect Participant, and not on
the records maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures,
(i) upon deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the initial purchaser with portions of the principal
amount of the Global Notes allocated by the initial purchaser to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a
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Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the Notes see "--Regulation S Temporary
and Regulation S Permanent Global Notes" and "--Transfers of Interests in Global
Notes for Certificated Notes."
Except as described in "Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, the Company, the Subsidiary Guarantors and
the Trustee will treat the persons in whose names the Notes are registered
(including Notes represented by Global Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, Liquidated Damages, if any, and
interest on Global Notes registered in the name of DTC or its nominee will be
payable by the Trustee to DTC or its nominee as the registered holder under the
Indenture. Consequently, neither the Company, the Trustee nor any agent of the
Company or the Trustee has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Direct Participant's or Indirect
Participant's records relating to the beneficial ownership interests in any
Global Note or (ii) any other matter relating to the actions and practices of
DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the Company or the Subsidiary Guarantors. Neither the Company, the
Subsidiary Guarantors nor the Trustee will be liable for any delay by DTC or its
Direct Participants or Indirect Participants in identifying the beneficial
owners of the Notes, and the Company and the Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee as the
registered owner of the Notes for all purposes.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and to
distribute such certificated forms of Notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC
(x) notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes and the Company thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the
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Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Certificated Notes or (iii) there shall
have occurred and be continuing a Default or an Event of Default with respect to
the Notes. In any such case, the Company will notify the Trustee in writing
that, upon surrender by the Direct and Indirect Participants of their interest
in such Global Note, Certificated Notes will be issued to each person that such
Direct and Indirect Participants and DTC identify as being the beneficial owner
of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), but
only upon at least 20 days' prior written notice given to the Trustee by or on
behalf of DTC in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither the Company, the Subsidiary Guarantors nor the Trustee will be
liable for any delay by the holder of the Global Notes or the DTC in identifying
the beneficial owners of Notes, and the Company and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the holder of
the Global Note or the DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the holder of such Global Note. With respect to
Certificated Notes, the Company will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. The Company expects that secondary trading in the Certificated Notes
will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Great Lakes, the Subsidiary Guarantors and the initial purchaser entered
into a Registration Rights Agreement (the "Registration Rights Agreement") on
April 24, 2001. Great Lakes has filed this Exchange Offer Registration Statement
(the "Exchange Offer Registration Statement") pursuant to the Registration
Rights Agreement, offering to exchange the Series C notes and the Series B notes
for a single class of publicly tradable notes having identical terms to those of
the Series C notes and the Series B notes. Upon the effectiveness of the
Exchange Offer Registration Statement, Great Lakes will offer to the holders of
Transfer Restricted Securities (as defined below) and the Series B notes
pursuant to the Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities and the Series B
notes for Exchange Notes. Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Registration Rights Agreement.
Great Lakes will file with the Commission the Shelf Registration Statement
to cover resales of the Series C notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement if the following occur: Great Lakes is not
required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy; or any Holder of Transfer Restricted
Securities notifies Great Lakes within the specified time period that: (a) it is
prohibited by law or Commission policy from participating in the Exchange Offer;
or (b) it may not resell the Exchange Notes acquired by it in the Exchange Offer
to the public without
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delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales; or
(c) it is a broker-dealer and owns Series C notes acquired directly from Great
Lakes or an affiliate of Great Lakes. For purposes of the foregoing, "Transfer
Restricted Securities" means each Series C note until the earlier to occur of:
(1) the date on which such note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer; (2) following the
exchange by a broker-dealer in the Exchange Offer of a Series C note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement; (3) the
date on which such Series C note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement; or (4) the date on which such Series C note is distributed to the
public pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provide that: (1) Great Lakes will file an
Exchange Offer Registration Statement with the Commission on or prior to
June 22, 2001; (2) Great Lakes will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior to
October 19, 2001; (3) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, Great Lakes will commence the Exchange
Offer and use its best efforts to issue on or before 30 business days after the
date on which the Exchange Offer Registration Statement was declared effective
by the Commission, Exchange Notes in exchange for all Series C notes and
Series B notes tendered prior thereto in the Exchange Offer; and (4) if
obligated to file the Shelf Registration Statement, Great Lakes will use its
best efforts to file the Shelf Registration Statement with the Commission on or
prior to 60 days after such filing obligation arises and to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior to
180 days after such obligation arises. Great Lakes will be permitted to suspend
use of the prospectus that is part of the Shelf Registration Statement during
certain periods of time and in certain circumstances relating to pending
corporate developments and public filings with the Commission and similar
events. Great Lakes will pay Liquidated Damages to each Holder of Series C notes
offered hereby in the following circumstances: (1) Great Lakes fails to file any
of the Registration Statements required by the Registration Rights Agreement on
or before the date specified for such filing; (2) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"); (3) Great
Lakes fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement; or (4) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable (including as a result of Great Lakes' suspending the use of
any prospectus pursuant to the preceding paragraph) in connection with resales
of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses
(1) through (4) above a "Registration Default"). With respect to the first
90-day period immediately following the occurrence of such Registration Default,
Great Lakes will pay Liquidated Damages in an amount equal to $.05 per week per
$1,000 principal amount of notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of notes with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 principal amount of notes. All accrued
Liquidated Damages will be paid by Great Lakes on each interest payment date
with respect to the Global Note Holder by wire transfer of immediately available
funds or by federal funds check and to Holders of Certificated Securities by
wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
109
In order to have their Series C notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages, holders
of Series C notes will be required to do the following: (1) make certain
representations to Great Lakes (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer; (2) deliver
information to be used in connection with the Shelf Registration Statement; and
(3) provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by any Restricted Subsidiary of Equity Interests of any of the
Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $2.0 million or (b) for net proceeds in excess of
$2.0 million. Notwithstanding the foregoing, the following items shall not be
deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly
Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of
Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to
another Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "--Restricted
Payments," (iv) the sale and leaseback of any assets within 120 days of the date
of acquisition or completion of construction of such assets, (v) the sale at
fair market value of property or equipment that has become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of the
Company or any Restricted Subsidiary, as the case may be, in the ordinary course
of business and (vi) bare-boat charters entered into in the ordinary course of
business for a term not to exceed 12 months.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during
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the remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Bonding Agreement" means that certain Second Amended and Restated
Underwriting and Continuing Indemnity Agreement, dated as of the date of the
Indenture, by and among the Company, certain of its Subsidiaries and the bonding
company, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as amended,
restated, modified, renewed, refunded, replaced or refinanced from time to time.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one-year and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations with
a term of not more than thirty days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above,
(v) obligations issued or fully guaranteed by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (vi) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within one year after the date of acquisition, (vii) money market
funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (i) through (vii) of this definition and
(viii) short-term asset management accounts offered by any lender under Credit
Facilities for the purpose of investing in notes issued by a corporation (other
than the Company or any Affiliate of the Company) organized under the laws of
any state of the United States or of the District of Columbia and rated A-2 or
higher by Standard & Poor's Rating Group, a division of McGraw Hill, Inc. or P-2
or higher by Moody's Investors Service, Inc.
"Citicorp" means Citicorp, a Delaware corporation, or any successor thereto
by merger or consolidation.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary or nonrecurring loss plus any net loss realized in
connection with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income, plus (ii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was deducted in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation, amortization of
debt issuance costs and original issue
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discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, plus, without duplication, (v) any
interest expense on Indebtedness of another person that is guaranteed by such
person or a Subsidiary of such person or secured by a Lien on the assets of such
person or one of its Subsidiaries (to the extent that such interest expense was
deducted in computing Consolidated Net Income in such period), plus
(vi) expenses and charges of the Company related to the Company's
recapitilization in 1998 and the financing thereof incurred or for which the
Company became obligated on or prior to or within 30 days after the date of the
Indenture plus (vii) incremental expenses incurred associated with the Chicago
Flood Litigation not exceeding $800,000, minus (viii) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries.
"Credit Facilities" means, with respect to the Company or its Restricted
Subsidiaries, one or more debt facilities (including, without limitation, the
New Credit Facility) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as increased as permitted by
the terms of the Indenture, and amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation, or any
successor thereto by merger or consolidation.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Obligations outstanding under the New
Credit Facility (including letters of credit), (ii) any Permitted Bonding
Obligation and (iii) any other Senior Debt
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permitted under the Indenture the principal amount of which is $50.0 million or
more and that has been designated by the Company as "Designated Senior Debt."
Notwithstanding the foregoing, Indebtedness under the New Credit Facility shall
be deemed outstanding for purposes of this definition at all times when the
lenders thereunder have an effective commitment to extend credit thereunder,
regardless of whether any such Indebtedness is actually outstanding at such
time.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption
"--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness (including Guarantees) of the
Company and its Subsidiaries (other than Indebtedness under the New Credit
Facility) in existence on the date of the Indenture, until such amounts are
permanently repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to interest Hedging Obligations; provided, however, that in no event shall any
amortization of deferred financing costs incurred in connection with the
Company's recapitilization in 1998 and the financing thereof be included in
Fixed Charges) and (ii) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all cash dividend payments
and non-cash dividend payments, on any series of preferred stock and any series
of Disqualified Stock, in each case, of such Person or any of its Restricted
Subsidiaries, other than dividend payments (x) on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock) or
(y) to the Company or a Subsidiary Guarantor, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays or redeems any Indebtedness (other than repayment of
revolving credit borrowings that are not accompanied by a permanent reduction in
the commitment amount) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
113
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers (including the Merger) or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate or currency swap agreements, interest rate
cap agreements and interest rate collar agreements, (ii) other agreements or
arrangements solely designed to protect such Person against fluctuations in
interest or currency exchange rates and (iii) commodities purchase and sale
agreements and other similar agreements designed to protect such Person against
fluctuations in the price of raw materials used by the Company and its
Restricted Subsidiaries in the ordinary course of business.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing (other than letters of credit, Hedging
Obligations and Attributable Debt) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (whether or
not such Indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness (other than Hedging Obligations,
guarantees and Attributable Debt) outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
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"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of Equity Interests or other securities by the Company or any of
its Restricted Subsidiaries for consideration consisting solely of Equity
Interests (other than Disqualified Stock) of the Company shall not be deemed to
be an Investment. If the Company or any Restricted Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of dividends on preferred interests, (i) excluding,
however, (a) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (1) any Asset
Sale (including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (2) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (b) any extraordinary or
nonrecurring gain (but not loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (but not loss) and (ii) less the
aggregate amount of all Restricted Payments made by such Person or any of its
Restricted Subsidiaries for such period pursuant to clause (vii) of the covenant
described under the caption "--Certain Covenants--Restricted Payments" to the
extent not otherwise deducted in computing such Net Income.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, any taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement, dated as of the
date of the Indenture, by and among the Company, Bank of America National Trust
and Savings Association, as agent, and certain other lenders party thereto,
initially providing for up to $55.0 million of revolving credit borrowings and
$55.0 million of term borrowings, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as increased as permitted by the terms of the
Indenture, and amended, modified, renewed, restated, refunded, replaced or
refinanced from time to time.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, costs, expenses, reimbursement obligations, damages and other
liabilities and obligations which may arise under or in connection with the New
Credit Facility or the bonding agreement or under or in connection with the
documentation governing any Indebtedness, and in all cases whether direct or
indirect, absolute or contingent, now outstanding or hereafter created, assumed
or incurred and including, without limitation, interest accruing subsequent to
the filing of a petition in bankruptcy or the commencement of any insolvency,
reorganization or similar proceedings at the rate provided in the relevant
document, whether or not an allowed claim, and any obligation to redeem or
defease any of the foregoing.
"Permitted Bonding Obligations" means (i) obligations incurred by the
Company or any of its Subsidiaries (including Guarantees) with respect to bid,
performance, surety, appeal or similar bonds and completion guarantees in the
ordinary course of business and consistent with past practices and
(ii) obligations incurred by the Company or any of its Subsidiaries (including
Guarantees) under the bonding agreement.
"Permitted Business" means any of the businesses engaged in by the Company
and its Restricted Subsidiaries on the date of the Indenture and any other
business reasonably related, complementary or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is a Subsidiary Guarantor and is
engaged in a Permitted Business; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company and a Subsidiary Guarantor and is engaged in a
Permitted Business or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company that is a
Subsidiary Guarantor and that is engaged in Permitted Business; (d) any
Investment made as a result of the receipt of assets not constituting Cash
Equivalents from an Asset Sale that was made pursuant to and in compliance with
the covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;" (e) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (f) that are at the time outstanding, not to exceed
$10.0 million; (g) Investments in securities of customers received in settlement
of obligations or pursuant to a plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers;
(h) Investments existing on the date of the Indenture; (i) loans and advances to
officers, directors, members and employees for business-related travel expenses,
moving expenses and other similar expenses, in each case, incurred in the
ordinary course of business and consistent with past practices not to exceed
$1.0 million in the aggregate at any time; (j) any Hedging Obligation;
(k) Investments consisting of intercompany loans from the Company and its
Restricted Subsidiaries to Restricted Subsidiaries, including Restricted
Subsidiaries that are not Subsidiary
116
Guarantors; (1) Investments consisting of capital contributions from the Company
or any Restricted Subsidiaries to Restricted Subsidiaries that are not
Subsidiary Guarantors in an aggregate amount at any one time outstanding not to
exceed $10.0 million; and (m) Investments in joint ventures formed in the
ordinary course of business for the purpose of bidding and completing specific
projects within a Permitted Business in an aggregate amount at any one time
outstanding not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or any
Subsidiary Guarantor or debt securities that are subordinated to all Senior Debt
(and any debt securities issued in exchange for Senior Debt) to substantially
the same extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt pursuant to the Indenture; provided that no such Equity Interests or
debt securities may be issued if the rights of the holders of the Senior Debt
are impaired by any such issuance in connection with a reorganization,
including, without limitation, by reason of such rights being impaired within
the meaning of Section 1124 of Title 11 of the United States Code.
"Permitted Liens" means (i) Liens on assets of the Company securing Senior
Debt of the Company and Liens on assets of Subsidiary Guarantors securing Senior
Debt, provided, in each case, that such Indebtedness was permitted by the terms
of the Indenture to be incurred; (ii) Liens in favor of the Company or a
Subsidiary Guarantor; (iii) Liens on property of a Person existing at the time
such Person is merged with or into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(v) Liens to secure the performance of statutory obligations, surety or appeal
bonds, bid bonds, payment bonds, performance and lien bonds or other obligations
of a like nature incurred in the ordinary course of business; (vi) Liens to
secure Indebtedness (including Capital Lease Obligations) permitted by
clause (v) or (ix) of the second paragraph of the covenant entitled "Incurrence
of Indebtedness and Issuance of Preferred Stock" covering, in the case of such
clause (v), only the assets acquired with such Indebtedness; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(ix) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt
of Unrestricted Subsidiaries; (x) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations that do not exceed $7.5 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary; (xi) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens (including statutory maritime Liens)
imposed by law incurred in the ordinary course of business; (xii) Liens incurred
or deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or
similar obligations, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money); (ix) judgment or attachment
Liens not giving rise to an Event of Default; (xiv) easements, rights-of-way,
zoning restrictions and other similar charges or encumbrances in respect of real
property not interfering in any material respect with the ordinary course of the
business of the Company or any of its Restricted Subsidiaries; (xv) any interest
or title of a lessor under any lease, whether or not characterized as capital or
operating; provided that such Liens do not extend to any property or assets
which is not leased property subject to such lease; (xvi) Liens
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securing Hedging Obligations which Hedging Obligations relate to Indebtedness
that is otherwise permitted under the Indenture; (xvii) Liens securing
reimbursement obligations with respect to letters of credit and products and
proceeds thereof; (xviii) Liens securing Permitted Refinancing Indebtedness
which is incurred to refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; (xix) Liens in favor of the Company or any of its
Restricted Subsidiaries securing Indebtedness of any Restricted Subsidiary that
is not a Subsidiary Guarantor; (xx) Liens with respect to current wages of the
master and crew and for wages of a stevedore when employed directly by the
Company or any Subsidiary of the Company, or by the charterer, operator, master
or agent of any of the vessels owned or operated by the Company or any
Subsidiary of the Company; and (xxi) Liens for salvage (including contract
salvage).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, to extend,
refinance, renew, replace, defease or refund other Indebtedness of the Company
or any of its Restricted Subsidiaries (other than intercompany Indebtedness);
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses, premiums, penalties, fees and interest incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Public Equity Offering" means a public offering pursuant to an effective
registration statement under the Securities Act of Equity Interests (other than
Disqualified Stock) of the Company.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or useful
in a Permitted Business and (iv) the Capital Stock of any Person engaged in a
Permitted Business if, in connection with the receipt by the Company or any
Restricted Subsidiary of the Company of such Capital Stock, (a) such Person
becomes a Restricted Subsidiary of the Company or any Restricted Subsidiary of
the Company or (b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Restricted Subsidiary of the Company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all Obligations of the Company or a Subsidiary
Guarantor outstanding under the New Credit Facility, including any Guarantee
thereof and all Hedging Obligations with respect thereto and all interest and
fees accrued with respect thereto following the commencement of a proceeding
under bankruptcy law, whether or not considered an allowed claim in such
proceeding, (ii) all Permitted Bonding Obligations from time to time
outstanding, (iii) any other Indebtedness of the Company or a Subsidiary
Guarantor permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity
118
with or subordinated in right of payment to the Notes and (iv) all Obligations
with respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (v) any liability for federal, state,
local or other taxes owed or owing, (vi) any Indebtedness of the Company or any
Subsidiary Guarantor to any Subsidiary of the Company or any other Affiliates of
the Company, (vii) any trade payables, (viii) any Indebtedness which is
expressly subordinated to any other Indebtedness of the Company or any of its
Subsidiaries, or (ix) any Indebtedness that is incurred in violation of the
Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal (including any sinking fund payment) on any series of Indebtedness,
the date on which such payment of interest or principal was scheduled to be paid
in the original documentation governing such Indebtedness, and shall not include
any contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Stockholders' Agreement" means the Securities Purchase and Holders
Agreement among the stockholders of the Company, as in effect on the date of the
Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means each of (i) the wholly owned domestic
Restricted Subsidiaries of the Company on the date of the Indenture and
(ii) any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture, and their respective successors and
assigns.
"Sureties" means Reliance Insurance Company, United Pacific Insurance
Company, Reliance National Insurance Company and Reliance Surety Company,
together with any of their respective affiliates.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company or any
successor to any of them) that is designated by the Board of Directors of the
Company as an Unrestricted Subsidiary pursuant to a board resolution; but only
to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the
119
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
120
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the exchange offer to a "U.S. Holder" of existing
notes who purchased the existing notes pursuant to their original issue. For
purposes of this discussion, a "U.S. Holder" is (i) an individual who is a
citizen or resident of the United States for United States federal income tax
purposes, (ii) a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any state thereof (including
the District of Columbia), (iii) an estate the income of which is subject to
United States federal income tax regardless of its source or (iv) a trust if
(a) a court within the United States is able to exercise primary supervision
over the administration of the trust and (b) one or more United States persons
have the authority to control all substantial decisions of the trust. This
discussion is based on the Internal Revenue Code of 1986, as amended to the date
hereof (the "Code"), existing and proposed Treasury regulations, and judicial
and administrative determinations, all of which are subject to change at any
time, possibly on a retroactive basis. The following relates only to the
existing notes, and the exchange notes received therefor, that are held as
"capital assets" within the meaning of Section 1221 of the Code by U.S. Holders.
It does not discuss state, local, or foreign tax consequences, nor does it
discuss tax consequences to subsequent purchasers (persons who did not purchase
the existing notes pursuant to their original issue), or to categories of
holders that are subject to special rules, such as foreign persons, tax-exempt
organizations, insurance companies, banks and dealers in stocks and securities.
Tax consequences may vary depending on the particular status of an investor. No
rulings will be sought from the Internal Revenue Service with respect to the
federal income tax consequences of the exchange offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING
NOTES FOR EXCHANGE NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO
ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE EXISTING NOTES
FOR EXCHANGE NOTES.
THE EXCHANGE OFFER
The exchange of existing notes pursuant to the exchange offer should be
treated as a continuation of the corresponding existing notes, because the terms
of the exchange notes are not materially different from the terms of the
existing notes. Accordingly, such exchange should not constitute a taxable event
to U.S. Holders and, therefore, (i) no gain or loss should be realized by U.S.
Holders upon receipt of an Exchange Note, (ii) the holding period of an Exchange
Note should include the holding period of the Existing Note exchanged therefor
and (iii) the adjusted tax basis of an Exchange Note should be the same as the
adjusted tax basis of the Existing Note exchanged therefor immediately before
the exchange.
STATED INTEREST
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or retirement
of a Note in an amount equal to the
121
difference between the amount realized on the sale, exchange or retirement and
the tax basis of the Note. Gain or loss recognized on the sale, exchange or
retirement of a Note (excluding amounts received in respect of accrued interest,
which will be taxable as ordinary interest income) generally will be capital
gain or loss and will be long-term capital gain or loss, if the Note was held
for more than one year. Net long-term capital gain recognized by non-corporate
taxpayers is generally subject to a 20% maximum rate of tax.
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof.
This withholding generally applies if the U.S. Holder fails to furnish his
or her social security number or other taxpayer identification number in the
specified manner and in certain circumstances or fails to properly certify that
he or she is not subject to backup withholding in general. Any amount withheld
from a payment to a U.S. Holder under the backup withholding rules is allowable
as a credit against such U.S. Holder's federal income tax liability.
Corporations and certain other entities described in the Code and Treasury
regulations are exempt from backup withholding if their exempt status is
properly established.
122
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for existing
notes where such existing notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the expiration date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until 90 days after the date of this
prospectus, all dealers effecting transactions in the exchange notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date the Company will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
exchange offer other than commissions or concessions of any brokers or dealers
and will indemnify the Holders of the Securities (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the exchange notes offered hereby will
be passed upon for the Company by Dechert, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of Great Lakes as of December 31, 2000
and 1999 and for each of the three years in the period ended December 31, 2000
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The financial statements of NASDI as of December 31, 2000 and 1999 and for
eleven-month period ended December 31, 1998 and for each of the two fiscal years
in the period ended December 31, 2000 included in this prospectus have been
audited by O'Connor & Drew P.C. of Quincy, Massachusetts, independent auditors,
as stated in their report appearing herein.
The financial statements of Amboy Aggregates as of December 31, 2000 and
1999 and for each of the three years in the period ended December 31, 2000 have
been audited by J.H. Cohn LLP, independent public accountants, as stated in
their report appearing herein.
123
AVAILABLE INFORMATION
This prospectus is a part of a registration statement on Form S-4 (the
"registration statement," which term includes all amendments, exhibits, annexes
and schedules thereto) pursuant to the Securities Act of 1933, as amended and
the rules and regulations promulgated thereunder, covering the exchange notes
being offered hereby. This prospectus does not contain all the information set
forth in the Registration Statement. For further information with respect to the
Company and the exchange offer, reference is made to the Registration Statement.
Statements made in this prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file periodic reports and other information with the
Securities and Exchange Commission. Such periodic reports and other information
filed with Securities and Exchange Commission, including the registration
statement, may be inspected without charge at the Public Reference Section of
Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and will also be available for inspection
and copying at the regional offices of Securities and Exchange Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any portion of such material may be obtained from the Public
Reference Section of Securities and Exchange Commission upon payment of certain
prescribed fees. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. In
addition, Securities and Exchange Commission maintains a web site that contains
periodic reports and other information filed by registrants such as the Company.
This address of the web site is http://www.sec.gov. Copies of such material can
also be obtained from the Company upon request.
While any exchange notes remain outstanding, the Company will make
available, on request, to any holder and any prospective purchaser of exchange
notes the information required pursuant to Rule 144A(d)(4) under the Securities
Act during any period in which the Company is not subject to Section 13 or
15(d) of the Exchange Act
FORWARD-LOOKING STATEMENTS
This prospectus contains both historical and forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. These forward-looking statements are not historical facts, but
only predictions and generally can be identified by use of statements that
include phrases such as "believe," "expect," "anticipate," "intend," "plan,"
"foresee" or other words or phrases of similar import. Similarly, statements
that describe our objectives, plans or goals also are forward-looking
statements. These forward-looking statements are subject to risks and
uncertainties which could cause actual results to differ materially from those
currently anticipated. Factors that could materially affect these
forward-looking statements can be found in our periodic reports filed with the
SEC. Potential investors and other readers are urged to consider these factors
carefully in evaluating the forward-looking statements, including the factors
described above under "Risk Factors" and are cautioned not to place undue
reliance on these forward-looking statements. The forward-looking statements
included in this prospectus are made only as of the date of this prospectus and
we undertake no obligation to publicly update these forward-looking statements
to reflect new information, future events or otherwise. In light of these risks
uncertainties and assumptions, the forward-looking events might or might not
occur. We cannot assure you that projected results or events will be achieved.
124
INDEX TO FINANCIAL STATEMENTS
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31 2000, 1999 and 1998........................... F-4
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the years ended December 31, 2000, 1999, and
1998...................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements for the years
ended December 31, 2000, 1999 and 1998.................... F-7
NORTH AMERICAN SITE DEVELOPERS, INC.
Independent Auditors' Report................................ F-27
Balance Sheets as of December 31, 2000 and 1999............. F-28
Statements of Operations for the years ended December 31,
2000 and 1999 and the eleven months ended December 31,
1998...................................................... F-29
Statement of Stockholders' Equity for the years ended
December 31, 2000 and 1999 and the eleven months ended
December 31, 1998......................................... F-30
Statements of Cash Flows for the years ended December 31,
2000, 1999 and the eleven months ended December 31,
1998...................................................... F-31
Notes to Financial Statements for the years ended
December 31, 2000, 1999 and the eleven months ended
December 31, 1998......................................... F-32
AMBOY AGGREGATES (A JOINT VENTURE)
Report of Independent Public Accountants.................... F-40
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Great Lakes Dredge & Dock Corporation:
We have audited the accompanying consolidated balance sheets of Great Lakes
Dredge & Dock Corporation and Subsidiaries (the Company) as of December 31, 2000
and 1999, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and of cash flows for each of the three years in
the period ended December 31, 2000. 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 did not audit the
financial statements of Amboy Aggregates (Amboy) joint venture for the years
ended December 31, 2000 and 1999, the Company's investment in which is accounted
for using the equity method. The Company's equity of $5.1 million and
$6.0 million in Amboy's net assets at December 31, 2000 and 1999, respectively,
and of $(0.8) million, $0.2 million and $1.0 million in Amboy's net (loss)
income for each of the three years in the period ended December 31, 2000 are
included in the accompanying financial statements. The financial statements of
Amboy were audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for such joint
venture, is based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements presents fairly, in all material
respects, the financial position of Great Lakes Dredge & Dock Corporation and
Subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
January 29, 2001
F-2
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(in thousands, except share and per share amounts)
2000 1999
-------- --------
ASSETS
Current assets:
Cash and equivalents...................................... $ 1,137 $ 1,533
Accounts receivable....................................... 40,578 33,392
Contract revenues in excess of billings................... 18,542 20,536
Inventories............................................... 14,657 14,714
Prepaid expenses.......................................... 4,682 3,169
Other current assets...................................... 12,561 8,799
-------- --------
Total current assets.................................... 92,157 82,143
Property and equipment, net................................. 137,662 136,883
Inventories................................................. 6,773 8,838
Investments in joint ventures............................... 6,394 7,101
Other....................................................... 5,749 6,429
-------- --------
Total assets................................................ $248,735 $241,394
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 37,813 $ 25,227
Accrued expenses.......................................... 25,636 28,458
Billings in excess of contract revenues................... 7,863 8,548
Current maturities of long-term debt...................... 9,000 6,700
-------- --------
Total current liabilities............................... 80,312 68,933
Long-term debt.............................................. 146,000 152,500
Deferred income taxes....................................... 44,302 44,286
Foreign income taxes........................................ -- 1,525
Other....................................................... 7,032 11,332
-------- --------
Total liabilities....................................... 277,646 278,576
Minority interests.......................................... 3,372 2,373
Commitments and contingencies (Note 17)..................... -- --
Stockholders' deficit:
Preferred stock, $.01 par value; 250,000 shares
authorized:
45,000 issued; 44,675 outstanding in 2000 and 1999,
respectively............................................ 1 1
Common stock, $.01 par value; 50,000,000 shares
authorized:
5,000,000 issued; 4,902,700 and 4,905,700 outstanding in
2000 and 1999, respectively............................. 50 50
Additional paid-in capital................................ 50,457 50,457
Accumulated deficit....................................... (82,268) (89,519)
Treasury stock, at cost; 2000: 325 preferred shares,
97,300 preferred shares and common shares; 1999:
325 preferred shares, 94,300 common shares.............. (422) (419)
Notes receivable from stockholders........................ (101) (125)
-------- --------
Total stockholders' deficit............................. (32,283) (39,555)
-------- --------
Total liabilities and stockholders' deficit................. $248,735 $241,394
======== ========
See notes to consolidated financial statements.
F-3
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
-------- -------- --------
Contract revenues........................................... $339,054 $302,289 $289,212
Costs of contract revenues.................................. 281,624 244,825 240,578
-------- -------- --------
Gross profit.............................................. 57,430 57,464 48,634
General and administrative expenses......................... 22,292 21,867 22,672
Equity incentive plan and other compensation expenses....... -- -- 8,169
Recapitalization related expenses........................... -- -- 9,527
-------- -------- --------
Operating income.......................................... 35,138 35,597 8,266
Other income (expense):
Interest income........................................... 90 291 312
Interest expense.......................................... (18,753) (18,385) (10,175)
Equity in (loss) earnings of joint ventures............... (791) 183 1,218
-------- -------- --------
Income (loss) before income taxes, minority interests
and extraordinary item................................ 15,684 17,686 (379)
Provision for income taxes.................................. (7,434) (8,454) (636)
Minority interests.......................................... (999) 491 (2,738)
-------- -------- --------
Income (loss) from continuing operations before
extraordinary item.................................... 7,251 9,723 (3,753)
Extraordinary item, net of tax benefit of $543.............. -- -- (925)
-------- -------- --------
Net income (loss)....................................... $ 7,251 $ 9,723 $ (4,678)
======== ======== ========
See notes to consolidated financial statements.
F-4
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2000, 1999 and 1998
(in thousands, except share amounts)
NUMBER OF SHARES
--------------------- ADDITIONAL RETAINED
PREFERRED COMMON PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) STOCK
--------- --------- --------- -------- ---------- --------- --------
BALANCE AT DECEMBER 31, 1997............... -- 100 $ -- $60,000 $ -- $ 18,156 $ --
Exercise of stock options................ -- 8 -- 4,516 -- -- --
Tax benefit on tax compensation expense
related to stock options exercised..... -- -- -- 944 -- -- --
Assignment of settlement advance
receivable............................. -- -- -- -- -- (11,000) --
Common stock purchased................... -- 3,552,190 -- 8,704 -- -- --
Issuance of preferred stock.............. 34,420 -- 34,420 -- -- -- --
Conversion of common shares to preferred
shares................................. 10,580 (7) 10,580 (8,656) -- (1,924) --
Redemption of common shares.............. -- (100) -- (60,000) -- (99,796) --
Record shares at par value............... -- 1,447,809 (44,999) (5,458) 50,457 -- --
Net loss................................. -- -- -- -- -- (4,678) --
------ --------- ------- ------- ------- -------- -----
BALANCE AT DECEMBER 31, 1998............... 45,000 5,000,000 1 50 50,457 (99,242) --
Purchase of treasury stock............... -- -- -- -- -- -- (575)
Issuance of treasury stock............... -- -- -- -- -- -- 156
Loans to employee stockholders........... -- -- -- -- -- -- --
Net income............................... -- -- -- -- -- 9,723 --
------ --------- ------- ------- ------- -------- -----
BALANCE AT DECEMBER 31, 1999............... 45,000 5,000,000 1 50 50,457 (89,519) (419)
Purchase of treasury stock............... -- -- -- -- -- -- (3)
Repayment on notes receivable from
stockholders........................... -- -- -- -- -- -- --
Net income............................... -- -- -- -- -- 7,251 --
------ --------- ------- ------- ------- -------- -----
BALANCE AT DECEMBER 31, 2000............... 45,000 5,000,000 $ 1 $ 50 $50,457 $(82,268) $(422)
====== ========= ======= ======= ======= ======== =====
NOTES
RECEIVABLE
FROM
STOCKHOLDERS TOTAL
------------ --------
BALANCE AT DECEMBER 31, 1997............... $ -- $ 78,156
Exercise of stock options................ -- 4,516
Tax benefit on tax compensation expense
related to stock options exercised..... -- 944
Assignment of settlement advance
receivable............................. -- (11,000)
Common stock purchased................... -- 8,704
Issuance of preferred stock.............. -- 34,420
Conversion of common shares to preferred
shares................................. -- --
Redemption of common shares.............. -- (159,796)
Record shares at par value............... -- --
Net loss................................. -- (4,678)
----- --------
BALANCE AT DECEMBER 31, 1998............... -- (48,734)
Purchase of treasury stock............... -- (575)
Issuance of treasury stock............... -- 156
Loans to employee stockholders........... (125) (125)
Net income............................... -- 9,723
----- --------
BALANCE AT DECEMBER 31, 1999............... (125) (39,555)
Purchase of treasury stock............... -- (3)
Repayment on notes receivable from
stockholders........................... 24 24
Net income............................... -- 7,251
----- --------
BALANCE AT DECEMBER 31, 2000............... $(101) $(32,283)
===== ========
See notes to consolidated financial statements.
F-5
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
-------- -------- ---------
OPERATING ACTIVITIES
Net income (loss)........................................... $ 7,251 $ 9,723 $ (4,678)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation............................................ 12,666 11,986 13,950
Loss (earnings) of joint ventures....................... 791 (183) (1,218)
Minority interests...................................... 999 (491) 2,738
Deferred income taxes................................... 861 (2,546) (2,733)
Foreign income taxes.................................... (1,759) 1,112 1,866
Loss on dispositions of property and equipment.......... 171 23 717
Compensation expense related to exercise of options..... -- -- 5,152
Extraordinary item...................................... -- -- 925
Other, net.............................................. (239) 1,514 921
Changes in assets and liabilities:
Accounts receivable................................. (7,186) 4,004 2,903
Contract revenues in excess of billings............. 1,994 (4,600) (428)
Inventories......................................... 2,122 (3,220) (4,811)
Prepaid expenses and other current assets........... (6,120) (2,155) 4,712
Accounts payable and accrued expenses............... 9,998 2,304 (1,654)
Billings in excess of contract revenues............. (4,066) 7,844 1,868
-------- -------- ---------
Net cash flows from operating activities................ 17,483 25,315 20,230
INVESTING ACTIVITIES
Purchases of property and equipment......................... (14,128) (14,958) (29,129)
Dispositions of property and equipment...................... 512 303 20,213
Distributions from joint ventures........................... 225 3,589 --
Investments in joint ventures............................... (309) -- (1,720)
Distributions to minority interests......................... -- (1,730) --
-------- -------- ---------
Net cash flows from investing activities................ (13,700) (12,796) (10,636)
FINANCING ACTIVITIES
Proceeds from long-term debt issued......................... -- -- 55,000
Repayments of long-term debt................................ (6,700) (17,700) (200)
Borrowing (repayments) of revolving loans, net.............. 2,500 6,500 (57,000)
Proceeds from 11 1/4% subordinated debt issued.............. -- -- 115,000
Exercise of options......................................... -- -- 4,516
Common stock purchased...................................... -- -- 3,552
Issuance of preferred stock................................. -- -- 34,420
Treasury stock activity, net................................ (3) (544) --
Financing fees.............................................. -- -- (6,045)
Redemption of shares........................................ -- -- (159,796)
Repayment on notes receivable from stockholders............. 24 -- --
-------- -------- ---------
Net cash flows from financing activities................ (4,179) (11,744) (10,553)
-------- -------- ---------
Net change in cash and equivalents.......................... (396) 775 (959)
Cash and equivalents at beginning of year................... 1,533 758 1,717
-------- -------- ---------
Cash and equivalents at end of year......................... $ 1,137 $ 1,533 $ 758
======== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest...................................... $ 17,811 $ 17,525 $ 4,928
======== ======== =========
Cash paid for taxes......................................... $ 10,677 $ 4,938 $ 3,276
======== ======== =========
See notes to consolidated financial statements.
F-6
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND RECAPITALIZATION
Great Lakes Dredge & Dock Corporation and its subsidiaries (the Company) are
in the business of marine construction, primarily dredging. The Company's
primary customers are domestic and foreign government agencies.
Prior to August 19, 1998, Great Lakes Dredge & Dock Corporation (GLD
Corporation) was wholly owned by Blackstone Limited Partnerships (Blackstone).
On August 19, 1998, Great Lakes Dredge & Dock Corporation effected a
recapitalization whereby (i) management exercised vested options representing 7%
of the Company's then outstanding common stock, (ii) a portion of those shares
of common stock held by management was purchased directly by Vectura Holding
Company, LLC (Vectura), (iii) newly issued common stock and preferred stock was
sold to Vectura and certain additional members of management, (iv) the common
stock formerly held by Blackstone was redeemed, and (v) a portion of the common
stock held by management and Vectura was converted into preferred stock. The
redemption of the common stock formerly held by Blackstone was financed using a
portion of the proceeds from $115,000 of senior subordinated debt, $110,000 new
bank credit facility, and $45,000 of preferred stock and $3,552 of common stock
sold to Vectura and certain members of management. As a result of the
recapitalization and subsequent stock activity, certain members of Company
management own approximately 14% of the outstanding common stock and Vectura
owns approximately 85%.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of GLD
Corporation and its majority-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated. The equity method of accounting is
used for investments in unconsolidated investees in which the Company has
significant influence. All other investments are carried at cost.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
REVENUE AND COST RECOGNITION ON CONTRACTS
Substantially all of the Company's contracts for dredging services are
fixed-price contracts, which provide for remeasurement based on actual
quantities dredged. Contract revenues are recognized under the
percentage-of-completion method, based on the Company's engineering estimates of
the physical percentage completed of each project. Costs of contract revenues
are adjusted to reflect the gross profit percentage expected to be achieved upon
ultimate completion of each project. Provisions for estimated losses on
contracts in progress are made in the period in which such losses are
determined. Claims for additional compensation due the Company are not
recognized in contract revenues until such claims are settled. Billings on
contracts are generally submitted after verification with the customers of
physical quantities completed and may not match the timing of revenue
recognition. The difference between amounts billed and recognized as revenue is
reflected in the balance sheet as either contract
F-7
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenues in excess of billings or billings in excess of contract revenues.
Significant expenditures incurred incidental to major contracts are deferred and
recognized as contract costs based on contract performance over the duration of
the related project. These expenditures are reported as prepaid expenses.
CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES
The Company includes in current assets and liabilities amounts realizable
and payable in the normal course of contract completion unless completion of
such contracts extends significantly beyond one year.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are recorded at the lower of first-in, first-out cost or market.
Inventories consist mainly of pipe, purchased spare parts and supplies.
PROPERTY AND EQUIPMENT
Capital additions, improvements and major renewals are classified as
property and equipment and are carried at cost. Maintenance and repairs are
charged to earnings as incurred. Depreciation is provided over the estimated
useful lives of property and equipment using the straight-line method. The
estimated useful lives by class of assets are 5 to 10 years for furniture and
fixtures and 3 to 30 years for operating equipment.
Effective January 1, 1999, the Company made changes in the estimated useful
lives of certain operating equipment to better reflect the remaining period over
which the Company anticipates utilizing this equipment with normal repairs and
maintenance. This change resulted in lower depreciation for the years ended
December 31, 2000 and 1999 by approximately $2,900, than would have been
expensed if the prior useful lives had been used.
Long-lived assets are reviewed for possible impairment whenever events
indicate that the carrying amount of such assets may not be recoverable by
comparing the undiscounted cash flows associated with the assets to their
carrying amounts. If such a review indicates an impairment, the carrying amount
would be reduced to estimated recoverable value.
INCOME TAXES
The Company records income taxes based upon Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
use of the liability method of accounting for deferred income taxes. The
provision for income taxes includes federal, foreign and state income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities.
F-8
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments included in current assets and
current liabilities approximates fair values due to the short-term maturities of
these instruments. The carrying value of long-term bank debt is a reasonable
estimate of its fair value as interest rates are variable, based on the
prevailing market rates. The fair value of the Company's $115,000 long-term
subordinated notes was $114,425 and $120,175 at December 31, 2000 and 1999,
respectively, based on quoted market prices. The Company is contingently liable
under letters of credit and other financial guarantees. It is not practicable to
estimate the fair value of these financial instruments; however, the Company
does not expect any material losses to result from these financial instruments
since performance is not likely to be required.
The Company uses derivative instruments to manage commodity price and
foreign currency exchange risks. Such instruments are not used for trading
purposes. Gains and losses on these hedges are deferred and are recognized in
income as part of the related transaction.
At December 31, 2000, the Company had one foreign exchange forward contract
outstanding, with a notional amount of $2,017, intended to hedge payments
related to its foreign tax liabilities. The unrealized gain (loss) on
outstanding foreign currency contracts at December 30, 2000 and 1999 was
estimated to be $103 and $(189), respectively, based on quoted market prices.
The Company had no foreign currency hedge contracts outstanding at December 31,
1998.
At December 31, 2000, the Company had outstanding fuel swap arrangements to
hedge the price of a portion of its diesel fuel purchase requirements for work
in its backlog to be performed through January of 2002. As of December 31, 2000,
there were 10,914,000 gallons remaining on these contracts. Under these
agreements, the Company will pay fixed prices ranging from $0.83 to $1.03 per
gallon. At December 31, 2000 and 1999, the unrealized (loss) gain related to
outstanding fuel swap agreements was estimated to be $(1,200) and $540,
respectively, based on quoted market prices. The Company had no fuel hedge
contracts outstanding at December 31, 1998.
CAPITAL STOCK
As part of the recapitalization in August 1998, the Company authorized and
issued 250,000 and 45,000 shares, respectively, of preferred stock. The
preferred stock has a stated value of $1,000 per share and is entitled to annual
dividends, if declared. Such dividends are cumulative, whether or not declared,
and accrue at the rate of 12%, compounding annually. At December 31, 2000,
dividends in arrears on the preferred stock were $13,814. Additionally in 1998,
the Company authorized and issued 25,000,000 and 1,636,100 shares, respectively,
of class A voting common stock, and 25,000,000 and 3,363,900 shares,
respectively, of class B nonvoting common stock, with a par value of $.01 per
share. Previously, authorized and issued common stock had no par value.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended, which requires that all derivative
instruments be reported in the balance sheet at fair value and established
criteria for designation and effectiveness of hedge relationships. The adoption
of SFAS 133 resulted in
F-9
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a pre-tax reduction to other comprehensive income of $1,200 ($626 after tax)
related to the Company's fuel hedge arrangements, which are designated as cash
flow hedges. The losses included in other accumulated comprehensive income as of
January 1, 2001 will be reclassified into earnings over the next thirteen
months, the remaining term of the hedge arrangements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements,"
which summarizes certain of the SEC staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. In June 2000, the SEC issued SAB 101B,
which delayed the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. Adoption of
this SAB has not had a material impact on the Company's financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable are as follows:
2000 1999
-------- --------
Completed contracts....................................... $ 8,935 $ 5,317
Contracts in progress..................................... 29,102 25,213
Retainage................................................. 3,528 3,716
------- -------
41,565 34,246
Allowance for doubtful accounts........................... (987) (854)
------- -------
$40,578 $33,392
======= =======
F-10
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
3. CONTRACTS IN PROGRESS
The components of contracts in progress are as follows:
2000 1999
-------- --------
Costs and earnings in excess of billings:
Costs and earnings for contracts in progress.......... $265,765 $230,014
Prepaid contract costs................................ (2,788) (1,170)
Amounts billed........................................ (246,000) (209,978)
-------- --------
Costs and earnings in excess of billings for contracts
in progress........................................... 16,977 18,866
Costs and earnings in excess of billings for completed
contracts............................................. 1,565 1,670
-------- --------
$ 18,542 $ 20,536
======== ========
Billings in excess of costs and earnings:
Amounts billed........................................ $(77,837) $(64,085)
Costs and earnings for contracts in progress.......... 69,217 51,399
-------- --------
$ (8,620) $(12,686)
======== ========
The Company received advance payments related to a long-term foreign
contract that are considered billings in excess of costs and earnings. The
contract commenced in 1999 and is expected to be completed over approximately
four years. These advance payment amounts are being earned as the work is
performed over the duration of the contract. The amounts of $757 and $4,138
related to contract performance anticipated to be beyond one year are included
in other long-term liabilities at December 31, 2000 and 1999, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment are as follows:
2000 1999
-------- --------
Land.................................................... $ 3,066 $ 3,066
Furniture and fixtures.................................. 5,849 4,949
Operating equipment..................................... 236,863 225,765
-------- --------
245,778 233,780
Accumulated depreciation................................ (108,116) (96,897)
-------- --------
$137,662 $136,883
======== ========
Performance bonds are customarily required for dredging and marine
construction projects. The Company obtains its performance bonds through a
bonding agreement with a group of insurance companies that have been granted a
security interest in a substantial portion of the Company's operating equipment
with a net book value of approximately $66,154 at December 31, 2000. The bonding
agreement contains financial and operating covenants that limit the ability of
the Company to incur indebtedness, create liens, pay dividends and take certain
other actions.
F-11
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
5. INVESTMENTS IN JOINT VENTURES
At December 31, 2000, the Company had a 50% ownership interest in Amboy
Aggregates (Amboy), whose primary business is the dredge mining and sale of fine
aggregate, and a 20% ownership interest in Riovia S.A. (Riovia), a venture whose
sole business is the performance of a dredging contract in Argentina and
Uruguay.
Through the third quarter of 1999, the Company's share of earnings in both
investments was included in income as earned using the equity method. During
1999, Riovia entered into the maintenance phase of the dredging contract upon
completion of the capital works portion. The Company has less involvement in the
project operations going forward, and therefore, in the fourth quarter of 1999,
the Company began accounting for its investment in Riovia at cost. The financial
information presented for 2000 and 1999 includes only Amboy, which continues to
be accounted for using the equity method. The 1998 financial information for
Riovia was provided as of November 30, 1998 and for the eleven months ended
November 30, 1998, which was the most current information available for
preparation of the Company's 1998 financial statements.
Summarized financial information for the joint ventures is as follows:
2000 1999 1998
-------- -------- --------
Current assets................................... $ 6,910 $ 7,734 $44,310
Non-current assets............................... 11,240 13,509 15,928
------- ------- -------
Total assets................................... 18,150 21,243 60,238
Current liabilities.............................. (3,931) (2,819) (14,807)
Non-current liabilities.......................... (4,003) (6,627) (8,545)
------- ------- -------
Equity......................................... $10,216 $11,797 $36,886
======= ======= =======
Revenue.......................................... $15,440 $15,492 $55,207
Costs and expenses............................... (17,022) (15,174) (52,739)
------- ------- -------
Net income..................................... $(1,582) $ 318 $ 2,468
======= ======= =======
Amboy has a mortgage loan with a bank, which contains certain restrictive
covenants, including limitations on the amount of distributions to its joint
venture partners. The Company has guaranteed 50% of the outstanding mortgage
principal and accrued interest which at December 31, 2000 totaled $3,059.
F-12
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
6. ACCRUED EXPENSES
Accrued expenses are as follows:
2000 1999
-------- --------
Foreign income taxes...................................... $ 6,341 $ 6,575
Payroll and employee benefits............................. 5,787 6,469
Interest.................................................. 5,310 5,276
Insurance................................................. 4,341 4,228
U.S. income and other taxes............................... 2,518 4,591
Other..................................................... 1,339 1,319
------- -------
$25,636 $28,458
======= =======
7. LONG-TERM DEBT
Long-term debt is as follows:
2000 1999
-------- --------
Bank debt:
Term loan............................................. $ 31,000 $ 37,500
Revolving loan........................................ 9,000 6,500
11 1/4% subordinated debt............................... 115,000 115,000
Other unsecured debt.................................... -- 200
-------- --------
155,000 159,200
Current maturities of long-term debt.................... (9,000) (6,700)
-------- --------
$146,000 $152,500
======== ========
In August 1998, the Company entered into a new bank credit agreement (Credit
Agreement), expiring in 2005. The Credit Agreement consisted of a $55,000 term
loan and a $55,000 aggregate revolving credit facility which may be used for
borrowings or for letters of credit. In October 1999, the Credit Agreement was
amended to provide for an increase in the revolving loan capacity of $15,000,
permit a voluntary prepayment of the term loan in the amount of $15,000 and
adjust the installment payments on the term loan. The terms of the Credit
Agreement provide for interest rate spreads based on the Company's debt level
compared to earnings, as defined, and allow for various interest rate options
for loan amounts and periods that are selected at the discretion of the Company.
At December 31, 2000 and 1999, the weighted average borrowing rate was 9.7% and
8.3%, respectively, including amortization of financing fees. The Company also
pays an annual commitment fee of up to 0.5% on the average daily unused capacity
available under the revolving credit facility. At December 31, 2000, the Company
had $8,828 in letters of credit outstanding related primarily to contract
performance guarantees; therefore, remaining availability under the aggregate
revolving credit facility was $52,172.
The Credit Agreement contains provisions that require the Company to
maintain a minimum net worth and certain other financial ratios, limit payment
of dividends and restrict certain other transactions. Borrowings under the
Credit Agreement are secured by first lien mortgages on certain
F-13
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
7. LONG-TERM DEBT (CONTINUED)
operating equipment of the Company with a net book value of $33,796 at
December 31, 2000 and are guaranteed by certain subsidiaries of the Company.
Quarterly principal payments of the term loan are required as specified in
the amended Credit Agreement. Annual prepayments of principal may be required to
the extent the Company has excess cash, as defined, and voluntary prepayments
are allowed. All prepayments modify the requirements for scheduled principal
payments.
Scheduled remaining long-term debt maturities for the years ending
December 31 are as follows:
2001....................................................... $ 9,000
2002....................................................... 11,000
2003....................................................... 11,000
On August 19, 1998, the Company issued $115,000 of senior subordinated notes
(Notes) which will mature on August 15, 2008. Interest on the Notes accrues at a
rate of 11 1/4% per annum and is payable semi-annually. The Notes are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior debt, including borrowings under the Credit
Agreement. The Company's obligation under the Notes are guaranteed on a senior
subordinated basis by the Company's wholly owned domestic subsidiaries.
Financing fees related to the Credit Agreement and the Notes are deferred
and amortized over the respective terms of the borrowings.
8. TREASURY STOCK
In June 1999, the Company repurchased 450 and 124,800 shares of its
preferred and common stock, respectively, from a former officer of the Company
at a total cost of $575.
In July 1999, the Company reissued 125 shares and 30,500 shares of its
preferred and common stock, respectively, to certain members of management at a
total cost of $156. At December 31, 2000 and 1999, stockholders' deficit
included amounts receivable of $101 and $125, respectively, from certain members
of management for a portion of their purchased shares.
F-14
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
9. INCOME TAXES
The provision for income taxes is as follows:
2000 1999 1998
-------- -------- --------
Federal:
Current........................................... $3,551 $7,904 $ 703
Current foreign................................... 2,288 1,442 1,741
Deferred.......................................... 787 (2,264) (2,451)
State:
Current........................................... 734 1,654 925
Deferred.......................................... 74 (282) (282)
------ ------ ------
$7,434 $8,454 $ 636
====== ====== ======
The Company's income tax provision reconciles to the provision at the
statutory U.S. federal income tax rate as follows:
2000 1999 1998
-------- -------- --------
Tax provision (benefit) at statutory U.S. federal
income tax rate.................................... $5,489 $6,190 $(108)
State income tax, net of federal income tax
benefit............................................ 525 892 367
Foreign taxes deducted, net of federal income tax
benefit............................................ 1,487 937 --
Partnership loss (gain) allocated to minority
interest........................................... (122) 260 (863)
Nondeductible recapitalization related expenses...... -- -- 1,185
Other................................................ 55 175 55
------ ------ -----
Income tax provision................................. $7,434 $8,454 $ 636
====== ====== =====
The deferred tax assets (liabilities) are as follows:
2000 1999
-------- --------
Gross deferred tax assets:
Accrued liabilities................................... $ 4,254 $ 5,356
Gross deferred tax liabilities:
Depreciation.......................................... (43,094) (44,006)
Other................................................. (2,767) (2,096)
-------- --------
(45,861) (46,102)
-------- --------
Total net deferred tax liabilities...................... $(41,607) $(40,746)
======== ========
As reported in the balance sheet:
Net current deferred tax assets
(included in other current assets).................... $ 2,695 $ 3,540
Net non-current deferred tax liabilities................ (44,302) (44,286)
-------- --------
Total net deferred tax liabilities...................... $(41,607) $(40,746)
======== ========
F-15
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
10. RECAPITALIZATION RELATED EXPENSES
In August 1998, pursuant to the terms of the agreement for the
recapitalization, the Company paid fees and expenses of $3,606 and bonuses to
certain members of management of $5,921.
11. OTHER COMPENSATION EXPENSES
In September 1998, the Company approved and paid discretionary bonuses of
$3,017 to certain members of management.
12. EXTRAORDINARY ITEM
In August 1998, as a result of entering into a new credit agreement,
deferred financing fees associated with the Company's prior credit agreement of
$1,468 ($925 net of income tax benefit) were written off as an extraordinary
item.
13. LEASE COMMITMENTS
The Company leases certain operating equipment and office facilities under
long-term operating leases expiring at various dates through 2011. The equipment
leases contain renewal or purchase options which specify prices at the then fair
market value upon the expiration of the lease terms. Future minimum lease
payments for the years ending December 31 are as follows:
2001........................................................ $12,611
2002........................................................ 12,201
2003........................................................ 12,087
2004........................................................ 12,293
2005........................................................ 12,309
Thereafter.................................................. 28,432
-------
Total minimum lease payments................................ $89,933
=======
Total rent expense for the years ended December 31, 2000, 1999 and 1998 was
$17,811, $14,775 and $12,651, respectively, including amounts for other
short-term rentals.
14. RETIREMENT PLANS
The Company sponsors a 401(k) savings plan (Salaried Plan) covering
substantially all non-union salaried employees. In 1999, the Company established
a second 401(k) savings plan (Hourly Plan) to cover its non-union hourly
employees. Under both plans, individual employees may contribute a percentage of
compensation and the Company will match a portion of the employees'
contributions. Additionally, the Salaried Plan includes a profit-sharing
component, permitting the Company to make discretionary employer contributions
to all eligible employees of the Salaried Plan. The Company's expense for
matching and discretionary contributions for 2000, 1999 and 1998 was $2,491,
$2,451 and $2,087, respectively.
The Company also contributes to various multi-employer pension plans
pursuant to collective bargaining agreements. In the event of a plan's
termination or Company withdrawal from a plan, the Company may be liable for a
portion of the plan's unfunded vested benefits. As of December 31, 2000,
F-16
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
14. RETIREMENT PLANS (CONTINUED)
unfunded amounts, if any, are not significant. Contributions to multi-employer
pension plans for the years ended December 31, 2000, 1999 and 1998 were $1,413,
$1,207 and $1,816, respectively.
15. STOCK PLANS
The Equity Incentive Plan of Great Lakes Dredge & Dock Corporation provided
for the grant of options and other stock-based awards to management personnel.
On January 1, 1992, options were granted for approximately 7.5 shares of common
stock at an exercise price of $600,000 per share, representing the estimated
fair market value of the shares on the grant date (as defined in the Agreement).
As of December 31, 1997, all options granted were fully vested and outstanding.
On August 19, 1998, all options granted under the Equity Incentive Plan were
exercised which represented 7% of the common stock outstanding after the
exercise. Subsequently, a portion of these shares, representing 4.8% of common
stock outstanding, was sold to Vectura in conjunction with the recapitalization,
resulting in non-cash compensation expense of $5,152. The Equity Incentive Plan
was terminated as of the date of recapitalization.
Additionally, in August 1998 as part of the recapitalization, the Great
Lakes Dredge & Dock Corporation Employee Stock Purchase Plan was terminated.
There were no options granted or outstanding at the time of termination.
The Company used Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its employee stock options. SFAS
No. 123, "Accounting for Stock-Based Compensation," requires disclosures of the
effect to net income as if SFAS 123 had been adopted. The effects of applying
SFAS 123 were not material to the Company's financial statements.
16. SEGMENT INFORMATION AND CONCENTRATIONS OF RISK
The Company and its subsidiaries operate in one reportable segment of
providing dredging services, which includes three primary types of work:
capital, maintenance and beach nourishment.
Revenues by type of work for the years ended December 31 are as follows:
2000 1999 1998
-------- -------- --------
Capital....................................... $233,068 $183,613 $146,253
Beach nourishment............................. 33,242 40,522 80,947
Maintenance................................... 72,744 78,154 62,012
-------- -------- --------
$339,054 $302,289 $289,212
======== ======== ========
In 2000, 1999 and 1998, 67.4%, 71.9% and 61.4%, respectively, of contract
revenues were earned from contracts with federal government agencies. At
December 31, 2000 and 1999, approximately 58.5% and 57.2%, respectively, of
accounts receivable, including contract revenues in excess of billings, were
represented by contracts with federal government agencies. Additionally, at
December 31, 1999, 16.1% of accounts receivable, including contract revenues in
excess of billings, resulted from a contract with the Government of Egypt.
F-17
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
16. SEGMENT INFORMATION AND CONCENTRATIONS OF RISK (CONTINUED)
The Company derived revenues and gross profit (loss) from foreign project
operations for the years ended December 31, as follows:
2000 1999 1998
-------- -------- --------
Contract revenues................................ $71,752 $30,696 $57,591
Costs of contract revenues....................... (68,069) (33,215) (54,292)
------- ------- -------
Gross profit (loss).............................. $ 3,683 $(2,519) $ 3,299
======= ======= =======
The majority of the Company's long-lived assets are marine vessels and
related equipment. At any point in time, the Company may employ certain assets
outside of the U.S., as needed, to perform work on the Company's foreign
projects.
17. COMMITMENTS AND CONTINGENCIES
In November 1999, the Company entered into a construction agency agreement
to manage the construction of a 5,000 cubic meter hopper dredge. The dredge is
expected to cost approximately $50 million and be delivered by the end of 2001.
The Company has indemnified the owner up to 85% of the costs during construction
and has entered into a long-term operating lease to operate the dredge upon
completion.
In 1992, an underwater utility tunnel failed adjacent to a construction site
completed by Great Lakes Dredge & Dock Company (GLDD), a wholly-owned subsidiary
of GLD Corporation. The failure resulted in a flooding of the tunnel and
building basements serviced by the tunnel. Numerous suits were filed against
GLDD for claims of flood damage to building basements and losses due to business
interruption. During 1997, all outstanding claims were settled related to the
flood litigation. Settlement payments totaling $11,000 were advanced by the
Company. As part of the recapitalization, the right to receive the $11,000
settlement advance was retained by the Blackstone Limited Partnerships.
In the normal course of business, the Company is a defendant in various
other legal proceedings. Resolution of these claims is not expected to have a
material impact on the financial position or operations of the Company.
As is customary with negotiated contracts with the federal government, the
government has the right to audit the books and records of the Company to ensure
compliance with such contracts and applicable federal laws. The government has
the ability to seek a price adjustment based on the results of such audit. Any
such audits have not had and are not expected to have a material impact on the
financial position or operations of the Company.
18. RELATED PARTY TRANSACTIONS
In August 1998, the Company made recourse loans totaling $4,516 to certain
members of management in connection with the exercise of their options. The
loans were immediately repaid to the Company from proceeds received by
management upon the sale of a portion of their common stock to Vectura.
F-18
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The payment obligations of the Company under the 11 1/4% subordinated debt
are guaranteed by the Company's wholly-owned domestic subsidiaries (Subsidiary
Guarantors). Such guarantees are full, unconditional and joint and several.
Separate financial statements of the Subsidiary Guarantors are not presented
because the Company's management has determined that they would not be material
to investors. The following supplemental financial information sets forth, on a
combined basis, balance sheets, statements of operations and statements of cash
flows for the Subsidiary Guarantors, the Company's non-guarantor subsidiaries
and for GLD Corporation. During the fourth quarter of 1998, Great Lakes
International (GLI), a wholly-owned guarantor subsidiary of the Company, was
merged into GLD Corporation. Therefore, the amounts presented in the following
columns for GLD Corporation include GLI amounts and activity as if it had been
merged into GLD Corporation as of January 1, 1998.
F-19
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2000
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
ASSETS
Current assets:
Cash and equivalents.............. $ (654) $ 1,791 $ -- $ -- $ 1,137
Accounts receivable............... 37,558 3,020 -- -- 40,578
Receivables from affiliates....... 7,956 6,186 9 (14,151) --
Current portion of net investment
in direct financing leases...... -- 1,714 1,830 (3,544) --
Contract revenues in excess of
billings........................ 17,254 1,288 -- -- 18,542
Inventories....................... 10,694 3,963 -- -- 14,657
Prepaid expenses and other current
assets.......................... 15,651 844 748 -- 17,243
-------- ------- -------- --------- --------
Total current assets............ 88,459 18,806 2,587 (17,695) 92,157
Property and equipment, net......... 79,881 14,454 43,327 -- 137,662
Net investment in direct financing
leases............................ -- 1,946 1,661 (3,607) --
Investments in subsidiaries......... 16,105 -- 119,326 (135,431) --
Notes receivable from affiliate..... 15,815 -- -- (15,815) --
Inventories......................... 6,773 -- -- -- 6,773
Investments in joint ventures....... 6,394 -- -- -- 6,394
Other assets........................ 2,109 -- 3,640 -- 5,749
-------- ------- -------- --------- --------
$215,536 $35,206 $170,541 $(172,548) $248,735
======== ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................. $ 34,901 $ 2,903 $ -- $ 9 $ 37,813
Payables to affiliates............ 5,310 5,482 3,359 (14,151) --
Accrued expenses.................. 10,141 2,005 13,490 -- 25,636
Current portion of obligations
under capital leases............ -- 3,544 -- (3,544) --
Billings in excess of contract
revenues........................ 7,863 -- -- -- 7,863
Current maturities of long-term
debt............................ -- -- 9,000 -- 9,000
-------- ------- -------- --------- --------
Total current liabilities....... 58,215 13,934 25,849 (17,686) 80,312
Long-term debt...................... -- -- 146,000 -- 146,000
Obligations under capital leases.... -- 3,607 -- (3,607) --
Note payable to affiliate........... -- -- 15,815 (15,815) --
Deferred income taxes............... 30,310 168 13,824 -- 44,302
Other............................... 5,416 280 1,336 -- 7,032
-------- ------- -------- --------- --------
Total liabilities............... 93,941 17,989 202,824 (37,108) 277,646
Minority interests.................. -- -- -- 3,372 3,372
Stockholders' equity (deficit)...... 121,595 17,217 (32,283) (138,812) (32,283)
-------- ------- -------- --------- --------
$215,536 $35,206 $170,541 $(172,548) $248,735
======== ======= ======== ========= ========
F-20
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1999
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
ASSETS
Current assets:
Cash and equivalents.............. $ 284 $ 1,249 $ -- $ -- $ 1,533
Accounts receivable, net.......... 29,989 3,403 -- -- 33,392
Receivables from affiliates....... 5,313 6,087 -- (11,400) --
Current portion of net investment
in direct financing leases...... -- 5,168 2,275 (7,443) --
Contract revenues in excess of
billings........................ 19,400 1,136 -- -- 20,536
Inventories....................... 10,797 3,917 -- -- 14,714
Prepaid expenses and other current
assets.......................... 11,084 403 797 (316) 11,968
-------- ------- -------- --------- --------
Total current assets............ 76,867 21,363 3,072 (19,159) 82,143
Property and equipment, net......... 75,411 16,373 45,099 -- 136,883
Net investment in direct financing
leases............................ -- 3,660 3,491 (7,151) --
Investments in subsidiaries......... 13,036 -- 119,708 (132,744) --
Notes receivable from affiliates.... 20,334 516 -- (20,850) --
Inventories......................... 8,838 -- -- -- 8,838
Investments in joint ventures....... 7,101 -- -- -- 7,101
Other assets........................ 1,828 -- 4,601 -- 6,429
-------- ------- -------- --------- --------
$203,415 $41,912 $175,971 $(179,904) $241,394
======== ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................. $ 22,430 $ 2,787 $ -- $ 10 $ 25,227
Payables to affiliates............ 4,053 4,916 2,431 (11,400) --
Accrued expenses.................. 12,240 1,327 14,891 -- 28,458
Current portion of obligations
under capital leases............ -- 7,443 -- (7,443) --
Billings in excess of contract
revenues........................ 6,571 1,977 -- -- 8,548
Current maturities of long-term
debt............................ 200 -- 6,826 (326) 6,700
-------- ------- -------- --------- --------
Total current liabilities....... 45,494 18,450 24,148 (19,159) 68,933
Long-term debt...................... -- -- 152,500 -- 152,500
Obligations under capital leases.... -- 7,151 -- (7,151) --
Notes payable to affiliates......... -- -- 20,850 (20,850) --
Deferred income taxes............... 27,109 1,964 15,213 -- 44,286
Foreign income taxes................ -- -- 1,525 -- 1,525
Other............................... 9,133 909 1,290 -- 11,332
-------- ------- -------- --------- --------
Total liabilities............... 81,736 28,474 215,526 (47,160) 278,576
Minority interests.................. -- -- -- 2,373 2,373
Stockholders' equity (deficit)...... 121,679 13,438 (39,555) (135,117) (39,555)
-------- ------- -------- --------- --------
$203,415 $41,912 $175,971 $(179,904) $241,394
======== ======= ======== ========= ========
F-21
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
Contract revenues................... $309,318 $43,096 $ -- $(13,360) $339,054
Costs of contract revenues.......... (260,571) (34,672) 259 13,360 (281,624)
-------- ------- ------- -------- --------
Gross profit...................... 48,747 8,424 259 -- 57,430
General and administrative
expenses.......................... (18,356) (3,936) -- -- (22,292)
-------- ------- ------- -------- --------
Operating income.................. 30,391 4,488 259 -- 35,138
Interest, net....................... 819 (978) (18,504) -- (18,663)
Equity in earnings of
subsidiaries...................... 3,259 -- 18,798 (22,057) --
Equity in loss of joint ventures.... (791) -- -- -- (791)
-------- ------- ------- -------- --------
Income before income taxes and
minority interests.............. 33,678 3,510 553 (22,057) 15,684
Income tax (expense) benefit........ (14,761) 629 6,698 -- (7,434)
Minority interests.................. -- -- -- (999) (999)
-------- ------- ------- -------- --------
Net income........................ $ 18,917 $ 4,139 $ 7,251 $(23,056) $ 7,251
======== ======= ======= ======== ========
F-22
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
Contract revenues................... $262,620 $43,862 $ -- $ (4,193) $302,289
Costs of contract revenues.......... (208,194) (38,994) (1,830) 4,193 (244,825)
-------- ------- ------- -------- --------
Gross profit...................... 54,426 4,868 (1,830) -- 57,464
General and administrative
expenses.......................... (16,822) (4,985) (60) -- (21,867)
-------- ------- ------- -------- --------
Operating income (loss)........... 37,604 (117) (1,890) -- 35,597
Interest, net....................... (317) (492) (17,285) -- (18,094)
Equity in earnings of
subsidiaries...................... (490) -- 23,325 (22,835) --
Equity in earnings of joint
ventures.......................... 183 -- -- -- 183
-------- ------- ------- -------- --------
Income (loss) before income taxes
and minority interests.......... 36,980 (609) 4,150 (22,835) 17,686
Provision (benefit) for income
taxes............................. (13,454) (573) 5,573 -- (8,454)
Minority interests.................. -- -- -- 491 491
-------- ------- ------- -------- --------
Net income (loss)................. $ 23,526 $(1,182) $ 9,723 $(22,344) $ 9,723
======== ======= ======= ======== ========
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
Contract revenues................... $238,894 $51,118 $ -- $ (800) $289,212
Costs of contract revenues.......... (203,954) (34,967) (2,457) 800 (240,578)
-------- ------- ------- -------- --------
Gross profit...................... 34,940 16,151 (2,457) -- 48,634
General and administrative
expenses.......................... (17,774) (4,558) (340) -- (22,672)
Equity incentive plan and other
compensation expenses............. -- -- (8,169) -- (8,169)
Recapitalization related expenses... (5,922) -- (3,605) -- (9,527)
-------- ------- ------- -------- --------
Operating income (loss)........... 11,244 11,593 (14,571) -- 8,266
Interest, net....................... (385) (204) (9,274) -- (9,863)
Equity in earnings of
subsidiaries...................... 6,929 -- 12,867 (19,796) --
Equity in earnings of joint
ventures.......................... 1,218 -- -- -- 1,218
-------- ------- ------- -------- --------
Income(loss) before income taxes,
minority interests and
extraordinary item.............. 19,006 11,389 (10,978) (19,796) (379)
Income tax (expense) benefit........ (7,151) (710) 7,225 -- (636)
Minority interests.................. -- -- -- (2,738) (2,738)
-------- ------- ------- -------- --------
Net income (loss) before
extraordinary item.............. 11,855 10,679 (3,753) (22,534) (3,753)
Extraordinary item (net of income
tax benefit of $543).............. -- -- (925) -- (925)
-------- ------- ------- -------- --------
Net income (loss)................. $ 11,855 $10,679 $(4,678) $(22,534) $ (4,678)
======== ======= ======= ======== ========
F-23
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
2000
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
OPERATING ACTIVITIES
Net income.............................. $18,917 $4,139 $ 7,251 $(23,056) $ 7,251
Adjustments to reconcile net income to
net cash flows from operating
activities:
Depreciation.......................... 6,719 3,122 2,825 -- 12,666
Loss (earnings) of subsidiaries and
joint ventures...................... (2,468) -- (18,798) 22,057 791
Minority interests.................... -- -- -- 999 999
Deferred income taxes................. 4,046 (1,796) (1,389) -- 861
Foreign income taxes.................. -- -- (1,759) -- (1,759)
(Gain) loss on dispositions of
property and equipment.............. (135) (4) 310 -- 171
Other, net............................ (558) (624) 943 -- (239)
Changes in assets and liabilities:
Accounts receivable................. (7,569) 383 -- -- (7,186)
Contract revenues in excess of
billings.......................... 2,146 (152) -- -- 1,994
Inventories......................... 2,168 (46) -- -- 2,122
Prepaid expenses and other current
assets............................ (5,125) (441) (554) -- (6,120)
Accounts payable and accrued
expenses.......................... 10,342 794 (1,138) -- 9,998
Billings in excess of contract
revenues.......................... (2,089) (1,977) -- -- (4,066)
------- ------ ------- -------- -------
Net cash flows from operating
activities.......................... 26,394 3,398 (12,309) -- 17,483
INVESTING ACTIVITIES
Purchases of property and equipment..... (12,836) (1,292) -- -- (14,128)
Dispositions of property and
equipment............................. 512 -- -- -- 512
Distributions from joint ventures....... 225 -- -- -- 225
Investments in joint ventures........... (309) -- -- -- (309)
Principal payments (receipts) on direct
financing leases...................... -- 5,169 (5,169) -- --
Payments (receipts) on note with
affiliate............................. -- 689 (689) -- --
------- ------ ------- -------- -------
Net cash flows from investing
activities.......................... (12,408) 4,566 (5,858) -- (13,700)
FINANCING ACTIVITIES
Repayments of long-term debt............ -- -- (6,700) -- (6,700)
Borrowing (repayments) of revolving
loans, net............................ -- -- 2,500 -- 2,500
Principal receipts (payments) on capital
leases................................ 5,169 (7,444) 2,275 -- --
Net change in accounts with
affiliates............................ (20,453) 382 20,071 -- --
Treasury stock activity, net............ -- -- (3) -- (3)
Repayment on notes receivable from
stockholders.......................... -- -- 24 -- 24
Dividends............................... 360 (1,800) 1,440 -- --
Contributions from partners............. -- 1,440 (1,440) -- --
------- ------ ------- -------- -------
Net cash flows from financing
activities.......................... (14,924) (7,422) 18,167 -- (4,179)
------- ------ ------- -------- -------
Net change in cash and equivalents.... (938) 542 -- -- (396)
Cash and equivalents at beginning of
year................................ 284 1,249 -- -- 1,533
------- ------ ------- -------- -------
Cash and equivalents at end of year... $ (654) $1,791 $ -- $ -- $ 1,137
======= ====== ======= ======== =======
F-24
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1999
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
OPERATING ACTIVITIES
Net income (loss)....................... $23,526 $(1,182) $ 9,723 $(22,344) $ 9,723
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Depreciation.......................... 7,214 2,912 1,860 -- 11,986
Loss (earnings) of subsidiaries and
joint ventures...................... 307 -- (23,325) 22,835 (183)
Minority interests.................... -- -- -- (491) (491)
Deferred income taxes................. (900) (568) (1,078) -- (2,546)
Foreign income taxes.................. -- -- 1,112 -- 1,112
Loss (gain) on dispositions of
property and equipment.............. (72) 95 -- -- 23
Other, net............................ 1,966 478 (930) -- 1,514
Changes in assets and liabilities:
Accounts receivable................. 3,612 386 6 -- 4,004
Contract revenues in excess of
billings.......................... (6,050) 1,450 -- -- (4,600)
Inventories......................... (2,619) (601) -- -- (3,220)
Prepaid expenses and other current
assets............................ (6,228) (235) 4,308 -- (2,155)
Accounts payable and accrued
expenses.......................... 1,379 (1,560) 2,485 -- 2,304
Billings in excess of contract
revenues.......................... 7,176 668 -- -- 7,844
------- ------- ------- -------- -------
Net cash flows from operating
activities.......................... 29,311 1,843 (5,839) -- 25,315
INVESTING ACTIVITIES
Purchases of property and equipment..... (11,589) (3,369) -- -- (14,958)
Dispositions of property and
equipment............................. 90 213 -- -- 303
Distributions from joint ventures....... 3,589 -- -- -- 3,589
Distributions to minority interests..... (1,730) -- -- -- (1,730)
Principal payments (receipts) on direct
financing leases...................... -- 4,767 (4,767) -- --
Payments (receipts) on note with
affiliate............................. -- 689 (689) -- --
------- ------- ------- -------- -------
Net cash flows from investing
activities.......................... (9,640) 2,300 (5,456) -- (12,796)
FINANCING ACTIVITIES
Repayments of long-term debt............ (200) -- (17,500) -- (17,700)
Borrowing (repayments) of revolving
loans, net............................ -- -- 6,500 -- 6,500
Principal (payments) receipts on capital
leases................................ -- (7,995) 7,995 -- --
Net change in accounts with
affiliates............................ (25,347) 12,233 13,114 -- --
Treasury stock activity, net............ -- -- (544) -- (544)
Dividends............................... 5,670 (7,400) 1,730 -- --
------- ------- ------- -------- -------
Net cash flows from financing
activities.......................... (19,877) (3,162) 11,295 -- (11,744)
------- ------- ------- -------- -------
Net change in cash and equivalents.... (206) 981 -- -- 775
Cash and equivalents at beginning of
period.............................. 490 268 -- -- 758
------- ------- ------- -------- -------
Cash and equivalents at end of
period.............................. $ 284 $ 1,249 $ -- $ -- $ 1,533
======= ======= ======= ======== =======
F-25
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1998
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
OPERATING ACTIVITIES
Net income (loss)....................... $11,855 $10,679 $ (4,678) $(22,534) $ (4,678)
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Depreciation.......................... 7,649 4,049 2,252 -- 13,950
Earnings of joint ventures............ (8,147) -- (12,867) 19,796 (1,218)
Minority interests.................... -- -- -- 2,738 2,738
Deferred income taxes................. (382) (451) (1,900) -- (2,733)
Foreign income taxes.................. -- -- 1,866 -- 1,866
Gain on dispositions of property and
equipment........................... 717 -- -- -- 717
Compensation expense related to
exercise of options................. -- -- 5,152 -- 5,152
Extraordinary item.................... -- -- 925 -- 925
Other, net............................ 439 -- 482 -- 921
Changes in assets and liabilities:
Accounts receivable................. 9,878 (7,093) 118 -- 2,903
Contract revenues in excess of
billings.......................... 1,273 (1,701) -- -- (428)
Inventories......................... (3,674) (1,137) -- -- (4,811)
Prepaid expenses and other current
assets............................ 4,269 185 258 -- 4,712
Accounts payable and accrued
expenses.......................... (4,553) 389 2,510 -- (1,654)
Billings in excess of contract
revenues.......................... 559 1,309 -- -- 1,868
------- ------- -------- -------- --------
Net cash flows from operating
activities.......................... 19,883 6,229 (5,882) -- 20,230
INVESTING ACTIVITIES
Purchases of property and equipment..... (24,985) (4,144) -- -- (29,129)
Dispositions of property and
equipment............................. 20,213 -- -- -- 20,213
Investments in joint ventures........... (1,720) -- -- -- (1,720)
Principal (payments) receipts on direct
financing leases...................... -- 4,121 (4,121) -- --
(Payments) receipts on note with
affiliate............................. -- 689 (689) -- --
------- ------- -------- -------- --------
Net cash flows from investing
activities.......................... (6,492) 666 (4,810) -- (10,636)
FINANCING ACTIVITIES
Proceeds from long-term debt............ -- -- 55,000 -- 55,000
Repayments of long-term debt............ (200) -- -- -- (200)
Borrowing (repayments) of revolving
loans, net............................ -- -- (57,000) -- (57,000)
Proceeds from 11 1/4% subordinated
debt.................................. -- -- 115,000 -- 115,000
Exercise of options..................... -- -- 4,516 -- 4,516
Common stock purchased.................. -- -- 3,552 -- 3,552
Issuance of preferred stock............. -- -- 34,420 -- 34,420
Financing fees.......................... -- -- (6,045) -- (6,045)
Principal receipts (payments) on capital
leases................................ -- (7,059) 7,059 -- --
Net change in accounts with
affiliates............................ (1,186) -- 1,186 -- --
Redemption of shares.................... -- -- (159,796) -- (159,796)
Dividends............................... (12,800) -- 12,800 -- --
------- ------- -------- -------- --------
Net cash flows from financing
activities.......................... (14,186) (7,059) 10,692 -- (10,553)
------- ------- -------- -------- --------
Net decrease in cash and
equivalents......................... (795) (164) -- -- (959)
Cash and equivalents at beginning of
year................................ 1,285 432 -- -- 1,717
------- ------- -------- -------- --------
Cash and equivalents at end of year... $ 490 $ 268 $ -- $ -- $ 758
======= ======= ======== ======== ========
F-26
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
North American Site Developers, Inc.
We have audited the accompanying balance sheets of North American Site
Developers, Inc. as of December 31, 2000 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years ended
December 31, 2000, 1999 and the eleven months ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North American Site
Developers, Inc. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years ended December 31, 2000, 1999 and
the eleven months ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States of America.
/s/ O'Connor & Drew P.C.
Quincy, Massachusetts
March 16, 2001
F-27
NORTH AMERICAN SITE DEVELOPERS, INC.
BALANCE SHEETS
DECEMBER 31,
2000 1999
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 1,819,735 $ 1,171,256
Marketable securities..................................... 1,391,061 2,359,475
Contract receivables, including retainage................. 9,469,284 11,750,062
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 1,820,611 321,464
Prepaid expenses.......................................... 639,881 460,792
----------- -----------
TOTAL CURRENT ASSETS.................................... 15,140,572 16,063,049
PROPERTY AND EQUIPMENT, NET................................. 3,393,886 3,840,098
OTHER ASSETS................................................ 7,500 44,142
----------- -----------
TOTAL ASSETS................................................ $18,541,958 $19,947,289
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 1,091,367 $ 1,123,197
Accounts payable.......................................... 4,269,100 4,594,006
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 2,085,630 3,905,297
Accrued expenses and other payables....................... 445,144 667,009
Accrued workers compensation.............................. 763,000 909,116
Accrued corporate taxes................................... 323,750 191,000
----------- -----------
TOTAL CURRENT LIABILITIES............................... 8,977,991 11,389,625
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt............................................ 557,516 974,851
Advances from stockholders................................ -- 1,499,527
----------- -----------
TOTAL LONG-TERM LIABILITIES............................. 557,516 2,474,378
----------- -----------
TOTAL LIABILITIES....................................... 9,535,507 13,864,003
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; Authorized 1,000 shares, 400
shares issued and outstanding........................... 4,000 4,000
Additional paid-in capital................................ 7,542 7,542
Retained earnings......................................... 9,032,977 6,120,481
Accumulated comprehensive loss............................ (38,068) (48,737)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.............................. 9,006,451 6,083,286
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $18,541,958 $19,947,289
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-28
NORTH AMERICAN SITE DEVELOPERS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2000 and 1999
and the Eleven Months Ended December 31, 1998
2000 1999 1998
----------- ----------- -----------
CONTRACT REVENUES EARNED.............................. $72,642,284 $45,478,260 $30,334,788
Cost of Revenues Earned............................... 46,372,884 34,325,342 24,583,810
----------- ----------- -----------
GROSS PROFIT ON CONTRACTS............................. 26,269,400 11,152,918 5,750,978
General and Administrative Expenses................... 1,726,281 1,475,727 1,520,598
Bonuses............................................... 19,998,255 7,631,282 4,597,506
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS......................... 4,544,864 2,045,909 (367,126)
----------- ----------- -----------
Other Income (Expenses):
Dividends and interest.............................. 450,073 165,235 101,531
Interest and finance charges........................ (102,208) (106,758) (114,420)
Gain on sale of investments......................... 1,064 11,229 62,040
----------- ----------- -----------
Net Other Income.................................. 348,929 69,706 49,151
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR STATE INCOME
TAXES............................................... 4,893,793 2,115,615 (317,975)
Provision for State Income Taxes...................... 316,637 190,500 --
----------- ----------- -----------
NET INCOME (LOSS)..................................... $ 4,577,156 $ 1,925,115 $ (317,975)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-29
NORTH AMERICAN SITE DEVELOPERS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2000 and 1999
and the Eleven Months Ended December 31, 1998
ADDITIONAL ACCUMULATED
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS LOSS TOTAL
-------- ---------- ----------- ------------- -----------
STOCKHOLDERS' EQUITY, FEBRUARY 1,
1998................................. $4,000 $7,542 $ 4,513,341 $ (8) $ 4,524,875
Comprehensive Loss:
Net loss............................. -- -- (317,975) -- (317,975)
Unrealized net holding losses on
marketable securities.............. -- -- -- (676) (676)
-----------
TOTAL COMPREHENSIVE LOSS............... -- -- -- -- (318,651)
------ ------ ----------- -------- -----------
STOCKHOLDERS' EQUITY, DECEMBER 31,
1998................................. 4,000 7,542 4,195,366 (684) 4,206,224
Comprehensive Income:
Net income........................... -- -- 1,925,115 -- 1,925,115
Unrealized net holding losses on
marketable securities.............. -- -- -- (59,282) (59,282)
Reclassification of unrealized
holding gains...................... -- -- -- 11,229 11,229
-----------
TOTAL COMPREHENSIVE INCOME............. -- -- -- -- 1,877,062
------ ------ ----------- -------- -----------
STOCKHOLDERS' EQUITY, DECEMBER 31,
1999................................. 4,000 7,542 6,120,481 (48,737) 6,083,286
Comprehensive Income:
Net income........................... -- -- 4,577,156 -- 4,577,156
Unrealized net holding gains on
marketable securities.............. -- -- -- 9,605 9,605
Reclassification of unrealized
holding gains...................... 1,064 1,064
-----------
TOTAL COMPREHENSIVE INCOME............. -- -- -- -- 4,587,825
-----------
Stockholder distributions.............. -- -- (1,664,660) -- (1,664,660)
------ ------ ----------- -------- -----------
STOCKHOLDERS' EQUITY, DECEMBER 31,
2000................................. $4,000 $7,542 $ 9,032,977 $(38,068) $ 9,006,451
====== ====== =========== ======== ===========
The accompanying notes are an integral part of these financial statements.
F-30
NORTH AMERICAN SITE DEVELOPERS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000 and 1999
and the Eleven Months Ended December 31, 1998
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 4,577,156 $ 1,925,115 $ (317,975)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (applied to) operating activities:
Depreciation and amortization...................... 1,413,362 1,381,014 1,276,778
(Gain) loss on sale of property and equipment...... (6,201) 960 --
Net realized gains on sale of marketable
securities....................................... (1,064) (11,229) (62,040)
Changes in assets and liabilities:
Contract receivables............................. 2,280,778 (3,112,512) (3,163,821)
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. (1,499,147) (53,048) 884,557
Prepaid expenses................................. (179,089) (120,959) 257,519
Refundable taxes................................. -- 929,800 (929,800)
Other assets..................................... 36,642 (38,863) (2,279)
Accounts payable................................. (324,906) 1,409,128 (617,135)
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. (1,819,667) 2,331,860 819,756
Accrued expenses and other payables.............. (221,865) (425,926) 654,033
Accrued workers compensation..................... (146,116) 465,017 444,099
Accrued corporate taxes.......................... 132,750 191,000 (270,449)
----------- ----------- -----------
Net Adjustments.................................. (334,523) 2,946,242 (708,782)
----------- ----------- -----------
Net Cash Provided by (Applied to) Operating
Activities..................................... 4,242,633 4,871,357 (1,026,757)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of marketable securities............ 2,949,676 3,058,171 394,477
Purchases of marketable securities................... (1,969,527) (5,238,346) (396,075)
Purchases of property and equipment.................. (973,901) (865,643) (940,875)
Proceeds on sale of property and equipment........... 12,950 1,000 --
Insurance proceeds on newly acquired destroyed
equipment.......................................... -- 514,500 --
----------- ----------- -----------
Net Cash Provided by (Applied to) Investing
Activities..................................... 19,198 (2,530,318) (942,473)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt......................... $ 1,191,228 $ 378,446 $ --
Payments on long-term debt........................... (1,640,393) (1,689,132) (958,562)
Proceeds from stockholders........................... -- 3,034,331 1,909,887
Distributions to stockholders........................ (1,664,660) -- --
Payments to stockholders............................. (1,499,527) (3,571,056) (144,577)
----------- ----------- -----------
Net Cash Provided By (Applied to) Financing
Activities..................................... (3,613,352) (1,847,411) 806,748
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS........ 648,479 493,628 (1,162,482)
Cash and Equivalents, Beginning of Period.............. 1,171,256 677,628 1,840,110
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD.................... $ 1,819,735 $ 1,171,256 $ 677,628
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-31
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The principal business of North American Site Developers, Inc. consists of
the interior and exterior demolition of commercial and industrial buildings,
salvage and recycling of related materials and hazardous material removal.
Revenue is recognized using the percentage-of-completion method of accounting
for long-term construction contracts as noted below. The Company operates
primarily in the state of Massachusetts, and in recent years has expanded to the
states of California, Rhode Island and Michigan.
REVENUE AND COST RECOGNITION
The Company records costs and revenues of long-term fixed price and modified
fixed price contracts on the percentage-of-completion method, determined by
ratio of cost incurred to date to management's estimates of total anticipated
costs. That method is used because management considers total cost to be the
best available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that the
estimates used will change within the near term. If estimated total costs on any
contract indicates a loss, the entire amount of the estimated loss is
immediately recognized. Since certain contracts can extend over one or more
years, revisions in costs and earnings estimated during the course of the work
are reflected in the accounting period in which the facts requiring the revision
become known. The difference between amounts billed and costs and estimated
earnings is reflected in the balance sheets as either costs and estimated
earnings in excess of billings or billings in excess of costs and estimated
earnings. Revenue from time-and-materials contracts is recognized currently as
the work is performed. Claims are included in revenues when received.
Retainage provisions of certain long-term contracts provide for amounts to
be withheld from payment by the customer until completion of the work. It is the
Company's policy to invoice such amounts and include them in accounts receivable
after work has been completed and the amounts withheld are due.
Costs charged to contracts include direct labor, material, subcontract
costs, other direct costs and applicable indirect costs. Selling, general and
administrative expenses are charged to expense as incurred.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. The actual outcome of the estimates could differ from the
estimates made in the preparation of the financial statements.
CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES
The Company includes in current assets and liabilities amounts realizable
and payable in the normal course of contract completion, which may extend beyond
one year.
F-32
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND EQUIVALENTS
For financial statement purposes, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES
The Company's marketable equity securities are generally considered
available for sale and, as such, are accounted for at fair market value.
Unrealized gains and losses are recognized as a component of stockholders'
equity. Realized gains and losses are recognized in results of operations.
INVESTMENT IN JOINT VENTURE
In 1998, the Company entered into a 50% general partnership joint venture to
fulfill a contract obligation. The Company records its interest in the joint
venture using the equity method. The contract was substantially completed in
1998 and terminated in 1999; however, during 2000 and 1999, the Company was
charged approximately $40,000 and $72,000, respectively, which represented the
Company's proportionate share of cost overruns and final allocation of the joint
venture's loss on the contract.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
accelerated methods over the assets' estimated useful lives of five to seven
years for financial statement purposes. Amortization of leasehold improvements
is included within depreciation expense.
INCOME TAXES
The shareholders have elected, for Federal and state income tax purposes, to
have the Company taxed as a small business corporation ("S" Corporation). This
election provides for the net income or loss of the Company to be reported on
the personal Federal and state income tax returns of the individual
shareholders. The Company pays no income tax on its profits and receives no
income tax benefit from its losses. The Company is taxed at the corporate level
for state income tax purposes in accordance with current state tax laws.
CHANGES IN YEAR-END
The Company changed from a January 31, fiscal year-end to a calendar
year-end in 1998.
ADVERTISING
The Company charges the cost of advertising to expense as incurred.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative financial
F-33
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
instruments and requires recognition of all derivatives as either assets or
liabilities measured at fair value. Initially, the effective date of SFAS 133
was for all fiscal quarters for fiscal years beginning after June 15, 1999;
however, in June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 "Accounting for Derivative Instrument and Hedging
Activities--Deferral of the Effective Date of FASB Statements No. 133--an
amendment of FASB Statement No. 133", which deferred the effective date of
SFAS 133 for one year so that it will be effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management does not anticipate
adoption of SFAS 133 to have a material impact on the Company's results of
operations, financial position or cash flows.
RECLASSIFICATIONS
Certain amounts in the 1999 and 1998 financial statements have been
reclassified to conform to the 2000 presentation.
NOTE 2--MARKETABLE SECURITIES
At December 31, investments in marketable securities consisted of the
following:
2000 1999
---------- ----------
Marketable equity securities, at cost................ $1,429,129 $2,408,212
Gross unrealized gains............................... 79,047 9,615
Gross unrealized losses.............................. (117,115) (58,352)
---------- ----------
Marketable equity securities, at market value........ $1,391,061 $2,359,475
========== ==========
Proceeds and gross realized gains and losses from the sale of marketable
securities available for sale for the periods ended December 31, were as
follows:
2000 1999 1998
---------- ---------- --------
Gross Proceeds............................. $2,949,676 $3,058,171 $394,477
========== ========== ========
Gross Realized Gains....................... $ 10,847 $ 11,520 $ 67,669
========== ========== ========
Gross Realized Losses...................... $ 9,783 $ 291 $ 5,629
========== ========== ========
F-34
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 3--CONTRACT RECEIVABLES
Contract receivables consists of the following at December 31,:
2000 1999
---------- -----------
Billed Contracts Receivables:
Completed contracts............................... $2,338,118 $ 5,591,578
Contracts-in-progress............................. 3,951,436 3,708,352
Retained in accordance with contract provisions... 3,052,607 2,450,132
Unbilled Contracts Receivables:
Completed contracts............................... 127,123 --
---------- -----------
$9,469,284 $11,750,062
========== ===========
NOTE 4--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings and billings in excess of
costs and estimated earnings on uncompleted contracts at December 31, are as
follows:
2000 1999
----------- -----------
Costs incurred on uncompleted contracts............ $28,693,285 $13,487,687
Estimated earnings............................... 6,858,722 4,992,940
----------- -----------
35,552,007 18,480,627
Less billings to date.............................. 35,817,026 $22,064,460
----------- -----------
Total............................................ $ (265,019) $(3,583,833)
=========== ===========
These amounts are included in the accompanying balance sheets under the
following captions:
2000 1999
----------- -----------
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $ 1,820,611 $ 321,464
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... (2,085,630) (3,905,297)
----------- -----------
Total.......................................... $ (265,019) $(3,583,833)
=========== ===========
F-35
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 5--PROPERTY AND EQUIPMENT
A summary of the property and equipment at December 31, is as follows:
2000 1999
---------- ----------
Machinery and equipment.............................. $8,470,200 $8,082,847
Vehicles............................................. 902,061 823,849
Trailers............................................. 335,153 325,753
Furniture and fixtures............................... 172,115 169,413
Leasehold improvements............................... 151,110 151,110
---------- ----------
10,030,639 9,552,972
Less: accumulated depreciation....................... 6,636,753 5,712,874
---------- ----------
$3,393,886 $3,840,098
========== ==========
NOTE 6--DEBT OBLIGATIONS
LINES OF CREDIT
The Company has an equipment line of credit, for one million dollars
($1,000,000) at the applicable constant maturing two year treasury bill rate
plus 2%. The loan is secured by all business assets. The line of credit is
available for 36 months and reviewed annually.
The Company also has an additional secured line of credit for five million
dollars ($5,000,000) and two million five hundred thousand dollars ($2,500,000),
at prime less one half percent, at December 31, 2000 and 1999, respectively. The
loan is secured by all corporate assets and is available through June 30, 2001
and reviewed on an annual basis.
As of December 31, 2000 and 1999, the prime rate was 9.5% and 8.5%,
respectively, and there were no balances outstanding on each of the respective
lines of credit.
LETTER OF CREDIT
In January 1999, the Company obtained a letter of credit from the same
financial institution of approximately $397,000. This amount was increased to
$763,000 during the year 2000. The purpose of the letter of credit is to finance
the potential amounts due under a workers' compensation insurance policy. The
letter of credit expires in January 2001, but was subsequently renewed through
January 2002.
F-36
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 6--DEBT OBLIGATIONS (CONTINUED)
LONG-TERM DEBT
Long-term debt at December 31, is as follows:
2000 1999
---------- ----------
Various notes payable, payable in monthly installments
ranging from $4,017 to $18,317, including interest of 7.5%
to 9.3%, maturing at various times from January, 2001 to
June, 2001; collateralized by certain machinery and
equipment................................................. $ 107,236 $ 281,367
Various notes payable, payable in monthly installments
ranging from $2,928 to $15,059, including interest of 5.4%
to 6.5%, maturing at various times from June, 2000 to
April, 2003; collateralized by certain machinery and
equipment................................................. 1,131,444 1,456,766
Various notes payable, payable in monthly installments
ranging from $37,848 to $58,774, including interest of
0.09% to7.9%, maturing at various times from September,
2000 to June, 2001........................................ 344,653 264,912
Various note payables, payable in monthly installments
ranging from $7,308 to $7,283, non-interest bearing note,
maturing at various times from December, 2000 to
September, 2001, collaterized by certain equipment........ 65,550 95,003
---------- ----------
1,648,883 2,098,048
Less current portion........................................ 1,091,367 1,123,197
---------- ----------
Long-Term Debt.............................................. $ 557,516 $ 974,851
========== ==========
Long-term debt maturities for each of the next three years:
YEAR ENDED AMOUNT
- ---------- ----------
2001........................................................ $1,091,367
2002........................................................ 511,329
2003........................................................ 46,187
----------
Total....................................................... $1,648,883
==========
NOTE 7--RELATED PARTY TRANSACTIONS
ADVANCES FROM STOCKHOLDERS
Advances from stockholders consists of operating advances. The advances from
the stockholders were repaid during 2000.
F-37
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 7--RELATED PARTY TRANSACTIONS (CONTINUED)
OPERATING LEASES
The Company rents its primary office facility as a tenant at will from a
trust related by common ownership and requires monthly payments of $2,375. The
agreement also requires that the Company pay all insurance costs on the
property.
The Company leased equipment from other companies related by common
ownership, on an "as-needed" basis. Equipment rentals from these companies
totaled $130,000, $60,312 and $94,900 for the years ended December 31, 2000 and
1999 and the eleven months ended December 31, 1998, respectively.
Total rent expense for the years December 31, 2000 and 1999 and the eleven
months ended December 31, 1998 was $145,093, $99,886 and $133,244, respectively.
NOTE 8--PROFIT SHARING PLAN
The Company has a prescribed profit sharing plan which covers the Company's
administrative employees. The Plan was amended to include a money purchase plan.
The Company made contributions of $138,500 to the Plan during the year ended
December 31, 2000 and $100,000 for the year ended December 31, 1999 and the
eleven months ended December 31, 1998.
NOTE 9--CASH FLOW INFORMATION
During 2000, 1999 and the eleven months ended 1998, the Company paid
$102,208, $106,758 and $114,420, respectively, for interest. Additionally,
during 2000, 1999 and the eleven months ended December 31, 1998 the Company paid
$190,237, $197,368 and $270,449, respectively, for income taxes.
The Company recorded net unrealized holding gains (losses) on available
for-sale securities of $9,605, $(59,282) and $(676) at December 31, 2000, 1999
and the eleven months ended 1998, respectively.
In 2000, 1999 and 1998, the Company obtained certain equipment and insurance
policies through long-term debt in the amount of $1,396,677, $1,564,631 and
$1,518,825, respectively. Included in the acquisition of equipment through
long-term debt, the Company traded in certain equipment with a cost of $693,557,
$264,898 and $236,751 and related debt obligations of $233,169, $101,400 and
$217,854, respectively.
NOTE 10--CONCENTRATIONS AND UNCERTAINTIES
FINANCIAL INSTRUMENTS
Other financial instruments, which potentially subject the Company to
concentration of credit risk, include contract receivables and marketable
securities. Contract receivables are generally not collateralized. The credit
risk results from the failure of a certain company or companies to meet the
responsibility of this payment. To date, the Company has not experienced such
failure.
F-38
NORTH AMERICAN SITE DEVELOPERS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 10--CONCENTRATIONS AND UNCERTAINTIES (CONTINUED)
UNION CONTRACTS
Substantially all of the Company's non-management employees are covered by
collective bargaining agreements. Certain of these agreements between the
Company and various unions are due to expire within the next year. Failure to
successfully renegotiate the union contracts may have an adverse effect on the
Company's operations. Management anticipates all of the union agreements to be
renewed.
LAWSUITS
The Company is involved in various claims and lawsuits against and for the
Company arising in the normal course of business. Management has vigorously
defended its case and believes that any financial responsibility that may be
incurred in settlements of such litigation would not be material to the
Company's financial position.
CONCENTRATIONS
The Company had contract revenues earned from one customer representing 40%
and 22% during December 31, 2000 and 1999, respectively. At December 31, 2000,
there was no outstanding contract receivable from this customer. Included in
contract receivables from this customer was approximately $3,785,000 at
December 31, 1999.
NOTE 11--SUBSEQUENT EVENT
Currently, the stockholders are negotiating the proposed sale of 100% of the
common stock of the Company.
F-39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners
Amboy Aggregates
We have audited the accompanying balance sheets of AMBOY AGGREGATES (A JOINT
VENTURE) as of December 31, 2000 and 1999, and the related statements of
operations and partners' capital and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amboy Aggregates (A Joint
Venture) as of December 31, 2000 and 1999, and its results of operations and
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
J.H. COHN LLP
Roseland, New Jersey
January 22, 2001
F-40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Restated Certificate of Incorporation provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the Company's Bylaws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Section 145 of the DGCL provides that a corporation may indemnify any persons,
including officers and directors, who were or are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was an officer, director, employee or agent of such corporation or
is or was serving at the request of such corporation as an officer, director,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, for criminal
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify officers and directors in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed 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.
The directors and officers of the Company are insured against certain
liabilities under the registrant's directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
2.01 Plan and Agreement of Merger dated as of August 19, 1998
between the Company and Great Lakes Dredge & Dock
Acquisition, Inc.(1)
3.01 Restated Certificate of Incorporation of the Company.(1)
3.02 Bylaws of the Company.(1)
4.01 Indenture dated as of August 19, 1998 among the Company, the
Subsidiary Guarantors and The Bank of New York, as
Trustee.(1)
4.02 Registration Rights Agreement dated as of April 24, 2001
among the Company, the Subsidiary Guarantors and Credit
Suisse First Boston Corporation.(5)
II-1
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
4.03 Form of 11 1/4% Senior Subordinated Note due 2008 (included
in Exhibit 4.01).(1)
4.04 First Supplemental Indenture dated as of June 15, 2000 among
the Company, Caribbean Dredging, Inc., the other Subsidiary
Guarantors and the Bank of New York, as Trustee.(2)
4.05 Supplemental Indenture dated as of April 24, 2001 among the
Company, North American Site Developers, Inc., the other
subsidiary Company and the Bank of New York, as Trustee.(5)
5.01* Opinion of Dechert.
10.01 Credit Agreement dated as of August 19, 1998 among the
Company and the other loan parties thereto, as Borrowers,
the financial institutions from time to time party thereto,
as Lenders, Bank of Montreal, Chicago Branch, as
Documentation Agent, Bank of America National Trust and
Savings Association, as Issuing Lender and Administrative
Agent and BancAmerica Robertson Stephens, as Lead
Arranger.(1)
10.02 Amendment No. 1 dated October 8, 1999 to the Credit
Agreement.(3)
10.03 Amendment No. 2 dated October 23, 2000 to the Credit
Agreement.(4)
10.04 Amended and Restated Credit Agreement dated as of April 24,
2001 among the Company, the other loan parties thereto, the
financial institutions party thereto and Bank of America,
N.A. as administrative agent.(5)
10.05 Second Amended and Restated Underwriting and Continuing
Indemnity Agreement dated August 19, 1998 among the Company,
certain of its Subsidiaries, Reliance Insurance Company,
United Pacific Insurance Company, Reliance National
Insurance Company and Reliance Surety Company.(1)
10.06 First Amendment to Second Amended and Restated Underwriting
and Continuing Indemnity Agreement dated as of June 13,
2000.(4)
10.07 Second Amendment to Second Amended and Restated Underwriting
and Continuing Indemnity Agreement dated as of April 24,
2001.(5)
10.08 Employment Agreement between the Company and Douglas B.
Mackie.(2)
10.09 Employment Agreement between the Company and Richard
Lowry.(2)
10.10 Great Lakes Annual Cash Bonus Plan(2)
10.11 Great Lakes Non-Union Hourly Employees 401(k) Savings
Plan.(3)
10.12 Securities Purchase and Holders Agreement dated August 19,
1998 among the Company, Vectura and the Management
Investors.(2)
10.13 Registration Rights Agreement dated August 19, 1998 among
the Company, Vectura, and the Management Investors.(2)
21.01 Subsidiaries of the Registrant.(5)
23.01 Consent of Deloitte & Touche LLP (included on Page II-11).
23.02 Consent of J.H. Cohn LLP (included on Page II-12).
23.03 Consent of O'Conner & Drew P.C.(included on Page II-13).
23.04* Consent of Dechert (included in Exhibit 5.01).
24.01 Powers of Attorney (included on Signature Pages).
25.01 Statement of Eligibility and Qualification of The Bank of
New York on Form T-1.(5)
99.01* Form of Letter of Transmittal.
99.02* Form of Notice of Guaranteed Delivery.
- ------------------------
* To be filed by amendment.
(1) Incorporated by reference to Form S-4 Registration Statement of the Company
(File No. 333-64687) filed with Securities and Exchange Commission on
September 29, 1998.
(2) Incorporated by reference to Amendment No. 1 to Form S-4 Registration
Statement of the Company (File No. 333-64687) filed with Securities and
Exchange Commission on December 14, 1998.
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(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1999 filed with Securities and Exchange
Commission on March 29, 2000.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 filed with Securities and Exchange
Commission on March 21, 2001.
(5) Filed herewith.
(b) Financial Statement Schedules:
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrants
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 registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
II-3
a court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post- effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook and State of
Illinois on May 4, 2001.
GREAT LAKES DREDGE & DOCK CORPORATION
By: /s/ DOUGLAS B. MACKIE
-----------------------------------------
Douglas B. Mackie
PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each such attorney-in-fact, or his
agent or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001
------------------------------------ Director (principal executive
Douglas B. Mackie officer)
/s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001
------------------------------------ and Treasurer (principal financial
Deborah A. Wensel officer and principal accounting
officer)
/s/ MICHAEL A. DELANEY Director May 4, 2001
------------------------------------
Michael A. Delaney
/s/ DAVID WAGSTAFF III Director May 4, 2001
------------------------------------
David Wagstaff III
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook and State of
Illinois on May 4, 2001.
GREAT LAKES DREDGE & DOCK COMPANY
By: /s/ DOUGLAS B. MACKIE
------------------------------------------
Douglas B. Mackie
PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each such attorney-in-fact, or his
agent or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001
------------------------------------ Director (principal executive
Douglas B. Mackie officer)
/s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001
------------------------------------ and Treasurer (principal financial
Deborah A. Wensel officer and principal accounting
officer) and Director
/s/ LESLIE A. BRAUN Corporate Secretary and Director May 4, 2001
------------------------------------
Leslie A. Braun
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook and State of
Illinois on May 4, 2001.
NORTH AMERICAN SITE DEVELOPERS, INC.
By: /s/ CHRISTOPHER A. BERARDI
------------------------------------------
Christopher A. Berardi
PRESIDENT
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each such attorney-in-fact, or his
agent or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ CHRISTOPHER A. BERARDI President and Director (principal May 4, 2001
------------------------------------ executive officer)
Christopher A. Berardi
/s/ DEBORAH A. WENSEL Treasurer (principal financial officer May 4, 2001
------------------------------------ and principal accounting officer) and
Deborah A. Wensel Director
/s/ DOUGLAS B. MACKIE Director May 4, 2001
------------------------------------
Douglas B. Mackie
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook and State of
Illinois on May 4, 2001.
DAWSON MARINE SERVICES COMPANY
By: /s/ DOUGLAS B. MACKIE
------------------------------------------
Douglas B. Mackie
PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each such attorney-in-fact, or his
agent or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001
------------------------------------ Director (principal executive
Douglas B. Mackie officer)
/s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001
------------------------------------ and Treasurer (principal financial
Deborah A. Wensel officer and principal accounting
officer) and Director
/s/ LESLIE A. BRAUN Corporate Secretary and Director May 4, 2001
------------------------------------
Leslie A. Braun
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook and State of
Illinois on May 4, 2001.
GREAT LAKES CARIBBEAN DREDGING, INC.
By: /s/ DOUGLAS B. MACKIE
-----------------------------------------
Douglas B. Mackie
PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each such attorney-in- fact, or his
agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to
the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001
------------------------------------ Director (principal executive
Douglas B. Mackie officer)
/s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001
------------------------------------ and Treasurer (principal financial
Deborah A. Wensel officer and principal accounting
officer) and Director
/s/ LESLIE A. BRAUN Corporate Secretary and Director May 4, 2001
------------------------------------
Leslie A. Braun
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Brook and State of
Illinois on May 4, 2001.
FIFTY-THREE DREDGING CORPORATION
By: /s/ WILLIAM H. HANSON
-----------------------------------------
William H. Hanson
PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William H. Hanson and Paul E. Dinquel,
each and individually, his or her attorneys-in-fact, with full power of
substitution and resubstitution, for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or any Registration Statement for the same offering that is effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each such attorney-in-fact, or his
agent or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ PAUL E. DINQUEL Vice President (principal financial May 4, 2001
------------------------------------ officer and principal accounting
Paul E. Dinquel officer) and Director
/s/ SUSAN WILLIAMS Corporate Secretary and Director May 4, 2001
------------------------------------
Susan Williams
/s/ BRUCE J. BIEMECK Director May 4, 2001
------------------------------------
Bruce J. Biemeck
II-10
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Great Lakes
Dredge & Dock Corporation on Form S-4 of our report dated January 29, 2001,
appearing in the Prospectus, which is part of this Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Chicago, Illinois
May 4, 2001
II-11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 being
filed by Great Lakes Dredge & Dock Corporation of our report, dated January 22,
2001, on the financial statements of Amboy Aggregates (A Joint Venture) as of
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000. We also consent to the reference of our Firm under the
caption "Experts."
J. H. Cohn LLP
Roseland, New Jersey
May 4, 2001
II-12
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
We consent to the inclusion in this Registration Statement on Form S-4 being
filed by Great Lakes Dredge & Dock Corporation of our report, dated March 16,
2001, on the financial statements of North American Site Developers, Inc. as of
and for the years ended December 31, 2000 and 1999 and the eleven months ended
December 31, 1998.
We also consent to the reference to our firm under the caption "Experts" in
the Prospectus of the Registration Statement.
O'Connor & Drew P.C.
Quincy, Massachusetts
May 4, 2001
II-13