AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 2003
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
------------------------
THE SHAW GROUP INC.*
(exact name of registrant as specified in its charter)
LOUISIANA 3490 72-1106167
(State or Other Jurisdiction of Incorporation or (Primary Standard Industrial (I.R.S. Employer Identification No.)
Organization) Classification Code Number)
4171 ESSEN LANE GARY P. GRAPHIA
BATON ROUGE, LOUISIANA 70809 SECRETARY AND GENERAL COUNSEL
(225) 932-2500 4171 ESSEN LANE
(Address, Including Zip Code, BATON ROUGE, LOUISIANA 70809
and Telephone Number, Including Area Code, (225) 932-2500
of Registrant's Principal Executive Offices) (Name, Address, Including Zip Code,
and Telephone Number, Including
Area Code, of Agent for Service)
------------------------
Copy to:
DAVID P. OELMAN, ESQ.
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
1001 FANNIN STREET
HOUSTON, TEXAS 77002-6760
713-758-2222
713-758-2346 (FAX)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) PRICE (1) REGISTRATION FEE
--------------------------- ---------- ------------ --------- ----------------
10.75% Senior Notes Due 2010. . . . . $253,029,000 100% $253,029,000 $20,470
Guarantees by certain subsidiaries of -- -- -- -- (2)
The Shaw Group Inc.*
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
(2) Pursuant to Rule 457(n) no separate fee for the guarantees is payable
because the guarantees relate to other securities that are being
registered concurrently.
* Includes certain subsidiaries of The Shaw Group Inc. identified on the
following pages.
AMERICAN PLASTIC PIPE AND SUPPLY, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 33-1011591
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
ARLINGTON AVENUE E VENTURE, LLC
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 68-0498475
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
BENICIA NORTH GATEWAY II, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 75-3047268
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
B.F. SHAW, INC.
(Exact Name of Registrant As Specified In Its Charter)
SOUTH CAROLINA 72-1106168
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CAMDEN ROAD VENTURE, LLC
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 68-0498480
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
C.B.P. ENGINEERING CORP.
(Exact Name of Registrant As Specified In Its Charter)
ILLINOIS 36-2860678
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHIMENTO WETLANDS, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 01-0692358
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
EMCON/OWT, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 77-0589893
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
ENVIROGEN, INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 22-2899415
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
FIELD SERVICES, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1482550
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
GREAT SOUTHWEST PARKWAY VENTURE, LLC
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 68-0498479
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
HL NEWHALL II, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 73-1638493
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
JERNEE MILL ROAD, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 77-0592653
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
KATO ROAD II, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 73-1641813
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
KIP I, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 77-0591660
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
LANDBANK BAKER, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 03-0445175
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
LANDBANK PROPERTIES, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 73-1638502
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
LFG SPECIALTIES, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 33-1011588
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
MILLSTONE RIVER WETLAND SERVICES, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 74-3040582
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
MWR, INC.
(Exact Name of Registrant As Specified In Its Charter)
MICHIGAN 38-2677202
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
NORWOOD VENTURE I, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA APPLIED FOR
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
OTAY MESA VENTURES II, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 27-0009050
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
PLATTSBURG VENTURE, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 27-0009151
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
POWER TECHNOLOGIES, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1496643
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
PROSPECT INDUSTRIES (HOLDINGS), INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 36-2860679
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
RARITAN VENTURE I, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 75-3046549
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
S C WOODS, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 72-1507985
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW A/DE, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1326466
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW ALLOY PIPING PRODUCTS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-0742268
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW BENECO, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 68-0501371
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW CALIFORNIA, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 04-3667855
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW CAPITAL, INC.
(Exact Name of Registrant As Specified In Its Charter)
NEVADA 88-0441288
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW CMS, INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 54-1574893
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW CONNEX, INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 31-1333038
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW CONSTRUCTORS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-0944168
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW E&I INVESTMENT HOLDINGS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 41-2037834
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW ENVIRONMENTAL, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 77-0589932
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW ENVIRONMENTAL & INFRASTRUCTURE, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 75-3044680
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW ENVIRONMENTAL LIABILITY SOLUTIONS, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 57-1158927
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW FABRICATORS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 62-1718401
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW FACILITIES, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 82-0540781
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW FCI, INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 72-1266939
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW FVF, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1135365
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW GLOBAL ENERGY SERVICES, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-0962273
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW GRP OF CALIFORNIA
(Exact Name of Registrant As Specified In Its Charter)
CALIFORNIA 72-1492217
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW HEAT, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 94-3419136
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW INDUSTRIAL SUPPLY CO., INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1310139
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW INFRASTRUCTURE, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 41-2042864
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW INTELLECTUAL PROPERTY HOLDINGS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 45-0475552
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW INTERNATIONAL, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1237437
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW JV HOLDINGS, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1483385
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW MAINTENANCE, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1360032
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW MANAGED SERVICES, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1345961
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW MANAGEMENT SERVICES ONE, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 41-2055300
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW NAPTECH, INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 87-0492102
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW PIPE SHIELDS, INC.
(Exact Name of Registrant As Specified In Its Charter)
CALIFORNIA 94-1682925
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW PIPE SUPPORTS, INC.
(Exact Name of Registrant As Specified In Its Charter)
TEXAS 72-1266940
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW POWER SERVICES GROUP, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1515472
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW POWER SERVICES, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1338077
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW PROCESS AND INDUSTRIAL GROUP, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1405017
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW PROCESS FABRICATORS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1080769
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW PROPERTY HOLDINGS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 27-0009256
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW REMEDIATION SERVICES, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 75-3046705
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW SERVICES, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1515466
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW SSS FABRICATORS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1495933
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW SUNLAND FABRICATORS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1239935
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SHAW WORD INDUSTRIES FABRICATORS, INC.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1486975
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SO-GLEN GAS CO., LLC
(Exact Name of Registrant As Specified In Its Charter)
OHIO 34-1881112
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER ASIA, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1481348
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER CONSTRUCTION, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1481673
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER CONSTRUCTION SERVICES, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1515465
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER HOLDING ONE, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1478573
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER HOLDING TWO, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1478616
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1478572
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER INTERNATIONAL, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1484951
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER INTERNATIONAL HOLDINGS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1486511
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER - IT RUSSIA MANAGEMENT CONSULTANTS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 43-1969254
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER-JSC MANAGEMENT CONSULTANTS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 81-0579206
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER MANAGEMENT CONSULTANTS, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1483422
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER MASSACHUSETTS, INC.
(Exact Name of Registrant As Specified In Its Charter)
MASSACHUSETTS 04-3529340
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER MICHIGAN, INC.
(Exact Name of Registrant As Specified In Its Charter)
MICHIGAN 72-1493510
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER PROCESS TECHNOLOGY, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1478641
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
STONE & WEBSTER SERVICES, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1515448
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
SWINC ACQUISITION FIVE, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 72-1479284
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
THE LANDBANK GROUP, INC.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 01-0679394
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
WHIPPANY VENTURE I, L.L.C.
(Exact Name of Registrant As Specified In Its Charter)
LOUISIANA 33-1003786
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
EACH REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 16, 2003.
PROSPECTUS
THE SHAW GROUP INC.
OFFER TO EXCHANGE UP TO
$253,029,000 OF 10.75% SENIOR NOTES DUE 2010
FOR
$253,029,000 OF 10.75% SENIOR NOTES DUE 2010
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
TERMS OF THE EXCHANGE OFFER
o We are offering to exchange up to $253,029,000 of our outstanding 10.75%
Senior Notes Due 2010 for new notes with substantially identical terms
that have been registered under the Securities Act and are freely
tradable.
o We will exchange all outstanding notes that you validly tender and do not
validly withdraw before the exchange offer expires for an equal principal
amount of new notes.
o The exchange offer expires at 5:00 p.m., New York City time, on
__________, 2003, unless extended. We do not currently intend to extend
the exchange offer.
o Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
o The exchange of outstanding notes for new notes will not be a taxable
event to you for U.S. federal income tax purposes.
TERMS OF THE NEW 10.75% SENIOR NOTES OFFERED IN THE EXCHANGE OFFER
MATURITY
o The new notes will mature on March 15, 2010.
INTEREST
o Interest on the new notes is payable on March 15 and September 15 of each
year, beginning September 15, 2003.
o Interest will accrue from March 17, 2003.
REDEMPTION
o We may redeem some or all of the new notes at any time on or after March
15, 2007 at redemption prices listed in "Description of the Notes --
Optional Redemption," and prior to that date we may redeem all, but not
less than all, of the notes by the payment of a make-whole premium.
o Subject to certain limitations, at any time on or before March 15, 2006,
we may also redeem up to 35% of the new notes using the net proceeds of
certain equity offerings.
CHANGE OF CONTROL
o If we experience a change of control, subject to certain conditions, we
must offer to purchase the new notes.
RANKING
o The new notes are unsecured. The new notes rank equally in right of
payment with all of our other existing and future unsecured senior debt
and senior in right of payment to all of our future subordinated debt.
o The new notes are subordinated to our existing and future secured debt to
the extent of that security.
GUARANTEES
o If we cannot make payment on the new notes when they are due, certain of
our subsidiaries have guaranteed the notes and must make payment instead.
- --------------------------------------------------------------------------------
PLEASE READ "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF FACTORS YOU
SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 2003.
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. In making your investment decision, you
should rely only on the information contained in this prospectus and in the
accompanying letter of transmittal. We have not authorized anyone to provide you
with any other information. If you receive any unauthorized information, you
must not rely on it. We are not making an offer to sell these securities in any
state where the offer is not permitted. You should not assume that the
information contained in this prospectus, or the documents incorporated by
reference into this prospectus, is accurate as of any date other than the date
on the front cover of this prospectus or the date of such document, as the case
may be.
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TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION..........................................i
PROSPECTUS SUMMARY...........................................................1
RISK FACTORS.................................................................7
EXCHANGE OFFER..............................................................24
RATIOS OF EARNINGS TO FIXED CHARGES.........................................30
USE OF PROCEEDS.............................................................32
DESCRIPTION OF THE NEW NOTES................................................33
FEDERAL INCOME TAX CONSIDERATIONS...........................................74
PLAN OF DISTRIBUTION........................................................74
LEGAL MATTERS...............................................................75
INDEPENDENT AUDITORS........................................................75
FORWARD-LOOKING STATEMENTS..................................................76
INDEX TO FINANCIAL STATEMENTS..............................................F-1
LETTER OF TRANSMITTAL..................................................ANNEX A
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the SEC (File No. 1-12227). You may read and copy any documents that are filed
at the SEC Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may also obtain copies of these documents at prescribed rates from
the Public Reference Section of the SEC at its Washington address. Please call
the SEC at l-800-SEC-0330 for further information.
Our filings are also available to the public through:
- the SEC web site at http://www.sec.gov; and
- The New York Stock Exchange 20 Broad Street New York, New York
10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to that information. This prospectus incorporates important
business and financial information about us that is not included in or delivered
with this prospectus. The information incorporated by reference is an important
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any further filings made with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), excluding any information furnished to the SEC pursuant to Item
9, Item 11 or Item 12 of any current report on Form 8-K and any certification
furnished to the SEC as an exhibit to any periodic report on Form 10-K or Form
10-Q, until the termination of this offering:
- Our Annual Report on Form 10-K for the fiscal year ended August 31,
2002;
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2002;
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- Our Quarterly Report on Form 10-Q for the fiscal quarter ended
February 28, 2003 (other than Exhibits 99.1 and 99.2 furnished to
the SEC with such Quarterly Report);
- Our Current Report on Form 8-K filed on May 16, 2002, as amended by
Form 8-K/A filed on July 12, 2002, as further amended by Form
8-K/A filed on May 16, 2003;
- Our Current Reports on Form 8-K filed with the SEC on February 27,
2003 (other than any information furnished to the SEC pursuant to
Item 9 of such Current Reports);
- Our Current Report on Form 8-K filed with the SEC on March 13, 2003;
and
- Our Current Report on Form 8-K filed with the SEC on March 19, 2003
(other than any information furnished to the SEC pursuant to Item 9
or Item 12 of such Current Report).
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act (excluding any information furnished pursuant to
Item 9, Item 11 or Item 12 on any current report on Form 8-K and any
certification furnished to the SEC as an exhibit to any periodic report on
Form 10-K or Form 10-Q) subsequent to the date of this filing and prior to
the termination of this offering shall be deemed to be incorporated in
this prospectus and to be a part hereof from the date of the filing of
such document. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for all
purposes to the extent that a statement contained in this prospectus, or
in any other subsequently filed document which is also incorporated or
deemed to be incorporated by reference, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
prospectus.
You may request a copy of these filings at no cost by writing or
telephoning us at the following address or phone number:
The Shaw Group Inc.
4171 Essen Lane
Baton Rouge, Louisiana 70809
(225) 932-2500
To obtain timely delivery, you should request this information no
later than 5 business days before expiration of the offer.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide
you with different information. You should not assume that the information
in this prospectus is accurate as of any date other than the date on the
front of this document.
ii
PROSPECTUS SUMMARY
The following summary may not contain all of the information that may be
important to you. You should consider carefully all of the information in this
prospectus and the documents we have incorporated into this prospectus by
reference before making an investment decision, particularly the information set
forth under the caption "Risk Factors" included in this prospectus. In addition,
certain statements include forward-looking information which involves risks and
uncertainties. Please read "Forward-Looking Statements." Except as otherwise
indicated herein, or as the context may otherwise require, the words "we,"
"our," "us," and "Shaw" refer to The Shaw Group Inc. and its subsidiaries,
including the operations of businesses we acquired prior to the date of
acquisition. References to the "notes" in this prospectus include both the
outstanding notes and the new notes.
THE COMPANY
We offer a broad range of services to clients in the environmental and
infrastructure, power and process industries worldwide. We are a leading
provider of consulting, engineering, construction, remediation and facilities
management services to the environmental, infrastructure and Homeland Security
markets. We are also a vertically-integrated provider of comprehensive
engineering, consulting, procurement, pipe fabrication, construction and
maintenance services to the power and process industries.
Our executive offices are located at 4171 Essen Lane, Baton Rouge,
Louisiana 70809, and our telephone number is (225) 932-2500.
THE EXCHANGE OFFER
On March 17, 2003, we completed a private offering of the
outstanding notes. As part of the private offering that closed on March 17,
2003, we entered into a registration rights agreement with the initial
purchasers of the outstanding notes in which we agreed, among other things, to
deliver this prospectus to you and to use commercially reasonable efforts to
complete the exchange offer within 220 days after the date we issued the
outstanding notes. The following is a summary of the exchange offer.
Exchange Offer................................ We are offering to exchange new notes for outstanding notes.
Expiration Date............................... The exchange offer will expire at 5:00 p.m. New York City time, on
________________, 2003, unless we decide to extend it.
Condition to the Exchange Offer............... The registration rights agreement does not require us to accept
outstanding notes for exchange if the exchange offer or the making
of any exchange by a holder of the outstanding notes would violate
any applicable law or interpretation of the staff of the SEC. A
minimum aggregate principal amount of outstanding notes being
tendered is not a condition to the exchange offer.
Procedures for Tendering Outstanding
Notes..................................... To participate in the exchange offer, you must follow the procedures
established by The Depository Trust Company, which we call "DTC,"
for tendering notes held in book-entry form. These procedures, which
we call "ATOP," require that the exchange agent receive, prior to
the expiration date of the exchange offer, a computer generated
message known as an "agent's message" that is transmitted through
DTC's automated tender offer program and that DTC confirm that:
- DTC has received your instructions to exchange your notes;
and
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- you agree to be bound by the terms of the letter of transmittal.
For more details, please refer to the sections of this prospectus
entitled "Exchange Offer -- Terms of the Exchange Offer" and " --
Procedures for Tendering."
Guaranteed Delivery Procedures................ None.
Withdrawal of Tenders......................... You may withdraw your tender of outstanding notes at any time prior
to the expiration date. To withdraw, you must submit a notice of
withdrawal to exchange agent using ATOP procedures before 5:00 p.m.
New York City time on the expiration date of the exchange offer.
Please read "Exchange Offer -- Withdrawal of Tenders."
Acceptance of Outstanding Notes and
Delivery of New Notes..................... If you fulfill all conditions required for proper acceptance of
outstanding notes, we will accept any and all outstanding notes that
you properly tender in the exchange offer on or before 5:00 p.m. New
York City time on the expiration date. We will return any
outstanding notes that we do not accept for exchange to you without
expense as promptly as practicable after the expiration date. We
will deliver the new notes as promptly as practicable after the
expiration date and acceptance of the outstanding notes for
exchange. Please refer to the section in this prospectus entitled
"Exchange Offer -- Terms of the Exchange Offer."
Fees and Expenses............................. We will bear all expenses related to the exchange offer. Please
refer to the section in this prospectus entitled "Exchange Offer --
Fees and Expenses."
Use of Proceeds............................... The issuance of the new notes will not provide us with any new
proceeds. We are making this exchange offer solely to satisfy our
obligations under our registration rights agreement.
Consequences of Failure to Exchange
Outstanding Notes......................... If you do not exchange your outstanding notes in this exchange
offer, you will no longer be able to require us to register the
outstanding notes under the Securities Act except in the limited
circumstances provided under our registration rights agreement. In
addition, you will not be able to resell, offer to resell or
otherwise transfer the outstanding notes unless we have registered
the outstanding notes under the Securities Act, or unless you
resell, offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a transaction
not subject to, the Securities Act.
U.S. Federal Income Tax
Considerations............................ The exchange of new notes for outstanding notes in the exchange
offer should not be a taxable event to you for U.S. federal income
tax purposes. Please read "Federal Income Tax Considerations."
Exchange Agent................................ We have appointed The Bank of New York as exchange agent for the
exchange offer. You should direct questions and requests for
assistance and requests for additional copies of this prospectus
(including the letter of transmittal) to the exchange agent
addressed as follows: The Bank of New York, Corporate Trust
Operations,
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Reorganization Unit, 101 Barclay Street - 7 East, New York, New York,
10286. Eligible institutions may make requests by facsimile at
(212) 298-1915.
3
TERMS OF THE NEW NOTES
The new notes will be identical to the outstanding notes except that the
new notes are registered under the Securities Act and will not have restrictions
on transfer, registration rights or provisions for additional interest and will
contain different administrative terms. The new notes will evidence the same
debt as the outstanding notes, and the same indenture will govern the new notes
and the outstanding notes.
The following summary contains basic information about the new notes and
is not intended to be complete. It does not contain all the information that is
important to you. For a more complete understanding of the new notes, please
refer to the section of this prospectus entitled "Description of the New Notes."
Issuer........................................ The Shaw Group Inc.
Notes Offered................................. $253,029,000 in aggregate principal amount of 10.75% Senior Notes
Due 2010.
Maturity...................................... March 15, 2010.
Interest Payment.............................. Interest will be payable semiannually in arrears on March 15 and
September 15 of each year, beginning September 15, 2003.
Optional Redemption........................... We may redeem some or all of the notes beginning on March 15, 2007
at the redemption prices listed under "Description of the New Notes
-- Optional Redemption."
Prior to March 15, 2007, we may, at our option, redeem all, but not less than all,
of the notes at a redemption price equal to the principal amount of the notes plus
the Applicable Premium and accrued and unpaid interest to the redemption date. The
"Applicable Premium" is defined under "Description of the New Notes -- Certain
Definitions."
At any time on or before March 15, 2006, we may redeem up to 35% of the aggregate
principal amount of the notes with the net proceeds of certain equity offerings.
Change of Control............................. If we experience a change of control as defined under "Description
of the New Notes," we will be required to make an offer to
repurchase the notes at a price equal to 101% of their principal
amount, plus accrued and unpaid interest, if any, to the date of
repurchase.
Guarantees.................................... The new notes will be guaranteed, jointly and severally, on a senior
unsecured basis, by all of our material domestic restricted
subsidiaries.
Ranking....................................... The notes and the guarantees will be our and the applicable
guarantor's unsecured senior debt obligations and:
o will be effectively subordinated to all of our and such guarantor's existing and
future secured debt, if any, to the extent of such security, including
indebtedness under our amended and restated credit facility dated as of March
17, 2003;
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o will rank equally with all of our and such guarantor's existing and future
unsecured senior debt, including our Liquid Yield Option(TM) Notes Due 2021
(Zero Coupon -- Senior), or LYONs; and
o will rank senior to all of our and such guarantor's existing and future
subordinated indebtedness, if any.
In addition, the notes will be effectively subordinated to the existing and future
liabilities of our subsidiaries that are not providing guarantees.
Restrictive Covenants......................... The terms of the notes place certain limitations on our ability to,
among other things:
o incur or guarantee additional indebtedness or issue preferred stock;
o pay dividends or make distributions to our stockholders;
o repurchase or redeem capital stock or subordinated indebtedness;
o make investments;
o create liens;
o enter into sale/leaseback transactions;
o incur restrictions on the ability of our subsidiaries to pay dividends or to
make other payments to us;
o enter into transactions with our affiliates; and
o merge or consolidate with other companies or transfer all or substantially all
of our assets.
These limitations are subject to a number of exceptions and qualifications
described under "Description of the New Notes -- Certain Covenants." Many of the
covenants will be suspended during any period when the notes have an investment
grade rating from the Rating Agencies as defined under "Description of the New
Notes."
Transfer Restrictions; Absence of a
Public Market for the Notes............... The new notes generally will be freely transferable, but will also
be new securities for which there will not initially be a market.
There can be no assurance as to the development or liquidity of any
market for the new notes.
RISK FACTORS
Please read "Risk Factors," beginning on page 6 of this prospectus,
for a discussion of certain factors that you should consider before
participating in the exchange offer.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents, for the periods and as of the dates indicated,
selected statement of income data and balance sheet data of the Company on a
consolidated basis. The selected historical consolidated financial data for each
of the three fiscal years in the period ended August 31, 2002 presented below
has been derived from the Company's audited consolidated financial statements.
Such data should be read in conjunction with the Consolidated Financial
Statements of the Company and related notes thereto included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report on Form 10-K.
YEAR ENDED AUGUST 31,
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2002 2001 2000 1999 1998
----------- ----------- ----------- --------- ---------
(2) (3) (4) (5)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF INCOME
Revenues $ 3,170,696 $ 1,538,932 $ 762,655 $ 494,014 $ 501,638
=========== =========== =========== ========= =========
Income from continuing operations $ 98,367 $ 61,212 $ 30,383 $ 18,121 $ 16,232
=========== =========== =========== ========= =========
Basic income per common share before
extraordinary item and cumulative effect
of change in accounting principle (1) $ 2.41 $ 1.53 $ 1.03 $ 0.76 $ 0.65
=========== =========== =========== ========= =========
Diluted income per common share before
extraordinary item and cumulative
effect of change in accounting
principle (1) $ 2.26 $ 1.46 $ 0.99 $ 0.73 $ 0.63
=========== =========== =========== ========= =========
CONSOLIDATED BALANCE SHEETS
Total assets $ 2,304,200 $ 1,701,854 $ 1,335,083 $ 407,062 $ 389,844
=========== =========== =========== ========= =========
Long-term debt and capital lease obligations
net of current maturities $ 522,147 $ 512,867 $ 254,965 $ 87,841 $ 91,715
=========== =========== =========== ========= =========
Cash dividends declared per common share $ -- $ -- $ -- $ -- $ --
=========== =========== =========== ========= =========
(1) Earnings per share for fiscal 2000, 1999 and 1998 have been restated to
reflect the effect of the December 2000 two-for-one stock split of the
Company's Common Stock.
(2) Includes the acquisition of certain assets of the IT Group and PsyCor Inc.
in fiscal 2002. (See Note 4 of Notes to Consolidated Financial
Statements.)
(3) Includes the acquisition of certain assets of Scott, Sevin & Schaffer,
Inc. and Technicomp, Inc. in fiscal 2001. (See Note 4 of Notes to
Consolidated Financial Statements.)
(4) Includes the acquisitions of certain assets of Stone & Webster and PPM
Contractors, Inc. in fiscal 2000. (See Note 4 of Notes to Consolidated
Financial Statements.)
(5) Includes the acquisitions of certain assets of Prospect Industries plc,
Lancas, C.A., Cojafex B.V. and Bagwell Brothers, Inc. in fiscal 1998.
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RISK FACTORS
In addition to the other information set forth elsewhere or incorporated
by reference in this prospectus, the following factors relating to us, the
exchange offer and the new notes should be considered carefully in deciding
whether to participate in the exchange offer.
RISKS RELATED TO OUR BUSINESS
DEMAND FOR OUR PRODUCTS AND SERVICES IS CYCLICAL AND VULNERABLE TO DOWNTURNS IN
THE INDUSTRIES TO WHICH WE MARKET OUR PRODUCTS AND SERVICES.
The demand for our products and services depends on conditions in the
environmental and infrastructure industries and the power generation industry
that accounted for approximately 50% and 35%, respectively, of our backlog as of
February 28, 2003, and, to a lesser extent, on conditions in the petrochemical,
chemical and refining industries. These industries historically have been, and
will likely continue to be, cyclical in nature and vulnerable to general
downturns in the domestic and international economies. Our results of operations
have varied and may continue to vary depending on the demand for future projects
from these industries. Our results of operations may also be adversely affected
by cancellations of existing projects by our customers or difficulties in
collecting amounts owed to us for work completed or in progress.
In fiscal 2002 and the first quarter of fiscal 2003, there has been a
slowdown in construction activity and new construction awards for power
generation projects, primarily as a result of the current economic downturn and
less activity by certain independent power producers who have encountered
financing and liquidity problems. These factors contributed to the cancellation
or suspension of projects by three customers in the fourth quarter of fiscal
2002, resulting in a reduction of our backlog by approximately $300.0 million.
We have incurred costs in connection with these cancelled or suspended projects
for which we have not been paid. See "Notes to Condensed Consolidated Financial
Statements -- Contingencies and Subsequent Developments Associated with Domestic
Power Market EPC Projects" in our financial statements for the quarter ended
February 28, 2003 included elsewhere in this prospectus for a more complete
discussion of the potential impact of the developments related to these projects
as well as other risks to our business in the domestic power market.
Also, the planning for new projects by the power generation industry has
been affected by recent economic forecasts which indicate the possibility that
growth rates in the United States may be less than previously anticipated. We
can provide no assurance as to future demand for new power generation projects
or other projects and services.
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THE DOLLAR AMOUNT OF OUR BACKLOG, AS STATED AT ANY GIVEN TIME, IS NOT
NECESSARILY INDICATIVE OF OUR FUTURE EARNINGS.
As of February 28, 2003, our backlog was approximately $5.0 billion. There
can be no assurance that the revenues projected in our backlog will be realized
or, if realized, will result in profits. Further, project terminations,
suspensions or adjustments in scope may occur with respect to contracts
reflected in our backlog. For example, during the fourth quarter of fiscal 2002,
three domestic power projects previously reflected in our backlog were suspended
or cancelled, resulting in a reduction of approximately $300.0 million of
backlog.
Reductions in backlog due to cancellation by a customer or for other
reasons adversely affect, potentially to a material extent, the revenue and
profit we actually receive from contracts projected in backlog. In the event of
project cancellation, we may be reimbursed for certain costs but typically have
no contractual right to the total revenues reflected in our backlog. In
addition, projects may remain in our backlog for extended periods of time. If we
were to experience significant cancellations or delays of projects in our
backlog, our financial condition would be significantly adversely affected.
We define backlog as a "working backlog" which includes projects for which
we have received a commitment from our customers. This commitment may be in the
form of a written contract for a specific project, a purchase order or an
indication of the amount of time or material we need to make available for a
customer's anticipated project. In certain instances, the engagement is for a
particular product or project for which we estimate anticipated revenue, often
based on engineering and design specifications that have not been finalized and
may be revised over time. Also, we estimate (based on our prior experience) the
amount of future work we will receive for multi-year government contracts for
which funding is approved on an annual or periodic basis during the term of the
contract. In the Environmental & Infrastructure segment, many of these contracts
are multi-year indefinite delivery order, or IDO, agreements with the federal
government. These contracts do not initially provide for a specific amount of
work, and we derive the contract backlog of IDO agreements from our historical
experience with IDO agreements.
Our backlog for maintenance work is derived from maintenance contracts,
some of which do not specify actual dollar amounts of maintenance work, in which
case our backlog is based on an estimate of work to be performed in light of
such customers' historic maintenance requirements. Accordingly, the amount of
future actual awards may be more or less than our estimates.
We also include in backlog commitments from certain individual customers
that have committed to more than one significant EPC project and other customers
who have committed to multi-year orders for environmental, piping or maintenance
services. There can be no assurance that the customers will complete all of
these projects or that the projects will be performed in the currently
anticipated time-frame.
WE MAY INCUR UNEXPECTED LIABILITIES ASSOCIATED WITH THE STONE & WEBSTER AND IT
GROUP ACQUISITIONS, AS WELL AS OTHER ACQUISITIONS.
In July 2000, we acquired substantially all of the operating assets and
assumed certain liabilities of Stone & Webster, Inc., and during fiscal 2002, we
acquired substantially all of the operating assets and assumed certain
liabilities of The IT Group, Inc. We believe, pursuant to the terms of the
agreements for the Stone & Webster and IT Group asset acquisitions, that we
assumed only certain liabilities, which we refer to as assumed liabilities,
specified in those agreements. In addition, those agreements provide that
certain other liabilities, including but not limited to, certain outstanding
borrowings, certain leases, certain contracts in process, completed contracts,
claims or litigation that relate to acts or events occurring prior to the actual
acquisition date, and certain employee benefit obligations are specifically
excluded from our transactions. We refer to these as excluded liabilities. There
can be no assurance, however, that we do not have any exposure related to the
excluded liabilities.
In addition, some of the former owners of companies that we have acquired
are contractually required to indemnify us against liabilities related to the
operation of their companies before we acquired them and for
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misrepresentations made by them in connection with the acquisitions. In some
cases, these former owners may not have the financial ability to meet their
indemnification responsibilities. If this occurs, we may incur unexpected
liabilities.
DIFFICULTIES INTEGRATING OUR ACQUISITIONS COULD ADVERSELY AFFECT US.
From time to time, we have made acquisitions to pursue market
opportunities, increase our existing capabilities and expand into new areas of
operation. We plan to pursue select acquisitions in the future. As a result, we
may encounter difficulties integrating our future acquisitions and in
successfully managing the growth we expect from the acquisitions. In addition,
our expansion into new businesses, such as with our IT Group acquisition, may
expose us to additional business risks that are different from those we have
traditionally experienced. To the extent we encounter problems in integrating
our acquisitions, we could be materially adversely affected. Because we may
pursue acquisitions around the world and may actively pursue a number of
opportunities simultaneously, we may encounter unforeseen expenses,
complications and delays, including difficulties in employing sufficient staff
and maintaining operational and management oversight.
OUR INABILITY TO COMPLETE ACQUISITIONS COULD IMPACT OUR GROWTH STRATEGY.
Our strategy has been, and continues to be, to grow through acquisitions.
We pursue strategic acquisitions in markets where we currently operate as well
as in markets in which we have not previously operated. We may have difficulties
identifying attractive acquisition candidates in the future, or we may be unable
to acquire desired businesses or assets on economically acceptable terms. In the
event we are unable to complete future strategic acquisitions, we may not grow
in accordance with our expectations or our historical experience.
THE NATURE OF OUR CONTRACTS COULD ADVERSELY AFFECT US.
Although approximately 80% of our contracts as of February 28, 2003 are
cost-plus contracts, the remaining 20% are fixed price or unit price. A
significant number of our domestic piping contracts and substantially all of our
international piping contracts are fixed price or unit price. In addition, a
number of the contracts we assumed in the Stone & Webster and IT Group
acquisitions were fixed price contracts, and we will continue to enter into
these types of contracts in the future. Under fixed price or unit price
contracts, we agree to perform the contract for a fixed price and, as a result,
benefit from costs savings and earnings from approved change orders; but we are
generally unable to recover any cost overruns to the approved contract price.
Under fixed price incentive contracts, we share with the customer any savings up
to a negotiated or target ceiling. When costs exceed the negotiated ceiling
price, we may be required to reduce our fee or to absorb some or all of the cost
overruns. Contract prices are established based in part on cost estimates that
are subject to a number of assumptions, including assumptions regarding future
economic conditions. If these estimates prove inaccurate or circumstances
change, cost overruns could have a material adverse effect on our business and
results of our operations. Our profit for these projects could decrease or we
could experience losses, if we are unable to secure fixed pricing commitments
from our suppliers at the time the contracts are entered into or if we
experience cost increases for material or labor during the performance of the
contracts.
We enter into contractual agreements with customers for some of our
engineering, procurement and construction services to be performed based on
agreed upon reimbursable costs and labor rates. Some of these contracts provide
for the customer's review of the accounting and cost control systems to verify
the completeness and accuracy of the reimbursable costs invoiced. These reviews
could result in reductions in reimbursable costs and labor rates previously
billed to the customer.
WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH BEING A GOVERNMENT CONTRACTOR.
We are a major provider of services to governmental agencies and therefore
are exposed to risks associated with government contracting. For example, a
reduction in spending by federal government agencies could limit the continued
funding of existing contracts with these agencies and could limit our ability to
obtain additional contracts, which could have a material adverse effect on our
business. The risks of government contracting also include the risk of civil and
criminal fines and penalties for violations of applicable regulations and
statutes and the risk of public scrutiny of our performance at high profile
sites.
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In addition, government customers typically can terminate or modify any of
their contracts with us at their convenience, and some of these government
contracts are subject to renewal or extension annually. If a government customer
terminates a contract or fails to renew or extend a contract, our backlog may be
reduced or we may incur a loss, either of which could impair our financial
condition and operating results. A termination due to our unsatisfactory
performance could expose us to liability and have a material adverse effect on
our ability to recompete for future contracts and orders. In cases where we are
a subcontractor, the prime contract under which we are a subcontractor could be
terminated, regardless of the quality of our services as a subcontractor or our
relationship with the relevant government agency. Our government customers can
also reduce the value of existing contracts, issue modifications to a contract
and control and potentially prohibit the export of our services and associated
materials.
As a result of our government contracting business, we have been, are and
will be in the future, the subject of audits and/or cost reviews by the Defense
Contract Audit Agency, which we refer to as DCAA, or by the contracting agency.
Additionally, we have been and may in the future be, the subject of
investigations by governmental agencies such as the Office of Inspector General
of the Environmental Protection Agency, which we refer to as EPA. During the
course of an audit, the DCAA may disallow costs if it determines that we
improperly accounted for such costs in a manner inconsistent with Cost
Accounting Standards or regulatory and contractual requirements. Under the type
of cost-plus government contracts that we typically perform, only those costs
that are reasonable, allocable and allowable are recoverable under the Federal
Acquisition Regulation and Cost Accounting Standards.
In addition, our failure to comply with the terms of one or more of our
government contracts, other government agreements, or government regulations and
statutes could result in our being suspended or barred from future government
contract projects for a significant period of time. This could materially
adversely affect our business.
ACTUAL RESULTS COULD DIFFER FROM THE ESTIMATES AND ASSUMPTIONS THAT WE USE TO
PREPARE OUR FINANCIAL STATEMENTS.
To prepare financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions,
as of the date of the financial statements, which affect the reported values of
assets and liabilities and revenues and expenses and disclosures of contingent
assets and liabilities. Areas requiring significant estimates by our management
include:
- contract expenses and profits and application of
percentage-of-completion accounting;
- recoverability of inventory and application of lower of cost or
market accounting;
- provisions for uncollectable receivables and customer claims;
- provisions for income taxes and related valuation allowances;
- recoverability of net goodwill;
- recoverability of other intangibles and related amortization;
- valuation of assets acquired and liabilities assumed in connection
with business combinations; and
- accruals for estimated liabilities, including litigation and
insurance reserves.
Our actual results could differ from those estimates.
OUR USE OF PERCENTAGE-OF-COMPLETION ACCOUNTING COULD RESULT IN A REDUCTION OR
ELIMINATION OF PREVIOUSLY REPORTED PROFITS.
As is more fully discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Critical Accounting Policies
and Related Estimates That Have a Material Effect on Our Consolidated Financial
Statements" included in our annual report on Form 10-K for the year ended August
31, 2002 incorporated by reference herein and the notes to our financial
statements included elsewhere in this prospectus, a substantial portion of our
revenues are recognized using the percentage-of-completion, or POC, method of
accounting. This accounting method is standard
10
for engineering, procurement and construction, or EPC, contracts. The POC
accounting practices that we use result in our recognizing contract revenues and
earnings ratably over the contract term in proportion to our incurrence of
contract costs. The earnings or losses recognized on individual contracts are
based on estimates of contract costs and profitability. Contract losses are
recognized in full when determined, and contract profit estimates are adjusted
based on ongoing reviews of contract profitability. Further, a substantial
portion of our contracts contain various cost and performance incentives and
penalties that impact the earnings we realize from the contracts, and
adjustments related to these incentives and penalties are recorded when known or
finalized, which is generally during the latter stages of the contract.
Although most of our contracts are cost-plus and our financial loss
exposure on cost-reimbursable contracts is generally limited to a portion of our
gross margin, it is possible that the loss provisions or adjustments to the
contract profit and loss resulting from ongoing reviews or contract penalty
provisions could be significant and could result in a reduction or elimination
of previously recognized earnings. In certain circumstances it is possible that
such adjustments could be material to our operating results.
OUR RESULTS OF OPERATIONS DEPEND ON THE AWARD OF NEW CONTRACTS AND THE TIMING OF
THE PERFORMANCE OF THESE CONTRACTS.
A substantial portion of our revenues is directly or indirectly derived
from large-scale domestic and international projects. It is generally very
difficult to predict whether and when we will receive such awards as these
contracts frequently involve a lengthy and complex bidding and selection process
which is affected by a number of factors, such as market conditions, financing
arrangements, governmental approvals and environmental matters. Because a
significant portion of our revenues is generated from large projects, our
results of operations can fluctuate from quarter to quarter depending on the
timing of our contract awards.
The uncertainty of our contract award timing can also present difficulties
in matching workforce size with contract needs. In some cases, we maintain and
bear the cost of a ready workforce that is larger than called for under existing
contracts in anticipation of future workforce needs for expected contract
awards. If an expected contract award is delayed or not received, we would incur
costs that could have a material adverse effect on us. Further, our significant
customers vary between years, and the loss of any one or more of our key
customers could have a material adverse impact on us.
In addition, timing of the revenues and earnings from our projects can be
affected by a number of factors beyond our control, including unavoidable delays
from weather conditions, unavailability of material and equipment from vendors,
changes in the scope of services requested by clients or labor disruptions.
POLITICAL AND ECONOMIC CONDITIONS IN FOREIGN COUNTRIES IN WHICH WE OPERATE COULD
ADVERSELY AFFECT US.
Approximately 13% of our fiscal 2002 revenues were attributable to
projects in international markets, some of which are subject to political unrest
and uncertainty. We have operations in Venezuela, Russia, China and the Middle
East. We expect international revenues and operations to continue to contribute
to our growth and earnings for the foreseeable future. International contracts,
operations and expansion expose us to risks inherent in doing business outside
the United States, including:
- uncertain economic conditions in the foreign countries in which we
make capital investments, operate and sell products and services;
- the lack of well-developed legal systems in some countries in which
we operate and sell products and services, which could make it
difficult for us to enforce our contractual rights;
- expropriation of property;
- restrictions on the right to convert or repatriate currency; and
- political risks, including risks of loss due to civil strife, acts
of war, guerrilla activities and insurrection.
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FOREIGN EXCHANGE RISKS MAY AFFECT OUR ABILITY TO REALIZE A PROFIT FROM CERTAIN
PROJECTS OR TO OBTAIN PROJECTS.
We generally attempt to denominate our contracts in U.S. dollars; however,
from time to time we enter into contracts denominated in a foreign currency.
This practice subjects us to foreign exchange risks, particularly to the extent
contract revenues are denominated in a currency different than the contract
costs. We attempt to minimize our exposure from foreign exchange risks by
obtaining escalation provisions for projects in inflationary economies, matching
the contract revenue currency with the contract costs currency or entering into
hedge contracts when there are different currencies for contract revenues and
costs. However, these actions will not always eliminate all foreign exchange
risks.
Foreign exchange controls may also adversely affect us. For instance,
foreign exchange controls were instituted in Venezuela on February 6, 2003.
These controls may limit our ability to repatriate profits from our Venezuelan
subsidiary or otherwise convert local currency into U.S. dollars. These
limitations could adversely affect us. Further, our ability to obtain
international contracts is impacted by the relative strength or weakness of the
U.S. dollar to foreign currencies.
OUR FAILURE TO MEET SCHEDULE OR PERFORMANCE REQUIREMENTS OF OUR CONTRACTS COULD
ADVERSELY AFFECT US.
In certain circumstances, we guarantee facility completion by a scheduled
acceptance date or achievement of certain acceptance and performance testing
levels. Failure to meet any such schedule or performance requirements could
result in additional costs, and the amount of such additional costs could exceed
project profit margins. Performance problems for existing and future contracts
could cause actual results of operations to differ materially from those
anticipated by us.
OUR DEPENDENCE ON ONE OR A FEW CUSTOMERS COULD ADVERSELY AFFECT US.
Due to the size of many engineering and construction projects, one or a
few clients have in the past and may in the future contribute a substantial
portion of our consolidated revenues in any one year or over a period of several
consecutive years. For example, in fiscal 2002, approximately 21% of our
revenues were from PG&E National Energy Group, Inc. Similarly, our backlog
frequently reflects multiple projects for individual clients; therefore, one
major customer may comprise a significant percentage of backlog at a point in
time. An example of this is the TVA, with which we have two contracts
representing an aggregate of 15% of our backlog at February 28, 2003.
Because these significant customers generally contract with us for
specific projects, we may lose these customers from year to year as their
projects with us are completed. If we do not replace them with other customers
or other projects, our business could be materially adversely affected.
Additionally, we have long-standing relationships with many significant
customers, including customers with which we have alliance agreements that have
preferred pricing arrangements. However, our contracts with these customers are
on a project by project basis, and they may unilaterally reduce or discontinue
their purchases at any time. The loss of business from any one of such customers
could have a material adverse effect on our business or results of operations.
OUR DEPENDENCE ON SUBCONTRACTORS AND EQUIPMENT MANUFACTURERS COULD ADVERSELY
AFFECT US.
We rely on third party equipment manufacturers as well as third party
subcontractors to complete our projects. To the extent that we cannot engage
subcontractors or acquire equipment or materials, our ability to complete a
project in a timely fashion or at a profit may be impaired. If the amount we are
required to pay for these goods and services exceeds the amount we have
estimated in bidding for fixed price work, we could experience losses in the
performance of these contracts. In addition, if a subcontractor or a
manufacturer is unable to deliver its services, equipment or materials according
to the negotiated terms for any reason, including the deterioration of its
financial condition, we may be required to purchase the services, equipment or
materials from another source at a higher price. This may reduce the profit to
be realized or result in a loss on a project for which the services, equipment
or materials were needed.
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OUR PROJECTS EXPOSE US TO POTENTIAL PROFESSIONAL LIABILITY, PRODUCT LIABILITY,
WARRANTY AND OTHER CLAIMS.
We engineer, construct and perform services in large industrial facilities
in which accidents or system failures can be disastrous. Any catastrophic
occurrences in excess of insurance limits at locations engineered or constructed
by us or where our products are installed or services performed could result in
significant professional liability, product liability, warranty and other claims
against us. In addition, under some of our contracts, we must use new metals or
processes for producing or fabricating pipe for our customers. The failure of
any of these metals or processes could result in warranty claims against us for
significant replacement or reworking costs.
Further, the engineering and construction projects we perform expose us to
additional risks including cost overruns, equipment failures, personal injuries,
property damage, shortages of materials and labor, work stoppages, labor
disputes, weather problems and unforeseen engineering, architectural,
environmental and geological problems. In addition, once our construction is
complete, we may face claims with respect to the performance of these
facilities.
OUR ENVIRONMENTAL AND INFRASTRUCTURE OPERATIONS MAY SUBJECT US TO POTENTIAL
CONTRACTUAL AND OPERATIONAL COSTS AND LIABILITIES.
Many of our Environmental & Infrastructure segment customers attempt to
shift financial and operating risks to the contractor, particularly on projects
involving large scale cleanups and/or projects where there may be a risk that
the contamination could be more extensive or difficult to resolve than
previously anticipated. In this competitive market, customers increasingly try
to pressure contractors to accept greater risks of performance, liability for
damage or injury to third parties or property and liability for fines and
penalties. Prior to its acquisition by us, IT Group was involved in claims and
litigation involving disputes over such issues. Therefore, it is possible that
we could also become involved in similar claims and litigation in the future as
a result of our acquisition of the assets of IT Group and our participation in
environmental and infrastructure contracts.
Environmental management contractors also potentially face liabilities to
third parties for property damage or personal injury stemming from exposure to
or a release of toxic substances resulting from a project performed for
customers. These liabilities could arise long after completion of a project.
Although the risks we face in our anthrax and other biological agent work are
similar to those faced in our toxic chemical emergency response business, the
risks posed by attempting to detect and remediate these biological agents may
include risks to our employees, subcontractors and those who may be affected
should detection and remediation prove less effective than anticipated. Because
anthrax and similar contamination is so recent, there may be unknown risks
involved; and in certain circumstances there may be no body of knowledge or
standard protocols for dealing with these risks. The risks we face also include
the potential ineffectiveness of developing technologies to detect and remediate
the contamination, claims for infringement of these technologies, difficulties
in working with the smaller, specialized firms that may own these technologies
and have detection and remediation capabilities, our ability to attract and
retain qualified employees and subcontractors in light of these risks, the high
profile nature of the work and the potential unavailability of insurance and
indemnification for the risks associated with biological agents and terrorism.
Over the past several years, the EPA and other federal agencies have
constricted significantly the circumstances under which they will indemnify
their contractors against liabilities incurred in connection with the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or CERCLA, and similar projects.
WE ARE EXPOSED TO CERTAIN RISKS ASSOCIATED WITH OUR INTEGRATED ENVIRONMENTAL
SOLUTIONS BUSINESSES.
Certain subsidiaries within our Environmental & Infrastructure division
are engaged in two similar programs that may involve assumption of a client's
environmental remediation obligations and potential claim obligations. One
program involves our subsidiary, The LandBank Group, Inc., or LandBank, which we
acquired from IT Group. Under this program, LandBank purchases and then
remediates and/or takes other steps to improve environmentally impaired
properties. The second program is operated by our newly-created subsidiary Shaw
Environmental Liability Solutions, LLC, which will contractually assume
responsibility for environmental matters at a particular site or sites and
provide indemnifications for defined cleanup costs and post closing third party
claims in return for compensation by the client. These subsidiaries may operate
and/or purchase and redevelop environmentally impaired property. As the owner or
operator of such properties, we may be required to clean up all contamination at
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these sites even if we did not place the contamination there. Although we
attempt to reduce our exposure to unplanned risks through the performance of
environmental due diligence, the use of liability protection provisions of
federal laws like the Brownfields Revitalization Act and similar state laws and
the purchase of environmental and cost cap insurance coverage or other risk
management products. Although we believe our risk management strategies and
these products and laws adequately protect us against these obligations, there
can be no assurance that in all circumstances or that no material adverse
impacts will occur.
Our ability to be profitable in this type of business also depends on our
ability to accurately estimate cleanup costs. While we engage in comprehensive
engineering and cost analyses, if we were to materially underestimate the
required cost of cleanup at a particular project, such underestimation could
significantly adversely affect us. Further, the continued growth of this type of
business is dependent upon the availability of environmental and cost cap
insurance or other risk management products. There can be no assurance that such
products will continue to be available to us in the future. Moreover,
environmental laws and regulations governing the cleanup of contaminated sites
are constantly changing. We cannot predict the effect of future changes to these
laws and regulations on our LandBank and Environmental Liability Solutions
businesses. In addition, prior to the IT Group acquisition, we had not
previously conducted this type of business and we have had no material
transactions in this business. Additionally, when we purchase real estate in
this business, we are subject to many of the same risks as real estate
developers, including the timely receipt of building and zoning permits,
construction delays, the ability of markets to absorb new development projects,
market fluctuations and the ability to obtain additional equity or debt
financing on satisfactory terms, among others.
ENVIRONMENTAL FACTORS AND CHANGES IN LAWS AND REGULATIONS COULD INCREASE OUR
COSTS AND LIABILITIES AND AFFECT THE DEMAND FOR OUR SERVICES.
In addition to the environmental risks described above relating to the
businesses acquired from IT Group and our environmental remediation business,
our operations are subject to environmental laws and regulations, including
those concerning:
- emissions into the air;
- discharges into waterways;
- generation, storage, handling, treatment and disposal of hazardous
materials and wastes; and
- health and safety.
Our projects often involve highly regulated materials, including hazardous
and nuclear materials and wastes. Environmental laws and regulations generally
impose limitations and standards for regulated materials and require us to
obtain a permit and comply with various other requirements. The improper
characterization, handling, or disposal of regulated materials or any other
failure to comply with federal, state and local environmental laws and
regulations or associated environmental permits may result in the assessment of
administrative, civil, and criminal penalties, the imposition of investigatory
or remedial objections, or the issuance of injunctions that could restrict or
prevent our ability to perform.
In addition, under CERCLA and comparable state laws, we may be required to
investigate and remediate regulated materials. CERCLA and these comparable state
laws typically impose liability without regard to whether a company knew of or
caused the release, and liability has been interpreted to be joint and several
unless the harm is divisible and there is a reasonable basis of allocation. The
principal federal environmental legislation affecting our Environmental &
Infrastructure subsidiaries and its clients include: the National Environmental
Policy Act of 1969, or NEPA; the Resource Conservation and Recovery Act of 1976,
or RCRA; the Clean Air Act; the Federal Water Pollution Control Act; and the
CERCLA, together with the Superfund Amendments and Reauthorization Act of 1986,
or SARA. Our foreign operations are also subject to similar governmental
controls and restrictions relating to environmental protection.
We could also incur environmental liability at sites where we have been
hired by potentially responsible parties, or PRPs, to remediate contamination of
the site. Such PRPs have sought to expand the reach of CERCLA, RCRA and similar
state statutes to make the remediation contractor responsible for cleanup costs.
These companies claim
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that environmental contractors are owners or operators of hazardous waste
facilities or that the contractors arranged for treatment, transportation or
disposal of hazardous substances. If we are held responsible under CERCLA or
RCRA for damages caused while performing services or otherwise, we may be forced
to incur such cleanup costs by ourselves, notwithstanding the potential
availability of contribution or indemnification from other parties.
The environmental health and safety laws and regulations to which we are
subject are constantly changing, and it is impossible to predict the effect of
any future changes to these laws and regulations on us. We do not yet know the
full extent, if any, of environmental liabilities associated with many of our
recently acquired properties undergoing or scheduled to undergo site
restoration, including any liabilities associated with the assets we acquired
from Stone & Webster and IT Group. There can be no assurance that our operations
will continue to comply with future laws and regulations or that any such laws
and regulations will not significantly adversely affect us.
The level of enforcement of these laws and regulations also affects the
demand for many of our services. Proposed changes in regulations and the
perception that enforcement of current environmental laws has been reduced has
decreased the demand for some services, as clients have anticipated and adjusted
to the potential changes. Proposed changes could result in increased or
decreased demand for some of our services. The ultimate impact of the proposed
changes will depend upon a number of factors, including the overall strength of
the economy and clients' views on the cost-effectiveness of remedies available
under the changed regulations. If proposed or enacted changes materially reduce
demand for our environmental services, our results of operations could be
adversely effected.
THE LIMITATION OR THE EXPIRATION OF THE PRICE ANDERSON ACT'S INDEMNIFICATION
AUTHORITY COULD ADVERSELY AFFECT OUR BUSINESS.
The Price Anderson Act, or PAA, comprehensively regulates the manufacture,
use and storage of radioactive materials, while promoting the nuclear power
industry by offering broad indemnification to nuclear power plant operators and
DOE contractors. Because we provide services for the DOE relating to its nuclear
weapons facilities and the nuclear power industry in the on-going maintenance
and modification, as well as decontamination and decommissioning, of its nuclear
power plants, we are entitled to the indemnification protections under the PAA.
Although the PAA's indemnification provisions are broad, it has not been
determined whether such indemnification applies to all liabilities that we might
incur while performing services as a radioactive materials cleanup contractor
for the DOE and the nuclear power industry. In addition, the PAA's ability to
indemnify us with respect to any new contract expired on August 1, 2002, but was
reauthorized and extended through December 31, 2004. Because nuclear power
remains controversial, there can be no assurance that the PAA's indemnification
authority will be reauthorized and extended when that authority expires again at
the end of 2004. If the PAA's indemnification authority is not extended, our
business could be adversely affected by either a refusal of plant operators to
retain us or our inability to obtain commercially adequate insurance and
indemnification.
WE FACE SUBSTANTIAL COMPETITION IN EACH OF OUR BUSINESS SEGMENTS.
In our Environmental & Infrastructure segment, we compete with a diverse
array of small and large organizations, including national and regional
environmental management firms, national, regional and local architectural,
engineering and construction firms, environmental management divisions or
subsidiaries of international engineering, construction and systems companies,
and waste generators that have developed in-house capabilities. Increased
competition in this business, combined with changes in client procurement
procedures, has resulted in changes in the industry, including among other
things, lower contract margins, more fixed price or unit-price contracts and
contract terms that may increasingly require us to indemnify our clients against
damages or injuries to third parties and property and environmental fines and
penalties. We believe, therefore, these market conditions may require us to
accept more contractual and performance risk than we have historically for the
Environmental & Infrastructure segment to be competitive.
The entry of large systems contractors and international engineering and
construction firms into the environmental services industry has increased
competition for major federal government contracts and programs, which have been
a primary source of revenue in recent years for our Environmental &
Infrastructure business. There can be no assurance that our Environmental &
Infrastructure segment will be able to compete successfully given the intense
competition and trends in its industry.
15
In our engineering, procurement and construction business, we face
competition from numerous regional, national and international competitors, many
of which have greater financial and other resources than we do. Our competitors
include well-established, well-financed concerns, both privately and publicly
held, including many major power equipment manufacturers and engineering and
construction companies, some engineering companies, internal engineering
departments at utilities and certain of our customers. The markets that we serve
require substantial resources and particularly highly skilled and experienced
technical personnel.
In our pipe engineering and fabrication business, we face substantial
competition on a domestic and international level. In the United States, there
are a number of smaller pipe fabricators. Internationally, our principal
competitors are divisions of large industrial firms. Some of our competitors,
primarily in the international sector, have greater financial and other
resources than we do.
OUR FAILURE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD HAVE AN ADVERSE
EFFECT ON US.
Our ability to attract and retain qualified engineers, scientists and
other professional personnel in accordance with our needs, either through direct
hiring or acquisition of other firms employing such professionals, will be an
important factor in determining our future success. The market for these
professionals is competitive, and there can be no assurance that we will be
successful in our efforts to attract and retain needed professionals. In
addition, our ability to be successful depends in part on our ability to attract
and retain skilled laborers and craftsmen in our pipe fabrication and
construction businesses. Demand for these workers can at times be high and the
supply extremely limited.
TERRORISTS' ACTIONS HAVE AND COULD NEGATIVELY IMPACT THE U.S. ECONOMY AND THE
MARKETS IN WHICH WE OPERATE.
Terrorist attacks, like those that occurred on September 11, 2001, have
contributed to economic instability in the United States, and further acts of
terrorism, violence or war could affect the markets in which we operate, our
business and our expectations. There can be no assurance that armed hostilities
will not increase or that terrorist attacks, or responses from the United
States, will not lead to further acts of terrorism and civil disturbances in the
United States or elsewhere, which may further contribute to economic instability
in the United States. These attacks or armed conflicts may directly impact our
physical facilities or those of our suppliers or customers and could impact our
domestic or international revenues, our supply chain, our production capability
and our ability to deliver our products and services to our customers. Political
and economic instability in some regions of the world may also result and could
negatively impact our business.
IF WE MUST WRITE OFF A SIGNIFICANT AMOUNT OF INTANGIBLE ASSETS, OUR EARNINGS
WILL BE NEGATIVELY IMPACTED.
Because we have grown in part through acquisitions, goodwill and other
acquired intangible assets represent a substantial portion of our assets.
Goodwill was approximately $501.0 million as of February 28, 2003. If we make
additional acquisitions, it is likely that we will record additional intangible
assets on our books. A determination that a significant impairment in value of
our unamortized intangible assets has occurred would require us to write off a
substantial portion of our assets. Such a write off would negatively affect our
earnings.
WE ARE AND WILL CONTINUE TO BE INVOLVED IN LITIGATION.
We have been and may from time to time be named as a defendant in legal
actions claiming damages in connection with engineering and construction
projects and other matters. These are typically actions that arise in the normal
course of business, including employment-related claims and contractual disputes
or claims for personal injury or property damage which occur in connection with
services performed relating to project or construction sites. Our contractual
disputes normally involve claims relating to the performance of equipment,
design or other engineering services or project construction services provided
by our subsidiaries.
OUR REPURCHASE OBLIGATIONS UNDER THE LYONS COULD RESULT IN ADVERSE CONSEQUENCES.
In May 2001, we issued $790.0 million aggregate principal amount at
maturity of 20-year, zero-coupon, unsecured, convertible debt Liquid Yield
Option(TM) Notes, or LYONs. The LYONs were issued on an original issue discount
basis of $639.23 per $1,000 maturity value of the LYONs. On May 1 of 2004, 2006,
2011 and 2016, holders of LYONs may require us to purchase all or a portion of
the LYONs at their accreted value (the original
16
issue price of LYONs increases by 2.25% per year). In March 2003, we repurchased
$384.6 million aggregate principal amount at maturity of LYONs pursuant to our
tender offer for the LYONs. At May 1, 2004, the accreted value of the remaining
outstanding LYONs will be $683.61 per $1,000 maturity value and the aggregate
accreted value of the LYONs will be $277.1 million after giving effect to the
repurchase of $384.6 million aggregate principal amount at maturity of LYONs in
our recently completed tender offer. The effective conversion price of the LYONs
into our common stock is $77.03 per share and the closing price of our common
stock on the New York Stock Exchange on May 15, 2003 was $11.78 per share.
Unless our common stock price increases to a price in excess of $77.03 per
share, we anticipate that a substantial portion, and perhaps all, of the
remaining outstanding LYONs will be submitted for repurchase as early as May 1,
2004. In the event that holders of LYONs require us to repurchase the LYONs on
any of these dates, we may, subject to certain conditions, choose to redeem the
LYONs in cash or in shares of our common stock, or in a combination of both. If
we elect to issue our common stock, the value of the common stock would be
determined by reference to the current market value of our common stock at the
time of each repurchase. Unless our common stock price increases significantly,
we anticipate that we would fund all or substantially all of this repurchase
obligation with cash. Assuming that our cash flow from operations through the
repurchase date meets our reported projections, we anticipate that we would have
sufficient cash resources to repurchase up to the remaining $277.1 million in
accreted value of the LYONs with cash on May 1, 2004. However, if we elect to
fund all or substantially all of this repurchase obligation with cash, we will
substantially reduce our available cash resources or other forms of liquidity.
This could have the effect of restricting our ability to fund new acquisitions
or to meet other future working capital needs, as well as increasing our costs
of borrowing. We may seek to refinance or restructure our obligations under the
LYONs, including the incurrence of additional borrowings, but we may not be
successful in doing so or the refinancing or restructuring may result in terms
less favorable to us and the holders of the notes than the terms of the LYONs.
Our amended and restated credit facility dated as of March 17, 2003, which we
refer to as our "amended credit facility", permits us to repurchase LYONs as
long as, after giving effect to the purchase, we have the ability to borrow up
to $50.0 million under that facility and that we have designated amounts of cash
and cash equivalents. Prior to May 1, 2004, cash and cash equivalent amounts
must be not less than $100.0 million and thereafter not less than $75.0 million.
Under our amended credit facility, cash and cash equivalents for purposes of
this test consist of those sums not otherwise pledged or escrowed under our
amended credit facility and are reduced by amounts borrowed under our amended
credit facility. In addition, regardless of whether we meet these tests, our
amended credit facility permits us to use up to $10.0 million to repurchase
LYONs.
ADVERSE EVENTS COULD NEGATIVELY AFFECT OUR LIQUIDITY POSITION.
Our operations could require us to utilize large sums of working capital,
sometimes on short notice and sometimes without the ability to recover the
expenditures. This has been the experience of certain of our competitors.
Circumstances or events which could create large cash outflows include losses
resulting from fixed price contracts, environmental liabilities, litigation
risks, unexpected costs or losses resulting from acquisitions, contract
initiation or completion delays, political conditions, customer payment
problems, foreign exchange risks, professional and product liability claims and
cash repurchases of our LYONs, among others. We cannot provide assurance that we
will have sufficient liquidity or the credit capacity to meet all of our cash
needs if we encounter significant working capital requirements as a result of
these or other factors.
Insufficient liquidity could have important consequences to us. For
example, we could:
- experience difficulty in financing future acquisitions and/or
continuing operations;
- be required to dedicate a substantial portion of cash flows from
operations to the repayment of debt and the interest associated with
that debt;
- have less operating flexibility due to restrictions which could be
imposed by our creditors, including restrictions on incurring
additional debt, creating liens on our properties and paying
dividends;
- have less success in obtaining new work if our sureties or our
lenders were to limit our ability to provide new performance bonds
or letters of credit for our projects; and
- incur increased lending fees, costs and interest rates.
17
All or any of these matters could place us at a competitive disadvantage
compared with competitors with more liquidity and could have a negative impact
upon our financial condition and results of operations.
WORK STOPPAGES AND OTHER LABOR PROBLEMS COULD ADVERSELY AFFECT US.
Some of our employees in the United States and abroad are represented by
labor unions. We experienced a strike, without material impact on pipe
production, by union members in February 1997 relating to the termination of
collective bargaining agreements covering our pipe facilities in Walker and
Prairieville, Louisiana. A lengthy strike or other work stoppage at any of our
facilities could have a material adverse effect on us. From time to time we have
also experienced attempts to unionize our non-union shops. While these efforts
have achieved limited success to date, we cannot give any assurance that we will
not experience additional union activity in the future.
CHANGES IN TECHNOLOGY COULD ADVERSELY AFFECT US, AND OUR COMPETITORS MAY DEVELOP
OR OTHERWISE ACQUIRE EQUIVALENT OR SUPERIOR TECHNOLOGY.
We believe that we have a leading position in technologies for the design
and construction of ethylene processing plants. We protect our position through
patent registrations, license restrictions and a research and development
program. However, it is possible that others may develop competing processes
that could negatively affect our market position.
Additionally, we have developed construction and power generation and
transmission software which we believe provide competitive advantages. The
advantages currently provided by this software could be at risk if competitors
were to develop superior or comparable technologies.
Our induction pipe bending technology and capabilities favorably influence
our ability to compete successfully. Currently this technology and its
proprietary software are not patented. Even though we have some legal
protections against the dissemination of this know-how, including non-disclosure
and confidentiality agreements, our efforts to prevent others from using our
technology could be time-consuming, expensive and ultimately may be unsuccessful
or only partially successful. Finally, there is nothing to prevent our
competitors from independently attempting to develop or obtain access to
technologies that are similar or superior to our technology.
OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT.
Our success is dependent upon the continued services of our key officers.
The loss any of our key officers could adversely affect us. We do not maintain
key employee insurance on any of our executive officers.
RISKS RELATED TO THE EXCHANGE OFFER AND THE NOTES
IF YOU DO NOT PROPERLY TENDER YOUR OUTSTANDING NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OUTSTANDING NOTES AND YOUR ABILITY TO TRANSFER OUTSTANDING NOTES
WILL BE ADVERSELY AFFECTED.
We will only issue new notes in exchange for outstanding notes that you
timely and properly tender. Therefore, you should allow sufficient time to
ensure timely tender of the outstanding notes and you should carefully follow
the instructions on how to tender your outstanding notes. Neither we nor the
exchange agent is required to tell you of any defects or irregularities with
respect to your tender of outstanding notes.
If you do not exchange your outstanding notes for new notes pursuant to
the exchange offer, the outstanding notes you hold will continue to be subject
to the existing transfer restrictions. In general, you may not offer or sell the
outstanding notes except under an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
plan to register outstanding notes under the Securities Act unless our
registration rights agreement with the initial purchasers of the outstanding
notes requires us to do so. Further, if you continue to hold any outstanding
notes after the exchange offer is consummated, you may have trouble selling them
because there will be fewer such notes outstanding.
18
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
IMPAIR OUR ABILITY TO FULFILL OUR OBLIGATIONS UNDER THE NOTES.
After giving effect to this offering and our repurchase of $384.6 million
aggregate principal amount at maturity of LYONs in the tender offer, as of
February 28, 2003 we would have had total outstanding indebtedness of
approximately $527.7 million, $6.5 million of which was secured indebtedness and
$1.4 million of which represented liabilities of our subsidiaries that will not
guarantee the notes. In addition, as of February 28, 2003, letters of credit
issued for our account in an aggregate amount of $184.4 million were
outstanding. Our substantial indebtedness could have important consequences,
including the following:
- it will require us to dedicate a substantial portion of our cash
flow from operations to payments on our indebtedness, including the
notes, and may require us to dedicate a substantial portion of our
cash flow from operations to repurchase the LYONs, in each case
reducing the availability of cash flow to fund acquisitions, working
capital, capital expenditures and other general corporate purposes;
- it will limit our ability to borrow money or sell stock for working
capital, capital expenditures, debt service requirements and other
purposes;
- it will limit our flexibility in planning for, and reacting to,
changes in our business;
- it may place us at a competitive disadvantage if we are more highly
leveraged than some of our competitors;
- it may make us more vulnerable to a further downturn in the economy
or our business; and
- it may restrict us from making additional acquisitions or exploiting
other business opportunities.
The terms of the indentures relating to the notes and the LYONs do not
prohibit us from incurring significant additional indebtedness, including debt
that is effectively senior to the notes. To the extent that new debt is added to
our currently anticipated debt levels, the substantial leverage risks described
above would increase.
THE NOTES WILL BE UNSECURED OBLIGATIONS AND THE COLLATERAL SECURING ANY OF OUR
SECURED INDEBTEDNESS WILL NOT BE AVAILABLE TO YOU UNTIL THAT INDEBTEDNESS HAS
BEEN REPAID.
The notes and the related subsidiary guarantees will be our unsecured
obligations. The payment of principal and interest on the notes and the related
subsidiary guarantees will be effectively subordinated in right of payment to
all of our secured debt and the secured debt of the subsidiary guarantors. The
amount of secured debt includes our amended credit facility under which we are
able to borrow not less than $250.0 million, as well as any other secured debt
we may be able to incur in the future. Our amended credit facility is secured by
substantially all of our assets other than real estate, plants, parts and
equipment. In addition, the notes will be effectively junior to the liabilities
of our non-guarantor subsidiaries.
If we become insolvent or are liquidated, or if payment under our amended
credit facility or in respect of any other secured debt is accelerated, the
lenders under our amended credit facility or holders of other secured debt 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 the
agreements pertaining to our amended credit facility or other secured debt).
Upon the occurrence of any default under our amended credit facility (and even
without accelerating the debt thereunder), the lenders may be able to prohibit
the payment of the notes and subsidiary guaranties by limiting our ability to
access our cash flow. Moreover, the assets that secure our amended credit
facility or any other secured debt will not be available to you in the event of
a bankruptcy, liquidation or similar circumstance of the related obligor until
we have fully repaid all amounts due under our secured debt.
DESPITE OUR SIGNIFICANT DEBT LEVELS, WE AND OUR SUBSIDIARIES MAY BE ABLE TO
INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED
ABOVE IN THE PREVIOUS TWO RISK FACTORS.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the agreement governing our amended credit
facility and the indenture governing the notes contain restrictions on the
incurrence of additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions, and
19
the indebtedness incurred in compliance with these restrictions could be
substantial. Also, these restrictions do not prevent us from incurring
obligations that do not constitute indebtedness as defined in the relevant
agreement. To the extent new indebtedness is added to our and our subsidiaries'
currently anticipated debt levels, the substantial leverage risks described
above would increase.
TO SERVICE OUR INDEBTEDNESS, INCLUDING THE NOTES, WE REQUIRE A SIGNIFICANT
AMOUNT OF CASH.
We require a significant amount of cash to service our indebtedness,
including the notes. In addition, we may be required to repurchase a substantial
portion of our outstanding LYONs as early as May 1, 2004. Our ability to make
payments on our indebtedness, including our repurchase obligations, depends on
our ability to generate cash in the future. If we do not generate sufficient
cash flow to meet our debt service and working capital requirements, we may need
to seek additional financing or sell assets. This may make it more difficult for
us to obtain financing on terms that are acceptable to us or at all. Without
such financing, we could be forced to sell assets to make up for any shortfall
in our payment obligations under unfavorable circumstances.
Our amended credit facility and our obligations under the notes limit our
ability to sell assets and also restrict the use of proceeds from any such sale.
Furthermore, the amended credit facility is secured by substantially all of our
assets other than real estate, plants, parts and equipment. A substantial
portion of our assets are, and may continue to be, intangible assets. Therefore,
we may not be able to sell our assets quickly enough or for sufficient amounts
to enable us to meet our debt obligations.
If we default under our various debt obligations, the lenders could require
immediate repayment of the entire principal amount of our indebtedness. If the
lenders require immediate repayment on the entire principal amount, we may not
be able to repay these amounts in full, and our inability to meet our debt
obligations would have a material adverse effect on our business, financial
condition and results of operations.
NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE THE NOTES.
We conduct a significant portion of our business through our subsidiaries.
Our foreign subsidiaries are not guaranteeing the notes. Claims of creditors of
such non-guarantor subsidiaries, including trade creditors and creditors holding
indebtedness, and claims of preferred stockholders (if any) of such subsidiaries
will generally have priority with respect to the assets and earnings of such
subsidiaries over the claims of creditors of our company, including holders of
the notes, even if the obligations of the subsidiaries do not constitute senior
indebtedness. Revenues related to the non-guarantor subsidiaries constituted 11%
of our revenues during the six month period ended February 28, 2003 and the
non-guarantor subsidiaries had approximately 15% of our consolidated assets as
of February 28, 2003 and $1.4 million of indebtedness (other than intercompany
debt) as of February 28, 2003.
WE DEPEND ON OUR SUBSIDIARIES TO SERVICE OUR DEBT.
Because we conduct our operations through our operating subsidiaries, we
depend on those entities for dividends and other payments to generate the funds
necessary to meet our financial obligations, including the payment of principal
and interest on the notes. Under certain circumstances, legal and contractual
restrictions, as well as the financial condition and operating requirements of
our subsidiaries, may limit our ability to obtain cash from our subsidiaries.
The earnings from, or other available assets of, these operating subsidiaries
may not be sufficient to make distributions to enable us to pay interest on our
debt obligations, including the notes, when due or the principal of such debt at
maturity. Our non-guarantor subsidiaries are not obligated to make funds
available to us for payment of the notes.
RESTRICTIVE COVENANTS IN OUR AMENDED CREDIT FACILITY AND THE INDENTURE RELATING
TO THE NOTES MAY RESTRICT OUR ABILITY TO PURSUE OUR BUSINESS STRATEGIES.
Our amended credit facility and the indenture relating to the notes contain
certain restrictions on our ability to, among other things:
- incur additional indebtedness or contingent obligations or issue
preferred stock;
- pay dividends or make distributions to our stockholders;
20
- repurchase or redeem our capital stock or subordinated indebtedness;
- make investments;
- create liens;
- enter into sale/leaseback transactions;
- incur restrictions on the ability of our subsidiaries to pay
dividends or to make other payments to us;
- make capital expenditures;
- enter into transactions with our stockholders and affiliates;
- sell assets; and
- acquire the assets of, or merge or consolidate with, other companies
or transfer all or substantially all of our assets.
Our amended credit facility requires us to achieve certain financial ratios,
including a leverage ratio (which will become more restrictive over time) and a
minimum fixed charge coverage ratio. We may not be able to satisfy these ratios,
especially if our operating results fall below management's expectations. These
covenants may impair our ability to engage in favorable business activities and
our ability to finance future operations or capital needs, including those
associated with honoring our repurchase obligations with respect to the LYONs.
A breach of any of these covenants or our inability to comply with the
required financial ratios could result in a default under our amended credit
facility. In the event of any default under our amended credit facility, the
lenders thereunder will not be required to lend any additional amounts to us and
could elect to declare all outstanding borrowings, together with accrued
interest and other fees, to be due and payable, or require us to apply all of
our available cash to repay these borrowings. The acceleration of outstanding
loans under our amended credit facility in excess of $20.0 million would
constitute an event of default with respect to the notes. If we are unable to
repay borrowings with respect to our amended credit facility when due, the
lenders thereunder could proceed against their collateral, which consists of
substantially all of our assets other than real estate, plants, parts and
equipment. If the indebtedness under our amended credit facility or the notes
were to be accelerated, there can be no assurance that our assets would be
sufficient to repay such indebtedness in full.
A COURT COULD CANCEL THE SUBSIDIARY GUARANTEES.
All of our material domestic restricted subsidiaries will guarantee our
obligations under the notes. If any subsidiary guarantor becomes a debtor in a
case under the United States Bankruptcy Code or encounters other financial
difficulty, under federal or state fraudulent transfer law its obligations under
the guarantee of the notes could be voided, or claims in respect of its
guarantee could be subordinated to all other obligations of the subsidiary. A
court might cancel a guarantee if it found that when the subsidiary entered into
its guarantee or, in some states, when payments became due under the guarantee,
the subsidiary received less than reasonably equivalent value or fair
consideration and either:
- was or was rendered insolvent;
- was left with inadequate capital to conduct its business; or
- believed or reasonably should have believed that it would incur
debts beyond its ability to pay.
The court might also void or subordinate a guarantee, without regard to the
above factors, if the court found that the subsidiary entered into its guarantee
with actual intent to hinder, delay or defraud its creditors,
A court would likely find that a guarantor did not receive reasonably
equivalent value or fair consideration for its guarantee if the guarantor did
not substantially benefit directly or indirectly from the issuance of the notes.
If a court voided a guarantee, you would no longer have a claim against the
guarantor. Sufficient funds to repay the
21
notes may not be available from other sources, including the remaining
guarantors, if any. In addition, the court might direct you to repay any amounts
that you already received from the subsidiary guarantor.
The test for determining solvency in these circumstances will depend on the
law of the jurisdiction that is being applied. In general, a court would
consider the subsidiary insolvent either if the sum of its existing debts
exceeds the fair value of all its property, or if its assets' present fair value
is less than the amount required to pay the probable liability on its existing
debts as they become due. For this analysis, "debts" includes contingent and
unliquidated debts.
Each subsidiary guarantee will contain a provision intended to limit the
guarantor's liability to the maximum amount that it could incur without causing
the incurrence of obligations under its subsidiary guarantee to be a fraudulent
transfer. This provision may not be effective to protect the subsidiary
guarantees from attack under fraudulent transfer law.
THE SEC MAY DELAY OUR REGISTRATION OF THE NOTES.
We have agreed to file a registration statement with the SEC either
relating to an offer to exchange the notes for registered notes or registering
the notes for resale, and to use reasonable efforts to cause the registration
statement to become effective. The SEC has broad discretion to declare a
registration statement effective or deny the effectiveness of a registration
statement for a variety of reasons. Accordingly, we may not be able to register
the notes in a timely manner, if at all.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES.
The notes are a new issue of securities and there is no established trading
market for the notes. Although the notes have been designated for trading in the
PORTAL market, we do not intend to apply to list the notes for trading on any
securities exchange or to arrange for quotation on any automated dealer
quotation system. As a result of this and the other factors listed below, an
active trading market for the notes may not develop, in which case, the market
price and liquidity of the notes may be adversely affected.
In addition, you may not be able to sell your notes at a particular time or
at a price favorable to you. Future trading prices of the notes will depend on
many factors, including:
- our operating performance and financial condition;
- our ability to complete the offer to exchange the notes for
registered notes or to register the notes for resale;
- the interest of securities dealers in making a market;
- the market for similar securities; and
- prevailing interest rates.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the notes will be subject to disruptions. A disruption may have a
negative effect on you as a holder of the notes, regardless of our prospects or
performance.
Although the initial purchasers have advised us that they intend to make a
market in the notes, they are not obligated to do so. The initial purchasers may
also discontinue any market making activities at any time, in their sole
discretion, which could further negatively impact your ability to sell the notes
or the prevailing market price at the time you choose to sell.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Under a change of control (as defined in the respective indentures
governing the notes and the LYONs or in our amended credit facility), we may be
required to purchase, in cash, some or all of the then outstanding notes or
LYONs and/or repay all of our then outstanding indebtedness under our amended
credit facility. Upon such a change of control, we may not have sufficient funds
available to repurchase all of the notes or our LYONs or repay
22
any accelerated obligations under our amended credit facility. In addition, we
would be required to obtain the consent of our lenders under our amended credit
facility if we are required to repurchase the notes or the LYONs in cash. We may
not be able to obtain the consent of our lenders or sufficient financing on
satisfactory terms, if at all, to fulfill these repurchase and repayment
obligations.
YOUR ABILITY TO RECOVER FROM OUR FORMER AUDITORS, ARTHUR ANDERSEN LLP, FOR ANY
POTENTIAL FINANCIAL MISSTATEMENTS IS LIMITED.
On June 26, 2002, at the recommendation of our audit committee, we
dismissed Arthur Andersen LLP as our independent public accountants and engaged
Ernst & Young LLP to serve as our independent public accountants for fiscal
2002. Our audited consolidated financial statements as of August 31, 2001 and
2000 and for each of the years in the two-year period ended August 31, 2001,
which are incorporated by reference (and included) in this prospectus, have been
audited by Arthur Andersen, our former independent public accountants, as set
forth in their reports, but Arthur Andersen has not consented to our use of
these reports in connection with the sale of the notes offered for exchange
hereby.
Arthur Andersen completed its audit of our consolidated financial
statements for the year ended August 31, 2001 and issued its report relating to
these consolidated financial statements on October 5, 2001. Subsequently, Arthur
Andersen was convicted of obstruction of justice for activities relating to its
previous work for another of its audit clients and has ceased to audit publicly
held companies. We are unable to predict the impact of this conviction or
whether other adverse actions may be taken by governmental or private parties
against Arthur Andersen. If Arthur Andersen has no assets available for
creditors, you may not be able to recover against Arthur Andersen for any claims
you may have under securities or other laws as a result of Arthur Andersen's
previous role as our independent public accountants and as author of the audit
report for some of the audited financial statements incorporated by reference
(and included) in this prospectus.
23
EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the outstanding notes, we entered into a
registration rights agreement. Under the registration rights agreement, we
agreed to:
- within 60 days after the original issuance of the outstanding notes
on March 17, 2003, file a registration statement with the SEC with
respect to a registered offer to exchange each outstanding note for
a new note having terms substantially identical in all material
respects to such note except that the new note will not contain
terms with respect to transfer restrictions;
- use our commercially reasonable to cause the registration statement
to be declared effective under the Securities Act within 180 days
after the original issuance of the outstanding notes;
- promptly following the effectiveness of the registration statement,
offer the new notes in exchange for surrender of the outstanding
notes; and
- keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the exchange
offer is mailed to the holders of the outstanding notes.
We have fulfilled the agreements described in the first two of the
preceding bullet points and are now offering eligible holders of the outstanding
notes the opportunity to exchange their outstanding notes for new notes
registered under the Securities Act. Holders are eligible if they are not
prohibited by any law or policy of the SEC from participating in this exchange
offer. The new notes will be substantially identical to the outstanding notes
except that the new notes will not contain terms with respect to transfer
restrictions, registration rights or additional interest.
Under limited circumstances, we agreed to use commercially reasonable
efforts to cause the SEC to declare effective a shelf registration statement for
the resale of the outstanding notes. We also agreed to use commercially
reasonable efforts to keep the shelf registration statement effective for up to
two years after its effective date. The circumstances include if:
- applicable interpretations of the staff of the SEC do not permit us
to effect the exchange offer; or
- for any other reason we do not consummate the exchange offer within
220 days of the original issuance of the outstanding notes; or
- any initial purchaser notifies us within 10 business days following
consummation of the exchange offer that notes held by it are not
eligible to be exchanged for new notes in the exchange offer; or
- certain holders notify us in writing that they are prohibited by law
or SEC policy from participating in the exchange offer or may not
resell the notes acquired by them in the new exchange offer to the
public without delivering a prospectus.
We will pay additional cash interest on the applicable outstanding notes,
subject to certain exceptions,
(1) if we fail to file this registration statement with the SEC on
or prior to the 60th day after the original issuance of the outstanding
notes,
(2) if this registration statement is not declared effective by the
SEC on or prior to the 180th day after the original issuance of the
outstanding notes or, if obligated to file a shelf registration statement
due to the circumstances described in the first bullet point of the
preceding paragraph, a shelf registration statement is not declared
effective by the SEC on or prior to the 180th day after the original
issuance of the outstanding notes,
(3) if the exchange offer is not consummated on or before the 40th
day after this registration statement is declared effective,
24
(4) if obligated to file the shelf registration statement due to the
circumstances described in the second, third or fourth bullet points of
the preceding paragraph, we fail to file the shelf registration statement
with the SEC on or prior to the 30th day after the date on which the
obligation to file a shelf registration statement arises,
(5) if obligated to file a shelf registration statement due to the
circumstances described in the second, third or fourth bullet points of
the preceding paragraph, the shelf registration statement is not declared
effective on or prior to the 60th day after the date of filing of the
registration statement, or
(6) after this registration statement or the shelf registration
statement, as the case may be, is declared effective, such registration
statement thereafter ceases to be effective or usable (subject to certain
exceptions);
from and including the date on which any such registration default shall occur
to but excluding the date on which all registration defaults have been cured.
The rate of the additional interest will be 0.25% per annum for the first
90-day period immediately following the occurrence of a registration default,
and such rate will increase by an additional 0.25% per annum with respect to
each subsequent 90-day period until all registration defaults have been cured,
up to a maximum additional interest rate of 1.5% per annum. We will pay such
additional interest on regular interest payment dates. This additional interest
will be in addition to any other interest payable from time to time with respect
to the outstanding notes and the new notes.
Upon the effectiveness of this registration statement, the consummation of
the exchange offer, the effectiveness of a shelf registration statement, or the
effectiveness of a succeeding registration statement, as the case may be, the
interest rate borne by the notes from the date of such effectiveness or
consummation, as the case may be, will be reduced to the original interest rate.
However, if after any such reduction in interest rate, a different registration
default occurs, the interest rate may again be increased pursuant to the
preceding paragraph.
To exchange your outstanding notes for new notes in the exchange offer, you
will be required to make the following representations:
- any new notes will be acquired in the ordinary course of your
business;
- you have no arrangement or understanding with any person or entity
to participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the
distribution of the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes
as a result of market-making activities or other trading activities
and you will deliver a prospectus, as required by law, in connection
with any resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the
Securities Act.
In addition, we may require you to provide information to be used in
connection with the shelf registration statement to have your outstanding notes
included in the shelf registration statement and benefit from the provisions
regarding additional interest described in the preceding paragraphs. A holder
who sells outstanding notes under the shelf registration statement generally
will be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers. Such a holder will also be
subject to the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a holder, including indemnification
obligations.
The description of the registration rights agreement contained in this
section is a summary only. For more information, you should review the
provisions of the registration rights agreement that we filed with the SEC as an
exhibit to the registration statement of which this prospectus is a part.
25
RESALE OF NEW NOTES
Based on no action letters of the SEC staff issued to third parties, we
believe that new notes may be offered for resale, resold and otherwise
transferred by you without further compliance with the registration and
prospectus delivery provisions of the Securities Act if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- such new notes are acquired in the ordinary course of your business;
and
- you do not intend to participate in a distribution of the new notes.
The SEC, however, has not considered the exchange offer for the new notes
in the context of a no action letter, and the SEC may not make a similar
determination as in the no action letters issued to these third parties.
If you tender in the exchange offer with the intention of participating in
any manner in a distribution of the new notes, you
- cannot rely on such interpretations by the SEC staff; and
- must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary
resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act. This registration statement
should contain the selling security holder's information required by Item 507 of
Regulation S-K under the Securities Act. This prospectus may be used for an
offer to resell, resale or other retransfer of new notes only as specifically
described in this prospectus. Only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives new notes
for its own account in exchange for outstanding notes, where such outstanding
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge by way of the letter of
transmittal that it will deliver a prospectus in connection with any resale of
the new notes. Please read the section captioned "Plan of Distribution" for more
details regarding the transfer of new notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this prospectus and in the
letter of transmittal, we will accept for exchange any outstanding notes
properly tendered and not withdrawn prior to 5:00 p.m. New York City time on the
expiration date. We will issue new notes in principal amount equal to the
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only for new notes and only in integral
multiples of $1,000.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $253,029,000 in aggregate principal
amount of the outstanding notes are outstanding. This prospectus is being sent
to DTC, the sole registered holder of the outstanding notes, and to all persons
that we can identify as beneficial owners of the outstanding notes. There will
be no fixed record date for determining registered holders of outstanding notes
entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the SEC. Outstanding notes whose holders do not tender for
exchange in the exchange offer will remain outstanding and continue to accrue
interest. These outstanding notes will be entitled to the rights and benefits
such holders have under the indenture relating to the notes and the registration
rights agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent and complied with the applicable provisions of the
26
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes from us.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the letter of
transmittal, transfer taxes with respect to the exchange of outstanding notes.
We will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the exchange offer. It is important that you
read the section labeled " -- Fees and Expenses" for more details regarding fees
and expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m. New York City time on _________
2003, unless, in our sole discretion, we extend it.
EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open. We may delay acceptance
of any outstanding notes by giving oral or written notice of such extension to
their holders. During any such extensions, all outstanding notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
If any of the conditions described below under " -- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion, up to the expiration of the exchange offer:
- to delay accepting for exchange any outstanding notes,
- to extend the exchange offer, or
- to terminate the exchange offer,
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment by means of a prospectus supplement. The supplement will
be distributed to the registered holders of the outstanding notes. Depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, we will extend the exchange offer if the exchange offer
would otherwise expire during such period.
CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any new notes
for, any outstanding notes if the exchange offer, or the making of any exchange
by a holder of outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC. Similarly, we may terminate the exchange
offer as provided in this prospectus before accepting outstanding notes for
exchange in the event of such a potential violation.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us the representations
described under " -- Purpose and Effect of the Exchange Offer," " -- Procedures
for Tendering" and "Plan of Distribution" and such other representations as may
be reasonably necessary under
27
applicable SEC rules, regulations or interpretations to allow us to use an
appropriate form to register the new notes under the Securities Act.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion
up to the expiration of the exchange offer. If we fail at any time to exercise
any of these rights, this failure will not mean that we have waived our rights.
Each such right will be deemed an ongoing right that we may assert at any time
or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue new notes in exchange for any such outstanding
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture relating to the notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
In order to participate in the exchange offer, you must properly tender
your outstanding notes to the exchange agent as described below. It is your
responsibility to properly tender your notes. We have the right to waive any
defects. However, we are not required to waive defects and are not required to
notify you of defects in your exchange.
If you have any questions or need help in exchanging your notes, please
call the exchange agent whose address and phone number are described in the
section of the prospectus entitled "Where You Can Find More Information."
All of the outstanding notes were issued in book-entry form, and all of the
outstanding notes are currently represented by global certificates held for the
account of DTC. We have confirmed with DTC that the outstanding notes may be
tendered using the Automated Tender Offer Program ("ATOP") instituted by DTC.
The exchange agent will establish an account with DTC for purposes of the
exchange offer promptly after the commencement of the exchange offer and DTC
participants may electronically transmit their acceptance of the exchange offer
by causing DTC to transfer their outstanding notes to the exchange agent using
the ATOP procedures. In connection with the transfer, DTC will send an "agent's
message" to the exchange agent. The agent's message will state that DTC has
received instructions from the participant to tender outstanding notes and that
the participant agrees to be bound by the terms of the letter of transmittal.
By using the ATOP procedures to exchange outstanding notes, you will not be
required to deliver a letter of transmittal to the exchange agent. However, you
will be bound by its terms just as if you had signed it.
There is no procedure for guaranteed late delivery of the notes.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defect, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, all defects or irregularities in
connection with tenders of outstanding notes must be cured within such time as
we shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of outstanding notes will not be deemed made until
such defects or irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that
28
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned to the tendering holder as soon as
practicable following the expiration date.
When We Will Issue New Notes
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange under the exchange offer only after the exchange agent
receives, prior to 5:00 p.m., New York City time, on the expiration date,
- a book-entry confirmation of such outstanding notes into the
exchange agent's account at DTC; and
- a properly transmitted agent's message.
Return of Outstanding Notes Not Accepted or Exchanged
If we do not accept any tendered outstanding notes for exchange or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged outstanding notes will be
returned without expense to their tendering holder. Such non-exchanged
outstanding notes will be credited to an account maintained with DTC. These
actions will occur as promptly as practicable after the expiration or
termination of the exchange offer.
Your Representations to Us
By agreeing to be bound by the letter of transmittal, you will represent to
us that, among other things:
- any new notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity
to participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the
distribution of the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes
as a result of market-making activities or other trading activities
and you will deliver a prospectus, as required by law, in connection
with any resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the
Securities Act.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m. New York City time on the expiration date.
For a withdrawal to be effective you must comply with the appropriate procedures
of DTC's ATOP system. Any notice of withdrawal must specify the name and number
of the account at DTC to be credited with withdrawn outstanding notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any outstanding notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but are not
exchanged for any reason will be credited to an account maintained with DTC for
the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn outstanding notes by following the
procedures described under " -- Procedures for Tendering" above at any time on
or prior to the expiration date.
29
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if a transfer tax is imposed for any reason other than the
exchange of outstanding notes under the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange new notes for your outstanding notes under the
exchange offer, you will remain subject to the existing restrictions on transfer
of the outstanding notes. In general, you may not offer or sell the outstanding
notes unless they are registered under the Securities Act, or if the offer or
sale is exempt from the registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act.
ACCOUNTING TREATMENT
We will record the new notes in our accounting records at the same carrying
value as the outstanding notes. This carrying value is the aggregate principal
amount of the outstanding notes less any bond discount, as reflected in our
accounting records on the date of exchange. Accordingly, we will not recognize
any gain or loss for accounting purposes in connection with the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
RATIOS OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income before taxes plus
fixed charges. Fixed charges consist of interest expense, the
30
amortization of debt discount, preferred stock dividends, accretion requirements
and such portion of rental expense that is attributable to interest.
PRO FORMA(1)
SIX MONTHS SIX MONTHS -------------------------
ENDED ENDED ADJUSTED YEAR ADJUSTED SIX
FEBRUARY FEBRUARY ENDED MONTHS ENDED
YEAR ENDED AUGUST 31, 28, 28, AUGUST 31, FEBRUARY 28,
--------------------------------------- ---------- ---------- ---------- ----------
1998 1999 2000 2001 2002 2002 2003 2002 2003
---- ---- ---- ---- ---- ---- ---- ---- ----
Ratio of
earnings to
fixed charges... 3.5x 3.4x 4.8x 5.0x 4.5x 4.2 2.3 3.0 1.3
- ------------------
(1) Pro forma ratio of earnings to fixed charges gives effect to the net
increase in interest expense resulting from the issuance of the outstanding
notes and the use of the net proceeds of the offering of the outstanding notes
to purchase $384.6 million principal amount at maturity of LYONs at $645.00 per
$1,000 principal amount at maturity.
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USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under our
registration rights agreement. We will not receive any cash proceeds from the
issuance of the new notes in the exchange offer. In consideration for issuing
the new notes as contemplated by this prospectus, we will receive outstanding
notes in a like principal amount. The form and terms of the new notes are
identical in all respects to the form and terms of the outstanding notes, except
the new notes do not include certain transfer restrictions, registration rights
or provisions for additional interest and contain different administrative
terms. Outstanding notes surrendered in exchange for the new notes will be
retired and cancelled and will not be reissued. Accordingly, the issuance of the
new notes will not result in any change in our outstanding indebtedness.
32
DESCRIPTION OF THE NEW NOTES
The Shaw Group Inc. will issue the new notes, and the outstanding notes
were issued, under an Indenture dated as of March 17, 2003 (the "Indenture")
among the Company, the Subsidiary Guarantors and The Bank of New York, as
Trustee. The terms of the new notes 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").
Certain terms used in this description are defined under the subheading "
- -- Certain Definitions". In this description, the word "Company" refers only to
The Shaw Group Inc. and not to any of its subsidiaries. References to the
"Notes" in this section of the prospectus include both the outstanding notes and
the new notes.
The following description is only a summary of the material provisions of
the Indenture. It does not restate that agreement in its entirety. We urge you
to read the Indenture because it, not this description, defines your rights as
holders of these Notes. We have filed the Indenture as an exhibit to the
registration statement which includes this prospectus.
If the exchange offer contemplated by this prospectus (the "Exchange
Offer") is consummated, Holders of outstanding notes who do not exchange those
notes for new notes in the Exchange Offer will vote together with Holders of new
notes for all relevant purposes under the Indenture. In that regard, the
Indenture requires that certain actions by the Holders thereunder (including
acceleration following an Event of Default) must be taken, and certain rights
must be exercised, by specified minimum percentages of the aggregate principal
amount of the outstanding securities issued under the Indenture. In determining
whether Holders of the requisite percentage in principal amount have given any
notice, consent or waiver or taken any other action permitted under the
Indenture, any outstanding notes that remain outstanding after the Exchange
Offer will be aggregated with the new notes, and the Holders of such outstanding
notes and the new notes will vote together as a single series for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the notes outstanding shall be deemed to mean, at
any time after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the outstanding notes and the new notes then outstanding.
BRIEF DESCRIPTION OF THE NOTES
These Notes:
- are unsecured senior obligations of the Company;
- are senior in right of payment to any future Subordinated
Obligations of the Company;
- are guaranteed by each Subsidiary Guarantor; and
- are subject to registration with the SEC pursuant to the
Registration Rights Agreement.
PRINCIPAL, MATURITY AND INTEREST
The Company will issue the Notes initially with a maximum aggregate
principal amount of $253,029,000. The Company will issue the Notes in
denominations of $1,000 and any integral multiple of $1,000. The Notes will
mature on March 15, 2010. Subject to our compliance with the covenant described
under the subheading " -- Certain Covenants -- Limitation on Indebtedness", we
may without the consent of the holders, issue more Notes under the Indenture on
the same terms and conditions and with the same CUSIP numbers as the Notes being
offered hereby (the "Additional Notes"), but only if such Additional Notes will
be fungible with the Notes being offered hereby for United States Federal income
tax purposes. The Notes and the Additional Notes, if any, will be treated as a
single class for all purposes of the Indenture, including waivers, amendments,
redemptions and offers to purchase. Unless the context otherwise requires, for
all purposes of the Indenture and this "Description of the Notes", references to
the Notes include any Additional Notes actually issued.
Interest on these Notes will accrue at the rate of 10 3/4% per annum and
will be payable semiannually in arrears
33
on March 15 and September 15, commencing on September 15, 2003. We will make
each interest payment to the holders of record of these Notes on the immediately
preceding March 1 and September 1. We will pay interest on overdue principal at
1% per annum in excess of the above rate and will pay interest on overdue
installments of interest at such higher rate to the extent lawful.
Interest on these Notes will accrue from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the Notes.
On and after March 15, 2007, we will be entitled at our option to redeem all
or a portion of these Notes upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed in percentages of principal amount on the
redemption date), plus accrued and unpaid interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on March 15 of the years set forth below:
REDEMPTION
PERIOD PRICE
------ ----------
2007.................. 105.375%
2008.................. 102.688
2009 and thereafter... 100.000
Prior to March 15, 2006, we may at our option on one or more occasions
redeem Notes (which includes Additional Notes, if any) in an aggregate principal
amount of not to exceed 35% of the aggregate principal amount of the Notes
(which includes Additional Notes, if any) originally issued at a redemption
price (expressed as a percentage of principal amount) of 110.75%, plus accrued
and unpaid interest to the redemption date, with the net cash proceeds from one
or more Equity Offerings; provided, however, that
(1) at least 65% of such aggregate principal amount of Notes (which
includes Additional Notes, if any) remains outstanding immediately after
the occurrence of each such redemption (other than Notes held, directly or
indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 90 days after the date of the
related Equity Offering.
Prior to March 15, 2007, we may at our option redeem all, but not less than
all, of the Notes at a redemption price equal to 100% of the principal amount of
the Notes plus the Applicable Premium as of, and accrued and unpaid interest to,
the redemption date (subject to the right of Holders on the relevant record date
to receive interest due on the relevant interest payment date). Notice of such
redemption must be mailed by first-class mail to each Holder's registered
address, not less than 30 nor more than 60 days prior to the redemption date.
"Applicable Premium" means, with respect to a Note at any redemption date,
the greater of (i) 1.00% of the principal amount of such Note and (ii) the
excess of (A) the present value at such redemption date of (1) the redemption
price of such Note on March 15, 2007 (such redemption price being described in
the second paragraph of this " -- Optional Redemption" section exclusive of any
accrued interest) plus (2) all required remaining scheduled interest payments
due on such Note through March 15, 2007 (but excluding accrued and unpaid
interest to the redemption date), computed using a discount rate equal to the
Adjusted Treasury Rate, over (B) the principal amount of such Note on such
redemption date.
"Adjusted Treasury Rate" means, with respect to any redemption date, (i) the
yield, under the heading which represents the average for the immediately
preceding week, appearing in the most recently published statistical
34
release designated "H.15(519)" or any successor publication which is published
weekly by the Board of Governors of the Federal Reserve System and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities", for the
maturity corresponding to the Comparable Treasury Issue (if no maturity is
within three months before or after March 15, 2007, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue shall be
determined and the Adjusted Treasury Rate shall be interpolated or extrapolated
from such yields on a straight line basis, rounding to the nearest month) or
(ii) if such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per
year equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date, in each case calculated on
the third Business Day immediately preceding the redemption date, plus 0.50%.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term of the Notes from the redemption date to March 15, 2007, that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of a maturity most
nearly equal to March 15, 2007.
"Comparable Treasury Price" means, with respect to any redemption date, if
clause (ii) of the Adjusted Treasury Rate is applicable, the average of three,
or such lesser number as is obtained by the Trustee, Reference Treasury Dealer
Quotations for such redemption date.
"Quotation Agent" means the Reference Treasury Dealer selected by the
Trustee after consultation with the Company.
"Reference Treasury Dealer" means Credit Suisse First Boston LLC and its
successors and assigns, and two other nationally recognized investment banking
firms selected by the Company that are primary U.S. Government securities
dealers.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue,
expressed in each case as a percentage of its principal amount, quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day immediately preceding such redemption date.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a pro rata basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate.
We will redeem Notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to 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.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in a principal amount equal to the
unredeemed portion of the original Note in the name of the holder upon
cancelation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, under certain circumstances, we may
be required to offer to purchase Notes as described under the captions " --
Change of Control" and " -- Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock". We may at any time and from time to time purchase Notes
in the open market or otherwise.
35
GUARANTIES
The Subsidiary Guarantors will initially consist of all of the Company's
material domestic Wholly Owned Subsidiaries as of the Issue Date. Following the
Issue Date, the Company may be required to cause other Subsidiaries to issue
Subsidiary Guaranties. See " -- Certain Covenants -- Future Guarantors".
The Subsidiary Guarantors will jointly and severally guarantee, on a senior
unsecured basis, our obligations under these Notes. The Subsidiary Guarantors
will also guarantee all obligations under the Credit Facility, and each
Subsidiary Guarantor will grant a security interest in its accounts receivable,
inventory and other personal property to secure the obligations under the Credit
Facility. The obligations of each Subsidiary Guarantor under its Subsidiary
Guaranty will be limited as necessary to prevent that Subsidiary Guaranty from
constituting a fraudulent conveyance under applicable law. See "Risk Factors --
Risks Relating to the Notes -- A court could cancel the subsidiary guarantees".
Each Subsidiary Guarantor that makes a payment under its Subsidiary Guaranty
will be entitled upon payment in full of all guarantied obligations under the
Indenture to a contribution from each other Subsidiary Guarantor in an amount
equal to such other Subsidiary Guarantor's pro rata portion of such payment
based on the respective net assets of all the Subsidiary Guarantors at the time
of such payment determined in accordance with GAAP.
If a Subsidiary Guaranty were rendered voidable, it could be subordinated by
a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guaranty could be reduced to zero. See "Risk Factors -- Risks
Relating to the Notes -- A court could cancel the subsidiary guarantees".
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any other
Person to the extent described below under " -- Certain Covenants -- Merger and
Consolidation"; provided, however, that if such other Person is not the Company,
such Subsidiary Guarantor's obligations under its Subsidiary Guaranty must be
expressly assumed by such other Person, except that such assumption will not be
required in the case of either:
(1) the sale or other disposition (including by way of consolidation
or merger) of a Subsidiary Guarantor; or
(2) the sale or disposition of all or substantially all the assets
of a Subsidiary Guarantor;
in each case other than to the Company or an Affiliate of the Company and as
permitted by the Indenture and if in connection therewith the Company provides
an Officers' Certificate to the Trustee to the effect that the Company will
comply with its obligations under the covenant described under " -- Limitation
on Sales of Assets and Subsidiary Stock" in respect of such disposition.
The Subsidiary Guaranty of a Subsidiary Guarantor also will be released:
(1) upon the designation of such Subsidiary Guarantor as an
Unrestricted Subsidiary;
(2) at such time as such Subsidiary Guarantor does not have any
Indebtedness outstanding that would have required such Subsidiary
Guarantor to enter into a Guaranty Agreement pursuant to the covenant
described under " -- Certain Covenants -- Future Guarantors"; or
(3) if we exercise our legal defeasance option or our covenant
defeasance option as described under " -- Defeasance."
RANKING
Senior Indebtedness Versus Notes
36
The indebtedness evidenced by these Notes and the Subsidiary Guaranties will
be unsecured and will rank pari passu in right of payment to the other Senior
Indebtedness of the Company and the Subsidiary Guarantors, as the case may be.
The Notes will be guaranteed by the Subsidiary Guarantors.
As of February 28, 2003, after giving pro forma effect to the Transactions:
(1) the Company's Senior Indebtedness, including outstanding letters
of credit issued by the lenders under the Company's credit facility in an
aggregate amount of $180.8 million, would have been approximately $704.1
million, including $3.1 million of secured indebtedness and $131.7 million
attributable to the Company's guarantees with respect to letters of credit
issued on behalf of the Subsidiary Guarantors; and
(2) the Senior Indebtedness, including outstanding letters of credit
issued by the lenders under the Company's credit facility in an aggregate
amount of $180.8 million, of the Subsidiary Guarantors would have been
approximately $433.6 million, including $2.0 million of secured
indebtedness, $49.1 million attributable to the Subsidiary Guarantors'
guarantees with respect to letters of credit issued to the Company and
$250.0 million attributable to the Subsidiary Guarantors' guarantees with
respect to the Notes.
The Notes are unsecured obligations of the Company. Secured debt and other
secured obligations of the Company (including obligations with respect to the
Credit Agreement) will be effectively senior to the Notes to the extent of the
value of the assets securing such debt or other obligations.
Liabilities of Subsidiaries Versus Notes
All of our operations are conducted through our subsidiaries. Some of our
subsidiaries are not Guaranteeing the Notes. For the six months ended February
28, 2003, our Subsidiaries that are not Subsidiary Guarantors accounted for
approximately $191.3 million of our revenue and, at the end of such period,
approximately $299.3 million of our assets. Claims of creditors of such
non-guarantor subsidiaries, including trade creditors and creditors holding
indebtedness or Guarantees issued by such non-guarantor subsidiaries, and claims
of preferred stockholders of such non-guarantor subsidiaries generally will have
priority with respect to the assets and earnings of such non-guarantor
subsidiaries over the claims of our creditors, including holders of the Notes.
Accordingly, the Notes will be effectively subordinated to creditors (including
trade creditors) and preferred stockholders, if any, of our non-guarantor
subsidiaries.
At February 28, 2003, the total liabilities of our subsidiaries (other than
the Subsidiary Guarantors) were approximately $199.0 million, including trade
payables. Although the Indenture limits the incurrence of Indebtedness and
preferred stock of certain of our subsidiaries, such limitation is subject to a
number of significant qualifications. Moreover, the Indenture does not impose
any limitation on the incurrence by such subsidiaries of liabilities that are
not considered Indebtedness under the Indenture. See " -- Certain Covenants --
Limitation on Indebtedness".
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued only in fully registered form, without interest
coupons, in denominations of $1,000 and integral multiples thereof. Notes will
not be issued in bearer form.
New Notes initially will be represented by one or more Notes in registered,
global form without interest coupons (collectively, the "Global Notes"). The
Global Notes will be deposited upon issuance 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 an account of a direct or indirect participant in DTC as
described below.
37
Except as set forth 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 addition, transfer of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time. Beneficial interests
in the Global Notes may not be exchanged for Notes in certificated form except
in the limited circumstances described below. Please read "-- Exchange of
Book-Entry Notes for Certificated Notes."
Initially, the Trustee will act as paying agent and registrar. The Notes may
be presented for registration or transfer and exchange at the offices of the
registrar.
Exchange of Book-Entry Notes for Certificated Notes
A beneficial interest in a Global Note may not be exchanged for a Note in
certificated form unless:
(i) DTC (x) notifies us that it is unwilling or unable to continue as
depositary for the Global Note or (y) has ceased to be a clearing agency
registered under the Exchange Act, and in either case we thereupon fail to
appoint a successor depositary within 90 days;
(ii) we, at our option, notify the Trustee in writing of our election to
cause the issuance of the Notes in certificated form; or
(iii) there shall have occurred and be continuing an Event of Default or any
event which after notice or lapse of time or both would be an Event of Default
with respect to the Notes.
In all cases, certificated Notes delivered in exchange for any Global Note
or beneficial interests in such Global Note will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary, in accordance with its customary procedures. Any certificated Note
issued in exchange for an interest in a Global Note will bear the legend
restricting transfers that is borne by such Global Note. Any such exchange will
be effected through the DTC's Deposit/Withdrawal at Custodian system and an
appropriate adjustment will be made in the records of the registrar of the Notes
to reflect a decrease in the principal amount of the relevant Global Note.
Certain Book-Entry Procedures for Global Notes
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the DTC settlement system and are subject to
changes by them. We take no responsibility for these operations and procedures
and urge investors to contact the system or their participants directly to
discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
38
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants exchanging outstanding Notes with portions of the principal amount
of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interest
in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a person having beneficial interests in
a Global Note to pledge such interests to persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described herein, owners of 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 Mortgage for any purpose.
Payments in respect of the principal of, and interest and premium, if any,
on a Global Note registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered holder under the Mortgage. Under the terms
of the Mortgage, we and the Trustee will treat the persons in whose names the
Notes, including the Global Notes, are registered as the owners thereof for the
purpose of receiving payments and for all other purposes. Consequently, neither
we nor the Trustee nor any of our respective agents has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any 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 Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal amount
of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or us. Neither we nor the Trustee will
be liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Notes, and we and the Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee for all
purposes.
39
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an event of default under the Notes, DTC reserves the right to exchange the
Global Notes for legended Notes in certificated form, and to distribute such
Notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and may
discontinue such procedures at any time. Neither we, nor the Trustee or any of
our respective agents, will have any responsibility for the performance by DTC
or its respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such Notes. See "Transfer Restrictions".
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that for purposes of this clause (1) such person
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the total voting power of the Voting Stock of the
Company; provided, however, that the Permitted Holders beneficially own
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate a lesser percentage of
40
the total voting power of the Voting Stock of the Company than such other person
and do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors (for the
purposes of this clause (1), such other person shall be deemed to beneficially
own any Voting Stock of a Person (the "specified person") held by any other
Person (the "parent entity"), if such other person is the beneficial owner (as
defined above in this clause (1)), directly or indirectly, of more than 35% of
the voting power of the Voting Stock of such parent entity and the Permitted
Holders beneficially own (as defined in this proviso), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting Stock of
such parent entity and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the board
of directors of such parent entity);
(2) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors of the Company then still
in office who were either directors on the Issue Date or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
the Company; or
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the sale
of all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person other than (i) a transaction in which
the survivor or transferee is a Person that is controlled by the Permitted
Holders or (ii) a transaction following which (A) in the case of a merger or
consolidation transaction, holders of securities that represented 100% of
the Voting Stock of the Company immediately prior to such transaction (or
other securities into which such securities are converted as part of such
merger or consolidation transaction) own directly or indirectly at least a
majority of the voting power of the Voting Stock of the surviving Person in
such merger or consolidation transaction immediately after such transaction
and in substantially the same proportion as before the transaction and (B)
in the case of a sale of assets transaction, each transferee becomes an
obligor in respect of the Notes and a Subsidiary of the transferor of such
assets.
Within 30 days following any Change of Control, we will mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(3) the instructions, as determined by us, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
We will not be required to make a Change of Control Offer following 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 us and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of our
compliance with such securities laws or regulations.
41
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the initial
purchasers. We have no present intention to engage in a transaction involving a
Change of Control, although it is possible that we could decide to do so in the
future. Subject to the limitations discussed below, we could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect our capital structure or credit ratings.
Restrictions on our ability to Incur additional Indebtedness are contained in
the covenants described under " -- Certain Covenants -- Limitation on
Indebtedness", " -- Limitation on Liens" and " -- Limitation on Sale/Leaseback
Transactions". Such restrictions can only be waived with the consent of the
holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture will not
contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The Credit Agreement prohibits us from purchasing any Notes, subject to
certain exceptions, and also provides that the occurrence of certain change of
control events with respect to the Company would constitute a default
thereunder. In the event a Change of Control occurs at a time when we are
prohibited from purchasing Notes, we may seek the consent of our lenders to the
purchase of Notes or may attempt to refinance the borrowings that contain such
prohibition. If we do not obtain such a consent or repay such borrowings, we
will remain prohibited from purchasing Notes. In such case, our failure to offer
to purchase Notes would constitute a Default under the Indenture, which would,
in turn, constitute a default under the Credit Agreement.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require us to repurchase their
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on us.
Finally, our ability to pay cash to the holders of Notes following the
occurrence of a Change of Control may be limited by our then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases.
The definition of "Change of Control" includes a disposition of all or
substantially all of the assets of the Company to any Person. Although there is
a limited body of case law interpreting the phrase "substantially all", there is
no precise established definition of the phrase under applicable law.
Accordingly, in certain circumstances there may be a degree of uncertainty as to
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of the Company. As a result, it may be unclear
as to whether a Change of Control has occurred and whether a holder of Notes may
require the Company to make an offer to repurchase the Notes as described above.
The provisions under the Indenture relative to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, those summarized
below. Following the first day (the "Suspension Date") that:
(1) the Notes have an Investment Grade Rating from both of the Rating
Agencies, and
(2) no Default has occurred and is continuing under the Indenture,
the Company and its Restricted Subsidiaries will not be subject to the
provisions of the Indenture summarized below under:
(1) " -- Limitation on Indebtedness",
42
(2) " -- Limitation on Restricted Payments",
(3) " -- Limitation on Restrictions on Distributions from Restricted
Subsidiaries",
(4) " -- Limitation on Sales of Assets and Subsidiary Stock",
(5) clause (3) of the first paragraph under " -- Merger and Consolidation"
and
(6) " -- Limitation on Affiliate Transactions",
(collectively, the "Suspended Covenants"). In addition, the Subsidiary
Guaranties of the Subsidiary Guarantors will also be suspended as of the
Suspension Date. In the event that the Company and its Restricted Subsidiaries
are not subject to the Suspended Covenants for any period of time as a result of
the foregoing, and on any subsequent date (the "Reversion Date") one or both of
the Rating Agencies withdraws its Investment Grade Rating or downgrades the
rating assigned to the Notes below an Investment Grade Rating, then the Company
and the Restricted Subsidiaries will thereafter again be subject to the
Suspended Covenants with respect to future events and the Subsidiary Guaranties
will be reinstated. The period of time between the Suspension Date and the
Reversion Date is referred to in this description as the "Suspension Period".
Notwithstanding that the Suspended Covenants may be reinstated, no default will
be deemed to have occurred as a result of a failure to comply with the Suspended
Covenants during the Suspension Period.
On the Reversion Date, all Indebtedness Incurred during the Suspension
Period will be classified to have been Incurred pursuant to paragraph (a) of "--
Limitation on Indebtedness" or one of the clauses set forth in paragraph (b) of
" -- Limitation on Indebtedness" (to the extent such Indebtedness would be
permitted to be Incurred thereunder as of the Reversion Date and after giving
effect to Indebtedness Incurred prior to the Suspension Period and outstanding
on the Reversion Date). To the extent such Indebtedness would not be so
permitted to be Incurred pursuant to paragraph (a) or (b) of " -- Limitation on
Indebtedness", such Indebtedness will be deemed to have been outstanding on the
Issue Date, so that it is classified as permitted under clause (4) of paragraph
(b) of " -- Limitation on Indebtedness". Calculations made after the Reversion
Date of the amount available to be made as Restricted Payments under
" -- Limitation on Restricted Payments" will be made as though the covenant
described under " -- Limitation on Restricted Payments" had been in effect since
the Issue Date and throughout the Suspension Period. Accordingly, Restricted
Payments made during the Suspension Period will reduce the amount available to
be made as Restricted Payments under paragraph (a) of " -- Limitation on
Restricted Payments" and the items specified in subclauses (3)(A) through (3)(D)
of paragraph (a) of " -- Limitation on Restricted Payments" will increase the
amount available to be made under paragraph (a) thereof. For purposes of
determining compliance with paragraph (a) of the " -- Limitation on Sales of
Assets and Subsidiary Stock" covenant, on the Reversion Date, the Net Available
Cash from all Asset Dispositions not applied in accordance with the covenant
will be deemed to be reset to zero.
Limitation on Indebtedness
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and the Subsidiary Guarantors will be entitled to Incur Indebtedness if,
on the date of such Incurrence and after giving effect thereto on a pro forma
basis, no Default has occurred and is continuing, the Consolidated Coverage
Ratio exceeds 2.5 to 1 and the Consolidated Leverage Ratio would be less than
3.5 to 1.
(b) In addition to Indebtedness that may be Incurred pursuant to the
foregoing paragraph (a), the Company and the Restricted Subsidiaries will be
entitled to Incur any or all of the following additional Indebtedness:
(1) Indebtedness Incurred by the Company and its Subsidiary Guarantors
pursuant to the Credit Agreement; provided, however, that, after giving
effect to any such Incurrence, the aggregate principal amount of all
Indebtedness Incurred under this clause (1) and then outstanding does not
exceed the greater of (i) $300.0 million less the sum of all principal
payments with respect to such Indebtedness pursuant to paragraph (a)(3)(A)
of the covenant described under " -- Limitation on Sales of Assets and
Subsidiary Stock" and (ii) 70% of the book value of the accounts receivable
of the Company and its Restricted Subsidiaries;
43
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that (A) any subsequent issuance or transfer
of any Capital Stock which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Restricted Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the obligor thereon, (B) 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 (C) if a Subsidiary
Guarantor is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations of such obligor with respect to its Subsidiary Guaranty;
(3) the Notes and the Exchange Notes (other than any Additional Notes);
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on
or prior to the date on which such Subsidiary was acquired by the Company
(other than Indebtedness Incurred in connection with, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company); provided,
however, that on the date of such acquisition and after giving pro forma
effect thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to paragraph (a) of this covenant;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) or this
clause (6);
(7) Hedging Obligations consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company and its
Restricted Subsidiaries pursuant to the Indenture and Hedging Obligations
Incurred in the ordinary course of business and not for speculation pursuant
to any Currency Agreement;
(8) obligations in respect of performance, bid and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business (but excluding any Performance Letters of
Credit);
(9) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; provided, however,
that such Indebtedness is extinguished within three Business Days of its
Incurrence;
(10) Indebtedness Incurred by Foreign Subsidiaries in the ordinary
course of business (A) for working capital purposes or (B) in respect of
Performance Letters of Credit;
(11) Guarantees of Indebtedness of any Foreign Subsidiary incurred under
clause (10) above by the Company, any Subsidiary Guarantor or any other
Foreign Subsidiary;
(12) Indebtedness consisting of the Subsidiary Guaranty of a Subsidiary
Guarantor and any Guarantee by a Subsidiary Guarantor of Indebtedness
Incurred pursuant to paragraph (a) or pursuant to clause (1), (2), (3) or
(4) or pursuant to clause (6) to the extent the Refinancing Indebtedness
Incurred thereunder directly or indirectly Refinances Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3) or (4); and
(13) Indebtedness of the Company or of any of its Restricted
Subsidiaries in an aggregate principal amount which, when taken together
with all other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (12) above or paragraph (a)) does not
exceed $25.0 million; provided, however that not more than $10.0 million of
such amount may be Incurred by Restricted Subsidiaries that are not
Subsidiary Guarantors; provided further, however, that no such Indebtedness
of any Restricted Subsidiary (other than a Subsidiary Guarantor) will
consist of Guarantees of Indebtedness of the Company or any other Restricted
Subsidiary.
44
(c) Notwithstanding the foregoing, neither the Company nor any Subsidiary
Guarantor will incur any Indebtedness pursuant to the foregoing paragraph (b) if
the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company or any Subsidiary Guarantor unless such
Indebtedness shall be subordinated to the Notes or the applicable Subsidiary
Guaranty to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant:
(1) any Indebtedness remaining outstanding under the Credit Agreement
after the application of the net proceeds from the sale of the Notes will be
treated as Incurred on the Issue Date under clause (1) of paragraph (b)
above;
(2) in the event that an item of Indebtedness (or any portion thereof)
meets the criteria of more than one of the types of Indebtedness described
above, the Company, in its sole discretion, will classify such item of
Indebtedness (or any portion thereof) at the time of Incurrence and will
only be required to include the amount and type of such Indebtedness in one
of the above clauses; and
(3) the Company will be entitled to divide and classify an item of
Indebtedness in more than one of the types of Indebtedness described above.
(e) For purposes of determining compliance with any U.S. dollar restriction
on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated
in a different currency, the amount of such Indebtedness will be the U.S. Dollar
Equivalent determined on the date of the incurrence of such Indebtedness;
provided, however, that if any such Indebtedness denominated in a different
currency is subject to a Currency Agreement with respect to U.S. dollars
covering all principal, premium, if any, and interest payable on such
Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be
as provided in such Currency Agreement. The principal amount of any Refinancing
Indebtedness Incurred in the same currency as the Indebtedness being Refinanced
will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the
extent that (1) such U.S. Dollar Equivalent was determined based on a Currency
Agreement, in which case the Refinancing Indebtedness will be determined in
accordance with the preceding sentence, and (2) the principal amount of the
Refinancing Indebtedness exceeds the principal amount of the Indebtedness being
Refinanced, in which case the U.S. Dollar Equivalent of such excess will be
determined on the date such Refinancing Indebtedness is Incurred.
Limitation on Restricted Payments
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under " --
Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 40% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
during which the Issue Date occurs to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit); plus
(B) the sum of (x) 100% of the aggregate Net Cash Proceeds received by
the Company from the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an issuance or
sale to a Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company or
any of its Subsidiaries for the benefit of their employees), (y) 85% of
45
the fair market value of property constituting Additional Assets received by
the Company or a Restricted Subsidiary subsequent to the Issue Date in
exchange for Capital Stock (other than Disqualified Stock) of the Company
(other than any such property received from a Subsidiary of the Company),
such fair market value to be determined in good faith by the Board of
Directors but subject to confirmation thereof by an Independent Qualified
Party if such value exceeds $10.0 million and (z) 100% of any cash capital
contribution received by the Company from its shareholders subsequent to the
Issue Date; plus
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange subsequent to the
Issue Date of any Indebtedness of the Company convertible or exchangeable
for Capital Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair value of any other property, distributed by
the Company upon such conversion or exchange); provided, however, that the
foregoing amount shall not exceed the Net Cash Proceeds received by the
Company or any Restricted Subsidiary from the Incurrence of such
Indebtedness (excluding Net Cash Proceeds from sales to a Subsidiary of the
Company or to an employee stock ownership plan or to a trust established by
the Company or any of its Subsidiaries for the benefit of their employees);
plus
(D) an amount equal to the sum of (x) the net reduction in the
Investments (other than Permitted Investments) made by the Company or any
Restricted Subsidiary in any Person resulting from repurchases, repayments
or redemptions of such Investments by such Person, proceeds realized on the
sale of such Investment and proceeds representing the return of capital
(excluding dividends and distributions), in each case received by the
Company or any Restricted Subsidiary, and (y) to the extent such Person is
an Unrestricted Subsidiary, the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of such Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that
the foregoing sum shall not exceed, in the case of any such Person or
Unrestricted Subsidiary, the amount of Investments (excluding Permitted
Investments) previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent sale of, or made by exchange for, Capital Stock of
the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company or an employee stock ownership
plan or to a trust established by the Company or any of its Subsidiaries for
the benefit of their employees) or a substantially concurrent cash capital
contribution received by the Company from its shareholders; provided,
however, that (A) such Restricted Payment shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale or such cash capital contribution (to the extent so
used for such Restricted Payment) shall be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company or any Subsidiary Guarantor made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations
of such Person which is permitted to be Incurred pursuant to the covenant
described under " -- Limitation on Indebtedness"; provided, however, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that any such dividend shall be included in the
calculation of the amount of Restricted Payments;
(4) so long as no Default has occurred and is continuing, the repurchase
or other acquisition of shares of Capital Stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former directors
of the Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to the
terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such Capital Stock; provided, however, that the aggregate amount
of such repurchases and other acquisitions shall not exceed $1.0 million in
any
46
calendar year; provided further, however, that such repurchases and other
acquisitions shall be excluded in the calculation of the amount of
Restricted Payments;
(5) any purchase of fractional shares of common stock of the Company in
connection with the conversion of securities of the Company convertible into
common stock; provided, however, that such purchases shall be excluded in
the calculation of the amount of Restricted Payments;
(6) purchases of shares of Capital Stock of any Restricted Subsidiary
owned by professional engineers in connection with licensing requirements in
an aggregate amount not to exceed $500,000; provided, however, that such
purchases shall be excluded in the calculation of the amount of Restricted
Payments;
(7) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under " --
Limitation on Sales of Assets and Subsidiary Stock" after the Company (or a
Restricted Subsidiary, as the case may be) has made an offer to the Holders
of the Notes to purchase the Notes pursuant to clause (a)(3)(C) of such
covenant; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments; and
(8) other Restricted Payments in an aggregate amount not to exceed $20.0
million; provided, however, that such Restricted Payments shall be excluded
in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) with respect to clauses (a), (b) and (c),
(i) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (i) or (ii) of clause (1) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or (ii)
of clause (1) of this covenant or this clause (iii); provided, however, that
the encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less
favorable to the Noteholders than encumbrances and restrictions with respect
to such Restricted Subsidiary contained in such predecessor agreements;
(iv) any encumbrance or restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and
(2) with respect to clause (c) only, any restriction or encumbrance
(A) contained in security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security agreements
or mortgages;
47
(B) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license or
similar contract, or the assignment or transfer of any such lease, license
or other contract;
(C) pursuant to customary provisions restricting dispositions of real
property interests set forth in any reciprocal easement agreements of the
Company or any Restricted Subsidiary;
(D) on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business; and
(E) imposed by customary provisions in joint venture agreements and
similar agreements that restrict the transfer of the interest in the joint
venture.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined in
good faith by the Board of Directors or by any Senior Officer of the Company
if such fair market value is less than $5.0 million, of the shares and
assets subject to such Asset Disposition;
(2) except to the extent the Company or a Restricted Subsidiary receives
Additional Assets in exchange for such Asset Disposition, at least 75% of
the consideration thereof received by the Company or such Restricted
Subsidiary is in the form of cash or cash equivalents; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be)
(A) first, to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness of the Company or Indebtedness (other than any Disqualified
Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within one year from the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the Company
elects, to acquire Additional Assets within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash;
and
(C) third, to the extent of the balance of such Net Available Cash
remaining after application in accordance with clauses (A) and (B), to make
an offer to the Holders of the Notes (and to holders of other Senior
Indebtedness of the Company designated by the Company) to purchase Notes
(and such other Senior Indebtedness of the Company) pursuant to and subject
to the conditions contained in the Indenture;
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or
such Restricted Subsidiary shall permanently retire such Indebtedness and
shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $10.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit
indebtedness.
48
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of the Company (other than
obligations in respect of Disqualified Stock of the Company) or any
Restricted Subsidiary (other than obligations in respect of Disqualified
Stock or Preferred Stock of a Subsidiary Guarantor) and the release of the
Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition; and
(2) securities received by the Company or any Restricted Subsidiary from
the transferee that are converted by the Company or such Restricted
Subsidiary into cash within 180 days from the date of receipt of such
securities, to the extent of cash received in that conversion.
(b) In the event of an Asset Disposition that requires the purchase of Notes
(and other Senior Indebtedness of the Company) pursuant to clause (a)(3)(C)
above, the Company will purchase Notes tendered pursuant to an offer by the
Company for the Notes (and such other Senior Indebtedness) at a purchase price
of 100% of their principal amount (or, in the event such other Senior
Indebtedness of the Company was issued with significant original issue discount,
100% of the accreted value thereof) without premium, plus accrued but unpaid
interest (or, in respect of such other Senior Indebtedness of the Company, such
lesser price, if any, as may be provided for by the terms of such Senior
Indebtedness) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate purchase
price of the securities tendered exceeds the Net Available Cash allotted to
their purchase, the Company will select the securities to be purchased on a pro
rata basis but in round denominations, which in the case of the Notes will be
denominations of $1,000 principal amount or multiples thereof. The Company shall
not be required to make such an offer to purchase Notes (and other Senior
Indebtedness of the Company) pursuant to this covenant if the Net Available Cash
available therefor is less than $10.0 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
Upon completion of such an offer to purchase, Net Available Cash will be deemed
to be reset to zero.
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue of its compliance
with such securities laws or regulations.
Limitation on Affiliate Transactions
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained at
the time of the Affiliate Transaction in arm's-length dealings with a Person
who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $5.0
million, the terms of the Affiliate Transaction are set forth in writing and
a majority of the non-employee directors of the Company disinterested with
respect to such Affiliate Transaction have determined in good faith that the
criteria set forth in clause (1) are satisfied and have approved the
relevant Affiliate Transaction as evidenced by a resolution of the Board of
Directors; and
(3) if such Affiliate Transaction involves an amount in excess of $20.0
million, the Board of Directors shall also have received a written opinion
from an Independent Qualified Party to the effect that such Affiliate
Transaction is fair, from a financial standpoint, to the Company and its
Restricted Subsidiaries or is not less favorable to the Company and its
Restricted Subsidiaries than could reasonably be expected to be obtained at
the
49
time in an arm's-length transaction with a Person who was not an Affiliate.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment (other than a Permitted Investment) or other
Restricted Payment, in each case permitted to be made pursuant to the
covenant described under " -- Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors;
(3) loans or advances to employees (other than any Permitted Holder) in
the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $5.0
million in the aggregate outstanding at any one time;
(4) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries;
(5) any transaction with a Restricted Subsidiary or joint venture or
similar entity which would constitute an Affiliate Transaction solely
because the Company or a Restricted Subsidiary owns an equity interest in or
otherwise controls such Restricted Subsidiary, joint venture or similar
entity;
(6) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company or any contribution to the capital of the Company or
any Restricted Subsidiary;
(7) any indemnification arrangements entered into by the Company in the
ordinary course of business;
(8) any employment arrangements entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business (except with
a Permitted Holder); and
(9) transactions in the ordinary course of business entered into or
awarded on the basis of a competitive bid process.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur or permit to exist any Lien (the "Initial Lien")
of any nature whatsoever on any of its properties (including Capital Stock of a
Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired,
securing any Indebtedness, other than Permitted Liens, without effectively
providing that the Notes shall be secured equally and ratably with (or prior to)
the obligations so secured for so long as such obligations are so secured.
Any Lien created for the benefit of the Holders of the Notes pursuant to the
preceding sentence shall provide by its terms that such Lien shall be
automatically and unconditionally released and discharged upon the release and
discharge of the Initial Lien.
Limitation on Sale/Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/ Leaseback Transaction with respect to any property unless:
(1) the Company or such Restricted Subsidiary would be entitled to (A)
Incur Indebtedness in an amount equal to the Attributable Debt with respect
to such Sale/Leaseback Transaction pursuant to the covenant described under
" -- Limitation on Indebtedness" and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the
Notes pursuant to the covenant described under " -- Limitation on Liens";
50
(2) the net proceeds received by the Company or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least
equal to the fair market value (as determined in good faith by the Board of
Directors or by any Senior Officer of the Company if such fair market value
is less than $5.0 million) of such property; and
(3) the Company applies the proceeds of such transaction in compliance
with the covenant described under " -- Limitation on Sale of Assets and
Subsidiary Stock".
Merger and Consolidation
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under " -- Limitation on
Indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture;
provided, however, that clause (3) will not be applicable to (A) a Restricted
Subsidiary consolidating with, merging into or transferring all or part of its
properties and assets to the Company or (B) the Company merging with an
Affiliate of the Company solely for the purpose and with the sole effect of
reincorporating the Company in another jurisdiction.
For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer or other disposition of all or substantially all of the properties and
assets of one or more Subsidiaries of the Company, which properties and assets,
if held by the Company instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of the Company on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
The Successor Company will be the successor to the Company and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture, and the predecessor Company, except in the case of
a lease, shall be released from the obligation to pay the principal of and
interest on the Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) except in the case of a Subsidiary Guarantor that has been disposed
of in its entirety to another Person (other than to the Company or an
Affiliate of the Company), whether through a merger, consolidation or sale
of Capital Stock or assets, if in connection therewith the Company provides
an Officers' Certificate to the Trustee to the effect that the Company will
comply with its obligations under the covenant described under " --
Limitation on Sales of Assets and Subsidiary Stock" in respect of such
disposition, the resulting, surviving or
51
transferee Person (if not such Subsidiary) shall be a Person organized and
existing under the laws of the jurisdiction under which such Subsidiary was
organized or under the laws of the United States of America, or any State
thereof or the District of Columbia, and such Person shall expressly assume,
by a Guaranty Agreement, in a form satisfactory to the Trustee, all the
obligations of such Subsidiary, if any, under its Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or transactions
on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
and such Guaranty Agreement, if any, complies with the Indenture.
Future Guarantors
The Company will cause each domestic Restricted Subsidiary that Incurs any
Indebtedness (other than Indebtedness Incurred pursuant to clause (b)(5) or
(b)(13) of the covenant described under " -- Limitation on Indebtedness") to,
and each Foreign Subsidiary that enters into a Guarantee of any Senior
Indebtedness of any Person (other than a Foreign Subsidiary that Guarantees
Senior Indebtedness Incurred by another Foreign Subsidiary) to, in each case, at
the same time, execute and deliver to the Trustee a Guaranty Agreement pursuant
to which such Restricted Subsidiary will Guarantee payment of the Notes on the
same terms and conditions as those set forth in the Indenture.
SEC Reports
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC (to the extent the SEC will accept such filings) and provide the
Trustee and Noteholders with such annual reports and such information, documents
and other reports as are specified in Sections 13 and 15(d) of the Exchange Act
and applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filings of such information, documents and reports under such Sections.
At any time that any of the Company's Subsidiaries are Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", of 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.
In addition, the Company will furnish to the Holders of the Notes and to
prospective investors, upon the requests of such Holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Notes are not freely transferable under the Securities Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Notes when due,
continued for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required purchase, upon
declaration of acceleration or otherwise;
(3) the failure by the Company to comply with its obligations under " --
Certain Covenants -- Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with
any of its obligations in the covenants
52
described above under "Change of Control" (other than a failure to purchase
Notes) or under " -- Certain Covenants" under " -- Limitation on
Indebtedness", " -- Limitation on Restricted Payments", " -- Limitation on
Restrictions on Distributions from Restricted Subsidiaries", " -- Limitation
on Sales of Assets and Subsidiary Stock" (other than a failure to purchase
Notes), " -- Limitation on Affiliate Transactions", " -- Limitation on
Liens", " -- Limitation on Sale/Leaseback Transactions", " -- Future
Guarantors" or " -- SEC Reports";
(5) the failure by the Company or any Subsidiary Guarantor to comply for
60 days after notice with its other agreements contained in the Indenture;
(6) Indebtedness of the Company, any Subsidiary Guarantor or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default
and the total amount of such Indebtedness unpaid or accelerated exceeds
$20.0 million (the "cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company, a Subsidiary Guarantor or any Significant Subsidiary (the
"bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $20.0
million is entered against the Company, a Subsidiary Guarantor or any
Significant Subsidiary, remains outstanding for a period of 60 consecutive
days following such judgment and is not discharged, waived or stayed (the
"judgment default provision"); or
(9) a Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty.
However, a default under clauses (4) and (5) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and accrued but unpaid interest on all the Notes
will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders of the Notes.
Under certain circumstances, the Holders of a majority in principal amount of
the outstanding Notes may rescind any such acceleration with respect to the
Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes unless
such Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity; and
53
(5) Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder of a Note or that would involve the Trustee in personal liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each Holder of the Notes notice of the Default within 90 days after
it occurs. Except in the case of a Default in the payment of principal of or
interest on any Note, the Trustee may withhold notice if and so long as a
committee of its Trust Officers determines that withholding notice is in the
interests of the Holders of the Notes. In addition, we are required to deliver
to the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. We are required to deliver to the Trustee, within 30 days
after the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action we are taking or propose to take
in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, an amendment or waiver may not, among other
things:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Note;
(3) reduce the principal of or change the Stated Maturity of any Note;
(4) make any change in the provisions applicable to the redemption of
any Note as described under " -- Optional Redemption" above that would
adversely affect the Noteholders;
(5) make any Note payable in money other than that stated in the Note;
(6) make any change to or impair the right of any Holder of the Notes to
receive payment of principal of and interest on such holder's Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's Notes;
(7) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders; or
(9) make any change in, or release other than in accordance with the
Indenture, any Subsidiary Guaranty that would adversely affect the
Noteholders.
Notwithstanding the preceding, without the consent of any Holder of the
Notes, the Company, the Subsidiary Guarantors and Trustee may amend the
Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
54
(2) to provide for the assumption by a successor of the obligations of
the Company or any Subsidiary Guarantor under the Indenture;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code);
(4) to add Guarantees with respect to the Notes, including any
Subsidiary Guaranties, or to secure the Notes;
(5) to add to the covenants of the Company or any Subsidiary Guarantor
for the benefit of the Holders of the Notes or to surrender any right or
power conferred upon the Company or any Subsidiary Guarantor;
(6) to make any change that does not adversely affect the rights of any
Holder of the Notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the Holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required to
mail to Holders of the Notes a notice briefly describing such amendment.
However, the failure to give such notice to all Holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
We may require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
DEFEASANCE
At any time, we may terminate all the obligations of the Company and the
Subsidiary Guarantors under the Notes and the Indenture ("legal defeasance"),
except for certain obligations, including those respecting the defeasance trust
and obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes.
In addition, at any time we may terminate our obligations under " -- Change
of Control" and under the covenants described under " -- Certain Covenants"
(other than the covenant described under " -- Merger and Consolidation"), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Subsidiary Guarantors and Significant Subsidiaries and the judgment
default provision described under " -- Defaults" above and the limitations
contained in clause (3) of the first paragraph under " -- Certain Covenants --
Merger and Consolidation" above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the Notes may not be accelerated because of an Event of Default
specified in clause (4), (6), (7) (with respect only to Significant Subsidiaries
and Subsidiary Guarantors) or (8) under " -- Defaults" above or because of the
failure of the Company to comply with clause (3) of the first paragraph under
"-- Certain Covenants -- Merger and Consolidation" above. If we exercise our
legal defeasance option or our covenant defeasance option, each Subsidiary
Guarantor will be released from all of its obligations with respect to its
Subsidiary Guaranty.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or Stated Maturity, as the case may be, and must comply with certain
other conditions,
55
including delivery to the Trustee of an Opinion of Counsel to the effect that
Holders of the Notes will not recognize income, gain or loss for Federal income
tax purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture. We have
appointed The Bank of New York as Registrar and Paying Agent with regard to the
Notes.
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; provided, however, if it acquires any conflicting interest (as
defined in the Trust Indenture Act) after a Default has occurred and is
continuing it must either eliminate such conflict within 90 days, apply to the
SEC for permission to continue or resign.
The Holders of a majority in principal amount of the 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. If an Event of Default occurs (and is not 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 request of any Holder of Notes, unless such Holder
shall have offered to the Trustee security or indemnity satisfactory to it
against any loss, liability or expense and then only to the extent required by
the terms of the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder, member or manager
of the Company or any Subsidiary Guarantor will have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Notes, any
Subsidiary Guaranty or the Indenture or for any claim based on, in respect of,
or by reason of such obligations or their creation. Each Holder of the 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 and release
may not be effective to waive liabilities under the U.S. Federal securities
laws, and it is the view of the SEC that such a waiver is against public policy.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property, plant or equipment used in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause
(2) or (3) above is primarily engaged in a Related Business.
56
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under " -- Certain Covenants -- Limitation
on Restricted Payments", " -- Certain Covenants -- Limitation on Affiliate
Transactions" and " -- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be held
by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
other than, in the case of clauses (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Restricted Subsidiary;
(B) for purposes of the covenant described under " -- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock" only, (x) a disposition
that constitutes a Restricted Payment (or would constitute a Restricted
Payment but for the exclusions from the definition thereof) and that is not
prohibited by the covenant described under " -- Certain Covenants --
Limitation on Restricted Payments" and (y) a disposition of all or
substantially all the assets of the Company in accordance with the covenant
described under " -- Certain Covenants -- Merger and Consolidation";
(C) a disposition of assets with a fair market value of less than $1.0
million;
(D)a disposition of cash or Temporary Cash Investments;
(E) a disposition in the ordinary course of business of inventory,
receivables or other current assets;
(F) any sale, transfer or other disposition of property that is idle,
damaged, worn out, obsolete or no longer suitable for use in the ordinary
course of business;
(G) any sale, transfer or other disposition of assets acquired by the
Company or any Restricted Subsidiary (i) from a customer by foreclosure or
the exercise of contract rights or (ii) for use by the Company or a
Restricted Subsidiary to satisfy a contractual obligation with respect to a
specific customer project, in each case the sale, transfer or other
disposition of which relates to or results from the cancelation or suspension
of a project or the nonpayment of amounts due the Company or a Restricted
Subsidiary with respect to a project; and
(H) the creation of a Lien (but not the sale or other disposition of the
property subject to such Lien).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the
57
present value (discounted at the interest rate borne by the Notes, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended); provided,
however, that if such Sale/Leaseback Transaction results in a Capital Lease
Obligation, the amount of Indebtedness represented thereby will be determined in
accordance with the definition of "Capital Lease Obligation".
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
or redemption or similar payment with respect to such Indebtedness multiplied
by the amount of such payment by
(2)the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty. For purposes of the covenant described under " -- Certain Covenants --
Limitations on Liens", a Capital Lease Obligation will be deemed to be secured
by a Lien on the property being leased.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the ratio
of (x) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending at least 45 days prior to the date of such
determination to (y) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period;
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of such
period or if any Indebtedness is to be repaid, repurchased, defeased or
otherwise discharged (in each case other than Indebtedness Incurred under any
revolving credit facility unless such Indebtedness has been permanently
repaid and has not been replaced) on the date of the transaction giving rise
to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro
forma basis as if such discharge had occurred on the first day of such period
and as if the Company or such Restricted Subsidiary has not earned the
interest income actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or otherwise
discharge such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, EBITDA for such period
shall be reduced by an amount equal to EBITDA (if positive)
58
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first
day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition, any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months). If any Indebtedness is Incurred under a revolving credit facility
and is being given pro forma effect, the interest on such Indebtedness shall be
calculated based on the average daily balance of such Indebtedness for the four
fiscal quarters subject to the pro forma calculation to the extent such
Indebtedness is Incurred for working capital purposes.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to Capital Lease Obligations;
(2)amortization of debt discount;
(3)capitalized interest;
(4)non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing (except, in the case of
letters of credit, to the extent that such fees or other charges are required
by written agreement to be reimbursed by the beneficiary of such letter of
credit and such beneficiary is in compliance with its obligation to reimburse
the Company);
(6)net payments pursuant to Hedging Obligations;
59
(7) dividends accrued in respect of all Preferred Stock held by Persons
other than the Company or a Wholly Owned Subsidiary (other than dividends
payable solely in Capital Stock (other than Disqualified Stock) of the
Company); provided, however, that such dividends will be multiplied by a
fraction the numerator of which is one and the denominator of which is one
minus the effective combined tax rate of the issuer of such Preferred Stock
(expressed as a decimal) for such period (as estimated by the Chief Financial
Officer of the Company in good faith);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by (or secured by the assets of) the Company
or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust;
provided, however, that there shall be excluded from "Consolidated Interest
Expense" any deferred financing cost recognized in connection with the
repurchase by the Company of any LYON.
Notwithstanding the foregoing, for the purposes of the definition of
"Consolidated Leverage Ratio", "Consolidated Interest Expense" means, for any
period, the total interest expense of the Company and its consolidated
Restricted Subsidiaries for such period, excluding any amortization of financing
fees incurred in connection with the Credit Agreement and excluding any non-cash
interest expense related to the LYONs.
"Consolidated Leverage Ratio" as of any date of determination means the ratio
of (x) the aggregate amount of Net Debt as of such date of determination to (y)
EBITDA for the most recent four consecutive fiscal quarters ending at least 45
days prior to such date of determination, after giving pro forma effect to the
same adjustments to EBITDA as are appropriate and consistent with the pro forma
adjustment provisions set forth in the definition of "Consolidated Coverage
Ratio" above.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Restricted Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person is
not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the Company's
equity in the net income of any such Person for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (3) below); and
(B) the Company's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (4) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Restricted Subsidiary during such period
to the Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
60
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(4) any gain (or loss) realized upon the sale or other disposition of any
assets of the Company, its consolidated Restricted Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which are
not sold or otherwise disposed of in the ordinary course of business and any
gain (or loss) realized upon the sale or other disposition of any Capital
Stock of any Person;
(5)extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
" -- Certain Covenants -- Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any repurchases, repayments or
redemptions of Investments, proceeds realized on the sale of Investments or
return of capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Credit Agreement" means the Third Amended and Restated Credit Agreement
dated as of March 17, 2003 by and among the Company, certain of its
Subsidiaries, the lenders referred to therein and Credit Lyonnais New York
Branch, as lender and agent, together with the related documents thereto
(including the term loans and revolving loans thereunder, any guarantees and
security documents), as amended, extended, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time, and any
agreement (and related document) governing Indebtedness incurred to Refinance,
in whole or in part, the borrowings and commitments then outstanding or
permitted to be outstanding under such Credit Agreement or a successor Credit
Agreement, whether by the same or any other lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement with respect to currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which 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) or upon the
happening of any event:
(1) matures or is mandatorily redeemable (other than redeemable only for
Capital Stock of such Person which is not itself Disqualified Stock) pursuant
to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock
than the terms applicable to the Notes and described under " -- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and " --
Certain Covenants -- Change of
61
Control"; and
(2) any such requirement only becomes operative after compliance with such
terms applicable to the Notes, including the purchase of any Notes tendered
pursuant thereto.
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or
repurchased on any date on which the amount of such Disqualified Stock is to be
determined pursuant to the Indenture; provided, however, that if such
Disqualified Stock could not be required to be redeemed, repaid or repurchased
at the time of such determination, the redemption, repayment or repurchase price
will be the book value of such Disqualified Stock as reflected in the most
recent financial statements of such Person.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries;
(2)Consolidated Interest Expense;
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in cash in a
prior period);
(4) all other non-cash charges and non-cash write offs of the Company and
its consolidated Restricted Subsidiaries (excluding any such non-cash charge
or write off to the extent that it represents an accrual of or reserve for
cash expenditures in any future period); and
(5) any charges or write offs taken by The IT Group, Inc. related to (A) a
reduction of accounts receivable to estimated net realizable value, (B) legal
and consulting expenses related to its bankruptcy proceeding, (C) notes
receivable from employees and (D) other nonrecurring or unusual items, in
each case prior to the closing of the acquisition of certain assets of The IT
Group, Inc. by the Company on May 3, 2002;
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion,
including by reason of minority interests) that the net income or loss of such
Restricted Subsidiary was included in calculating Consolidated Net Income and
only if a corresponding amount would be permitted at the date of determination
to be dividended to the Company by such Restricted Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Eligible Indebtedness" means any Indebtedness other than Indebtedness that
is, or may be, quoted, listed or purchased and sold on any stock exchange,
automated trading system or over-the-counter or other securities market
(including the market for securities eligible for resale pursuant to Rule 144A
under the Securities Act).
"Equity Offering" means an underwritten primary public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act or any private placement of such common stock (other than to any
Person who, prior to such private placement, was an Affiliate of the Company).
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the debt securities of the Company issued pursuant to
the Indenture in exchange for, and in an aggregate principal amount equal to,
the Notes, in compliance with the terms of the Registration Rights Agreement.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of
62
the United States of America or any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Guaranty Agreement" means a supplemental indenture, substantially in the
form specified in the Indenture, pursuant to which a Subsidiary Guarantor
guarantees the Company's obligations with respect to the Notes on the terms
provided for in the Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable for;
provided, however, that any Indebtedness of a Person existing at the time such
Person becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Person at the
time it becomes a Restricted Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. Solely for purposes of determining
compliance with " -- Certain Covenants -- Limitation on Indebtedness":
(1) amortization of debt discount or the accretion of principal with
respect to a non-interest bearing or other discount security;
(2) the payment of regularly scheduled interest in the form of additional
Indebtedness of the same instrument or the payment of regularly scheduled
dividends on Capital Stock in the form of additional Capital Stock of the
same class and with the same terms; and
(3) the obligation to pay a premium in respect of Indebtedness arising in
connection with the issuance of a notice of redemption or making of a
mandatory offer to purchase such Indebtedness;
63
will not be deemed to be the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of determination
(without duplication):
(1) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable, including, in each case, any premium on such indebtedness to the
extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, bankers' acceptance or similar credit transaction,
including Performance Letters of Credit;
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Capital Stock of such Person
or any Subsidiary of such Person or that are determined by the value of such
Capital Stock, the principal amount of such Capital Stock to be determined in
accordance with the Indenture;
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such property
or assets and the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person;
provided, however, Indebtedness shall not include any liability for Federal,
state, local and other taxes owed or owing by such Person.
Notwithstanding the foregoing, in connection with the purchase by the Company
or any Restricted Subsidiary of any business, the term "Indebtedness" will
exclude post-closing payment adjustments to which the seller may become entitled
to the extent such payment is determined by a final closing balance sheet or
such payment depends on the performance of such business after the closing;
provided, however, that, at the time of closing, the amount of any such payment
is not determinable and, to the extent such payment thereafter becomes fixed and
determined, the amount is paid within 30 days thereafter.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date; provided, however, that
in the case of Indebtedness sold at a discount, the amount of such Indebtedness
at any time will be the accreted value thereof at such time.
"Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing selected by the disinterested
members of the Board of Directors; provided, however, that such firm is not an
Affiliate of the Company.
64
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement with respect to
exposure to interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. Except as otherwise provided for in the
Indenture, the amount of an Investment shall be its fair value at the time the
Investment is made and without giving effect to subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary", the definition
of "Restricted Payment" and the covenant described under " -- Certain Covenants
- -- Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the
Company's "Investment" in such Subsidiary at the time of such redesignation
less (B) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at
the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
equivalent) by Moody's and BBB -- (or the equivalent) by Standard and Poor's, or
an equivalent rating by any other Rating Agency.
"Issue Date" means March 17, 2003.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lenders" has the meaning specified in the Credit Agreement.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"LYONs" means the Company's Liquid Yield Option(TM) NotesDue2021 (Zero
Coupon-Senior) outstanding on the Issue Date.
"Moody's" means Moody's Investors Service, Inc. and any successor to its
rating agency business.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
non-cash form), in each case net of:
(1) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of
such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition,
65
in accordance with the terms of any Lien upon or other security agreement of
any kind with respect to such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Disposition, or by applicable
law, be repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset
Disposition;
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition; and
(5) any portion of the purchase price from an Asset Disposition placed in
escrow, whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or otherwise
in connection with that Asset Disposition; provided, however, that upon the
termination of that escrow, Net Available Cash will be increased by any
portion of funds in the escrow that are released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock or
Indebtedness, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Debt" means, on any date of determination, the total Indebtedness
(excluding Performance Letters of Credit) of the Company and its consolidated
Restricted Subsidiaries less the sum of the value of any marketable securities
held to maturity, cash equivalents and cash held by the Company and its
consolidated Restricted Subsidiaries, in each case as determined on a
consolidated basis in accordance with GAAP.
"Obligations" means, with respect to any Indebtedness, all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Officer" means the Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Performance Letter of Credit" means a letter of credit issued at the request
of the Company solely to support the performance obligations of the Company or
one or more of its Restricted Subsidiaries on contracts entered into in the
ordinary course of business.
"Permitted Holder" means J. M. Bernhard, Jr., or in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee or
other personal representative. Except for a Permitted Holder specifically
identified by name, in determining whether Voting Stock is owned by a Permitted
Holder, only Voting Stock acquired by a Permitted Holder in its described
capacity will be treated as "beneficially owned" by such Permitted Holder.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related
Business;
(2) another Person if, as a result of such Investment, such other Person is
merged or consolidated with or
66
into, or transfers or conveys all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided, however, that such Person's
primary business is a Related Business;
(3)cash and Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(6) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under " -- Certain Covenants -- Limitation
on Sales of Assets and Subsidiary Stock";
(9) any Person where such Investment was acquired by the Company or any of
its Restricted Subsidiaries (a) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts
receivable or (b) as a result of a foreclosure by the Company or any of its
Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default;
(10) any Person to the extent such Investments consist of prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits made in the ordinary
course of business by the Company or any Restricted Subsidiary;
(11) any Person to the extent such Investments consist of Hedging
Obligations otherwise permitted under the covenant described under " --
Certain Covenants -- Limitation on Indebtedness";
(12) Persons to the extent such Investments are in existence on the
Issue Date; and
(13) Persons to the extent such Investments, when taken together with all
other Investments made pursuant to this clause (13) outstanding on the date
such Investment is made, do not exceed $20.0 million.
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under workers' compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to
secure public or statutory obligations of such Person or deposits of cash or
United States government bonds to secure surety or appeal bonds to which such
Person is a party, or deposits as security for contested taxes or import
duties or for the payment of rent, in each case Incurred in the ordinary
course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith by
appropriate proceedings or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be
proceeding with an appeal or other proceedings for review and Liens arising
solely by virtue of any statutory or common law provision
67
relating to banker's Liens, rights of set-off or similar rights and remedies
as to deposit accounts or other funds maintained with a creditor depository
institution; provided, however, that (A) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated
by the Federal Reserve Board and (B) such deposit account is not intended by
the Company or any Restricted Subsidiary to provide collateral to the
depository institution;
(3) Liens for taxes, assessments or governmental charges or levies on the
property of the Company or any Restricted Subsidiary not yet subject to
penalties for non-payment or which are being contested in good faith by
appropriate proceedings;
(4) Liens in favor of issuers of performance bonds, bid bonds or surety
bonds (but excluding Performance Letters of Credit) issued pursuant to the
request of and for the account of such Person in the ordinary course of its
business;
(5) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property,
plant or equipment of such Person; provided, however, that the Lien may not
extend to any other property owned by such Person or any of its Restricted
Subsidiaries at the time the Lien is Incurred (other than assets and property
affixed or appurtenant thereto), and the Indebtedness (other than any
interest thereon) secured by the Liens may not be Incurred more than 180 days
after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property
subject to the Lien;
(6) Liens to secure Eligible Indebtedness Incurred pursuant to clause (a)
or (b)(1) under " -- Certain Covenants -- Limitation on Indebtedness";
(7) Liens existing on the Issue Date;
(8) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided,
however, that the Liens may not extend to any other property owned by such
Person or any of its Restricted Subsidiaries (other than assets and property
affixed or appurtenant thereto);
(9) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger or
consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that the Liens may not extend to any other property owned
by such Person or any of its Restricted Subsidiaries (other than assets and
property affixed or appurtenant thereto);
(10) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a Restricted Subsidiary of such Person;
(11) Liens securing Hedging Obligations so long as such Hedging Obligations
relate to Indebtedness that is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing such Hedging Obligations;
(12) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clause (5), (7), (8) or (9); provided, however, that:
(A) such new Lien shall be limited to all or part of the same property and
assets that secured or, under the written agreements pursuant to which the
original Lien arose, could secure the original Lien (plus improvements and
accessions to, such property or proceeds or distributions thereof); and
(B) the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the sum of (x) the outstanding principal amount or,
if greater, committed amount of the Indebtedness described under clause (5),
(7), (8) or (9) at the time the original Lien became a Permitted Lien and (y)
an amount necessary to pay any fees and expenses, including premiums, related
to such refinancing, refunding, extension, renewal or replacement; and
68
(13) Liens not otherwise permitted by clauses (1) through (12) above
securing Indebtedness not in excess of an aggregate of $7.5 million.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clause (5), (8) or (9) above to the extent such Lien applies to any
Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to the covenant described under " -- Certain Covenants -- Limitation on
Sale of Assets and Subsidiary Stock". For purposes of this definition, the term
"Indebtedness" shall be deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Rating Agency" means each of Standard & Poor's and Moody's or if Standard &
Poor's or Moody's or both shall not make a rating on the Notes publicly
available, a nationally recognized statistical rating agency or agencies, as the
case may be, selected by the Company (as certified by a resolution of the Board
of Directors) which shall be substituted for Standard & Poor's or Moody's or
both, as the case may be.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced;
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being Refinanced; and
(4) if the Indebtedness being Refinanced is subordinated in right of
payment to the Notes or the Subsidiary Guarantees, such Refinancing
Indebtedness is subordinated in right of payment to the Notes or the
Subsidiary Guarantees, as the case may be, at least to the same extent as the
Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement dated
March 17, 2003, among the Company, the Subsidiary Guarantors and the initial
purchasers.
69
"Related Business" means any business in which the Company or any of its
Restricted Subsidiaries was engaged on the Issue Date and any business related,
ancillary or complementary to any such business.
"Restricted Payment" with respect to the Company and its Restricted
Subsidiaries means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of the Capital Stock of the Company or any Restricted
Subsidiary (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by
a Restricted Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation));
(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any Capital
Stock of a Restricted Subsidiary held by any Affiliate of the Company (other
than a Restricted Subsidiary), including in connection with any merger or
consolidation and including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations of the Company
or any Subsidiary Guarantor (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of such purchase,
repurchase or other acquisition); or
(4) the making of any Investment (other than a Permitted Investment) by the
Company or any Restricted Subsidiary in any other Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property owned
by the Company or a Restricted Subsidiary on the Issue Date or thereafter
acquired by the Company or a Restricted Subsidiary whereby the Company or a
Restricted Subsidiary transfers such property to a Person and the Company or a
Restricted Subsidiary leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred; and
(2) all other Obligations of such Person (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating
to such Person whether or not post-filing interest is allowed in such
proceeding) in respect of Indebtedness described in clause (1) above
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such Indebtedness or other Obligations are subordinate in right of payment
to the Notes or the Subsidiary Guaranty of such Person, as the case may be;
provided, however, that Senior Indebtedness shall not include:
(1) any obligation of such Person to the Company or any Subsidiary;
70
(2) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities);
(3) any Indebtedness or other Obligation of such Person which is
subordinate or junior in any respect to any other Indebtedness or other
Obligation of such Person; or
(4) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Senior Officer" of any Person means the Chief Executive Officer, President,
Chief Operating Officer, Executive Vice President or Chief Financial Officer of
such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Standard & Poor's" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., and any successor to its rating agency business.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes or a Subsidiary
Guaranty of such Person, as the case may be, pursuant to a written agreement to
that effect.
"Subsidiary" means, with respect to any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Voting Stock is at the time owned or controlled, directly or
indirectly, by:
(1)such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3)one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of the Company that executes the
Indenture as a guarantor on the Issue Date and each other Subsidiary of the
Company that thereafter guarantees the Notes pursuant to the terms of the
Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America
or any agency thereof;
(2) investments in demand and time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any State thereof or any
foreign country recognized by the United States of America, and which bank or
trust company has capital, surplus and undivided profits aggregating in
excess of $50.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor;
71
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered into
with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to Standard
and Poor's; and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's or
"A" by Moody's.
"Transactions" means this offering.
"Trustee" means The Bank of New York until a successor replaces it and,
thereafter, means the successor.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15
U.S.C.Sections 77aaa-77bbbb) as in effect on the Issue Date.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under " -- Certain Covenants -- Limitation on Restricted
Payments".
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under " -- Certain Covenants --
Limitation on Indebtedness" and (B) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved
in such computation into U.S. dollars at the spot rate for the purchase of
U.S. dollars with the applicable foreign currency as published in The Wall
Street Journal in the "Exchange Rates" column under the heading "Currency
Trading" on the date two Business Days prior to such determination.
Except as described under " -- Certain Covenants -- Limitation on
Indebtedness", whenever it is necessary to determine whether the Company has
complied with any covenant in the Indenture or a Default has occurred and an
amount is expressed in a currency other than U.S. dollars, such amount will be
treated as the U.S. Dollar Equivalent
72
determined as of the date such amount is initially determined in such currency.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock of such Person
then outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock
of which (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or another Wholly
Owned Subsidiary but not exceeding 15% of the total Voting Stock of such
Restricted Subsidiary) is owned by the Company or one or more other Wholly Owned
Subsidiaries.
73
FEDERAL INCOME TAX CONSIDERATIONS
FEDERAL INCOME TAX CONSIDERATIONS OF THE EXCHANGE OF OUTSTANDING NOTES FOR
NEW NOTES
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of outstanding notes for new notes, but
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which may be subject to change at any time by
legislative, judicial or administrative action. These changes may be applied
retroactively in a manner that could adversely affect a holder of new notes. The
description does not consider the effect of any applicable foreign, state, local
or other tax laws or estate or gift tax considerations.
We believe that the exchange of outstanding notes for new notes should not be
an exchange or otherwise a taxable event to a holder for United States federal
income tax purposes. Accordingly, a holder should have the same adjusted issue
price, adjusted basis and holding period in the new notes as it had in the
outstanding notes immediately before the exchange.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC in no action letters issued
to third parties, we believe that you may transfer new notes issued under the
exchange offer in exchange for the outstanding notes if:
- you acquire the new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of such new notes.
You may not participate in the exchange offer if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities
Act; or
- a broker-dealer that acquired outstanding notes directly from us.
Each broker-dealer that receives new 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 new notes. To date, the staff of the SEC has
taken the position that broker-dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as this exchange offer, other than a resale of an unsold allotment from the
original sale of the outstanding notes, with the prospectus contained in this
registration statement. 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
new notes received in exchange for outstanding notes where such outstanding
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of up to 180 days after the
effective date of this registration statement, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until such date, all dealers effecting
transactions in new notes may be required to deliver a prospectus.
If you wish to exchange new notes for your outstanding notes in the exchange
offer, you will be required to make representations to us as described in
"Exchange Offer -- Purpose and Effect of the Exchange Offer" and " -- Procedures
for Tendering -- Your Representations to Us" in this prospectus. As indicated in
the letter of transmittal, you will be deemed to have made these representations
by tendering your outstanding notes in the exchange offer. In addition, if you
are a broker-dealer who receives new notes for your own account in exchange for
outstanding notes that were acquired by you as a result of market-making
activities or other trading activities, you will be required to acknowledge, in
the same manner, that you will deliver a prospectus in connection with any
resale by you of such new notes.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New 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:
74
- in negotiated transactions;
- through the writing of options on the new notes or a combination of
such methods of resale;
- at market prices prevailing at the time of resale; and
- 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 new notes. Any
broker-dealer that resells new 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 new notes may be deemed to be an
"underwriter" within the meaning of 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 effective date of this registration
statement (or until such time as all of the Exchange Notes have been sold), we
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. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the
outstanding notes) other than commissions or concessions of any broker-dealers
and will indemnify the holders of the outstanding notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the new notes will
be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas. The validity of
the issuance of the new notes and certain other legal matters arising under
Louisiana law will be passed upon for us by Kantrow, Spaht, Weaver & Blitzer (A
Professional Law Corporation), Baton Rouge, Louisiana.
INDEPENDENT AUDITORS
The consolidated financial statements of The Shaw Group Inc. appearing in The
Shaw Group Inc.'s Annual Report (Form 10-K) for the year ended August 31, 2002,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of The Shaw Group Inc. as of and for the fiscal
years ended August 31, 2001 and 2000 incorporated in this registration statement
by reference have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein. Arthur Andersen LLP has
not consented to the inclusion of their report in this registration statement.
Because of Arthur Andersen LLP's current financial position, you may not be able
to recover against Arthur Andersen LLP for any claims you may have under
securities or other laws as a result of Arthur Andersen LLP's activities during
the period in which it acted as our independent public accountants. See "Risk
Factors -- Your ability to recover from our former auditors, Arthur Andersen
LLP, for any potential financial misstatements is limited."
The consolidated financial statements of The IT Group, Inc. at December 28,
2001 and December 29, 2000 and for each of the fiscal years in the three-year
period ended December 28, 2001 appearing in The Shaw Group Inc.'s Current Report
on Form 8-K filed on May 16, 2002, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
75
CHANGE IN INDEPENDENT AUDITORS
On June 26, 2002, we dismissed Arthur Andersen LLP as our independent
auditors and engaged Ernst & Young LLP to serve as our independent auditors for
the fiscal year ending August 31, 2002. The Arthur Andersen dismissal and the
Ernst & Young engagement were recommended by our audit committee and approved by
our board of directors and became effective immediately upon such approval.
Arthur Andersen's reports on our consolidated financial statements for each
of the fiscal years ending August 31, 2001 and August 31, 2000 did not contain
an adverse opinion or disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended August 31, 2001 and August 31, 2000 and through
June 26, 2002, there were (i) no disagreements with Arthur Andersen on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement(s), if not resolved to Arthur
Andersen's satisfaction would have caused Arthur Andersen to make a reference to
the subject matter of the disagreement(s) in connection with Arthur Andersen's
report or (ii) no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K, except for notification from Arthur Andersen in connection with
the audit of our August 31, 2000 financial statements that the accounting system
of Stone & Webster contained certain material weaknesses in internal accounting
controls. We completed our acquisition of substantially all of the assets and
liabilities of stone & Webster in a bankruptcy proceeding on July 14, 2000, and
eliminated the weaknesses during fiscal 2001. As a result thereof, Arthur
Andersen did not include these matters in its management letter for the audit
for the fiscal year ending August 31, 2001.
We have previously provided Arthur Andersen with a copy of the foregoing
disclosures, and Arthur Andersen has delivered to us a letter dated June 26,
2002 stating that it has found no basis for disagreement with such statements.
During each of the fiscal years ended August 31, 2001 and August 31, 2000 and
through June 26, 2002, we did not consult Ernst & Young with respect to the
application of accounting principles to a specified transaction, whether
completed or proposed, or the type of audit opinion that might be rendered on
our consolidated financial statements, or any other matters or reportable events
as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. The statements contained in this
offering circular, including in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," that are not historical facts
(including without limitation statements to the effect that we "believe,"
"expect," "anticipate," "plan," "intend" or "foresee," and other similar
expressions) are forward-looking statements. These forward-looking statements
are based on our current expectations and beliefs concerning future developments
and their potential effects on us. There can be no assurance that future
developments affecting us will be those anticipated by us. These forward-looking
statements involve significant risks and uncertainties (some of which are beyond
our control) and assumptions. They are subject to change based upon various
factors, including but not limited to the risks and uncertainties mentioned in
"Risk Factors" and the following:
- changes in the demand for our products and services;
- changes in general economic conditions, and, specifically, changes in the
rate of economic growth in the United States and other major international
economies;
- the presence of competitors with greater financial resources and the
impact of competitive products, services and pricing;
- the cyclical nature of the individual markets in which our customers
operate;
- the financial strength of our customers and their ability to make
scheduled payments on their contracts with us;
- changes in investment by the energy, power and environmental and
infrastructure industries;
76
- the availability of qualified engineers, professional staff and craft
labor needed to execute contracts;
- the uncertain timing of awards and contracts;
- the funding of backlog, including government budget constraints, cost
overruns on fixed or unit priced contracts;
- cost overruns which negatively affect fees to be earned or cost
variances to shared on cost-plus contracts;
- changes in laws and regulations and in trade, monetary and fiscal
policies worldwide;
- currency fluctuations;
- the effect of our policies, including but not limited to the amount and
rate of growth of our expenses;
- the continued availability to us of adequate funding sources;
- delays or difficulties in the production, delivery or installation of
products and the provision of services, including in the ability to recover
for changed conditions;
- our ability to successfully integrate acquisitions;
- the protection and validity of patents and other intellectual property;
and
- various other legal, regulatory and litigation risks.
Should one or more of these risks or uncertainties materialize, or should any
of the our assumptions prove incorrect, actual results may vary in material
respects from those projected in the forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. For a more detailed
discussion of some of the foregoing risks and uncertainties, see "Risk Factors."
77
INDEX TO FINANCIAL STATEMENTS
<Table>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE SHAW GROUP
INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of August 31, 2002 and August
31, 2001.................................................. F-4
Consolidated Statements of Income For the Years Ended August
31, 2002, August 31, 2001 and August 31, 2000............. F-6
Consolidated Statements of Shareholders' Equity For the
Years Ended August 31, 2002, August 31, 2001 and August
31, 2000.................................................. F-7
Consolidated Statements of Cash Flows For the Years Ended
August 31, 2002, August 31, 2001 and August 31, 2000...... F-8
Notes to Consolidated Financial Statements.................. F-9
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE
SHAW GROUP INC.
Unaudited Condensed Consolidated Balance Sheets as of
February 28, 2003 and August 31, 2002..................... F-60
Unaudited Condensed Consolidated Statements of Operations
For the Three and Six Months Ended February 28, 2003 and
2002...................................................... F-62
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended February 28, 2003 and 2002....... F-63
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-64
</Table>
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
The Shaw Group Inc.
We have audited the accompanying consolidated balance sheet of The Shaw
Group Inc. and subsidiaries as of August 31, 2002, and the related consolidated
statements of income, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of The Shaw Group Inc.
as of August 31, 2001, were audited by other auditors who have ceased operations
and whose report dated October 5, 2001, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Shaw Group
Inc. and subsidiaries at August 31, 2002, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 1 to the financial statements, effective September 1,
2001, the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142").
As discussed above, the financial statements of The Shaw Group Inc. as of
August 31, 2001 and for the two years in the period then ended were audited by
other auditors who have ceased operations. As described in Notes 8 and 15, these
financial statements have been revised. We audited the adjustments described in
Note 15 that were applied to revise the 2001 and 2000 financial statements
relating to changes in segments. We also applied audit procedures with respect
to the disclosures in Note 8 pertaining to financial statement revisions to
include the transitional disclosures required by FAS 142. In our opinion, the
adjustments to Note 15 are appropriate and have been properly applied. In
addition, in our opinion, the FAS 142 disclosures for 2001 and 2000 in Note 8
are appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2001 and 2000 financial statements of the Company other than
with respect to such adjustments and, accordingly, we do not express an opinion
or any other form of assurance on the 2001 and 2000 financial statements taken
as a whole.
/s/ ERNST & YOUNG LLP
--------------------------------------
New Orleans, Louisiana
October 11, 2002, except for Note 14,
as to which the date is November 1, 2002
F-2
PLEASE READ "RISK FACTORS -- YOUR ABILITY TO RECOVER FROM OUR FORMER
AUDITORS, ARTHUR ANDERSEN LLP, FOR ANY POTENTIAL FINANCIAL MISSTATEMENTS IS
LIMITED" AND "INDEPENDENT ACCOUNTANTS" IN CONNECTION WITH THIS REPORT AND THE
ACCOMPANYING FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of The Shaw Group Inc.:
We have audited the accompanying consolidated balance sheets of The Shaw
Group Inc. (a Louisiana corporation) and subsidiaries as of August 31, 2001 and
2000, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended August 31, 2001.
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. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Shaw Group Inc. and
subsidiaries as of August 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
2001, in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
New Orleans, Louisiana
October 5, 2001
F-3
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
---------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 401,764 $ 443,304
Escrowed cash............................................. 96,500 --
Marketable securities, held to maturity................... 54,952 45,630
Accounts receivable, including retainage, net............. 436,747 341,833
Accounts receivable from unconsolidated entity............ 32 4,848
Inventories............................................... 99,009 91,155
Cost and estimated earnings in excess of billings on
uncompleted contracts.................................. 248,360 95,012
Prepaid expenses.......................................... 15,681 10,660
Deferred income taxes..................................... 73,903 54,351
Assets held for sale...................................... 2,001 3,491
Other current assets...................................... 21,405 5,757
---------- ----------
Total current assets.............................. 1,450,354 1,096,041
Investment in and advances to unconsolidated entities, joint
ventures and limited partnerships......................... 37,729 24,314
Investment in securities available for sale................. 7,235 10,490
Property and equipment:
Transportation equipment.................................. 4,876 4,433
Furniture and fixtures.................................... 103,172 49,550
Machinery and equipment................................... 101,643 79,536
Buildings and improvements................................ 59,479 33,127
Assets acquired under capital leases...................... 6,372 1,554
Land...................................................... 7,471 7,302
Construction in progress.................................. 7,267 21,659
---------- ----------
290,280 197,161
Less: Accumulated depreciation.............................. (84,055) (61,959)
---------- ----------
206,225 135,202
Goodwill.................................................... 499,004 368,872
Other assets................................................ 103,653 66,935
---------- ----------
$2,304,200 $1,701,854
========== ==========
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-4
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<Table>
<Caption>
2002 2001
---------- ----------
(DOLLARS IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 390,165 $ 181,936
Accrued liabilities....................................... 159,182 81,660
Current maturities of long-term debt...................... 3,102 2,365
Short-term revolving lines of credit...................... 1,052 3,909
Current portion of obligations under capital leases....... 2,200 2,313
Deferred revenue -- prebilled............................. 11,503 7,976
Advanced billings and billings in excess of cost and
estimated earnings on uncompleted contracts............ 424,724 244,131
Contract liability adjustments............................ 69,140 43,801
Accrued contract loss reserves............................ 11,402 6,906
---------- ----------
Total current liabilities......................... 1,072,470 574,997
Long-term debt, less current maturities..................... 521,190 509,684
Obligations under capital leases, less current
obligations............................................... 957 3,183
Deferred income taxes....................................... 15,452 8,247
Other liabilities........................................... 1,874 7,350
Commitments and contingencies............................... -- --
Shareholders' equity:
Preferred stock, no par value, 20,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, no par value, 200,000,000 shares authorized;
43,002,677 and 41,012,292 shares issued, respectively;
40,841,627 and 41,012,292 shares outstanding,
respectively........................................... 494,581 437,015
Retained earnings......................................... 265,945 167,578
Accumulated other comprehensive income (loss)............. (16,193) (6,200)
Treasury stock, 2,161,050 shares at August 31, 2002....... (52,076) --
---------- ----------
Total shareholders' equity........................ 692,257 598,393
---------- ----------
$2,304,200 $1,701,854
========== ==========
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-5
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 31, 2002, 2001 AND 2000
<Table>
<Caption>
2002 2001 2000
---------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues.................................................. $3,170,696 $1,538,932 $762,655
Cost of revenues.......................................... 2,843,070 1,292,316 635,579
---------- ---------- --------
Gross profit.............................................. 327,626 246,616 127,076
General and administrative expenses....................... 161,248 122,601 71,198
Goodwill amortization..................................... -- 17,059 3,099
---------- ---------- --------
Total general and administrative expenses....... 161,248 139,660 74,297
Operating income.......................................... 166,378 106,956 52,779
Interest income........................................... 11,518 8,746 682
Interest expense.......................................... (23,028) (15,680) (8,003)
Other, net................................................ (3,856) (128) 90
---------- ---------- --------
(15,366) (7,062) (7,231)
---------- ---------- --------
Income before income taxes................................ 151,012 99,894 45,548
Provision for income taxes................................ 54,348 38,366 16,359
---------- ---------- --------
Income before earnings (losses) from unconsolidated
entities................................................ 96,664 61,528 29,189
Earnings (losses) from unconsolidated entities............ 1,703 (316) 1,194
---------- ---------- --------
Income before extraordinary item and cumulative effect of
change in accounting principle.......................... 98,367 61,212 30,383
Extraordinary item for early extinguishment of debt, net
of taxes of $134 and $340............................... -- (215) (553)
Cumulative effect on prior years of change in accounting
for start-up costs, net of taxes of $196................ -- -- (320)
---------- ---------- --------
Net income................................................ $ 98,367 $ 60,997 $ 29,510
========== ========== ========
Basic income per common share:
Income per common share:
Income before extraordinary item and cumulative effect
of change in accounting principle.................... $ 2.41 $ 1.53 $ 1.03
Extraordinary item, net of taxes........................ -- (0.01) (0.02)
Cumulative effect of change in accounting principle, net
of taxes............................................. -- -- (0.01)
---------- ---------- --------
Net income per common share............................. $ 2.41 $ 1.52 $ 1.00
========== ========== ========
Diluted income per common share:
Income per common share:
Income before extraordinary item and cumulative effect
of change in accounting principle.................... $ 2.26 $ 1.46 $ 0.99
Extraordinary item, net of taxes........................ -- -- (0.02)
Cumulative effect of change in accounting principle, net
of taxes............................................. -- -- (0.01)
---------- ---------- --------
Net income per common share............................. $ 2.26 $ 1.46 $ 0.96
========== ========== ========
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-6
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
UNEARNED
COMMON STOCK RESTRICTED TREASURY STOCK
---------------------- STOCK ----------------------
SHARES AMOUNT COMPENSATION SHARES AMOUNT
----------- -------- ------------ ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance, September 1, 1999....................... 39,920,564 $119,353 $(125) 16,448,472 $(20,525)
Comprehensive income:
Net income.................................... -- -- -- -- --
Other comprehensive income (loss):
Foreign translation adjustments............. -- -- -- -- --
Comprehensive income............................
Shares issued in public offering................ 6,900,000 67,487 -- -- --
Amortization of restricted stock compensation... -- -- 66 -- --
Shares issued to acquire PPM.................... 86,890 2,012 -- -- --
Shares issued to acquire Stone & Webster........ 4,463,546 105,033 -- -- --
Exercise of options............................. 580,764 2,255 -- -- --
Tax benefit on exercise of options.............. -- 2,739 -- -- --
Purchases of treasury stock..................... -- -- -- 100,884 (2,392)
Retirement of treasury stock.................... (149,440) (874) -- (149,440) 874
----------- -------- ----- ----------- --------
Balance, August 31, 2000......................... 51,802,324 298,005 (59) 16,399,916 (22,043)
Comprehensive income:
Net income.................................... -- -- -- -- --
Other comprehensive income (loss):
Foreign translation adjustments............. -- -- -- -- --
Unrealized net gain on hedging activities,
net of tax benefit of $72................. -- -- -- -- --
Unrealized net losses on securities
available for sale, net of tax benefit of
$5........................................ -- -- -- -- --
Comprehensive income............................
Shares issued in public offering................ 4,837,338 144,809 -- -- --
Amortization of restricted stock compensation... -- -- 59 -- --
Shares issued to acquire SS&S................... 170,683 6,274 -- -- --
Exercise of options............................. 606,863 3,271 -- -- --
Tax benefit on exercise of options.............. -- 6,699 -- -- --
Return of Naptech acquisition escrow shares..... -- -- -- 5,000 --
Retirement of treasury stock.................... (16,404,916) (22,043) -- (16,404,916) 22,043
----------- -------- ----- ----------- --------
Balance, August 31, 2001......................... 41,012,292 437,015 -- -- --
Comprehensive income:
Net income.................................... -- -- -- -- --
Other comprehensive income:
Foreign translation adjustments............. -- -- -- -- --
Unrealized net loss on hedging activities,
net of tax benefit of $72................. -- -- -- -- --
Unrealized net losses on securities
available for sale, net of tax benefit of
$74.......................................
Additional pension liability not yet
recognized in net periodic pension
expense, net of tax benefit of $3,054..... -- -- -- -- --
Comprehensive income (loss).....................
Shares issued to acquire IT Group............... 1,671,336 52,463 -- -- --
PPM acquisition earn out shares................. 83,859 1,971 -- -- --
Exercise of options............................. 235,190 2,262 -- -- --
Tax benefit on exercise of options.............. -- 675 -- -- --
Purchases of treasury stock..................... -- -- -- (2,160,400) (52,043)
Return of SS&S escrow shares.................... -- -- -- (650) (33)
Contributed capital............................. -- 195 -- -- --
----------- -------- ----- ----------- --------
Balance, August 31, 2002......................... 43,002,677 $494,581 $ -- (2,161,050) $(52,076)
=========== ======== ===== =========== ========
<Caption>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
INCOME RETAINED SHAREHOLDERS'
(LOSS) EARNINGS EQUITY
------------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance, September 1, 1999....................... $ (1,535) $ 77,071 $174,239
Comprehensive income:
Net income.................................... -- 29,510 29,510
Other comprehensive income (loss):
Foreign translation adjustments............. (3,674) -- (3,674)
--------
Comprehensive income............................ 25,836
Shares issued in public offering................ -- -- 67,487
Amortization of restricted stock compensation... -- -- 66
Shares issued to acquire PPM.................... -- -- 2,012
Shares issued to acquire Stone & Webster........ -- -- 105,033
Exercise of options............................. -- -- 2,255
Tax benefit on exercise of options.............. -- -- 2,739
Purchases of treasury stock..................... -- -- (2,392)
Retirement of treasury stock.................... -- -- --
-------- -------- --------
Balance, August 31, 2000......................... (5,209) 106,581 377,275
Comprehensive income:
Net income.................................... -- 60,997 60,997
Other comprehensive income (loss):
Foreign translation adjustments............. (1,099) -- (1,099)
Unrealized net gain on hedging activities,
net of tax benefit of $72................. 115 -- 115
Unrealized net losses on securities
available for sale, net of tax benefit of
$5........................................ (7) -- (7)
--------
Comprehensive income............................ 60,006
Shares issued in public offering................ -- -- 144,809
Amortization of restricted stock compensation... -- -- 59
Shares issued to acquire SS&S................... -- -- 6,274
Exercise of options............................. -- -- 3,271
Tax benefit on exercise of options.............. -- -- 6,699
Return of Naptech acquisition escrow shares..... -- -- --
Retirement of treasury stock.................... -- -- --
-------- -------- --------
Balance, August 31, 2001......................... (6,200) 167,578 598,393
Comprehensive income:
Net income.................................... -- 98,367 98,367
Other comprehensive income:
Foreign translation adjustments............. (2,633) -- (2,633)
Unrealized net loss on hedging activities,
net of tax benefit of $72................. (115) -- (115)
Unrealized net losses on securities
available for sale, net of tax benefit of
$74....................................... (119) (119)
Additional pension liability not yet
recognized in net periodic pension
expense, net of tax benefit of $3,054..... (7,126) -- (7,126)
--------
Comprehensive income (loss)..................... 88,374
Shares issued to acquire IT Group............... -- -- 52,463
PPM acquisition earn out shares................. -- -- 1,971
Exercise of options............................. -- -- 2,262
Tax benefit on exercise of options.............. -- -- 675
Purchases of treasury stock..................... -- -- (52,043)
Return of SS&S escrow shares.................... -- -- (33)
Contributed capital............................. -- -- 195
-------- -------- --------
Balance, August 31, 2002......................... $(16,193) $265,945 $692,257
======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-7
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2002, 2001 AND 2000
<Table>
<Caption>
2002 2001 2000
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 98,367 $ 60,997 $ 29,510
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 28,598 39,740 16,808
Provision for deferred income taxes..................... 48,093 36,863 1,805
Accretion of interest on discounted convertible
long-term debt........................................ 11,512 3,787 --
Amortization of deferred debt issue costs............... 9,079 5,515 1,004
Provision for uncollectable accounts receivable......... 4,250 10,614 3,839
Amortization of contract adjustments.................... (31,066) (70,081) (7,933)
(Earnings) losses from unconsolidated entities.......... (1,703) 316 (1,194)
Foreign currency transaction losses..................... 1,158 41 1,805
Impairment write-down of securities available for
sale.................................................. 3,062 942 --
Other................................................... (38) (1,277) (4,700)
Changes in assets and liabilities, net of effects of
acquisitions:
(Increase) decrease in receivables...................... 32,103 (35,241) (55,614)
(Increase) decrease in cost and estimated earnings in
excess of billings on uncompleted contracts........... (54,625) 12,064 (33,833)
(Increase) decrease in inventories...................... (8,462) 5,173 (17,941)
(Increase) decrease in assets held for sale............. 1,490 (1,397) (332)
(Increase) decrease in other current assets............. 1,810 12,722 (5,343)
(Increase) in prepaid expenses.......................... (3,182) (760) (787)
(Increase) decrease in other assets..................... 5,509 3,894 (749)
Increase (decrease) in accounts payable................. 70,258 (42,437) (37,886)
Increase in deferred revenue-prebilled.................. 3,527 1,760 2,469
Increase (decrease) in accrued liabilities.............. 21,733 (62,010) 21,750
Increase in advanced billings and billings in excess of
cost and estimated earnings on uncompleted
contracts............................................. 84,097 66,813 21,823
(Decrease) in accrued contract loss reserves, net....... (2,964) (29,219) (5,575)
Increase (decrease) in other long-term liabilities...... (7,540) (7,414) 1,198
--------- --------- ---------
Net cash provided by (used in) operating activities....... 315,066 11,405 (69,876)
Cash flows from investing activities:
Investment in subsidiaries, net of cash received........ (102,664) (160) (2,342)
Purchase of property and equipment...................... (73,946) (38,121) (20,619)
Purchase of real estate option.......................... (12,183) -- --
Purchase of marketable securities, held to maturity..... (128,585) (45,630) --
Maturities of marketable securities, held to maturity... 119,263 -- --
Investment in and advances to unconsolidated entities
and joint ventures.................................... (3,096) (4,237) (1,561)
Distributions from joint ventures and unconsolidated
entities.............................................. 2,208 -- --
Proceeds from sale of assets............................ 717 120,920 8,715
Purchase of securities available for sale............... -- (1,241) --
Acquisition, return of funds............................ -- 22,750 --
--------- --------- ---------
Net cash provided by (used in) investing activities....... (198,286) 54,281 (15,807)
Cash flows from financing activities:
Purchase of treasury stock.............................. (52,043) -- (2,392)
Repayment of debt and leases............................ (9,202) (49,247) (112,555)
Proceeds from issuance of debt, net of deferred debt
issue costs........................................... 131 492,851 2,443
Issuance of common stock................................ 2,262 148,080 69,742
Net proceeds (repayments) from revolving credit
agreements, including payments for deferred debt issue
costs................................................. (2,959) (235,024) 150,536
Other -- miscellaneous.................................. (163) -- --
Decrease in outstanding checks in excess of bank
balance............................................... -- -- (6,610)
--------- --------- ---------
Net cash (used in) provided by financing activities....... (61,974) 356,660 101,164
Effects of foreign exchange rate changes on cash............ 154 (810) (614)
--------- --------- ---------
Net increase in cash........................................ 54,960 421,536 14,867
Cash and cash equivalents -- beginning of year.............. 443,304 21,768 6,901
--------- --------- ---------
Cash and cash equivalents and escrow cash -- end of year.... $ 498,264 $ 443,304 $ 21,768
========= ========= =========
Supplemental disclosures:
Cash payments for:
Interest (net of capitalized interest).................. $ 1,533 $ 5,931 $ 9,329
========= ========= =========
Income taxes............................................ $ 2,226 $ 2,268 $ 11,286
========= ========= =========
Noncash investing and financing activities:
Investment in subsidiaries acquired through issuance of
common stock.......................................... $ 54,434 $ 6,274 $ 107,045
========= ========= =========
Payment of liability with securities available for
sale.................................................. $ -- $ 7,000 $ --
========= ========= =========
Property and equipment acquired through issuance of
debt.................................................. $ -- $ 6,379 $ 1,467
========= ========= =========
Investment in securities available for sale acquired in
lieu of interest payment.............................. $ -- $ 843 $ 1,406
========= ========= =========
Sale of property financed through issuance of note
receivable............................................ $ -- $ -- $ 3,960
========= ========= =========
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-8
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Shaw
Group Inc. (a Louisiana corporation) and its wholly-owned subsidiaries
(collectively, the "Company"). All material intercompany accounts and
transactions have been eliminated in these financial statements.
In order to prepare financial statements in conformity with accounting
principles generally accepted in the United States, management is required to
make estimates and assumptions as of the date of the financial statements which
affect the reported values of assets and liabilities and revenues and expenses,
and disclosures of contingent assets and liabilities. Areas requiring
significant estimates by the Company's management, include (i) contract costs
and profits and application of percentage-of-completion accounting; (ii)
recoverability of inventory and application of lower of cost or market
accounting; (iii) provisions for uncollectable receivables and customer claims;
(iv) provisions for income taxes and related valuation allowances; (v)
recoverability of goodwill; (vi) recoverability of other intangibles and related
estimated lives, (vii) valuation of assets acquired and liabilities assumed in
connection with business combinations and (viii) accruals for estimated
liabilities, including litigation and insurance reserves. Actual results could
differ from those estimates.
NATURE OF OPERATIONS AND OPERATING CYCLE
The Company is a leading global provider of comprehensive services to the
power, process, and environmental and infrastructure industries. It is a
vertically-integrated provider of comprehensive engineering, procurement, pipe
fabrication, construction and maintenance services to the power and process
industries. The Company is also a leader in the environmental, infrastructure
and homeland defense markets providing consulting, engineering, construction,
remediation, and facilities management services to government and commercial
clients.
The Company operates primarily in the United States, Canada, the
Asia/Pacific Rim, Europe, South America and the Middle East. The Company's
services and products include consulting, project design, engineering and
procurement, piping system fabrication, industrial construction and maintenance,
facilities management, environmental remediation, design and fabrication of pipe
support systems and manufacture and distribution of specialty pipe fittings. The
Company's operations are conducted primarily through wholly-owned subsidiaries
and joint ventures.
The Company's work is performed under cost-reimbursable contracts,
fixed-price contracts, and fixed-price contracts modified by incentive and
penalty provisions. The length of the Company's significant contracts varies but
is generally between two to four years. Assets and liabilities have been
classified as current and non-current under the operating cycle concept whereby
all contract-related items are regarded as current regardless of whether cash
will be received within a 12-month period.
CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES HELD TO MATURITY
Highly liquid investments are classified as cash equivalents if they mature
within three months of the purchase date. Marketable securities held to maturity
are comprised of highly liquid investments that mature between three to four
months of the purchase date. The fair value of marketable securities held to
maturity approximates the carrying value at August 31, 2002 and 2001.
ACCOUNTS RECEIVABLE AND CREDIT RISK
The Company grants short-term credit to its customers. The Company's
principal customers are major multi-national industrial corporations,
governmental agencies, regulated utility companies, independent and
F-9
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
merchant power producers and equipment manufacturers. Work is performed under
contract and the Company believes that in most cases its credit risk is minimal;
however, during fiscal 2002, changes in the power generation market created
liquidity problems for certain unregulated, independent power producers
("IPPs"). As a result, the Company's credit risk has significantly increased
with respect to those customers. (See Note 14 of Notes to Consolidated Financial
Statements for further discussion).
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CONTRACT ADJUSTMENTS
The allowance for doubtful accounts and contract adjustments was
approximately $8,350,000 and $12,650,000 at August 31, 2002 and 2001. The
Company estimates the amount of doubtful accounts based on historical experience
and management's understanding of the financial condition of its customers.
Contract adjustment allowances represent management's estimates of the net
amounts to be realized with respect to matters disputed or questioned by
customers. Increases to the allowance for the year ended August 31, 2002 were
approximately $4,250,000 and total reductions were approximately $8,550,000.
Increases to the allowance for the year ended August 31, 2001 were approximately
$10,600,000 and total reductions were approximately $3,800,000. Increases to the
allowance for the year ended August 31, 2000 were approximately $3,900,000 and
total reductions were approximately $3,800,000. The Company increases or reduces
revenues for contract adjustments. (Also see Note 14 of Notes to Consolidated
Financial Statements.)
At August 31, 2002 and 2001, accounts receivable included approximately
$22,000,000 and $14,200,000, respectively, of receivables and claims, recorded
at net realizable value, due under contracts which are subject to contract
renegotiations or legal proceedings. At August 31, 2002, contracts with 24
customers made up the $22,000,000 balance discussed above. Management believes
that the ultimate resolution of these disputes will not have a significant
impact on future results of operations.
Included in estimated total revenues on two projects in progress at August
31, 2002 are a total of $12,000,000 in claims and disputed change orders.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") or weighted-average cost methods.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Additions and improvements
(including interest costs for construction of certain long-lived assets) are
capitalized. Maintenance and repair expenses are charged to income as incurred.
The cost of property and equipment sold or otherwise disposed of and the
accumulated depreciation thereon, are eliminated from the property and related
accumulated depreciation accounts, and any gain or loss is credited or charged
to income.
For financial reporting purposes, depreciation is provided over the
following estimated useful service lives:
<Table>
Transportation equipment.................................... 5-15 Years
Furniture and fixtures...................................... 3-7 Years
Machinery and equipment..................................... 3-18 Years
Buildings and improvements.................................. 8-40 Years
</Table>
The straight-line depreciation method is used for all assets, except
certain software (recorded as a component of furniture and fixtures) which is
depreciated on a double-declining balance method.
F-10
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the years ended August 31, 2002 and 2001, interest costs of
approximately $364,000 and $363,000, respectively, were capitalized.
JOINT VENTURES
As is common in the engineering, procurement and construction industries,
the Company executes certain contracts jointly with third parties through joint
ventures, limited partnerships and limited liability companies (collectively
"joint ventures"). The investments in these joint ventures are included in the
accompanying consolidated balance sheets as of August 31, 2002 and 2001 at
$18,255,000 and $9,036,000, respectively, which generally represent the
Company's cash contributions and its share of the earnings from these
investments (equity method of accounting). The Company generally reports its
percentage share of revenues and costs from these entities in its consolidated
statements of income (proportional consolidation).
INCOME TAXES
The Company provides for deferred taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 -- "Accounting for Income
Taxes," which requires an asset and liability approach for measuring deferred
tax assets and liabilities due to temporary differences existing at year end
using currently enacted tax rates.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the purchase price of acquisitions over
the fair value of the net assets acquired.
In July 2001, the Financial Accounting Standards Board (FASB) issued two
new accounting standards SFAS No. 141 -- "Business Combinations" and SFAS No.
142 -- "Goodwill and Other Intangible Assets," and the Company adopted these
standards effective September 1, 2001. These standards significantly changed
prior practices for the accounting for business combinations and goodwill and
intangibles by: (i) terminating the use of the pooling-of-interests method of
accounting for business combinations, (ii) creating more specific criteria for
identifying other intangibles which are acquired in a business combination,
(iii) ceasing goodwill amortization, and (iv) requiring impairment testing of
goodwill based on a fair value concept. SFAS No. 142 requires that the opening
goodwill balances be tested upon adoption of the standard and that another
impairment test be performed during the fiscal year of adoption. Impairment
tests should generally be performed annually thereafter, with interim testing
required if circumstances warrant.
Prior to fiscal 2002, the Company amortized goodwill over a twenty-year
period on a straight-line basis. However, effective September 1, 2001, the
Company ceased to amortize goodwill pursuant to SFAS No. 142.
Prior to August 31, 2001, the Company conducted impairment reviews of its
goodwill to assess the recoverability of the unamortized balance based on
expected future profitability, undiscounted future cash flows of the acquired
assets and businesses and their contribution to the overall operation of the
Company. An impairment loss would have been recognized for the amount identified
in the review by which the goodwill balance exceeded the recoverable goodwill
balance. Subsequent to August 31, 2001, the Company has performed goodwill
impairment reviews by reporting unit based on a fair value concept, as required
by SFAS No. 142. The goodwill impairment reviews that the Company conducted both
before and after the adoption of SFAS No. 142 indicated that the Company's
goodwill has not been impaired.
The Company has also recorded in other assets intangible assets related to
various licenses, patents, technology and related processes, primarily
pertaining to the design and construction of ethylene plants
F-11
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(see Notes 4 of Notes to Consolidated Financial Statements). The costs of these
assets are amortized over a fifteen-year period on a straight-line basis.
The Company periodically assesses the recoverability of the unamortized
balance of its ethylene and other technologies based on expected future
profitability and undiscounted future cash flows and their contribution to the
overall operation of the Company. Should the review indicate that the carrying
value is not fully recoverable, the excess of the carrying value over the fair
value of the technologies would be recognized as an impairment loss.
The Company has also recorded contract fair value adjustments related to
the IT Group and S&W acquisitions. Contract asset adjustments related to the IT
Group acquisition are recorded in other current assets, as an intangible asset.
Contract liability adjustments are recorded in current liabilities with respect
to both the IT Group and S&W acquisitions. The assets and liabilities are
amortized over the estimated lives of the underlying contracts and related
backlog as work is performed on these contracts.
(Also see Note 4 and Note 8 of Notes to Consolidated Financial Statements.)
REVENUES
For project management, engineering, procurement, remediation, and
construction services, the Company recognizes revenues under the
percentage-of-completion method measured primarily by the percentage of contract
costs incurred to date to total estimated contract costs for each contract.
Revenues from cost-plus-fee contracts are recognized on the basis of costs
incurred during the period plus the fee earned. Profit incentives are included
in revenues when their realization is reasonably assured.
For unit-priced pipe fabrication contracts, the Company recognizes revenues
upon completion of individual spools of production. A spool consists of piping
materials and associated shop labor to form a prefabricated unit according to
contract specifications. Spools are generally shipped to job site locations when
complete. During the fabrication process, all direct and indirect costs related
to the fabrication process are capitalized as work in progress. For fixed-price
fabrication contracts, the Company recognizes revenues based on the
percentage-of-completion method, measured primarily by the cost of materials for
which production is complete compared with the total estimated material costs of
the contract.
Revenue is recognized from consulting services as the work is performed.
The Company recognizes revenues for pipe fittings, manufacturing operations
and other services primarily at the time of shipment or upon completion of the
services.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are identified. The cumulative effect of other
changes to estimated profit and loss, including those arising from contract
penalty provisions, final contract settlements and reviews performed by
customers, are recognized in the period in which the revisions are identified.
To the extent that these adjustments result in a reduction or elimination of
previously reported profits, the Company would report such a change by
recognizing a charge against current earnings, which might be significant
depending on the size of the project or the adjustment. An amount equal to the
costs attributable to unapproved change orders and claims is included in the
total estimated revenue when realization is probable and the amount can be
reasonably estimated. Profit from unapproved change orders and claims is
recorded in the year such amounts are resolved.
FINANCIAL INSTRUMENTS, FORWARD CONTRACTS -- NON-TRADING ACTIVITIES
The majority of the Company's transactions are in U.S. dollars; however,
certain of the Company's foreign subsidiaries conduct their operations in their
local currency. Accordingly, there are situations when the Company believes it
is appropriate to use financial hedging instruments (generally foreign currency
F-12
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
forward contracts) to manage foreign currency risks when it enters into a
transaction denominated in a currency other than its local currency.
Prior to September 1, 2000, at the inception of a hedging contract, the
Company designated a contract as a hedge if there was a direct relationship to
the price risk associated with the Company's future revenues and purchases.
Recognition of the gains and losses on the early termination or maturity of
forward contracts designated as hedges were deferred until the period the hedged
transaction was recorded. However, gains or losses on the hedge transaction were
recognized when the direct relationship between the hedge and the Company's
price risk ceased to exist. Future changes in the fair value of the forward
contracts were then recognized as gains or losses in revenues or expenses in the
period of change.
Effective September 1, 2000, the Company adopted SFAS No.
133 -- "Accounting for Derivative Instruments and Hedging Activities," which
requires that all derivative instruments be recorded on the balance sheet at
fair value. The Company designates each derivative contract as one of the
following on the day the contract is executed: (a) hedge of the fair value of a
recognized asset or liability or of an unrecognized firm commitment (fair value
hedge), (b) hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability (cash
flow hedge), or (c) hedge of a net investment in a foreign operation (net
investment hedge). Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
the derivative is designated as part of a hedge transaction and, if so,
depending on the type of hedge transaction. For fair value hedge transactions,
changes in fair value of the derivative instrument are generally offset in the
income statement by changes in the fair value of the item being hedged. For cash
flow hedge transactions, changes in the fair value of the derivative instrument
are reported in other comprehensive income. For net investment hedge
transactions, changes in the fair value are recorded as a component of the
foreign currency translation account that is also included in other
comprehensive income. The gains and losses on cash flow hedge transactions that
are reported in other comprehensive income are reclassified to earnings in the
periods in which earnings are affected by the variability of the cash flows of
the hedged item. The ineffective portions of all hedges are recognized in
current period earnings. Upon initial application of SFAS No. 133, the Company
recorded the fair value of the existing hedge contracts on the balance sheet and
a corresponding unrecognized loss of $23,000 as a cumulative effect adjustment
of accumulated other comprehensive income, which was transferred to earnings
during fiscal 2001. The Company's hedging activities during fiscal 2002 and 2001
were not significant.
The Company utilizes forward foreign exchange contracts to reduce its risk
from foreign currency price fluctuations related to firm or anticipated accounts
receivable transactions, commitments to purchase or sell equipment, materials
and /or services. At August 31, 2002, the Company has recorded an asset and
other income on fair value hedges of $650,000 ($420,000 net of taxes) that
generally offset transaction losses in the related hedged accounts receivables.
The Company normally does not use any other type of derivative instrument or
participate in any other hedging activities.
OTHER COMPREHENSIVE INCOME
The Company's foreign subsidiaries maintain their accounting records in
their local currency (primarily British pounds, Australian and Canadian dollars,
Venezuelan Bolivars, the Euro, and prior to January 1, 2002, Dutch guilders).
All of the assets and liabilities of these subsidiaries (including long-term
assets, such as goodwill) are converted to U.S. dollars with the effect of the
foreign currency translation reflected in "accumulated other comprehensive
income (loss)," a component of shareholders' equity, in accordance with SFAS No.
52 -- "Foreign Currency Translation" and SFAS No. 130 -- "Reporting
Comprehensive Income." Foreign currency transaction gains or losses are credited
or charged to income. (Also see Note 19 of Notes to Consolidated Financial
Statements.)
F-13
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other comprehensive income also includes the net after-tax effect of
unrealized gains and losses on derivative financial instruments and
available-for-sale securities and the minimum liability related to a
Company-sponsored pension plan.
SELF INSURANCE
The Company is self-insured for workers' compensation claims for individual
claims or claim events up to $250,000 and maintains insurance coverage for the
excess. Additionally, the Company self-insures its employee health coverage up
to certain annual individual and plan limits and maintains insurance coverage
for the excess. The Company's accruals for its self-insured costs are determined
through a combination of prior experience and specific analysis of larger
claims.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the current year's presentation.
STOCK BASED COMPENSATION
Stock based compensation is accounted for using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25 -- "Accounting for
Stock Issued to Employees" and related interpretations. It is the Company's
general practice to issue stock options at the market value of the underlying
stock; and therefore, no compensation expense is recorded for these stock
options. (See Note 17 of Notes to Consolidated Financial Statements).
NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 143 -- "Accounting for Asset
Retirement Obligations." This statement, which is first effective for the
Company beginning in fiscal 2003, requires that the cost of legal obligations
associated with the retirement and/or removal of long-lived assets should be
accounted for as additional asset costs and that the net present value of the
retirement/removal costs be recorded as a liability. Asset values (to include
retirement and removal costs) are subject to impairment reviews pursuant to SFAS
No. 144 (see below). The Company believes this statement will not have a
material effect on its financial statements.
In August 2001, the FASB issued SFAS No. 144 -- "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No.
121 -- "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The new statement also supersedes certain aspects of
APB 30 -- "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," with regard to reporting the effects of a
disposal of a segment of a business. SFAS 144 will require expected future
operating losses from discontinued operations to be reported in discontinued
operations in the period incurred rather than as of the measurement date as
presently required by APB 30. Additionally, this statement increases the
likelihood that dispositions will now qualify for discontinued operations
treatment. The provisions of the statement are required to be applied for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal
years. The Company does not expect this statement will have a material effect on
its financial statements when it adopts this standard in fiscal 2003.
In May 2002, the FASB issued SFAS No. 145 -- "Rescission of FASB Statements
Nos. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections" which is effective for fiscal years beginning after May 15, 2002.
This statement, among other matters, provides guidance with respect to the
accounting for gain or loss on capital leases that were modified to become
operating leases. The statement
F-14
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
also eliminates the requirement that gains or losses on the early extinguishment
of debt be classified as extraordinary items and provides guidance when the gain
or loss on the early retirement of debt should or should not be reflected as an
extraordinary item. The Company will be required to reclassify the extraordinary
losses recognized in prior years as ordinary loss upon adoption of this standard
when it becomes effective in fiscal 2003.
In July 2002, the FASB issued SFAS No. 146 -- "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires that costs
associated with terminating employees or contracts or closing or relocating
facilities are to be recognized at fair value at the time the liability is
incurred. The Company does not anticipate that this statement will have a
material effect on its financial statements when it becomes effective for
disposal activities initiated after December 31, 2002.
NOTE 2 -- PUBLIC CAPITAL STOCK TRANSACTIONS
In September 2001, the Company's Board of Directors authorized the Company
to repurchase shares of its no par value Common Stock ("Common Stock"),
depending on market conditions, up to a limit of $100,000,000. As of October 11,
2002, the Company had completed its purchases under this program as it had
purchased 5,331,005 shares at a cost of approximately $99,881,000. This includes
3,170,605 shares purchased at a cost of approximately $47,838,000 in the first
quarter of fiscal 2003 and 2,160,400 shares purchased at a cost of approximately
$52,043,000 during the year ended August 31, 2002.
On July 31, 2001, the Company issued a dividend distribution of one
Preferred Share Purchase Right (a "Right") for each outstanding share of Common
Stock (see Note 12 of Notes to Consolidated Financial Statements).
Effective May 1, 2001, the Company issued and sold $790,000,000 (including
$200,000,000 to cover over-allotments) of 20-year, zero-coupon, unsecured,
convertible debt, Liquid Yield Option(TM) Notes ("LYONs", "debt" or "the
securities"). The debt was issued at an original discount price of $639.23 per
$1,000 maturity value and has a yield to maturity of 2.25%. The debt is a senior
unsecured obligation of the Company and is convertible into the Company's Common
Stock at a fixed ratio of 8.2988 shares per $1,000 maturity value or an
effective conversion price of $77.03 at the date of issuance. Under the terms of
the issue, the conversion rate may be adjusted for certain reasons, but will not
be adjusted for accrued original issue discount.
In January 2001, the Company's shareholders approved increases in (i) the
number of shares of the Company's authorized Common Stock from 50,000,000 shares
to 200,000,000 shares and (ii) the number of shares of the Company's authorized
no par value preferred stock from 5,000,000 shares to 20,000,000 shares.
The Company effected a two-for-one stock split of its Common Stock on
December 15, 2000. Unless otherwise indicated, all references to the number of
shares and to per-share information in the financial statements and related
notes have been adjusted to reflect this stock split on a retroactive basis.
In October 2000, the Company completed the sale of 4,837,338 shares
(including 1,200,000 shares to cover over-allotments) of its Common Stock in an
underwritten public offering at a price of $31.75 per share, less underwriting
discounts and commissions. The net proceeds to the Company, less underwriting
discounts and commissions and other offering expenses, totaled approximately
$144,800,000 and were used to pay amounts outstanding under the Company's
primary revolving line of credit facility.
In September 2000, the Company retired 16,404,916 shares of treasury stock
recorded at $22,043,000.
F-15
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- ESCROWED CASH FOR PERFORMANCE BOND
In connection with a performance bond on a foreign project, the Company
agreed to deposit in escrow with the issuer of the bond primarily advance
payments received from the Company's customer. During the year ended August 31,
2002, the Company deposited approximately $96,500,000 into escrow pursuant to
this agreement. This deposit is recorded as escrowed cash. As a result of the
performance bond, the Company's customer agreed not to withhold retentions on
the Company's billings. The Company believes that based on current contract
terms and scope, its initial $96,500,000 deposit represents its maximum escrow
requirement for the project. The Company expects that the maximum balance will
be retained in escrow until early to mid calendar 2003, at which time escrow
funds will be released incrementally to the Company as the Company completes
certain contract milestones. A final escrow amount of approximately $18,000,000
will be released to the Company upon initial contract acceptance as defined in
the agreement, which is currently projected to occur in calendar 2005. The
bonding company (or "surety") may draw on the escrow funds only to secure the
surety from a defined loss. The escrowed funds are invested in short-term, high
quality investments and investment income is remitted to the Company on a
quarterly basis. The Company may request the surety to allow the Company to
substitute a letter of credit for all or part of the cash escrow requirements.
NOTE 4 -- ACQUISITIONS
SFAS No. 141 -- "Business Combinations" requires that all acquisitions
initiated after June 30, 2001 be recorded utilizing the purchase method of
accounting. Most of the Company's acquisitions that were completed prior to June
30, 2001 were also accounted for using the purchase method of accounting under
APB 16. Under the purchase method, the cost of each acquired operation is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values. These estimates are revised during the allocation period
as necessary when, and if, information becomes available to further define and
quantify the value of the assets acquired and liabilities assumed. The
allocation period does not exceed beyond one year from the date of the
acquisition. To the extent additional information to refine the original
allocation becomes available during the allocation period, the allocation of the
purchase price is adjusted. Likewise, to the extent such information becomes
available after the allocation period, such items are included in the Company's
operating results in the period that the settlement occurs or information is
available to adjust the original allocation to a better estimate. These future
adjustments, if any, that may arise from these acquisitions may materially
favorably or unfavorably impact the Company's future consolidated financial
position or results of operations.
In connection with potential acquisitions, the Company incurs and
capitalizes certain transaction costs, which include legal, accounting,
consulting and other direct costs. When an acquisition is completed, these costs
are capitalized as part of the acquisition price. The Company routinely
evaluates capitalized transaction costs and expenses those costs related to
acquisitions that are not likely to occur. Indirect acquisition costs, such as
salaries, corporate overhead and other corporate services are expensed as
incurred.
The operating results of the acquisitions accounted for as a purchase are
included in the Company's consolidated financial statements from the applicable
date of the transaction.
IT GROUP ACQUISITION
During fiscal year 2002, the Company acquired substantially all of the
operating assets and assumed certain liabilities of The IT Group, Inc. ("IT
Group") and its subsidiaries. IT Group and one of it wholly-owned subsidiaries,
Beneco, were subject to separate Chapter 11 bankruptcy reorganization
proceedings and the acquisition was completed pursuant to the bankruptcy
proceedings. The acquisition of the
F-16
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IT Group assets was completed on May 3, 2002 and the acquisition of Beneco's
assets was completed on June 15, 2002.
The IT Group was a leading provider of diversified environmental
consulting, engineering, construction, remediation and facilities management
services. The primary reasons for the acquisition were to diversify and expand
the Company's revenue base and to pursue additional opportunities in the
environmental, infrastructure, and homeland defense markets. The Company formed
a new wholly-owned subsidiary, Shaw Environmental & Infrastructure, Inc. ("Shaw
E&I") into which it has combined the acquired IT Group operations and the
Company's existing environmental and infrastructure operations.
The purchase price included the following components: (i) cash of
approximately $39,356,000, net of $13,694,000 of cash received at closing, (ii)
1,671,336 shares of Common Stock valued at approximately $52,463,000, (iii)
assumption by the Company of the outstanding balances of $51,789,000 debtor-in-
possession financing provided to the IT Group and Beneco by the Company, and
(iv) transaction costs of approximately $9,519,000.
The Company believes, pursuant to the terms of the acquisition agreements,
that it has assumed only certain liabilities ("assumed liabilities") of the IT
Group and Beneco as specified in the acquisition agreements. The Company has
estimated that its total of assumed liabilities is approximately $353,000,000.
Further, the acquisition agreements also provide that certain other liabilities
of the IT Group, including but not limited to, outstanding borrowings, leases,
contracts in progress, completed contracts, claims or litigation that relate to
acts or events occurring prior to the acquisition date, and certain employee
benefit obligations, are specifically excluded ("excluded liabilities") from the
Company's transactions. The Company, however, cannot provide assurance that it
does not have any exposure to the excluded liabilities because, among other
matters, the bankruptcy courts have not finalized their validation of the claims
filed with the courts. Additionally, the Company has not completed its review of
liabilities that have been submitted to the Company for payment. Accordingly,
the Company's estimate of the value of the assumed liabilities may change as a
result of the validation of the claims by the bankruptcy courts or other factors
which may be identified during its review/processing of liabilities.
The IT Group acquisition was recorded as a purchase, and accordingly, the
Company's results of operations include those of the acquired IT Group and
Beneco businesses from the respective acquisition dates. The purchase price has
been allocated to the acquired assets and liabilities based on the estimated
fair value at the acquisition dates, as set forth in the table below (in
thousands). The following allocation is preliminary and is subject to revision
during the allocation period as the Company has not obtained all necessary
appraisals of the property and equipment purchased nor has the Company completed
the process of obtaining information about the fair value of the acquired assets
and assumed liabilities. All of the goodwill from this transaction will be
allocated to the Company's Environmental & Infrastructure segment.
<Table>
Accounts receivable and costs and earnings in excess of
billings on uncompleted contracts......................... $ 225,133
Contract asset adjustments.................................. 13,839
Property, plant and equipment............................... 26,964
Deferred income taxes....................................... 64,223
Other assets................................................ 63,075
Goodwill.................................................... 113,308
Accounts payable and accrued expenses....................... (196,739)
Billings in excess of cost and estimated earnings on
uncompleted contracts..................................... (83,658)
Contract (liability) adjustments............................ (58,094)
Accrued contract loss reserves.............................. (7,460)
Debt and bank loans......................................... (7,464)
---------
Purchase price (net of cash received of $13,694)....... $ 153,127
=========
</Table>
F-17
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax deductible portion of the goodwill recorded for the IT Group
acquisition is approximately $14,500,000.
Prior to the acquisitions of the IT Group and Beneco, the Company entered
into agreements with two surety companies. In exchange for the Company's
agreeing to complete certain of the IT Group's and Beneco's bonded contracts i)
the sureties paid the Company approximately $13,500,000 in cash and ii) the
sureties assigned to the Company their rights to Debtor-in-Possession financing
of approximately $20,000,000 that the sureties had provided to Beneco. The total
value received from the sureties, including a net working capital position on
these contracts of approximately $19,100,000, was recorded as deferred revenue
(included in billings in excess of cost and estimated earnings on uncompleted
contracts on the accompanying consolidated balance sheet) and will be recognized
as the related bonded contracts are completed.
The Company acquired a large number of contracts in progress and contract
backlog for which the work had not commenced at the acquisition date. Under FAS
141, construction contracts are defined as intangibles that meet the criteria
for recognition apart from goodwill. These intangibles, like the acquired assets
and liabilities, are required to be recorded at their fair value at the date of
acquisition. The Company recorded these contracts at fair value using a market
based discounted cash flow approach. Related assets of approximately $13,839,000
and liabilities of $58,094,000 have been established that will be amortized to
contract costs over the estimated lives of the underlying contracts and related
production backlog. Commencing with the initial recording of the related assets
and liabilities on May 3, 2002, the assets and liabilities are amortized as work
is performed on the contracts. The net amortization recognized during the year
ended August 31, 2002 was approximately $2,763,000 and has been reflected as a
reduction in the cost of revenues, which resulted in a corresponding increase in
gross profit. The activity related to these contract assets and liabilities is
included in the table at the end of this Note 4.
The following summarized pro forma income statement data reflects the
impact the acquisition of the IT Group would have had on the years ended August
31, 2002 and 2001, respectively, as if the acquisition had taken place at the
beginning of the applicable fiscal year (in thousands, except per share
amounts):
<Table>
<Caption>
UNAUDITED PRO-FORMA RESULTS
FOR THE YEARS ENDED
AUGUST 31,
---------------------------
2002 2001
------------ ------------
Gross revenue............................................... $3,765,242 $3,216,412
========== ==========
Income (loss) before extraordinary item..................... $ (296,295) $ 134,234
========== ==========
Net income (loss)........................................... $ (313,495) $ 134,019
========== ==========
Basic earnings (loss) from continuing operations per common
share..................................................... $ (7.47) $ 3.21
========== ==========
Diluted earnings (loss) from continuing operations per
common share.............................................. $ (7.47) $ 3.01
========== ==========
</Table>
The unaudited pro forma results for the years ended August 31, 2002 and
2001 have been prepared for comparative purposes only and do not purport to be
indicative of the amounts that actually would have resulted had the acquisition
occurred on September 1, 2000 or that may be realized in the future. Further,
the diluted loss per share for the year ended August 31, 2002 excludes
approximately 6,556,000 and 990,000 shares related to the LYONs and stock
options because they were antidilutive.
The pro forma results for the year ended August 31, 2002 include charges of
$217,400,000 made by the IT Group. The charges generally related to the
reduction of accounts receivable to estimated net realizable value
($167,000,000), various employee accruals and write-off of assets ($22,500,000),
legal and consulting expenses related to the IT Group's bankruptcy ($12,500,000)
and write-off of notes receivable from employees ($5,000,000).
F-18
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results for the year ended August 31, 2001 include charges of
$40,700,000 that primarily related to the reduction of accounts receivable to
estimated net realizable value.
STONE & WEBSTER ACQUISITION
On July 14, 2000, the Company purchased substantially all of the operating
assets of Stone & Webster, a global provider of engineering, procurement,
construction, consulting and environmental services to the power, process,
environmental and infrastructure markets. The Company funded this acquisition
with $14,850,000 in cash (net of $22,750,000 of funds returned from escrow) and
4,463,546 shares of Common Stock (valued at approximately $105,000,000 at
closing). The Company also assumed approximately $740,000,000 of liabilities.
The acquisition was concluded as part of a proceeding under Chapter 11 of
the U.S. Bankruptcy Code for Stone & Webster, Incorporated. In December 2000,
the parties entered into an amendment to the initial acquisition agreement that:
(i) returned approximately $22,750,000 to the Company from escrow, (ii) waived
the purchase price adjustment provision of the agreement, (iii) excluded four
completed contracts from the transaction, and (iv) required the Company to
assume three previously excluded items. This amendment was approved by the
bankruptcy court and decreased the Company's purchase price and goodwill.
The Company believes that, pursuant to the terms of the acquisition
agreement, it assumed only certain specified liabilities. The Company believes
that liabilities excluded from this acquisition include liabilities associated
with certain contracts in progress, completed contracts, claims or litigation
that relate to acts or events occurring prior to the acquisition date, and
certain employee benefit obligations, including Stone & Webster's U.S. defined
benefit plan (collectively, the excluded items). The Company, however, cannot
provide assurance that it has no exposure with respect to the excluded items
because, among other things, the bankruptcy court has not finalized its
validation of claims filed with the court. The final amount of assumed
liabilities may change as a result of the validation of claims process; however,
the Company believes, based on its review of claims filed, that any such
adjustment to the assumed liabilities will not be material.
The purchase price was subject to various adjustments, and the final
allocation was completed in fiscal 2001. Any future adjustments will be
reflected in operating results.
The final allocation of cost resulted in an excess of the aggregate
adjusted purchase price over the estimated fair market value of net tangible
assets acquired of approximately $393,000,000 (recorded as patents, licenses,
other intangible assets and goodwill).
For the year ended August 31, 2001 and 2000, goodwill amortization was
approximately $16,800,000 and $1,800,000, respectively, and was amortized on a
straight-line basis based on a 20 year estimated life. (See Note 8 of Notes to
Consolidated Financial Statements with respect to the impact of the Company's
adoption of SFAS No. 142 -- "Goodwill and Other Intangibles" for the year ended
August 31, 2002.)
The Company acquired a large number of contracts with either inherent
losses or lower than market rate margins primarily because Stone & Webster's
previous financial difficulties had negatively affected the negotiation and
execution of the contracts. These contracts were adjusted to their estimated
fair value as of the acquisition date (July 14, 2000) and the fair value of
acquired contracts -- liability (contract liability adjustments) of $121,815,000
was established. The amount of the accrued future cash losses on assumed
contracts with inherent losses (accrued contract loss reserves) was estimated to
be approximately $41,700,000 and a liability of such amount was established.
Commencing with the initial recording of these liabilities and reserves in the
year ended August 31, 2000, the liabilities and reserves have been reduced as
work is performed on the contracts and such reduction in these balances results
in a reduction in cost of revenues and a corresponding increase in gross profit.
The contract liability adjustments and accrued
F-19
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contract loss reserves, as well as the decreases in the cost of revenues for the
periods indicated, are included in the table which is at the end of this Note 4.
The Company also acquired various licenses, patents, technology and related
processes pertaining to the design and construction of ethylene plants. The
Company valued these assets at $28,600,000 based on estimates of the discounted
cash flows to be generated from the existing acquired technology. The estimated
useful lives of these intangible assets are 15 years.
Included in this acquisition was a cold storage and frozen food handling
operation which Stone & Webster had previously reported as a discontinued
operation. The Company classified the operation as assets held for sale until
the Company sold all of these assets (other than cash) for $69,364,000 (net of
various purchase price adjustments) in December 2000. Losses, net of taxes, of
approximately $1,397,000 and $332,000 from this operation's results, which
includes allocated interest expense of approximately $2,387,000 and $1,000,000,
have been excluded from the Company's statements of income for the years ended
August 31, 2001 and 2000, respectively. These losses were included in the
Company's allocation of purchase price to the acquired assets and liabilities.
In connection with the sale of these assets, the Company also acquired an
approximate 19.5% equity interest in the purchaser of the assets for an
investment of $1,930,000, which is accounted for under the cost method.
OTHER ACQUISITIONS
In December 2001, the Company acquired certain assets of PsyCor
International, Inc. ("PsyCor") for $2,000,000. Acquisition costs were not
material. The purchase method was used to account for the acquisition and
substantially all of the purchase price was initially allocated to goodwill.
This allocation is preliminary since the Company has not completed its final
fair value assessment of the assets acquired. PsyCor's primary business is
developing information management systems.
In March 2001, the Company acquired the assets and certain liabilities of
Scott, Sevin & Schaffer, Inc. and Technicomp, Inc. (collectively "SS&S"). As of
August 31, 2002, the Company had issued 170,033 shares (including purchase price
protection reduced by purchase price adjustment and indemnity settlements) of
its Common Stock (valued at approximately $6,200,000) as consideration for the
transaction. The Company incurred approximately $160,000 of acquisition costs.
This acquisition was accounted for under the purchase method of accounting and
approximately $4,300,000 of goodwill was recorded. For the year ended August 31,
2001, goodwill for this acquisition was amortized on a straight-line basis based
on a 20 year estimated life. (See Note 8 of Notes to Consolidated Financial
Statements with respect to the impact of the Company's adoption of SFAS No.
142 -- "Goodwill and Other Intangibles" on September 1, 2001.) SS&S's primary
business is structural steel, vessel, and tank fabrication.
On July 12, 2000, the Company completed the acquisition of certain assets
and assumption of liabilities of PPM Contractors, Inc. ("PPM"). Total
consideration paid was 86,890 shares of the Company's Common Stock valued at
$2,012,000 and the assumption of certain liabilities. Acquisition costs were not
material. The purchase method was used to account for the acquisition and
goodwill of approximately $2,100,000 was recorded. For the years ended August
31, 2001 and 2000, goodwill for this acquisition was amortized on a
straight-line basis based on a 20 year estimated life. (See Note 8 of Notes to
Consolidated Financial Statements with respect to the impact of the Company's
adoption of SFAS No. 142 -- "Goodwill and Other Intangibles" on September 1,
2001.) PPM's primary business is providing sandblasting and painting services to
industrial customers.
During fiscal 2002, the Company determined that PPM achieved certain target
revenue levels as of December 31, 2001, and as a result, the Company owed
additional consideration to PPM of approximately $2,000,000 pursuant to the
terms of the acquisition agreement. Accordingly, the Company issued
F-20
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
83,859 shares of Common Stock to cover its obligation under the agreement. The
entire cost of approximately $2,000,000 associated with the issuance of these
shares is recorded as of August 31, 2002 as an increase to goodwill for the PPM
acquisition.
CONTRACT ADJUSTMENTS AND LOSS RESERVES
The following table presents the additions to and utilization/amortization
of the fair value adjustments of acquired contracts (assets and liabilities) and
accrued contract loss reserves for both the IT Group and Stone & Webster
acquisitions on a combined basis for the periods indicated (in thousands):
<Table>
<Caption>
COST OF
SEPTEMBER 1, (ASSET) OR REVENUES AUGUST 31,
2001 LIABILITY INCREASE/ 2002
YEAR ENDED AUGUST 31, 2002 BALANCE INCREASE (DECREASE) BALANCE
- -------------------------- ------------ ---------- ---------- ----------
Contract (asset) adjustments............. $ -- $(13,839) $ 1,689 $(12,150)
Contract liability adjustments........... 43,801 58,094 (32,755) 69,140
Accrued contract loss reserves........... 6,906 8,240 (3,744) 11,402
------- -------- -------- --------
Total.................................... $50,707 $ 52,495 $(34,810) $ 68,392
======= ======== ======== ========
</Table>
<Table>
<Caption>
SEPTEMBER 1, COST OF AUGUST 31,
2000 LIABILITY REVENUES 2001
YEAR ENDED AUGUST 31, 2001 BALANCE INCREASE (DECREASE) BALANCE
- -------------------------- ------------ --------- ---------- ----------
Contract liability adjustments............ $ 75,764 $38,118 $(70,081) $43,801
Accrued contract loss reserves............ 30,725 5,400 (29,219) 6,906
-------- ------- -------- -------
Total..................................... $106,489 $43,518 $(99,300) $50,707
======== ======= ======== =======
</Table>
<Table>
<Caption>
JULY 14, COST OF AUGUST 31,
2000 LIABILITY REVENUES 2000
YEAR ENDED AUGUST 31, 2000 BALANCE INCREASE (DECREASE) BALANCE
- -------------------------- -------- --------- ---------- ----------
Contract liability adjustments.............. $ 83,697 $-- $ (7,933) $ 75,764
Accrued contract loss reserves.............. 36,300 -- (5,575) 30,725
-------- --- -------- --------
Total....................................... $119,997 $-- $(13,508) $106,489
======== === ======== ========
</Table>
The Company previously referred to the fair value of the acquired contract
liability adjustments resulting from the Stone & Webster acquisition as gross
margin reserves. All increases in the contract adjustments and accrued contract
loss reserves in the year ended August 31, 2002 relate to the IT Group
acquisition, with the exception of a $780,000 contract loss reserve increase,
which reduced earnings in 2002, for a contract assumed in the Stone & Webster
acquisition. The increases in the year ended August 31, 2001 relate to Stone &
Webster allocation period adjustments. The contract (asset) adjustments are
included in other current assets in the accompanying consolidated balance
sheets.
F-21
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INVENTORIES
The major components of inventories consist of the following (in
thousands):
<Table>
<Caption>
AUGUST 31,
-----------------------------------------------------------
2002 2001
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE FIFO TOTAL AVERAGE FIFO TOTAL
-------- ------- ------- -------- ------- -------
Finished Goods.............. $33,583 $ -- $33,583 $33,126 $ -- $33,126
Raw Materials............... 3,144 51,249 54,393 2,380 46,511 48,891
Work In Process............. 878 10,155 11,033 948 8,190 9,138
------- ------- ------- ------- ------- -------
$37,605 $61,404 $99,009 $36,454 $54,701 $91,155
======= ======= ======= ======= ======= =======
</Table>
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
The Company owns 49% of Shaw-Nass Middle East, W.L.L, a joint venture in
Bahrain ("Shaw-Nass") which is accounted for on the equity basis. During the
years ended August 31, 2002, 2001, and 2000, the Company recognized
(losses)/earnings of ($1,152,000), $250,000, and $1,194,000, respectively, from
Shaw-Nass. No distributions have been made through August 31, 2002 by Shaw-Nass.
At August 31, 2002 and 2001, undistributed earnings of Shaw-Nass included in the
consolidated retained earnings of the Company amounted to approximately
$1,267,000 and $2,419,000, respectively. As of August 31, 2002 and 2001, the
Company's investment in Shaw Nass was approximately $4,938,000 and $6,090,000,
respectively, and the Company had outstanding receivables from Shaw-Nass
totaling $5,970,000 and $6,178,000, respectively. These receivables relate
primarily to inventory and equipment sold and net advances and are recorded as
long-term advances to Shaw-Nass. The Company did not make any equity
contributions during the fiscal years ended August 31, 2002 and 2001.
During the years ended August 31, 2002, 2001 and 2000, revenues of $66,000,
$230,000, and $19,000, were recognized on sales of products from the Company to
Shaw-Nass. The Company's 49% share of profit on these sales was eliminated.
In fiscal 2001, the Company and Entergy Corporation ("Entergy") formed
EntergyShaw, L.L.C. ("EntergyShaw"), an equally-owned and equally-managed
company. EntergyShaw's initial focus was the construction of power plants in
North America and Europe for Entergy's wholesale operations; however, during
fiscal 2002 Entergy announced that it was significantly reducing the scope of
its construction program for its wholesale operations. Under the terms of the
arrangement, the Company made an initial investment in Entergy/Shaw of
$2,000,000 and has no further capital contribution requirement to EntergyShaw.
The Company also offers EntergyShaw a right of first refusal to contract for
bundled engineering, procurement, and construction ("EPC") services. This right
of first refusal does not apply to project inquiries related to services other
than fully bundled EPC projects.
The Company has recognized earnings of $2,855,000, net of tax expense of
$1,605,000, for the year ended August 31, 2002 and losses of $566,000 (net of
tax benefit of $354,000) for the year ended August 31, 2001 from EntergyShaw.
During the year ended August 31, 2002, the Company received a distribution from
EntergyShaw of $2,000,000. The Company's revenues from EntergyShaw were
approximately $124,000,000 and $17,000,000, respectively, for the years ended
August 31, 2002 and 2001. As of August 31, 2002 and 2001, the Company's
investment in EntergyShaw was $3,540,000 and $1,080,000, respectively, and it
had outstanding trade accounts receivable from EntergyShaw totaling
approximately $32,000 and $4,848,000, respectively.
In connection with the December 2000 sale of a cold storage and frozen food
handling operation that was included in the Stone & Webster acquisition, the
Company acquired an approximate 19.5% equity
F-22
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest in the purchaser of the assets for an investment of $1,930,000. Since
this equity interest is less than 20% and the Company does not exert any
significant influence over the management of the operations, the Company will
not recognize any income from this operation other than cash distributions. No
such distributions have been made since its acquisition.
The Company invested approximately $3,096,000 to acquire a 49% interest in
a new pipe fabrication joint venture in China which was formed in fiscal 2002.
NOTE 7 -- INVESTMENT IN SECURITIES AVAILABLE FOR SALE
In December 1998, the Company participated in a customer's financing by
acquiring $12,500,000 of 15% Senior Secured Notes due December 1, 2003 (the 15%
Notes) and preferred stock related thereto issued by the customer for the face
value of the Notes. The 15% Notes were originally secured by a first priority
security interest in certain assets of the customer's Norco, Louisiana refinery
where the Company provided construction services.
In November 1999, the Company exchanged its 15% Notes for (i) $14,294,535
(representing the principal and accrued interest on the Company's 15% Notes) of
10% Senior Secured Notes due November 15, 2004 (the "New Notes"), and (ii)
shares of the customer's Class A Convertible Preferred Stock. This exchange was
made pursuant to an offer initiated by the customer to all holders of the 15%
Notes (aggregating approximately $254,000,000 in principal and interest). The
10% interest rate on the New Notes will increase to 14% on November 16, 2003
until maturity. Through November 15, 2003, the Company expects to receive
additional New Notes in lieu of interest payments. The New Notes have little
market liquidity.
The Company participated in the New Notes exchange offer because, upon
receipt of the requisite approval by the holders of the 15% Notes, the
collateral securing the 15% Notes would be released. All holders of the 15%
Notes participated in the New Notes exchange offer.
Prior to the exchange offer, the Company's customer issued additional
common stock, raising $50,000,000 in additional equity, and obtained additional
secured indebtedness of approximately $150,000,000, which ranked senior to both
the 15% Notes and the New Notes. As such, the security interest in the refinery
assets securing the New Notes is subordinate to the security interest securing
such additional indebtedness. In November 1999, the Company also exchanged the
related preferred stock for shares of new Class C Convertible Preferred Stock,
the amount and value of which are not material.
Since the financing arrangement was related to construction services, the
interest income earned from the New Notes and imputed interest costs associated
with carrying these notes were included in revenues and costs of revenues,
respectively, during the term of the construction contract. As a result,
revenues for the years ended August 31, 2001 and 2000 included interest income
from these securities of approximately $312,000 and $1,406,000 and imputed
interest costs associated with carrying the securities of approximately $381,000
and $1,106,000, respectively, were included in cost of revenues. The interest
cost was calculated at the Company's effective borrowing rate, which
approximated 9.8% for the three month period ended November 30, 2000, and 7.6%
for the twelve months ended August 31, 2000. Subsequent to the completion of the
project in the first quarter of fiscal 2001, interest income of $531,000 earned
in the remainder of fiscal year 2001 from these securities is included in
interest income.
During fiscal 2001, the Company used $7,000,000 of the New Notes to satisfy
certain transaction costs related to the acquisition of Stone & Webster.
During the year ended August 31, 2002, the Company determined that its
investment in the New Notes had been impaired and wrote-down its investment in
these notes by $2,450,000 and reversed interest income in the fourth quarter of
2002 of $550,000 that had been previously recorded in fiscal 2002. The
F-23
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has also ceased recognizing income from the New Notes. The Company has
classified the New Notes as available for sale and, therefore, the New Notes are
measured at fair value. The Company believes the impairment is permanent;
therefore, the $2,450,000 impairment is included in other expenses on the
consolidated statement of income. The Company has recorded the New Notes at an
aggregate value of approximately $6,629,000 (after write-down) and $9,079,000 at
August 31, 2002 and 2001, respectively.
The Company also had equity securities available for sale aggregating
$606,000 and $1,411,000 at August 31, 2002 and 2001, respectively. During the
year ended August 31, 2002, the Company recorded impairment losses of $612,000
($379,000 net of taxes) to net income with respect to these securities. At
August 31, 2002 and 2001, the Company also reflected a $205,000 unrealized loss
($126,000, net of taxes) and a $12,000 unrealized loss ($7,000, net of related
taxes) on these securities, respectively, as a component of other comprehensive
income in stockholders' equity. The unrealized losses recorded in other
comprehensive income reflect the Company's view that there had been a temporary
decrease in the value of these securities from their historical cost at the
respective year end. The Company also reclassified a loss of $942,000 ($576,000,
net of related taxes) to net income during the year ended August 31, 2001, due
to an impairment loss on securities acquired in the Stone & Webster acquisition.
NOTE 8 -- GOODWILL AND OTHER INTANGIBLES
GOODWILL
Effective September 1, 2001, the Company adopted SFAS No. 141 and No. 142.
Therefore, the Company ceased to amortize goodwill in fiscal 2002. For the years
ended August 31, 2001 and 2000, goodwill amortization was approximately
$17,059,000 and $3,099,000 respectively. Additionally, the Company has
determined that its goodwill balances have not been impaired and accordingly, no
adjustments have been made to its goodwill balances as a result of the adoption
of SFAS No. 142.
SFAS No. 142 provides that prior year's results should not be restated. The
following table presents the Company's comparative operating results for the
years ended August 31, 2002, 2001 and 2000 reflecting the exclusion of goodwill
amortization expense in fiscal 2001 and in fiscal 2000.
<Table>
<Caption>
FOR THE YEARS ENDED AUGUST 31,
------------------------------
2002 2001 2000
-------- -------- --------
Income before extraordinary items:
As reported........................................... $98,367 $61,212 $30,063
Goodwill amortization, net of tax effects............. -- 13,344 1,989
------- ------- -------
As adjusted........................................... $98,367 $74,556 $32,052
======= ======= =======
Net income:
As reported........................................... $98,367 $60,997 $29,510
Goodwill amortization, net of tax effects............. -- 13,344 1,989
------- ------- -------
As adjusted........................................... $98,367 $74,341 $31,499
======= ======= =======
Basic earnings per share:
Net income as reported................................ $ 2.41 $ 1.52 $ 1.00
Goodwill amortization, net of tax effects............. -- .33 .06
------- ------- -------
As adjusted........................................... $ 2.41 $ 1.85 $ 1.06
======= ======= =======
Diluted earnings per share:
Net income as reported................................ $ 2.26 $ 1.46 $ .96
Goodwill amortization, net of tax effects............. -- .32 .06
------- ------- -------
As adjusted........................................... $ 2.26 $ 1.78 $ 1.02
======= ======= =======
</Table>
F-24
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects the changes in the carrying value of goodwill
from September 1, 2000 to August 31, 2002.
The significant changes in goodwill during 2001 resulted from additional
goodwill recorded during the allocation period of the Stone & Webster
acquisition, goodwill recognized in connection with the Company's acquisition of
SS &S and amortization of goodwill prior to the Company's adoption of FAS 142
discussed above. During 2002, the Company recorded goodwill in connection with
its acquisition of the IT Group, a reclassification of goodwill related to Stone
& Webster, goodwill recorded in connection with the Company's acquisition of
PsyCor and additional consideration paid to PPM which resulted in additional
goodwill recognized in this acquisition. Refer to Note 4 of Notes to
Consolidated Financial Statements for a more detailed discussion of the
recognition of goodwill in connection with these acquisitions.
<Table>
<Caption>
TOTAL
--------
Balance at September 1, 2000................................ $282,238
Allocation period adjustments, net -- Stone & Webster
acquisition............................................... 99,649
SS&S Inc acquisition........................................ 4,258
Goodwill amortization....................................... (17,059)
Currency translation adjustments............................ (214)
--------
Balance at August 31,2001................................... 368,872
IT Group acquisition........................................ 113,308
Reclassification related to Stone & Webster................. 11,959
PsyCor acquisition.......................................... 2,041
Additional PPM costs........................................ 1,971
Currency translation adjustment............................. 853
--------
Balance at August 31, 2002.................................. $499,004
========
</Table>
There was no goodwill identified for impairment during 2002 either in
connection with the adoption of FAS 142 or during the annual review. The Company
did reclassify approximately $72,500,000 of goodwill to the newly created
Environmental & Infrastructure segment that was previously recognized in the
Company's Integrated EPC segment. See Note 15 of Notes to Consolidated Financial
Statements for further discussion of this reclassification between segments.
The goodwill associated with the IT Group and PsyCor acquisitions has been
preliminarily calculated as of August 31, 2002. The Company expects to revise
these balances during the one year allocation period as the Company has not
obtained all necessary appraisals of the property and equipment it purchased nor
has it completed all of its other review and valuation procedures of the assets
acquired and the liabilities assumed.
AMORTIZABLE INTANGIBLES
At August 31, 2002 and 2001, the Company's only significant amortizable
intangible assets, other than construction contract adjustments, was its
proprietary ethylene technology acquired in the Stone & Webster transaction,
which is being amortized over 15 years on a straight line basis. The Company is
still evaluating a customer relationship intangible and patents acquired in the
IT Group acquisition. The gross
F-25
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying values and accumulated amortization of the ethylene technology for the
years ended August 31, 2002 and 2001 is presented below (in thousands).
<Table>
<Caption>
ETHYLENE
TECHNOLOGY -- ETHYLENE
GROSS TECHNOLOGY --
CARRYING ACCUMULATED
AMOUNT AMORTIZATION
------------- -------------
September 1, 2000 balance.................................. $ 50,000 $ --
Allocation period adjustment............................. (21,400) --
Annual amortization...................................... -- (1,906)
-------- -------
August 31, 2001 balance.................................... 28,600 (1,906)
Annual amortization...................................... -- (1,906)
-------- -------
August 31, 2002 balance.................................... $ 28,600 $(3,812)
======== =======
</Table>
The annual amortization for the Company's intangible assets not associated
with contract acquisition adjustments for the next five years is $1,906,000
related to the ethylene technology.
NOTE 9 -- LONG-TERM DEBT
Long-term debt consisted of (dollars in thousands):
<Table>
<Caption>
AUGUST 31,
-------------------
2002 2001
-------- --------
Convertible Liquid Yield Option(TM) Notes, unsecured, zero
coupon, 2.25% interest, due May 1, 2021, with early
repurchase options by the holder.......................... $520,291 $508,780
Note payable secured by real estate; interest payable
monthly at LIBOR, plus 2.25%; monthly payments of $11,
through March 2003; secured by real estate with a book
value of $4,900 at August 31, 2002........................ 2,051 --
Note payable to a bank; interest payable quarterly at 7.23%;
quarterly payments of $52 through April 2005; secured by
equipment with an approximate net book value of $195 as of
August 31, 2002........................................... 513 677
Note payable to a former employee relating to a
non-competition agreement; interest payable monthly at
7.125%; monthly payments of $21 until April 2004;
unsecured; see Note 18 -- Related Party Transactions...... 392 605
Note payable to shareholders of an acquired business, due
2003, secured by letter of surety......................... 330 --
Note payable to a finance company; interest payable monthly
at 6.15%; monthly payments of $311 , through January 2002;
unsecured................................................. -- 1,530
Other notes payable; interest rates ranging from 0% to 7.0%;
payable in monthly installments based on amortization over
the respective note lives; maturing through 2009.......... 715 457
-------- --------
Total debt.................................................. 524,292 512,049
Less: current maturities.................................... (3,102) (2,365)
-------- --------
Total long-term portion of debt............................. $521,190 $509,684
======== ========
</Table>
F-26
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt during each year ending August 31 are
as follows (in thousands):
<Table>
<Caption>
TOTAL
--------
2003........................................................ $ 3,102
2004........................................................ 520,979
2005........................................................ 167
2006........................................................ 11
2007........................................................ 11
Thereafter.................................................. 22
--------
Total....................................................... $524,292
========
</Table>
Effective May 1, 2001, the Company issued and sold $790,000,000 (including
$200,000,000 to cover over-allotments) of 20-year, zero-coupon, unsecured,
convertible debt, Liquid Yield Option(TM) Notes ("LYONs", "debt" or "the
securities"). The debt was issued at an original discount price of $639.23 per
$1,000 maturity value and has a yield to maturity of 2.25%. The securities are a
senior unsecured obligation of the Company and are convertible into the
Company's Common Stock at a fixed ratio of 8.2988 shares per $1,000 maturity
value or an effective conversion price of $77.03 at the date of issuance. Under
the terms of the issue, the conversion rate may be adjusted for certain factors
as defined in the agreement including but not limited to dividends or
distributions payable on Common Stock, but will not be adjusted for accrued
original issue discount. The Company realized net proceeds, after expenses, from
the issuance of these securities of approximately $490,000,000. The Company used
these proceeds to retire outstanding indebtedness and for general corporate
purposes, including investment in AAA rated, short-term marketable securities
held until maturity and cash equivalents.
The holders of the debt have the right to require the Company to repurchase
the debt on May 1, 2004, May 1, 2006, May 1, 2011, and May 1, 2016 at the then
accreted value. The debt is reflected in the preceding maturity table as
maturing at the first repurchase date. The Company has the right to fund such
repurchases with shares of its Common Stock, (at the current market value),
cash, or a combination of Common Stock and cash. The debt holders also have the
right to require the Company to repurchase the debt for cash, at the accreted
value, if there is a change in control of the Company, as defined, occurring on
or before May 1, 2006. The Company may redeem all or a portion of the debt at
the accreted value, through cash payments, at any time after May 1, 2006.
The estimated fair value of long-term debt as of August 31, 2002 and 2001
was approximately $413,000,000 and $422,000,000, respectively. The fair value of
the convertible debt as of August 31, 2002 and 2001 was based on recent sales of
such debt as of August 31, 2002 and 2001. The fair value of the Company's other
long-term debt at August 31, 2002 and 2001 was based on borrowing rates
currently available to the Company for notes with similar terms and average
maturities.
During fiscal years 2002, 2001 and 2000, the Company recognized, as
interest expense, $9,079,000, $5,515,000, and $1,004,000, respectively, costs
associated with the amortization of financing fees that were incurred with
respect to issuance of the Company's LYONs and Credit Facility. The LYONs costs
are being amortized to the first repurchase date of the debt, May 1, 2004. As of
August 31, 2002 and 2001, unamortized deferred financing fees of the Company's
LYONs debt and Credit Facility were approximately $12,103,000 and $20,923,000,
respectively.
NOTE 10 -- REVOLVING LINES OF CREDIT
The Company's primary credit facility ("Credit Facility"), dated July 2000,
is for a three-year term, and provides that both revolving credit loans and
letters of credit may be issued within the limits of this
F-27
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
facility. The Credit Facility was amended on February 28, 2002 to, among other
matters, increase the total Credit Facility to $350,000,000 from $300,000,000
and to eliminate the previous $150,000,000 limit on letters of credit. The
Company also has the option to further increase the Credit Facility under
existing terms to $400,000,000, if certain conditions are satisfied, including
the successful solicitation of additional lenders or increased participation of
existing lenders. The amended Credit Facility allows the Company to borrow
either at interest rates (i) in a range of 1.50% to 2.25% over the London
Interbank Offered Rate ("LIBOR") or (ii) from the prime rate to 0.75% over the
prime rate. The Company selects the interest rate index and the spread over the
index is dependent upon certain financial ratios of the Company. The Credit
Facility is secured by, among other things, (i) guarantees by the Company's
domestic subsidiaries; (ii) a pledge of all of the capital stock in the
Company's domestic subsidiaries and 66% of the capital stock in certain of the
Company's foreign subsidiaries; and (iii) a security interest in all property of
the Company and its domestic subsidiaries (except real estate and equipment).
The Credit Facility also contains restrictive covenants and other restrictions,
which include but are not limited to the maintenance of specified ratios and
minimum capital levels and limits on other borrowings, capital expenditures and
investments. Additionally, the Credit Facility established a $25,000,000
aggregate limit on the amount of the Company's Common Stock repurchases and/or
LYONs repurchases made subsequent to February 28, 2002, without prior consent.
Subsequent consent was provided to allow the Company to complete in October 2002
the $100,000,000 Common Stock repurchase program which was authorized by the
Company's Board of Directors in September 2001(see Note 2 of Notes to
Consolidated Financial Statements). As of August 31, 2002, the Company was in
compliance with these covenants or had obtained the necessary waivers. At August
31, 2002 and 2001, letters of credit of approximately $183,800,000 and
$61,500,000, respectively, were outstanding and no revolving credit loans were
outstanding under the Credit Facility. The Company's total availability under
the Credit Facility at August 31, 2002 and 2001 was approximately $166,200,000
and $238,500,000, respectively. At August 31, 2002, the interest rate on this
line of credit was either 4.75% (if the prime rate index had been chosen) or
3.32% (if the LIBOR rate index had been chosen). At August 31, 2001, the
interest rate on this line of credit was either 6.5% (if the prime rate index
had been chosen) or 5.26% (if the LIBOR rate index had been chosen).
As of August 31, 2002 and 2001, the Company's foreign subsidiaries had
short-term revolving lines of credit permitting borrowings totaling
approximately $15,500,000 and $16,200,000, respectively. These subsidiaries had
outstanding borrowings under these lines of approximately $1,050,000 and
$3,900,000, respectively, at a weighted average interest rate of approximately
5.0% and 6.0%, respectively, at August 31, 2002 and 2001.
F-28
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- INCOME TAXES
The significant components of deferred tax assets and liabilities are as
follows (in thousands):
<Table>
<Caption>
AUGUST 31,
-------------------
2002 2001
-------- --------
Assets:
Contract adjustments and accrued contract loss reserves... $ 26,610 $ 20,868
Deferred revenue.......................................... 20,621 --
Receivables............................................... 14,690 6,442
Net operating loss and tax credit carry forwards.......... 16,097 26,853
Other expenses not currently deductible................... 4,715 6,613
Accrued severance......................................... 3,206 205
Tax basis of inventory in excess of book basis............ 279 125
Less: valuation allowance................................. (1,034) --
-------- --------
Total assets...................................... 85,184 61,106
Liabilities:
Property, plant and equipment............................. (20,337) (7,736)
Employee benefits and other expenses...................... (6,396) (7,266)
-------- --------
Total liabilities................................. (26,733) (15,002)
-------- --------
Net deferred tax assets..................................... $ 58,451 $ 46,104
======== ========
</Table>
Income (loss) before provision for income taxes for the years ended August
31 was as follows (in thousands):
<Table>
<Caption>
2002 2001 2000
-------- -------- -------
Domestic.............................................. $143,545 $104,361 $45,532
Foreign............................................... 7,467 (4,467) 16
-------- -------- -------
Total................................................. $151,012 $ 99,894 $45,548
======== ======== =======
</Table>
The provision for income taxes for the years ended August 31 was as follows
(in thousands):
<Table>
<Caption>
2002 2001 2000
------- ------- -------
Current -- federal...................................... $ -- $ -- $13,549
Deferred................................................ 48,093 36,863 1,805
State................................................... 6,255 1,503 1,005
------- ------- -------
Total................................................... $54,348 $38,366 $16,359
======= ======= =======
</Table>
The Company paid no federal income taxes in the years ended August 31, 2001
and 2002 primarily because of the utilization of operating losses resulting from
the Stone & Webster acquisition.
F-29
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of Federal statutory and effective income tax rates for
the years ended August 31 was as follows:
<Table>
<Caption>
2002 2001 2000
---- ---- ----
Statutory rate.............................................. 35% 35% 35%
State taxes provided........................................ 4 (1) 2
Foreign income taxed at different rates..................... (2) (3) (3)
Non-deductible goodwill..................................... -- 7 --
R&D credits................................................. (2) -- 2
Other....................................................... 1 -- --
-- -- --
36% 38% 36%
== == ==
</Table>
As of August 31, 2002 for Federal income tax return purposes, the Company
had approximately $25,000,000 of U.S. net operating loss carryforwards available
to offset future taxable income and approximately $4,600,000 of research and
development credits available to offset future tax. The loss carryforwards,
which resulted from the acquisition of the IT Group (see Note 4 to Notes to
Consolidated Financial Statements) expire beginning in 2017 through 2021 and the
credits expire beginning in 2007 through 2008. As of August 31, 2002 , the
Company's United Kingdom ("U.K.") and Australian operations had net operating
loss carryforwards of approximately $624,000 and $3,110,000, respectively, which
can be used to reduce future taxable income in those countries. SFAS 109
specifies that deferred tax assets are to be reduced by a valuation allowance if
it is more likely than not that some portion of the deferred tax assets will not
be realized. Management believes that future reversals of existing taxable
differences and future taxable income should be sufficient to realize all of the
Company's deferred tax assets, with the exception of a portion of the Australian
net operating loss carryforward; therefore, a valuation allowance of $1,034,000
has been established against the related deferred tax benefit for that portion
of the Australian net operating losses that the Company believes will probably
not be realized.
Unremitted foreign earnings reinvested abroad upon which deferred income
taxes have not been provided aggregated approximately $12,600,000 at August 31,
2002. Due to the timing and circumstances of repatriation of such earnings, if
any, it is not practicable to determine the unrecognized deferred tax liability
relating to such amounts. Withholding taxes, if any, upon repatriation would not
be significant.
NOTE 12 -- COMMON STOCK
The Company has one class of Common Stock. Each outstanding share of Common
Stock, which has been held for four consecutive years without an intervening
change in beneficial ownership, entitles its holder to five votes on each matter
properly submitted to the Company's shareholders for their vote, waiver, release
or other action. Each outstanding share of Common Stock that has been held for
less than four consecutive years entitles its holder to only one vote.
On July 31, 2001, the Company distributed a dividend distribution of one
Preferred Share Purchase Right (a "Right") for each outstanding share of the
Company's Common Stock outstanding on that date. The Rights, which expire on
July 9, 2011, will not prevent a takeover, but are designed to deter coercive or
unfair takeover tactics, and are, therefore, intended to enable all Company
shareholders to realize the long-term value of their investment in the Company.
It is anticipated that the Rights will encourage anyone seeking to acquire the
Company to negotiate with the Board of Directors prior to attempting a takeover.
F-30
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Rights, which are governed by a Rights Agreement dated July 9, 2001,
between the Company and First Union National Bank, as Rights Agent, should not
interfere with a merger or other business combination approved by the Company's
Board of Directors.
The Rights are attached to the Company's Common Stock and are exercisable
only if a person or group (an "Acquiring Person") either (i) acquires 15% or
more of the Company's Common Stock or (ii) commences a tender offer, the
consummation of which would result in ownership by the Acquiring Person of 15%
or more of the Common Stock. The Board of Directors is authorized to reduce the
15% threshold to not less than 10% of the Common Stock.
In the event the Rights become exercisable, each Right will entitle
shareholders (other than the Acquiring Person) to buy one one-hundredth of a
share of a new series of junior participating preferred stock ("Preferred
Shares") at an exercise price of $170.00 (the "Exercise Price"). The Exercise
Price is subject to certain anti-dilution adjustments. Each one one-hundredth of
a Preferred Share will give the stockholder approximately the same dividend,
voting and liquidation rights as would one share of Common Stock.
In lieu of Preferred Shares, each Right holder (other than the Acquiring
Person) will be entitled to purchase from the Company at the Right's
then-current Exercise Price, shares of the Company's Common Stock having a
market value of twice such Exercise Price. In addition, if the Company is
acquired in a merger or other business combination transaction after a person
has acquired 15% or more of the Company's outstanding Common Stock, each Right
will entitle its holder to purchase at the Right's then-current Exercise Price,
a number of the acquiring company's common shares having a market value of twice
such Exercise Price, in lieu of acquiring Preferred Shares.
Further, after a group or person becomes an Acquiring Person, but prior to
acquisition by such person of 50% or more of the Company's Common Stock, the
Board of Directors may exchange all or part of the Rights (other than the Rights
held by the Acquiring Person) for shares of Common Stock at an exchange ratio of
one share of Common Stock for each Right.
Prior to the acquisition by an Acquiring Person of 15% or more of the
Company's Common Stock, the Rights are redeemable for $0.01 per Right at the
option of the Board of Directors.
NOTE 13 -- LEASES
CAPITAL LEASES
The Company leases furniture and fixtures (which includes computer hardware
and software) under various non-cancelable lease agreements. Minimum lease
rentals have been capitalized and the related assets and obligations recorded
utilizing various interest rates. The assets are depreciated using the
straight-line method, except for certain software that is depreciated using the
double declining balance method, over either the estimated useful lives of the
assets or the lease terms, and interest expense is accrued on the basis of the
outstanding lease obligations.
F-31
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assets acquired under capital leases -- net of accumulated amortization are
as follows (in thousands):
<Table>
<Caption>
AUGUST 31,
----------------
2002 2001
------- ------
Transportation equipment.................................... $ -- $ 61
Furniture and fixtures...................................... 6,372 1,366
Machinery and equipment..................................... -- 127
Construction in progress.................................... -- 6,251
------- ------
6,372 7,805
Less accumulated depreciation............................... (1,222) (744)
------- ------
$ 5,150 $7,061
======= ======
</Table>
The following is a summary of future obligations under capital leases (in
thousands).
<Table>
<Caption>
MINIMUM
LEASE PAYMENTS
--------------
For the year ending August 31:
2003........................................................ $ 2,431
2004........................................................ 1,001
2005........................................................ --
2006........................................................ --
2007 and thereafter......................................... --
-------
Total payments.............................................. 3,432
Less: amount representing interest.......................... (275)
-------
Total debt................................................ 3,157
Less: current portion....................................... (2,200)
-------
Total long-term portion of debt............................. $ 957
=======
</Table>
OPERATING LEASES
The Company leases certain offices, fabrication shops, warehouse
facilities, office equipment and machinery under non-cancelable operating lease
agreements which expire at various times and which require various minimum
rentals. The non-cancelable operating leases that were in effect as of August
31, 2002 require the Company to make the following (estimated future minimum
lease payments:
<Table>
For the year ending August 31 (in thousands):
2003........................................................ $ 57,895
2004........................................................ 52,774
2005........................................................ 44,593
2006........................................................ 37,767
2007........................................................ 31,228
2008 and thereafter......................................... 42,215
--------
Total future minimum lease payments......................... $266,472
========
</Table>
F-32
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also enters into short-term lease agreements for equipment
needed to fulfill the requirements of specific jobs. Any payments owed or
committed under these lease arrangements as of August 31, 2002 are not included
as part of total minimum lease payments.
The total rental expense for the fiscal years ended August 31, 2002, 2001,
and 2000 was approximately $56,000,000, $36,000,000, and $17,000,000,
respectively.
NOTE 14 -- CONTINGENCIES
CONTINGENCIES ASSOCIATED WITH DOMESTIC POWER MARKET EPC PROJECTS
In fiscal 2002 and 2001 the Company entered into several significant EPC
contracts for new domestic gas-fired combined cycle power plants. During fiscal
2002 and 2001, the Company recognized revenues of approximately $1,500,000,000
and $250,000,000, respectively, related to these contracts. The Company's
customers for these power plants are major utility companies and IPPs, several
of which where wholly or partially owned subsidiaries of major utilities. In
fiscal 2002, demand for new capacity in the domestic power market significantly
decreased, resulting in, among other things, financial distress among many
participants in the domestic power markets, particularly the IPPs. Although at
the time the Company entered into these contracts, all of these customers had
investment grade credit ratings, during 2002, all of the Company's IPP customers
received downgrades to their credit ratings, which are now considered to be
below investment grade. The condition of the national power market, these
downgrades and other factors resulted in three projects being canceled or
suspended. For one of these projects, Pike, discussed further below, the Company
was notified by the customer of their intention to not make a scheduled
milestone payment on its required due date.
In addition, under the terms of one contract with an IPP, the customer, at
its option, can pay a portion of the contract price in subordinated notes or
cash. The Company believes that the amount payable in subordinated notes will
not exceed $27,000,000 under the terms of the contract. If elected by the
customer, the subordinated notes would bear interest at prime plus 4% and mature
in October 2009. However, if any amounts under the notes are unpaid eight months
following final acceptance of the project, the unpaid notes, plus a cash payment
of the amounts, if any, paid on the notes through the conversion date, is
convertible at the option of the Company into a 49.9% equity interest in the
related project. The payments that could be made with these notes would be due
in the first half of fiscal 2003 and final acceptance of the project is expected
in the first half of calendar 2003.
The Pike Project
During the fourth quarter of 2002, one of the Company's customers, LSP-Pike
Energy, LLC ("Pike") notified the Company of its intention to not pay a
scheduled milestone billing on the required due date of August 4, 2002. Pike is
a subsidiary of NRG Energy, Inc. ("NRG"), which is wholly-owned by Xcel Energy,
Inc. ("Xcel"). In accordance with the terms of the contract, on September 4,
2002, the Company notified the customer it was in breach of the terms of the
contract for nonpayment and, therefore, the contract was terminated. No amounts
are included in backlog at August 31, 2002 related to the Pike project.
Prior to the contract termination, the Company had executed
commitments/agreements to purchase equipment for the project and had also
entered into agreements with subcontractors to perform work on the project.
Certain of these commitments and agreements contain cancellation clauses and
related payment or settlement provisions. The Company has entered into
discussions with its vendors and subcontractors to determine the final amounts
owed based on the termination of the Company's contract. The Company believes
pursuant to the terms of the contract with Pike that the Company has retained
ownership of a significant amount of this equipment and other pieces of
equipment that were to be
F-33
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
installed on the project. Under the terms of the original contract between the
Company and Pike, Pike is obligated to reimburse the Company for all of the
costs incurred by the Company whether before or after the termination and a fee
for the work performed prior to the termination. The Company believes that it is
owed approximately $120,000,000 in costs and fees over the amounts already paid
under the contract.
The Company is actively pursuing alternatives to collect all amounts it is
owed under the Pike contract. On October 18, 2002, the Company filed an
involuntary petition for liquidation of Pike, under Chapter 7 of the U.S.
Bankruptcy Code to protect its rights, claims, and security interests in and to
the assets of Pike. The Company also filed suit against NRG and Xcel, along with
certain of their officers to collect amounts due, damages, and costs. In
addition to the legal proceedings, the Company will continue to pursue
discussions with Pike, NRG, Xcel and their lenders in an effort to resolve
collection of the amounts owed.
The Company believes it will ultimately recover the costs it incurred and
will incur under the terms of the contract and the profit it has recognized
through August 31, 2002 on the project. The Company will not recognize any
additional profit it is owed under this contract until it is probable it will
collect that additional amount.
Although the Company expects to recover amounts owed to it (including final
vendor and subcontractor settlements), it is also reasonably possible that the
Company will not recover all of its costs and profit recognized through August
31, 2002, on the project; particularly if the customer's financial situation
continues to deteriorate and if the equipment in the possession of the Company
cannot be used on another similar project or liquidated by the Company to
recover all or a portion of the amount owed. The amount, if any, that may not be
recoverable is dependent upon the final amounts to be expended by the Company
related to the project, the amount to be realized upon disposition of the
equipment related to the project and the financial wherewithal of the customer
in the future, which is dependent upon its ability to restructure and/or reach
agreement with its creditors or to obtain additional funding from its parent
company.
The Company has, in connection with its evaluation of the Pike project,
estimated that (i) it has or will incur costs of approximately $75,000,000 to
$80,000,000 over the amounts that have been previously collected from Pike and
(ii) equipment that was to be installed on the project could be liquidated for
approximately $40,000,000 to $60,000,000. Although the Company does not believe
a loss has been incurred as of August 31, 2002, based on these estimates, if the
Company is unable to collect additional amounts from its customer (or its
affiliates), the Company's potential future loss on the Pike project could range
from $15,000,000 to $40,000,000.
Any potential loss on the project will be recognized (charged to earnings)
in the period when it is determined that a loss is likely to occur and a loss
amount can be reasonably estimated.
The Covert & Harquahala Projects
On October 10, 2002, the parent company, PG&E Corp. ("PG&E") of a customer,
PG&E National Energy Group, Inc. ("NEG") announced that it had notified its
lenders that it did not intend to make further equity contributions as required
under the credit facility to fund two projects, Covert and Harquahala, currently
in progress on which the Company is the contractor. At August 31, 2002, the
Company has included in backlog estimated revenue of approximately $372,000,000
from these projects. As of November 1, 2002, the Company continues working on
the projects under the contract terms. However, the Company cannot guarantee
that these projects will be completed. The continuation of the projects is
dependent upon whether (i) the lenders will elect to continue to fund the
project without additional equity contributions from the customer, (ii) the
lenders will exercise their right to take
F-34
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ownership of the projects or (iii) if the contracts will be suspended or
cancelled by the customer or the lenders.
If the lenders exercise their rights to take ownership of the projects and
complete them, the EPC portion of the contracts would be a fixed-price contract
with the lenders. Although the "target price" components of the original
contracts would still be enforceable against NEG, the Company may not be able to
seek collection from the lenders for these components of the original contracts.
Based on the Company's current estimate of costs to complete the project, there
would be no material impact of this change. However, given the uncertainty of
collecting additional amounts from NEG, if the actual costs to complete the
projects exceed the estimated costs at this time, the Company would be assuming
higher risk under this fixed-price contract and could be susceptible to losses
on these projects.
If the contracts were ultimately terminated, the Company would be obligated
under related commitments to complete the payment for various pieces of
equipment procured for the projects and obligations to subcontractors for work
performed on the projects. Under the terms of the contracts, if the contracts
are terminated or suspended, the customer would be obligated to reimburse the
Company for the costs incurred by the Company and a fee for the work performed.
Although no assurances can be made, the Company believes that it would be able
to recover any amounts owed to it under the contracts through collection from
the customer, its parent, and/or the lenders. In addition, the Company believes
that it has first lien rights, superior to the primary lenders, on the partially
completed projects. The projects are each over 70% complete at an estimated
total cost at completion of over $600,000,000 each.
Although the Company believes its lien rights will ultimately provide
sufficient security to ensure full payment for any amounts due if the customer
is unable to pay, the Company estimates that it has exposure, which includes
costs incurred and committed over amounts collected and gross margin recorded on
the two projects, of approximately $50,000,000 to $60,000,000 million as of
November 1, 2002. This amount will fluctuate as construction progresses. The
Company estimates that its maximum exposure in the future, which is dependent
upon the timing of additional costs incurred on the projects and the timing of
the receipt of milestone billings, is approximately $70,000,000 to $80,000,000.
On October 25, 2002 the Company received approximately $31,000,000 from the
lenders on these projects in payments for invoices due that date. As of November
1, 2002 the Company has been paid for all amounts currently due. Although no
assurances can be made, the Company believes that it will recover all amounts
owed to it under these contracts through collection from the customer or its
lenders. It is reasonably possible however, that the Company may not collect all
future amounts owed to it under this project which could have an adverse effect
on operating results in the period when the uncollectable amounts would be
recognized.
LIABILITIES RELATED TO CONTRACTS
The Company's contracts often contain provisions relating to matters such
as: (i) warranty, requiring achievement of acceptance and performance testing
levels, (ii) liquidated damages, if the project does not meet predetermined
completion dates, and (iii) penalties, for failure to meet other cost or
performance measures. The Company typically attempts to limit its exposure under
these penalty provisions or liquidated damage claims to the fee it is to receive
related to the work; however, in certain instances it can be exposed to more
than the fee or profit earned under the terms of the contract.
In addition, in connection with the acquisitions of the IT Group and Stone
& Webster, the Company assumed certain contracts in progress that contained
warranty provisions applicable to work performed prior to the Company's
assumption of the contracts. While the Company believes that most of the
contracts assumed in those acquisitions will not result in a significant
exposure related to warranty claims, four contracts were identified for which
the warranty claims made by the customers may result in
F-35
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
significant additional work and/or payments. The Company estimated that its
liability for those four projects was $14,500,000, which was recorded as a
liability at the acquisition date. During the year ended August 31, 2002, the
Company made payments and performed work of $2,695,000 on these four projects
related to this warranty exposure and reduced the liability by an additional
$3,697,000 based on reductions in the estimated warranty claim exposure and
successful resolution of these warranty claims. The Company believes its
outstanding warranty exposure on these four projects will not exceed the
remaining recorded liability of $8,108,000, although the final amounts may
differ from the recorded liability.
The Company also assumed two contracts under which Stone & Webster was
contractually obligated to pay a significant amount of liquidated damages or for
which the scheduled project completion date was beyond the completion date
agreed to with the customer. The Company included in total estimated contract
costs on these two contracts approximately $24,600,000 related to estimated
liquidated damage payments at the acquisition date. During the year ended August
31, 2002, based on the timing of estimated completion of one of the projects and
the status of negotiations with the customer, the Company reduced total
estimated costs for liquidated damages by approximately $10,200,000. The Company
believes that it will settle its estimated remaining exposure for liquidated
damages on these two projects for the $14,400,000 it has outstanding in total
estimated costs to complete these projects. Based on its latest job status
review, the Company does not believe that there are any other contracts that
will require the Company to pay a material amount of liquidated damages.
However, the ultimate amount to be paid on these two projects and on other
contracts with liquidated damages provisions will vary depending upon the actual
completion dates compared to the currently scheduled completion dates and final
negotiations with the customers.
OTHER MATTERS
In the normal course of business activities, the Company enters into
contractual agreements with customers for certain construction services to be
performed based on agreed upon reimbursable costs and labor rates. In some
instances, the terms of these contracts provide for the customer's review of the
accounting and cost control systems to verify the completeness and accuracy of
the reimbursable costs invoiced. These reviews could result in proposed
reductions in reimbursable costs and labor rates previously billed to the
customer. Additionally, the Company performs work for the U.S. Government that
is subject to continuing financial and operating reviews by governmental
agencies. The Company does not believe that any such reviews will result in a
material change to the Company's financial position or results of operations.
The Company maintains liability and property insurance against various
risks in such amounts as it considers necessary or adequate in the
circumstances. However, certain risks are either not insurable or insurance is
available at rates which are considered uneconomical.
In the normal course of its business, the Company becomes involved in
various litigation matters including, claims by third parties for alleged
property damages, personal injuries, and other matters. The Company has
estimated its potential exposure, net of insurance coverage, and has recorded
reserves in its financial statements as appropriate. The Company does not
anticipate that the differences between its estimated outcome of these claims
and future actual settlements could have a material effect on the Company's
financial position or results of operations. ( See Note 4 of Notes to
Consolidated Financial Statements with respect to certain contingencies relating
to the IT Group and Stone & Webster acquisitions.)
F-36
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- BUSINESS SEGMENTS, OPERATIONS BY GEOGRAPHIC REGION AND MAJOR
CUSTOMERS
BUSINESS SEGMENTS
The Company has aggregated its business activities into three operating
segments: the Integrated EPC Services segment, the Environmental &
Infrastructure segment and the Manufacturing and Distribution segment. These
segments are unique in technology, services and customer class. Inter-segment
revenues are eliminated in consolidation.
The Integrated EPC Services segment is a vertically integrated provider of
comprehensive engineering, procurement, construction and piping systems services
to the power generation and process industries. These services include
engineering and design, construction, procurement, piping systems fabrication,
maintenance and consulting.
As a result of the IT Group acquisition, the Company formed the
Environmental & Infrastructure segment that provides environmental consulting,
engineering, construction, remediation and facilities management services
(primarily for government and military facilities). Revenues from environmental
and infrastructure operations and related expense items that had previously been
reported in the Integrated EPC Services segment for the years ended August 31,
2001 and 2000 (as well as for the periods in fiscal 2002, prior to the IT Group
acquisition) have been estimated and reclassified to the Environmental &
Infrastructure segment in the table below. Amounts related to environmental and
infrastructure operations previously reported in the Integrated EPC services
segment have also been estimated and reclassified to the Environmental &
Infrastructure segment in the table below. In addition, goodwill of
approximately $70,117,000 was allocated to the Environmental & Infrastructure
segment during 2002, goodwill of $113,308,000 was recorded in connection with
the IT Group acquisition and $2,400,000 of the Stone & Webster reclassification
was allocated to the Environmental & Infrastructure segment. It was not
practical to develop this information for fixed asset and long-lived asset
purchases.
The Manufacturing and Distribution segment manufactures and distributes
specialty stainless, alloy and carbon steel pipe fittings. These fittings
include elbows, tees, reducers and stub ends. The Company has one manufacturing
facility that provides products for the Company's pipe services operations, as
well as to third parties. The Company also has several distribution centers in
the United States, which distribute its products primarily to third parties.
F-37
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BUSINESS SEGMENT DATA
The following table presents information about segment profit and assets
(in thousands):
<Table>
<Caption>
ENVIRONMENTAL MANUFACTURING
INTEGRATED & AND
EPC SERVICES INFRASTRUCTURE DISTRIBUTION CORPORATE TOTAL
------------ -------------- ------------- --------- ----------
FISCAL 2002
Revenues from external customers... $2,610,170 $489,783 $70,743 $ -- $3,170,696
Intersegment revenues.............. 8,215 274 15,647 -- 24,136
Corporate overhead allocations..... 42,569 7,124 2,991 (52,684) --
Interest income.................... 1,961 132 -- 9,425 11,518
Interest expense................... 1,288 272 -- 21,468 23,028
Depreciation and amortization...... 15,135 2,672 2,231 8,560 28,598
Earnings (loss) from unconsolidated
entity........................... (1,152) -- -- 2,855 1,703
Income tax expense................. 42,434 12,211 3,839 (4,136) 54,348
Net income......................... 74,332 21,708 6,825 (4,498) 98,367
Goodwill........................... 313,179 185,825 -- -- 499,004
Total assets....................... 1,076,809 701,013 72,447 453,931 2,304,200
Investment in and advances to
equity method investees
(excluding EPC joint ventures)... 14,856 -- -- 4,618 19,474
Purchases of property and
equipment........................ 14,476 4,276 503 54,691 73,946
Other increases in long-lived
assets, net...................... 6,379 -- -- 8,506 14,885
FISCAL 2001
Revenues from external customers... $1,276,660 $186,216 $76,056 $ -- $1,538,932
Intersegment revenues.............. 2,139 -- 18,259 -- 20,398
Corporate overhead allocations..... 21,898 4,783 4,399 (31,080) --
Interest income.................... 1,758 -- -- 6,988 8,746
Interest expense................... -- -- -- 15,680 15,680
Depreciation and amortization...... 30,492 4,262 2,183 2,803 39,740
Earnings (loss)from unconsolidated
entity........................... 250 -- -- (566) (316)
Income tax expense................. 34,089 5,992 2,947 (4,662) 38,366
Net income......................... 54,546 9,571 5,687 (8,807) 60,997
Goodwill........................... 298,755 70,117 -- -- 368,872
Total assets....................... 966,600 128,362 55,149 551,743 1,701,854
Investment in and advances to
equity method investees
(excluding EPC joint ventures)... 13,137 -- -- 2,141 15,278
Purchases of property and
equipment........................ 9,882 -- 934 27,305 38,121
Other increases in long-lived
assets, net...................... -- -- -- 15,984 15,984
</Table>
F-38
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
ENVIRONMENTAL MANUFACTURING
INTEGRATED & AND
EPC SERVICES INFRASTRUCTURE DISTRIBUTION CORPORATE TOTAL
------------ -------------- ------------- --------- ----------
FISCAL 2000
Revenues from external customers... $ 681,818 $ 19,882 $60,955 $ -- $ 762,655
Intersegment revenues.............. 23 -- 15,343 -- 15,366
Corporate overhead allocations..... 20,360 -- 4,244 (24,604) --
Interest income.................... 185 -- -- 497 682
Interest expense................... 203 -- -- 7,800 8,003
Depreciation and amortization...... 12,600 754 2,192 1,262 16,808
Earnings from unconsolidated
entity........................... 1,194 -- -- -- 1,194
Income tax expense................. 12,096 637 1,230 2,396 16,359
Net income......................... 21,623 1,137 2,361 4,389 29,510
Goodwill........................... 212,121 70,117 -- -- 282,238
Total assets....................... 1,065,334 144,458 64,612 60,679 1,335,083
Investment in and advances to
equity method investees
(excluding EPC joint ventures)... 10,655 -- -- 1,056 11,711
Purchases of property and
equipment........................ 11,383 -- 737 8,499 20,619
Other increases in long-lived
assets, net...................... -- -- 288 10,950 11,238
</Table>
OPERATIONS BY GEOGRAPHIC REGION
The following tables present geographic revenues and long-lived assets (in
thousands):
<Table>
<Caption>
FOR THE YEARS ENDED AUGUST 31,
----------------------------------
2002 2001 2000
---------- ---------- --------
REVENUES:
United States................................... $2,756,332 $1,210,366 $586,406
Canada and other North America.................. 108,186 79,347 6,507
China........................................... 90,243 41,767 11,436
Other Asia/Pacific Rim countries................ 58,099 75,368 39,546
United Kingdom.................................. 88,782 71,598 63,886
Other European countries........................ 14,930 14,799 1,288
South America................................... 27,839 23,071 29,788
Middle East..................................... 10,764 3,039 4,382
Other........................................... 15,521 19,577 19,416
---------- ---------- --------
$3,170,696 $1,538,932 $762,655
========== ========== ========
</Table>
<Table>
<Caption>
AUGUST 31,
------------------------------
2002 2001 2000
-------- -------- --------
LONG-LIVED ASSETS:
United States...................................... $773,835 $520,889 $459,195
United Kingdom..................................... 29,274 33,791 38,778
Other foreign countries............................ 37,631 32,809 25,946
-------- -------- --------
$840,740 $587,489 $523,919
======== ======== ========
</Table>
F-39
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues are attributed to geographic regions based on location of the
project or the ultimate destination of the product sold. Long-lived assets
include all long-term assets, except those specifically excluded under SFAS No.
131, such as deferred income taxes and securities available for sale.
INFORMATION ABOUT MAJOR CUSTOMERS
The Company's customers are principally major multi-national industrial
corporations, independent and merchant power providers, governmental agencies
and equipment manufacturers. For the year ended August 31, 2002 revenues from
one customer totaled approximately $676,000,000 or 21% of the Company's
revenues. For the year ended August 31, 2002 and 2001, revenues from U.S.
Government agencies or entities owned by the U.S. Government totaled
approximately $363,000,000 (11% of revenues) and $183,000,000 (12% of revenues),
respectively. For the year ended August 31, 2000, revenues from two different
non-U.S. Government customers totaled $85,000,000 (11% of revenues) and
$83,400,000 (11% of revenues).
EXPORT REVENUES
For the years ended August 31, 2002, 2001, and 2000, the Company has
included as part of its international revenues approximately $215,000,000,
$167,000,000, and $49,000,000, respectively, of exports from its domestic
facilities.
NOTE 16 -- EARNINGS PER COMMON SHARE
The computation of basic and diluted earnings per share (in thousands,
except per share data) is set forth below.
<Table>
<Caption>
FOR THE YEARS ENDED AUGUST 31,
-------------------------------
2002 2001 2000
--------- -------- --------
BASIC:
Income available to common shareholders before
extraordinary item and cumulative effect of change in
accounting principle................................. $ 98,367 $61,212 $30,383
Extraordinary item, net of taxes....................... -- (215) (553)
Cumulative effect on prior years of change in
accounting principle................................. -- -- (320)
-------- ------- -------
Net income for basic computation....................... $ 98,367 $60,997 $29,510
======== ======= =======
Weighted average common shares (basic)................. 40,834 40,127 29,636
======== ======= =======
Basic earnings per common share
Income available to common shareholders before
extraordinary item and cumulative effect of change in
accounting principle................................. $ 2.41 $ 1.53 $ 1.03
Extraordinary item, net of taxes....................... -- (0.01) (0.02)
Cumulative effect on prior years of change in
accounting principle................................. -- -- (0.01)
-------- ------- -------
Net income for basic computation....................... $ 2.41 $ 1.52 $ 1.00
======== ======= =======
</Table>
F-40
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
FOR THE YEARS ENDED AUGUST 31,
-------------------------------
2002 2001 2000
--------- -------- --------
DILUTIVE:
Income available to common shareholders before
extraordinary item and cumulative effect of change in
accounting principle................................. $ 98,367 $61,212 $30,383
Interest on convertible debt, net of taxes............. 10,697 -- --
-------- ------- -------
Income for diluted computation......................... 109,064 61,212 30,383
Extraordinary item, net of taxes....................... -- (215) (553)
Cumulative effect on prior years of change in
accounting principle................................. -- -- (320)
-------- ------- -------
Net income for dilutive computation.................... $109,064 $60,997 $29,510
======== ======= =======
Weighted average common shares (basic)................. 40,834 40,127 29,636
Effect of dilutive securities:
Convertible debt....................................... 6,556 -- --
Stock options.......................................... 848 1,595 1,002
Escrow shares.......................................... -- 106 133
-------- ------- -------
Adjusted weighted average common shares and assumed
conversions.......................................... 48,238 41,828 30,771
======== ======= =======
Diluted earnings per common share
Income available to common shareholders before
extraordinary item and cumulative effect of change in
accounting principle................................. $ 2.26 $ 1.46 $ 0.99
Extraordinary item, net of taxes....................... -- -- (0.02)
Cumulative effect on prior years of change in
accounting principle................................. -- -- (0.01)
-------- ------- -------
Net income for dilutive computation.................... $ 2.26 $ 1.46 $ 0.96
======== ======= =======
</Table>
The Company had approximately 142,000, 7,500, and 12,000, of stock options
at August 31, 2002, 2001, and 2000, respectively, which were excluded from the
calculation of diluted income per share because they were antidilutive.
Additionally, at August 31, 2001, approximately 2,209,000 incremental shares
related to convertible debt were excluded from the calculation of diluted income
per share because they were antidilutive.
NOTE 17 -- EMPLOYEE BENEFIT PLANS
The Company has a 1993 Employee Stock Option Plan ("1993 Plan") under which
both qualified and non-qualified options and restricted stock may be granted. As
of August 31, 2002, approximately 3,844,000 shares of Common Stock were
authorized for issuance under the 1993 Plan. The 1993 Plan is administered by a
committee of the Board of Directors (the "Board"), which selects persons
eligible to receive options and determines the number of shares subject to each
option, the vesting schedule, the exercise price, and the duration of the
option. Generally, the exercise price of any option granted under the 1993 Plan
cannot be less than 100% of the fair market value of the Company's Common Stock
on the date of grant and its duration cannot exceed 10 years. Both qualified
options and non-qualified options have been granted under the 1993 Plan. The
options awarded vest in 25% annual increments beginning one year from the date
of award.
F-41
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shares of restricted stock are subject to risk of forfeiture during the
vesting period. Restrictions related to these shares and the restriction terms
are determined by the committee. Holders of restricted stock have the right to
vote the shares. At August 31, 2002, there were no restricted shares of stock.
In conjunction with the Stone & Webster acquisition (see Note 4 of Notes to
Consolidated Financial Statements), the Company established the Stone & Webster
Acquisition Stock Option Plan ("Stone & Webster Plan"). The purpose of this plan
was to award options to Company employees who were not officers of the Company,
as defined in the plan documents, and who were either (a) employed by the
Company as a result of the Stone & Webster acquisition or (b) instrumental to
the Stone & Webster acquisition. At August 31, 2002, 1,071,000 shares of Common
Stock were authorized for issuance under this plan. The Stone & Webster Plan is
administered by a committee of the Board, which selects persons eligible to
receive options and determines the number of shares subject to each option, the
vesting schedule, the exercise price, and the duration of the option. The
exercise price of any option granted under the Stone & Webster Plan cannot be
less than 100% of the fair market value of the Company's Common Stock on the
date of grant and its duration cannot exceed 10 years. Only non-qualified
options have been granted under the Stone & Webster Plan. The options awarded
vest in 25% annual increments beginning one year from the date of award.
During fiscal 2001, the Company established the 2001 Employee Incentive
Compensation Plan ("2001 Plan") under which both qualified and non-qualified
stock options, stock appreciation rights, performance shares and restricted
stock may be granted. As of August 31, 2002, approximately 2,000,000 shares of
Common Stock were authorized for issuance under the 2001 Plan. The 2001 Plan is
administered by a committee of the Board, which selects persons eligible to
receive awards and determines the number of shares subject to each award, and
terms, conditions, performance measures, and other provisions of the award. The
exercise price of any option granted under the 2001 Plan cannot be less than
100% of the fair market value of the Company's Common Stock on the date of grant
and its duration cannot exceed 10 years. Both qualified options and
non-qualified options have been granted under the 2001 Plan. The options awarded
under the 2001 Plan vest in 25% annual increments beginning one year from the
date of award.
All options and other grants issued under the Stone & Webster Plan and the
2001 Plan become fully exercisable upon a change in control of the Company.
In fiscal 1997, the Company adopted a Non-Employee Director Stock Option
Plan ("Directors' Plan"). Members of the Board who are not or were not an
officer or employee of the Company during the one year period preceding the date
the director is first elected to the Board are eligible to participate in the
Directors' Plan. A committee of two or more members of the Board who are not
eligible to receive grants under the Directors' Plan administer this plan. Upon
adoption, options to acquire an aggregate of 40,000 shares of Common Stock were
issued. These options vested in 25% annual increments beginning one year from
the date of award. Additionally, each eligible director is granted an option to
acquire 1,500 shares of Common Stock on an annual basis upon his election or
re-election to the Board. These options vest one year after the date of award. A
total of 150,000 shares of Common Stock have been authorized for issuance under
the Directors' Plan.
SFAS No. 123, "Accounting for Stock-Based Compensation," provides that
companies can either record expense based on the fair value of stock-based
compensation upon issuance or elect to recognize no compensation cost upon
issuance of a grant if certain requirements are met (as provided for in APB 25).
The Company accounts for its stock-based compensation under APB 25. However,
pro-forma disclosures, as if the Company adopted the cost recognition
requirements under SFAS No. 123, are presented below.
F-42
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost been determined based on the fair value at the grant
date consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per common share would have approximated the proforma amounts
below:
<Table>
<Caption>
FOR THE YEARS ENDED AUGUST 31,
------------------------------
2002 2001 2000
-------- -------- --------
Net income before extraordinary item and cumulative
effect of change in accounting principle (in
thousands):
As reported........................................... $98,367 $61,212 $30,383
======= ======= =======
Proforma.............................................. $93,295 $57,396 $29,491
======= ======= =======
Basic earnings per share before extraordinary item and
cumulative effect of change in accounting principle:
As reported........................................... $ 2.41 $ 1.53 $ 1.03
======= ======= =======
Proforma.............................................. $ 2.28 $ 1.43 $ 1.00
======= ======= =======
Diluted earnings per share before extraordinary item and
cumulative effect of change in accounting principle:
As reported........................................... $ 2.26 $ 1.46 $ 0.99
======= ======= =======
Proforma.............................................. $ 2.16 $ 1.37 $ 0.96
======= ======= =======
</Table>
The following table summarizes the activity in the Company's stock option
plans:
<Table>
<Caption>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at August 31, 1999.............................. 2,515,500 $ 4.527
Granted................................................... 2,116,000 $20.722
Exercised................................................. (580,764) $ 3.884
Canceled.................................................. (65,000) $ 4.188
--------- -------
Outstanding at August 31, 2000.............................. 3,985,736 $13.198
Granted................................................... 115,000 $36.904
Exercised................................................. (606,863) $ 5.389
Canceled.................................................. (282,500) $13.186
--------- -------
Outstanding at August 31, 2001.............................. 3,211,373 $15.503
Granted................................................... 845,000 $26.283
Exercised................................................. (235,190) $ 9.611
Canceled.................................................. (21,750) $21.816
--------- -------
Outstanding at August 31, 2002.............................. 3,799,433 $18.226
========= =======
Exercisable at August 31, 2002.............................. 1,505,184 $15.002
========= =======
</Table>
As of August 31, 2002, 2001, and 2000, the number of shares relating to
options exercisable under the stock option plans was 1,505,184; 883,373; and
450,986, respectively, and the weighted average exercise price of those options
was $15.002, $13.648, and $5.703, respectively.
The weighted average fair value at date of grant for options granted during
the years ended August 31, 2002, 2001, and 2000, was $15.61, $21.40, and $12.02
per share, respectively. The fair value of
F-43
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for the
years ended August 31, 2002, 2001, and 2000, respectively: (a) dividend yield of
0.00%, 0.00% and 0.00%; (b) expected volatility of 65%, 60%, and 60%; (c)
risk-free interest rate of 4.1%, 5.3%, and 6.2%; and (d) expected life of 5
years, 5 years and 5 years.
The following table summarizes information about stock options outstanding
as of August 31, 2002:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACT LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ------------- -------- ----------- --------
$3.375-$8.333 962,183 6.09 Yrs $ 4.322 540,310 $ 4.348
$8.334-$13.292 61,000 6.06 Yrs $10.730 53,500 $10.845
$13.293-$18.250 20,000 9.93 Yrs $16.980 -- --
$18.251-$23.209 1,844,750 7.90 Yrs $20.928 880,749 $20.933
$23.210-$28.167 719,000 9.24 Yrs $25.937 2,500 $24.590
$28.168-$33.126 97,500 9.73 Yrs $30.621 -- --
$33.127-$38.084 25,000 8.29 Yrs $33.870 5,000 $33.750
$38.085-$43.043 55,000 8.38 Yrs $41.500 19,375 $41.500
$43.044-$48.001 7,500 8.42 Yrs $44.750 1,875 $44.750
$48.002-$52.960 7,500 8.53 Yrs $51.993 1,875 $51.993
--------- ---------
3,799,433 7.73 Yrs $18.226 1,505,184 $15.002
========= =========
</Table>
During 1994, the Company adopted a voluntary 401(k) profit sharing plan for
substantially all employees who are not subject to collective bargaining
agreements. The plan provides for the eligible employee to contribute a
percentage of annual compensation, subject to an annual limit as determined
under federal law, with the Company matching 50% of the employee's eligible
contribution up to 6% of the employee's annual compensation. The Company's
expense for this plan for the years ended August 31, 2002, 2001, 2000, was
approximately $8,000,000, $5,700,000, and $1,700,000, respectively. The year
ended August 31, 2000 total includes approximately $195,000 related to the Stone
& Webster subsidiary's 401(k) plan covering the period of July 14, 2000 to
August 31, 2000. The Company's 401(k) profit sharing plans offer the employees a
number of investment choices, including investments in the Company's Common
Stock. The Plan purchases these shares on the open market. At August 31, 2002
and 2001, the Company's 401(k) plan owned 497,238 and 286,129 shares,
respectively of the Company's Common Stock.
The Company has other defined contribution plans at certain of its domestic
and foreign locations. These plans allow the employees to contribute a portion
of their earnings with the Company matching a percentage of the employee's
contributions. The amounts contributed by the Company and employee vary by plan.
The Company's expense for these plans was approximately $1,200,000, $700,000,
and $325,000, for the years ended August 31, 2002, 2001, and 2000, respectively.
The Company's subsidiaries in the U.K. and Canada have defined benefit
plans covering their employees. The first U.K. plan was acquired November 14,
1997 through an acquisition. It is a salary-related plan for certain employees
and admittance to this plan is now closed. The employees in this plan contribute
7% of their salary. The Company contribution depends on length of service, the
employee's salary at retirement, and the earnings of the plan's investments. If
the plan's earnings are sufficient, the Company makes no contributions. The
Canadian plan and second U.K. plan were acquired July 14, 2000 in conjunction
with the Stone & Webster acquisition. The Canadian plan is noncontributory and
the benefits are based primarily on years of service and employees' career
average pay; admittance to this plan
F-44
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is now closed. The Company's policy is to make contributions equal to the
current year cost-plus amortization of prior service cost. The second U.K. plan
is contributory and the benefits are based primarily on years of service and
employees' average pay during their last ten years of service. For the years
ended August 31, 2002, 2001, and 2000, the Company recognized income (expense)
of approximately, $(1,005,000), $533,000, and $145,000 respectively, for these
plans.
Included in the amounts for the year ended August 31, 2002 and 2001 are the
two pension plans assumed by the Company in the Stone & Webster acquisition. The
projected benefit obligation of these two plans at the date of the acquisition
of $59,821,000 and the fair value of the assets at the date of acquisition of
$63,419,000 are included in the table below at the start of the 2000 fiscal
year.
At August 31, 2002, the Company had recorded a $10,180,000 liability for
its second U.K. defined benefit retirement plan. This liability is required to
be recognized on the plan sponsor's balance sheet when the accumulated benefit
obligations of the plan exceed the fair value of the plan's assets. In
accordance with SFAS No. 87-"Employers Accounting for Pensions", the increase in
the minimum liability is recorded through a direct charge to stockholders'
equity and is, therefore, reflected, net of tax, as a component of comprehensive
income in the Statement of Changes in Stockholders' Equity.
The following table sets forth the pension cost for the first U.K. plan and
the two pension plans assumed by the Company in the Stone & Webster acquisition
(from the date of acquisition to August 31, 2002), and the plans' funded status
as of August 31, 2002, 2001, and 2000 in accordance with the provisions of SFAS
No. 132 -- "Employers' Disclosure about Pensions and Other Postretirement
Benefits" (in thousands):
<Table>
<Caption>
FOR THE YEARS ENDED AUGUST 31,
----------------------------------
2002 2001 2000
---------- --------- ---------
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at the start of the
year............................................. $ 78,526 $ 75,593 $ 17,149
Projected benefit obligations acquired in the Stone
& Webster acquisition............................ -- -- 59,821
Service cost....................................... 1,818 1,865 458
Interest cost...................................... 4,676 4,675 1,435
Member's contributions............................. 714 659 218
Actuarial loss/(gain).............................. 3,532 403 432
Benefits paid...................................... (3,740) (4,114) (971)
Foreign currency exchange rate changes............. 4,597 (555) (2,949)
---------- --------- ---------
Projected benefit obligation at the end of the
year............................................. 90,123 78,526 75,593
---------- --------- ---------
</Table>
F-45
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
FOR THE YEARS ENDED AUGUST 31,
----------------------------------
2002 2001 2000
---------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of the assets at the start of the
year............................................. 73,554 82,013 19,296
Fair value of assets acquired in the Stone &
Webster Acquisition.............................. -- -- 63,419
Actual return on plan assets....................... (6,953) (6,137) 2,861
Employer contributions............................. 1,752 1,868 457
Employee contributions............................. 714 659 218
Benefits Paid...................................... (3,740) (4,114) (971)
Foreign currency exchange rate changes............. 3,437 (735) (3,267)
---------- --------- ---------
Fair value of the assets at the end of the year.... 68,764 73,554 82,013
---------- --------- ---------
Funded status...................................... (21,359) (4,972) 6,420
Unrecognized net loss/(gain)....................... 28,396 10,147 (1,378)
Adjustment to recognize minimum liability.......... (10,180) -- --
---------- --------- ---------
Prepaid (accrued) benefit cost..................... $ (3,143) $ 5,175 $ 5,042
========== ========= =========
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate at end of the year................... 5.5-6.5% 6.0-6.5% 5.5-6.5%
Expected return on plan assets for the year........ 7.75-8.75% 8.0-8.75% 7.0-8.75%
Rate of compensation increase at end of the year... 4.4-5.0% 4.5-5.0% 4.5-5.0%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost....................................... $ 1,818 $ 1,865 $ 458
Interest cost...................................... 4,676 4,675 1,435
Expected return on plan assets..................... (6,291) (6,924) (2,038)
Other.............................................. 802 (149) --
---------- --------- ---------
Total net periodic benefit cost (income)........... $ 1,005 $ (533) $ (145)
========== ========= =========
</Table>
The Company has a defined benefit pension plan for employees of its Connex
subsidiary. Effective January 1, 1994, no new participants were admitted to the
plan. The pension plan's benefit formulas generally base payments to retired
employees upon their length of service. The pension plan's assets are invested
in fixed income assets, equity based mutual funds, and money market funds. At
August 31, 2002 and 2001, the fair market value of the plan assets was
$1,185,000 and $1,355,000, respectively, which exceeded the estimated projected
benefit obligation.
NOTE 18 -- RELATED PARTY TRANSACTIONS
The Company has entered into employment agreements with its Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and the President of
its Environmental & Infrastructure subsidiary. Under the terms of the
agreements, the executives are entitled to receive their base salaries, bonuses
and other employee benefit plans and programs for the periods of time specified
therein. In the event of termination of employment as a result of certain
reasons (including a change in control of the Company), the executives will be
entitled to receive their base salaries and certain other benefits for the
remaining term of their agreement and all options and similar awards shall
become fully vested. Additionally, in the event of an executive's death, his
estate is entitled to certain payments and benefits.
F-46
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 2001, the Company's employment agreement with its Chief Executive
Officer was amended to provide a non-compete clause upon the Chief Executive
Officer's separation from the Company. The amount of the non-compete payment
will be $15,000,000 and was based upon an outside study of the fair value of
non-compete provisions. The Company also agreed to set aside $5,000,000, per
year, of Company funds in fiscal 2001 through 2003 in order to fund this
obligation; and, therefore, as of August 31, 2002 and 2001, $10,000,000 and
$5,000,000 are included in other long-term assets in the accompanying
consolidated balance sheets. The $15,000,000 payment is due upon the Chief
Executive Officer's separation from the Company, or upon change in control. Upon
separation from the Company, the Company will amortize the payment over the
non-compete period.
Upon hiring certain senior managers, the Company paid signing bonuses that
are repayable should the employee voluntarily terminate prior to a prescribed
time. These repayment obligations are evidenced by non-interest bearing loan
agreements that are forgiven over time. The impact of discounting such loans to
record interest income is not significant. The balance of the senior management
loan receivables as of August 31, 2002, 2001, and 2000 was approximately
$3,463,000, $789,000, and $272,000, respectively. There are no loans outstanding
to the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer
or General Counsel. In the ordinary course of business, the Company has also
made other loans to other employees. All of these loan balances are included in
other assets.
During fiscal 1996, the Company entered into a non-competition agreement
with a key employee of an acquired business. A related asset totaling
approximately $314,000 (net of accumulated amortization of $1,654,000) is
included in other assets and is being amortized over eight years using the
straight-line method. A note payable to the executive for this agreement is
included in long-term debt as further discussed in Note 9 of Notes to
Consolidated Financial Statements.
A director of the Company was a managing director of the investment banking
firm that was a participating underwriter for the October 2000 public offering
of 4,837,338 shares of Common Stock (discussed in Note 2 of Notes to
Consolidated Financial Statements) and the November 1999 public offering of
6,900,000 shares of Common Stock (including 900,000 shares to cover
over-allotments). The director's investment banking firm earned commissions of
approximately $44,000 and $150,000 related to the October 2000 and November 1999
offerings, respectively. The same investment banking firm handled the repurchase
of some of the shares of the Company's Common Stock which began in fiscal 1999,
earning approximately $74,000 in commissions.
A director of the Company is the majority owner of a construction company
that the Company has used primarily as a subcontractor. He also had a minority
interest in a company that provided services to the contractor for one of the
Company's leased buildings; the director has since divested himself of this
interest. During fiscal 2002, the Company made total payments of approximately
$20,825,000 to the two companies and owed one of the companies approximately
$7,750,000 as of August 31, 2002. During fiscal 2001, the Company made payments
of approximately $266,000 to one of these companies. For fiscal 2000, payments
to the director's construction companies were not material.
Effective August 1, 2002, the Company entered into a five -year watercraft
lease with a corporation owned by one of the Company's executive officers. The
lease payments are $10,000 per month.
NOTE 19 -- FOREIGN CURRENCY TRANSACTIONS
As of August 31, 2002, all of the Company's significant foreign
subsidiaries maintained their accounting records in their local currency
(primarily British pounds, Venezuelan Bolivars, Australian and Canadian dollars,
and the Euro). The currencies are converted to U.S. dollars with the effect of
the foreign currency translation reflected in "accumulated other comprehensive
income (loss)," a component of shareholders' equity, in accordance with SFAS No.
52 -- "Foreign Currency Translation" and
F-47
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 130 -- "Reporting Comprehensive Income." Foreign currency transaction
gains or losses are credited or charged to income. At August 31, 2002 and 2001,
cumulative foreign currency translation adjustments related to these
subsidiaries reflected as a reduction to shareholders' equity amounted to
$8,941,000 and $6,308,000, respectively; transaction losses reflected in income
amounted to $1,158,000 and $41,000 in the years ended August 31, 2002 and 2001,
respectively
Prior to fiscal 2002 the Company had used the U.S. Dollar as opposed to the
Venezuelan Bolivar as the functional reporting currency of its Venezuelan
subsidiaries because the Venezuela economy was measured as highly inflationary,
as defined by SFAS No. 52. Accordingly, pursuant to SFAS No. 52, the Company had
previously translated the assets and liabilities of its Venezuelan subsidiaries
(which are denominated in Venezuelan Bolivars) into U.S. Dollars using a
combination of current and historical exchange rates. The Company began to use
the Venezuelan Bolivar as the functional reporting currency of its Venezuelan
subsidiaries in fiscal 2002 because the Company had determined that the
Venezuelan economy no longer met the criteria of a highly inflationary economy
as set forth in SFAS No. 52. As of August 31, 2002 the Company translated all
assets and liabilities at the August 31, 2002 exchange rate. The Company's
wholly-owned subsidiaries in Venezuela had total assets of approximately
$10,500,000 and $17,200,000 denominated in Venezuelan Bolivars as of August 31,
2002 and 2001, respectively. The majority of the decrease in total assets in the
fiscal year ended August 31, 2002 was related to the change in method of
translating the assets from the Venezuelan Bolivar to the U.S. Dollar.
During the years ended August 31, 2001 and 2000, the Company recorded
losses of approximately $673,000, and $1,756,000, respectively, in translating
the assets and liabilities of its Venezuelan subsidiaries into U.S. dollars.
These losses are reported as reductions to revenues because they were partially
offset by inflationary billing provisions in certain of the Company's contracts.
Similar translation losses recorded against income in the first quarter of
fiscal 2002 (prior to changing the functional reporting currency to the
Venezuelan Bolivar) were not material.
NOTE 20 -- UNBILLED RECEIVABLES, RETAINAGE RECEIVABLES AND COSTS AND ESTIMATED
EARNINGS ON UNCOMPLETED CONTRACTS
In accordance with normal practice in the construction industry, the
Company includes in current assets and current liabilities amounts related to
construction contracts realizable and payable over a period in excess of one
year. Costs and estimated earnings in excess of billings on uncompleted
contracts represents the excess of contract costs and profits recognized to date
on the percentage-of-completion accounting method over billings to date on
certain contracts. Billings in excess of costs and estimated earnings on
uncompleted contracts represents the excess of billings to date over the amount
of contract costs and profits recognized to date on the percentage-of-completion
accounting method on the remaining contracts.
Included in accounts receivable is $35,649,000 and $42,664,000 at August
31, 2002 and 2001, respectively, related to unbilled receivables. Advanced
billings on contracts as of August 31, 2002 and 2001 were $15,241,000 and
$17,712,000, respectively. Balances under retainage provisions totaled
$40,359,000 and $17,623,000 at August 31, 2002 and 2001, respectively, and are
also included in accounts receivable in the accompanying consolidated balance
sheets.
The table below shows the components of costs and estimated earnings in
excess of billings and billings in excess of costs and estimated earnings on the
Company's uncompleted contracts as of August 31, 2002 and 2001 and does not
include advanced billings on contracts as of August 31, 2002 and 2001 of
$15,241,000 and $17,712,000, respectively. Contracts assumed in the Stone &
Webster and IT Group acquisitions include cumulative balances from the
origination of these contracts and, therefore, include amounts that were earned
prior to the acquisition by the Company. In addition, the amounts below
F-48
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
do not include accrued contract loss reserves and fair value adjustments of
acquired contracts as of August 31, 2002 and 2001. The amounts presented below
are (in thousands).
<Table>
<Caption>
AUGUST 31,
--------------------------
2002 2001
------------ -----------
Costs incurred on uncompleted contracts................... $ 8,563,003 $ 2,762,199
Estimated earnings thereon................................ 1,587,055 224,977
------------ -----------
10,150,058 2,987,176
Less: billings applicable thereto......................... (10,319,543) (3,129,517)
------------ -----------
(169,485) (142,341)
Time and materials on a contract.......................... 8,362 10,934
------------ -----------
$ (161,123) $ (131,407)
============ ===========
The following amounts are included in the accompanying
balance sheet:
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... $ 248,360 $ 95,012
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... (409,483) (226,419)
------------ -----------
$ (161,123) $ (131,407)
============ ===========
</Table>
NOTE 21 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 2002
Revenues......................................... $453,609 $566,227 $902,640 $1,248,220
======== ======== ======== ==========
Gross profit..................................... $ 62,710 $ 67,742 $ 85,961 $ 111,213
======== ======== ======== ==========
Income before extraordinary item and cumulative
effect of change in accounting principle....... $ 18,952 $ 21,340 $ 26,730 $ 31,345
======== ======== ======== ==========
Basic income per common share before
extraordinary item and cumulative effect of
change in accounting principle................. $ .46 $ .53 $ .66 $ .76
======== ======== ======== ==========
Diluted income per common share before
extraordinary item and cumulative effect of
change in accounting principle................. $ .45 $ .51 $ .61 $ .70
======== ======== ======== ==========
</Table>
F-49
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 2001
Revenues......................................... $418,757 $340,283 $394,154 $ 385,738
======== ======== ======== ==========
Gross profit..................................... $ 64,068 $ 53,518 $ 65,530 $ 63,500
======== ======== ======== ==========
Income before extraordinary item and cumulative
effect of change in accounting principle....... $ 12,161 $ 11,820 $ 17,890 $ 19,341
======== ======== ======== ==========
Basic income per common share before
extraordinary item and cumulative effect of
change in accounting principle................. $ .32 $ .29 $ .44 $ .47
======== ======== ======== ==========
Diluted income per common share before
extraordinary item and cumulative effect of
change in accounting principle................. $ .31 $ .28 $ .42 $ .45
======== ======== ======== ==========
</Table>
NOTE 22 -- AUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following presents summarized audited condensed consolidating financial
information for the Company and its subsidiaries of its financial position as of
August 31, 2002 and the results of operations and cash flows for the year then
ended.
In connection with the Company's sale on March 17, 2003 of its 7 year, 10.75%
Senior Notes (the "Senior Notes"), due March 15, 2010, the Company's material
wholly-owned domestic subsidiaries issued joint and several guarantees in favor
of the holders of the Senior Notes or otherwise assumed the obligations under
the indenture governing the Senior Notes. These subsidiaries are referred to as
the Guarantor Subsidiaries in the condensed consolidating financial information
which is presented below. The Company's subsidiaries which have not issued
guarantees for the Senior Notes (primarily foreign subsidiaries) are referred to
as the Non-Guarantor Subsidiaries.
F-50
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING BALANCE SHEET
August 31, 2002
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
ASSETS
Current assets $ 278,215 $ 1,044,050 $ 234,767 $ (106,678) $ 1,450,354
Investment in subsidiaries
and joint ventures 824,062 9,470 23,661 (819,464) 37,729
Property and equipment 73,009 117,309 17,682 (1,775) 206,225
Goodwill -- 481,633 17,371 -- 499,004
Other assets 40,373 76,728 4,024 (10,237) 110,888
------------ ------------ ------------ ------------ ------------
Total Assets $ 1,215,659 $ 1,729,190 $ 297,505 $ (938,154) $ 2,304,200
============ ============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities $ 37 $ 992,929 $ 203,796 $ (124,292) $ 1,072,470
Long-term debt and capital
leases 521,412 499 236 -- 522,147
Other non-current liabilities 1,953 9,221 550 5,602 17,326
------------ ------------ ------------ ------------ ------------
Total Liabilities 523,402 1,002,649 204,582 (118,690) 1,611,943
Total Stockholders'
Equity 692,257 726,541 92,923 (819,464) 692,257
------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 1,215,659 $ 1,729,190 $ 297,505 $ (938,154) $ 2,304,200
============ ============ ============ ============ ============
</Table>
F-51
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the year ended August 31, 2002
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
Revenues $ -- $ 3,142,108 $ 305,171 $ (276,583) $ 3,170,696
Cost of revenue -- 2,850,614 269,039 (276,583) 2,843,070
------------ ------------ ------------ ------------ ------------
Gross profit -- 291,494 36,132 -- 327,626
General and administrative
Expenses (535) 131,471 30,312 -- 161,248
------------ ------------ ------------ ------------ ------------
Operating income 535 160,023 5,820 -- 166,378
Other (expenses)/income (23,850) 8,661 (177) -- (15,366)
Equity in earnings of
Subsidiaries 111,375 -- -- (111,375) --
------------ ------------ ------------ ------------ ------------
Income before income taxes
and earnings (losses) from
Unconsolidated entities 88,060 168,684 5,643 (111,375) 151,012
Provision for income taxes
(benefit) (7,451) 61,006 793 -- 54,348
------------ ------------ ------------ ------------ ------------
Income before earnings/
(losses) from
Unconsolidated entities 95,511 107,678 4,850 (111,375) 96,664
Earnings (losses) from
Unconsolidated
entities, net of taxes 2,856 (584) (569) -- 1,703
------------ ------------ ------------ ------------ ------------
Net income $ 98,367 $ 107,094 $ 4,281 $ (111,375) $ 98,367
============ ============ ============ ============ ============
</Table>
F-52
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended August 31, 2002
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
Net cash provided by
Operations $ 51,994 $ 174,176 $ 88,896 $ -- $ 315,066
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable
securities held to maturity (128,585) -- -- -- (128,585)
Maturities of marketable
securities held to
maturity 119,263 -- -- -- 119,263
Investment in subsidiaries -- (102,664) -- -- (102,664)
Purchases of property and
equipment (45,728) (25,086) (3,132) -- (73,946)
Purchase of real estate
option (12,183) -- -- -- (12,183)
Investment in
unconsolidated
subsidiaries, net of cash
received 2,000 (995) (1,893) -- (888)
Proceeds from sale of assets -- 717 -- -- 717
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (65,233) (128,028) (5,025) -- (198,286)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (52,043) -- -- -- (52,043)
(Repayment of) proceeds
from loans and leases (4,240) (5,067) 236 -- (9,071)
Repayment of revolving
loan agreement -- -- (2,959) -- (2,959)
Issuance of common stock 2,262 -- -- -- 2,262
Other 195 (358) -- -- (163)
------------ ------------ ------------ ------------ ------------
Net cash used in
financing activities (53,826) (5,425) (2,723) -- (61,974)
------------ ------------ ------------ ------------ ------------
Effect of foreign exchange rates
on cash -- -- 154 -- 154
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash (67,065) 40,723 81,302 -- 54,960
Cash and cash equivalents at
the beginning of the period 303,218 115,656 24,430 -- 443,304
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of the period $ 236,153 $ 156,379 $ 105,732 $ -- $ 498,264
============ ============ ============ ============ ============
</Table>
F-53
NOTE 23 -- UNAUDITED CONDENSED YEAR ENDED AUGUST 31, 2001 AND AUGUST 31, 2000
CONSOLIDATING FINANCIAL INFORMATION
The following presents summarized unaudited condensed consolidating financial
information for the Company and its subsidiaries as of August 31, 2001 with
respect to its financial position and for the two years ended August 31, 2001
with respect to its results of operations and cash flows.
In connection with the Company's sale on March 17, 2003 of its 7 year, 10.75%
Senior Notes, due March 15, 2010, the Company's material wholly-owned domestic
subsidiaries issued joint and several guarantees in favor of the holders of the
Senior Notes or otherwise assumed the obligations under the indenture governing
the Senior Notes. These subsidiaries are referred to as the Guarantor
Subsidiaries in the condensed consolidating financial information which is
presented below. The Company's subsidiaries which have not issued guarantees for
the Senior Notes (primarily foreign subsidiaries) are referred to as the
Non-Guarantor Subsidiaries.
F-54
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING BALANCE SHEET
August 31, 2001
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
ASSETS
Current assets $ 462,660 $ 552,859 $ 81,810 $ (1,288) $ 1,096,041
Investment in subsidiaries
and joint ventures 685,686 14,518 7,853 (683,743) 24,314
Property and equipment 32,515 78,443 24,722 (478) 135,202
Goodwill -- 354,282 14,590 -- 368,872
Other assets 33,754 41,103 2,527 41 77,425
------------ ------------ ------------ ------------- ------------
Total Assets $ 1,214,615 $ 1,041,205 $ 131,502 $ (685,468) $ 1,701,854
============ ============ ============ ============= ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current Liabilities $ 103,240 $ 414,297 $ 59,557 $ (2,097) $ 574,997
Long-term debt and capital
leases 512,335 567 -- (35) 512,867
Other non-current liabilities 647 14,303 240 407 15,597
------------ ------------ ------------ ------------- ------------
Total Liabilities 616,222 429,167 59,797 (1,725) 1,103,461
Total Stockholders'
Equity 598,393 612,038 71,705 (683,743) 598,393
------------ ------------ ------------ ------------- ------------
Total Liabilities and
Stockholders'
Equity $ 1,214,615 $ 1,041,205 $ 131,502 $ (685,468) $ 1,701,854
============ ============ ============ ============= ============
</Table>
F-55
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the year ended August 31, 2001
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
Revenues $ -- $ 1,391,565 $ 193,804 $ (46,437) $ 1,538,932
Cost of revenue -- 1,147,474 190,534 (45,692) 1,292,316
------------ ------------ ------------ ------------- ------------
Gross profit 244,091 3,270 (745) 246,616
General and administrative
expenses 1,700 128,148 9,812 -- 139,660
------------ ------------ ------------ ------------- ------------
Operating income (loss) (1,700) 115,943 (6,542) (745) 106,956
Other (expenses)/income (23,711) 15,517 917 -- (7,277)
Equity in earnings of
Subsidiaries 77,894 -- -- (77,894) --
------------ ------------ ------------ ------------- ------------
Income before income taxes
and earnings (losses) from
unconsolidated entities 52,483 131,460 (5,625) (78,639) 99,679
Provision for income taxes
(benefit) (9,080) 50,029 (2,295) (288) 38,366
------------ ------------ ------------ ------------- ------------
Income before earnings/
(losses) from
unconsolidated entities 61,563 81,431 (3,330) (78,351) 61,313
Earnings (losses) from
unconsolidated
entities, net of taxes (566) -- 250 -- (316)
------------ ------------ ------------ ------------- ------------
Net income $ 60,997 $ 81,431 $ (3,080) $ (78,351) $ 60,997
============ ============ ============ ============= ============
</Table>
F-56
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the year ended August 31, 2000
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
Revenues $ -- $ 677,446 $ 101,127 $ (15,918) $ 762,655
Cost of revenue -- 561,327 90,170 (15,918) 635,579
------------ ------------ ------------ ------------- ------------
Gross profit -- 116,119 10,957 -- 127,076
General and administrative
Expenses (6,493) 69,974 10,816 -- 74,297
------------ ------------ ------------ ------------- ------------
Operating income 6,493 46,145 141 -- 52,779
Other (expenses)/income (17,060) 9,478 (202) -- (7,784)
Equity in earnings of
Subsidiaries 38,621 -- -- (38,621) --
------------ ------------ ------------ ------------- ------------
Income before income taxes
and earnings/(losses) from
unconsolidated entities
and cumulative effect of
change in accounting
principle 28,054 55,623 (61) (38,621) 44,995
Provision for income taxes
(benefit) (1,467) 17,844 (18) -- 16,359
------------ ------------ ------------ ------------- ------------
Income before earnings/
(losses) from
unconsolidated entities 29,521 37,779 (43) (38,621) 28,636
Earnings/(losses) from
unconsolidated
entities, net of taxes -- -- 1,194 -- 1,194
Cumulative effective of
change in accounting
Principle (11) (302) (7) -- (320)
------------ ------------ ------------ ------------- ------------
Net income $ 29,510 $ 37,477 $ 1,144 $ (38,621) $ 29,510
============ ============ ============ ============= ============
</Table>
F-57
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended August 31, 2001
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
Net cash provided by (used
in) operations $ (50,062) $ 48,806 $ 12,661 $ -- $ 11,405
------------ ------------ ------------ ------------- ------------
Cash flows from investing activities:
Proceeds from sale of assets 6,559 114,361 -- -- 120,920
Purchases of marketable
securities held to maturity (45,630) -- -- -- (45,630)
Purchases of property and
Equipment (21,193) (16,434) (494) -- (38,121)
Investment in subsidiaries,
net of cash received/
Returned 22,590 -- -- -- 22,590
Investment in
unconsolidated
Subsidiaries (2,000) (2,237) -- -- (4,237)
Investment in securities (1,241) -- -- -- (1,241)
------------ ------------ ------------ ------------- ------------
Net cash provided by (used
in) investing activities (40,915) 95,690 (494) -- 54,281
------------ ------------ ------------ ------------- ------------
Cash flows from financing activities:
Proceeds from issuance of
Debt 492,851 -- -- -- 492,851
(Repayment of) proceeds
from loan agreement (236,050) -- 1,026 -- (235,024)
Issuance of common stock 148,080 -- -- -- 148,080
Repayment of debt and
Leases (8,609) (40,638) -- -- (49,247)
------------ ------------ ------------ ------------- ------------
Net cash provided by (used
in) financing activities 396,272 (40,638) 1,026 -- 356,660
------------ ------------ ------------ ------------- ------------
Effects of foreign exchange
rates on cash -- -- (810) -- (810)
------------ ------------ ------------ ------------- ------------
Net increase in cash 305,295 103,858 12,383 -- 421,536
Cash and cash equivalents at
the beginning of the period (2,077) 11,798 12,047 -- 21,768
------------ ------------ ------------ ------------- ------------
Cash and cash equivalents at
the end of the period $ 303,218 $ 115,656 $ 24,430 $ -- $ 443,304
============ ============ ============ ============= ============
</Table>
F-58
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended August 31, 2000
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination
Non- and
The Shaw Guarantor Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------ ------------- ------------
Net cash provided by (used
in) operations $ (154,307) $ 76,825 $ 7,606 $ -- $ (69,876)
------------ ------------ ------------ ------------- ------------
Cash flows from investing activities:
Purchases of property and
equipment (4,200) (15,865) (554) -- (20,619)
Proceeds from sale of
assets -- 8,715 -- -- 8,715
Investment in subsidiaries,
net of cash received (2,342) -- -- -- (2,342)
Investment in
unconsolidated
subsidiaries -- (1,561) -- -- (1,561)
------------ ------------ ------------ ------------- ------------
Net cash provided by (used
in) investing activities (6,542) (8,711) (554) -- (15,807)
------------ ------------ ------------ ------------- ------------
Cash flows from financing activities:
(Repayment of) proceeds
from revolving
loan agreement 148,067 -- 2,469 -- 150,536
Repayment of loans and
leases, net of loan
proceeds (56,336) (53,776) -- -- (110,112)
Issuance of common stock 69,742 -- -- -- 69,742
Increase in outstanding
checks in excess of
bank balance -- (6,398) (212) -- (6,610)
Purchase of treasury stock (2,392) -- -- -- (2,392)
------------ ------------ ------------ ------------- ------------
Net cash provided by (used
in) financing activities 159,081 (60,174) 2,257 -- 101,164
------------ ------------ ------------ ------------- ------------
Effects of foreign exchange
rates on cash -- -- (614) -- (614)
------------ ------------ ------------ ------------- ------------
Net increase (decrease) in cash (1,768) 7,940 8,695 -- 14,867
Cash and cash equivalents at
the beginning of the period (310) 3,860 3,351 -- 6,901
------------ ------------ ------------ ------------- ------------
Cash and cash equivalents at
the end of the period $ (2,078) $ 11,800 $ 12,046 $ -- $ 21,768
============ ============ ============ ============= ============
</Table>
F-59
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
<Table>
<Caption>
February 28, August 31,
2003 2002
------------ ------------
Current assets:
Cash and cash equivalents $ 193,893 $ 401,764
Escrowed cash 96,500 96,500
Marketable securities, held to maturity 58,084 54,952
Accounts receivable, including retainage, net 425,295 436,747
Accounts receivable from unconsolidated entity 1,018 32
Inventories 95,603 99,009
Cost and estimated earnings in excess of billings
on uncompleted contracts 201,183 248,360
Deferred income taxes 67,594 73,903
Prepaid expenses and other current assets 34,917 39,087
------------ ------------
Total current assets 1,174,087 1,450,354
Investments in and advances to unconsolidated entities, joint ventures
and limited partnerships 28,605 37,729
Investments in securities available for sale 7,442 7,235
Property and equipment, less accumulated depreciation
of $103,079 at February 28, 2003 and $84,055 at
August 31, 2002, respectively 201,413 206,225
Goodwill 501,363 499,004
Other assets 102,883 103,653
------------ ------------
$ 2,015,793 $ 2,304,200
============ ============
</Table>
(Continued)
The accompanying notes are an integral part of these statements.
F-60
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<Table>
<Caption>
February 28, August 31,
2003 2002
------------ ------------
Accounts payable $ 324,071 $ 390,165
Accrued liabilities 125,577 159,182
Current maturities of long-term debt 2,074 3,102
Short-term revolving lines of credit -- 1,052
Current portion of obligations under capital leases 1,601 2,200
Deferred revenue - prebilled 15,726 11,503
Advanced billings and billings in excess of cost and estimated
earnings on uncompleted contracts 275,348 424,724
Contract liability adjustments 42,307 69,140
Accrued contract losses and reserves 24,338 11,402
------------ ------------
Total current liabilities 811,042 1,072,470
Long-term debt, less current maturities 528,694 521,190
Obligations under capital leases, less current obligations 1,455 957
Deferred income taxes 12,657 15,452
Other liabilities 12,686 1,874
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, no par value, no shares issued and outstanding -- --
Common stock, no par value,
37,742,716 and 40,841,627 shares outstanding, respectively 494,882 494,581
Retained earnings 274,526 265,945
Accumulated other comprehensive income (loss) (20,236) (16,193)
Treasury stock, 5,331,655 and 2,161,050 shares, respectively (99,913) (52,076)
------------ ------------
Total shareholders' equity 649,259 692,257
------------ ------------
$ 2,015,793 $ 2,304,200
============ ============
</Table>
The accompanying notes are an integral part of these statements.
F-61
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<Table>
<Caption>
Three Months Ended Six Months Ended
February 28, February 28,
2003 2002 2003 2002
---------- ---------- ---------- -----------
Income:
Revenues $ 720,458 $ 566,227 $1,717,364 $ 1,019,836
Cost of revenues 678,605 498,485 1,593,085 889,384
---------- ---------- ---------- -----------
Gross profit 41,853 67,742 124,279 130,452
General and administrative expenses 49,230 33,026 99,122 63,934
---------- ---------- ---------- -----------
Operating income (loss) (7,377) 34,716 25,157 66,518
Interest expense (5,759) (5,431) (11,533) (11,236)
Interest income 2,065 2,399 3,604 5,421
Other income, net 132 77 33 444
---------- ---------- ---------- -----------
(3,562) (2,955) (7,896) (5,371)
Income (loss) before income taxes and earnings (losses) from
unconsolidated entities (10,939) 31,761 17,261 61,147
Provision for income taxes (benefit) (4,456) 11,434 5,696 22,019
---------- ---------- ---------- -----------
Income (loss) before earnings (losses) from unconsolidated entities (6,483) 20,327 11,565 39,128
Earnings (losses) from unconsolidated entities, net of taxes (1,389) 1,013 (2,984) 1,164
---------- ---------- ---------- -----------
Net income (loss) $ (7,872) $ 21,340 $ 8,581 $ 40,292
========== ========== ========== ===========
Net income (loss) per common share:
Basic income (loss) per common share $ (0.21) $ 0.53 $ 0.23 $ 0.99
========== ========== ========== ===========
Diluted income (loss) per common share $ (0.21) $ 0.51 $ 0.22 $ 0.95
========== ========== ========== ===========
</Table>
The accompanying notes are an integral part of these statements.
F-62
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<Table>
<Caption>
Six Months Ended
February 28,
2003 2002
---------- ----------
Cash flows from operating activities:
Net income $ 8,581 $ 40,292
Depreciation and amortization 22,908 12,185
Provision for deferred income taxes 5,196 20,323
Amortization of contract adjustments (14,743) (14,055)
Non-cash interest expense 10,329 10,157
Other operating activities, net (173,477) 60,101
---------- ----------
Net cash provided by (used in) operating activities (141,206) 129,003
Cash flows from investing activities:
Purchases of marketable securities held to maturity (94,190) (42,193)
Maturities of marketable securities held to maturity 91,058 71,898
Purchases of property and equipment (16,615) (34,921)
Proceeds from sale of assets 2,948 102
Investment in subsidiaries (1,200) --
Receipts from unconsolidated entities, net of advances 415 74
Proceeds from sale of securities 175 --
Investment in DIP loan - IT Group -- (44,000)
Purchase of real estate option -- (12,183)
---------- ----------
Net cash used in investing activities (17,409) (61,223)
Cash flows from financing activities:
Purchase of treasury stock (47,837) (27,131)
Repayment of debt and leases (1,187) (3,701)
Net proceeds (repayments) on revolving credit agreements (1,052) 5,437
Issuance of common stock 301 1,045
Deferred credit costs -- (190)
---------- ----------
Net cash used in financing activities (49,775) (24,540)
Effect of exchange rate changes on cash 519 (768)
---------- ----------
Net increase (decrease) in cash and cash equivalents (207,871) 42,472
Cash, cash equivalents and escrowed cash- beginning of period 498,264 443,304
---------- ----------
Cash, cash equivalents and escrowed cash- end of period $ 290,393 $ 485,776
========== ==========
Supplemental disclosure:
Noncash investing and financing activities:
Property and equipment acquired under capital leases $ 1,706 $ --
========== ==========
Common stock issued as additional consideration for PPM acquisition
completed in fiscal 2000 $ -- $ 1,971
========== ==========
Investment in securities available for sale acquired in
lieu of interest payment $ -- $ 273
========== ==========
</Table>
The accompanying notes are an integral part of these statements.
F-63
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited Financial Information
The accompanying condensed consolidated financial statements and financial
information included herein have been prepared in accordance with the interim
reporting requirements of Form 10-Q. Consequently, certain information and note
disclosures normally included in financial statements prepared annually in
accordance with generally accepted accounting principles have been condensed or
omitted. Readers of this report should therefore refer to the consolidated
financial statements and the notes thereto included in the Annual Report on Form
10-K for the fiscal year ended August 31, 2002 of The Shaw Group Inc.
The financial information of The Shaw Group Inc. and its wholly-owned
subsidiaries (collectively, "the Company" or "Shaw") as of February 28, 2003 and
for the three-month and six-month periods ended February 28, 2003 and 2002 and
included herein is was not audited by the Company's independent auditors.
However, the Company's management believes it has made all adjustments
(consisting of normal recurring adjustments) which are necessary to fairly
present the results of operations for such periods. Results of operations for
the interim period are not necessarily indicative of results of operations that
will be realized for the fiscal year ending August 31, 2003.
The Company's foreign subsidiaries maintain their accounting records in their
local currency (primarily British pounds, Australian and Canadian dollars,
Venezuelan Bolivars, the Euro and the Dutch Guilder prior to January 1, 2002.)
All of the assets and liabilities of these subsidiaries (including long-term
assets, such as goodwill) are converted to U.S. dollars with the effect of the
foreign currency translation reflected in "accumulated other comprehensive
income," a component of shareholders' equity, in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52 and SFAS No. 130 - "Reporting
Comprehensive Income." Foreign currency transaction gains or losses are credited
or charged to income.
Certain reclassifications have been made to the prior year's financial
statements in order to conform with the current year's presentation.
Note 2 - Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," allows companies to
account for stock-based compensation by either recognizing an expense for the
fair value of stock-based compensation upon issuance of a grant as presented in
SFAS No. 123 and other SFAS's and interpretations or by the intrinsic value
method prescribed in Accounting Principles Board Opinion ("APB") No. 25 and
related interpretations.
The Company accounts for its stock-based compensation under APB No. 25 which
provides that no stock compensation expense is recognized if stock options and
grants are issued at the market value of the underlying stock at the date of
grant. However, if the Company had adopted the fair value method of accounting
for stock-based compensation and had determined its stock-based compensation
cost based on the fair value at the grant date consistent with the provisions of
SFAS No. 123, the Company's net income and earnings per common share would have
approximated the proforma amounts below (in thousands, except per share
amounts):
F-64
<Table>
<Caption>
Three months ended
February 28
2003 2002
---------- ----------
Net income (loss)
As reported $ (7,872) $ 21,340
Stock based employee compensation, net of taxes (1,688) (1,247)
---------- ----------
Proforma $ (9,560) $ 20,093
========== ==========
Basic earnings (loss) per share:
As reported $ (0.21) $ 0.53
Stock based employee compensation, net of taxes (0.04) (0.03)
---------- ----------
Proforma $ (0.25) $ 0.50
========== ==========
Diluted earnings (loss) per share:
As reported $ (0.21) $ 0.51
Stock based employee compensation, net of taxes (0.04) (0.03)
---------- ----------
Proforma $ (0.25) $ 0.48
========== ==========
</Table>
<Table>
<Caption>
Six months ended
February 28
2003 2002
---------- ----------
Net income :
As reported $ 8,581 $ 40,292
Stock based employee compensation, net of taxes (3,234) (2,577)
---------- ----------
Proforma $ 5,347 $ 37,715
========== ==========
Basic earnings per share:
As reported $ 0.23 $ 0.99
Stock based employee compensation, net of taxes (0.09) (0.06)
---------- ----------
Proforma $ 0.14 $ 0.93
========== ==========
Diluted earnings per share:
As reported $ 0.22 $ 0.95
Stock based employee compensation, net of taxes (0.08) (0.05)
---------- ----------
Proforma $ 0.14 $ 0.90
========== ==========
</Table>
Note 3 - Capital Stock Transactions
In September 2001, the Company's Board of Directors authorized the Company to
repurchase shares of its no par value Common Stock ("Common Stock"), depending
on market conditions, up to a limit of $100,000,000. The Company has completed
its purchases under this program by purchasing 5,331,005 shares at a cost of
approximately $99,880,000. This includes 3,170,605 shares purchased at a cost of
approximately $47,837,000 during the six months ended February 28, 2003 and
2,160,400 shares purchased at a cost of approximately $52,043,000 during the
year ended August 31, 2002. Also included in Treasury Stock is 650 shares valued
at approximately $33,000 that were returned in fiscal 2002 in connection with
the finalization of an acquisition.
F-65
Note 4 - Acquisitions
The operating results of acquisitions are included in the Company's consolidated
financial statements from the applicable date of the transaction.
IT Group Acquisition
During fiscal year 2002, the Company acquired substantially all of the operating
assets and assumed certain liabilities of The IT Group, Inc. ("IT Group") and
its subsidiaries. IT Group and one of its wholly-owned subsidiaries, Beneco,
were subject to separate Chapter 11 bankruptcy reorganization proceedings and
the acquisition was completed pursuant to the bankruptcy proceedings. The
acquisition of the IT Group assets was completed on May 3, 2002 and the
acquisition of Beneco's assets was completed on June 15, 2002.
The Company believes, pursuant to the terms of the acquisition agreements, it
has assumed only certain liabilities ("assumed liabilities") of the IT Group and
Beneco as specified in the acquisition agreements. The Company has estimated
that its total of assumed liabilities is approximately $350,000,000. Further,
the acquisition agreements also provide that certain other liabilities of the IT
Group, including but not limited to, outstanding borrowings, leases, contracts
in progress, completed contracts, claims or litigation that relate to acts or
events occurring prior to the acquisition date, and certain employee benefit
obligations, are specifically excluded ("excluded liabilities") from the
Company's transactions. The Company, however, cannot provide assurance that it
does not have any exposure to the excluded liabilities because, among other
matters, the bankruptcy courts have not finalized their validation of the claims
filed with the courts. Additionally, the Company has not completed its review of
liabilities that have been submitted to the Company for payment. Accordingly,
the Company's estimate of the value of the assumed liabilities may change as a
result of the validation of the claims by the bankruptcy courts or other factors
which may be identified during its review of liabilities.
The IT Group acquisition was recorded as a purchase, and accordingly, the
Company's results of operations include those of the acquired IT Group and
Beneco businesses from the respective acquisition dates. The Company has not
completed all necessary appraisals of the property and equipment purchased nor
has the Company completed the process of obtaining information about the fair
value of all of the acquired assets and assumed liabilities. Accordingly, the
Company anticipates that there will be further adjustments to the IT Group
purchase price during the one year allocation period which will end on May 3,
2003.
The Company acquired a large number of contracts in progress and contract
backlog for which the work had not commenced at the acquisition date. Under SFAS
141, "Business Combinations", construction contracts are defined as intangibles
that meet the criteria for recognition apart from goodwill. These intangibles,
like the acquired assets and liabilities, are required to be recorded at their
fair value at the date of acquisition. The Company recorded these contracts at
fair value using a market based discounted cash flow approach by recording
contract asset and liability adjustments to the balance sheet. As of February
28, 2003 related assets of approximately $9,934,000 and liabilities of
$43,908,000 (as adjusted by allocation period adjustments recorded as of
February 28, 2003) have been established that are amortized to contract costs
over the estimated lives of the underlying contracts and related production
backlog. As of February 28, 2003 the amount of the accrued future cash losses on
assumed contracts with inherent losses (accrued contract loss reserves) was
estimated to be approximately $22,110,000 (including allocation period
adjustments). Commencing with the initial recording of these contract
adjustments and reserves in the year ended August 31, 2002, the assets and
liabilities are amortized as work is performed on the contracts. The net
amortization of the contracts adjustments recognized during the three months and
six months ended February 28, 2003 was approximately $7,031,000 and $10,055,000
respectively, and has been reflected as a reduction in the cost of revenues,
which resulted in a corresponding increase in gross profit. The activity related
to these contract assets and liabilities is included in the table at the end of
Note 11.
F-66
Stone & Webster Acquisition
On July 14, 2000, the Company purchased substantially all of the operating
assets of Stone & Webster, Incorporated ("Stone & Webster"), a global provider
of engineering, procurement, construction, consulting and environmental services
to the power, process, environmental and infrastructure markets. The acquisition
was concluded as part of a proceeding under Chapter 11 of the Bankruptcy Code
for Stone & Webster. This transaction was accounted for under the purchase
method of accounting.
The Company believes that, pursuant to the terms of the Stone & Webster
acquisition agreement, it assumed only certain specified liabilities, which the
Company has estimated to be approximately $740,000,000. The Company believes
that liabilities excluded from this acquisition include liabilities associated
with certain contracts in progress, completed contracts, claims or litigation
that relate to acts or events occurring prior to the acquisition date, and
certain employee benefit obligations, including Stone & Webster's U.S. defined
benefit plan (collectively, the "excluded items"). The Company, however, cannot
provide assurance that it has no exposure with respect to the excluded items
because, among other things, the bankruptcy court has not finalized its
validation of claims filed with the court. The final amount of assumed
liabilities may change as a result of the validation of the claims process;
however, the Company believes, based on its review of claims filed, that any
such adjustment to the assumed liabilities and future operating results will not
be material.
LFG&E Acquisition
During the six months ended February 28, 2003 the Company's Environmental and
Infrastructure segment acquired the assets of LFG&E, International, Inc. for a
cash payment of approximately $1,200,000. Approximately $355,000 of goodwill was
recognized on this transaction. LFG&E International, Inc. provides gas well
drilling services to landfill owners and operators.
Note 5 - Inventories
The major components of inventories consist of the following as of the dates
indicated (in thousands):
<Table>
<Caption>
February 28, 2003 August 31, 2002
------------------------------ ------------------------------
Weighted Weighted
Average FIFO Total Average FIFO Total
-------- -------- -------- -------- -------- --------
Finished Goods $ 32,583 $ -- $ 32,583 $ 33,583 $ -- $ 33,583
Raw Materials 2,977 52,570 55,547 3,144 51,249 54,393
Work In Process 636 6,837 7,473 878 10,155 11,033
-------- -------- -------- -------- -------- --------
$ 36,196 $ 59,407 $ 95,603 $ 37,605 $ 61,404 $ 99,009
======== ======== ======== ======== ======== ========
</Table>
Note 6 - Investment in Unconsolidated Entities
During the three and six months ended February 28, 2003, the Company recognized
losses of approximately $1,400,000 and $3,000,000, respectively, from operations
of its unconsolidated joint ventures which are accounted for on the equity
method. These losses were primarily attributable to the Entergy/Shaw joint
venture.
Additionally, as is common in the engineering, procurement and construction
industries, the Company executed certain contracts jointly with third parties
through joint ventures, limited partnerships and limited liability companies.
The investments included on the accompanying Condensed Consolidated Balance
Sheets as of February 28, 2003 and August 31, 2002 are approximately $14,375,000
and $18,255,000 respectively, which generally represents the Company's cash
contributions and earnings from these investments.
F-67
Note 7 - Debt
Revolving Lines of Credit
The Company's primary credit facility ("Credit Facility"), dated July 2000 is
for a three-year term, and provides that both revolving credit loans and letters
of credit may be issued within the $350,000,000 limits of this facility. The
Credit Facility allows the Company to borrow either at interest rates (i) in a
range of 1.50% to 2.25% over the London Interbank Offered Rate ("LIBOR") or (ii)
from the prime rate to 0.75% over the prime rate. The Company selects the
interest rate index, while the spread over the index is dependent upon certain
financial ratios of the Company. The Credit Facility is secured by, among other
things, (i) guarantees by the Company's domestic subsidiaries; (ii) a pledge of
all of the capital stock of the Company's domestic subsidiaries and 66% of the
capital stock in certain of the Company's foreign subsidiaries; and (iii) a
security interest in all property of the Company and its domestic subsidiaries
(except real estate and equipment). The Credit Facility also contains
restrictive covenants and other restrictions, which include but are not limited
to the maintenance of specified ratios and minimum capital levels and limits on
other borrowings, capital expenditures and investments. Additionally, the Credit
Facility established a $25,000,000 aggregate limit on the amount of the
Company's Common Stock repurchases and/or LYONs repurchases (see below) made
subsequent to February 28, 2002, without prior consent. Subsequent consent was
provided to allow the Company to complete in October 2002 the $100,000,000
Common Stock repurchase program which was authorized by the Company's Board of
Directors in September 2001 (see Note 3 of Notes to Condensed Consolidated
Financial Statements). As of February 28, 2003, the Company was in compliance
with these covenants or had obtained the necessary waivers. At February 28, 2003
the Company did not have any outstanding borrowings under the Credit Facility,
but had outstanding letters of credit of approximately $180,790,000.
The Credit Facility was amended and restated on March 17, 2003 (see Note 13 to
Notes to Condensed Consolidated Financial Statements -"Subsequent Events").
As of February 28, 2003, the Company's foreign subsidiaries had short-term
revolving lines of credit permitting borrowings totaling approximately
$25,500,000. These subsidiaries did not have any outstanding borrowings under
these lines at February 28, 2003, but had letters of credit outstanding against
these lines of approximately $3,600,000.
LYONs Convertible Securities
Effective May 1, 2001, the Company issued and sold $790,000,000 (including
$200,000,000 to cover over-allotments) of 20-year, zero-coupon, unsecured,
convertible debt, Liquid Yield Option Notes ("LYONs", "debt" or "the
securities"). The debt was issued at an original discount price of $639.23 per
$1,000 maturity value and has a yield to maturity of 2.25%. The debt is senior
unsecured obligations of the Company and is convertible into the Company's
Common Stock at a fixed ratio of 8.2988 shares per $1,000 maturity value or an
effective conversion price of $77.03 at the date of issuance. Under the terms of
the issue, the conversion rate may be adjusted for certain factors as defined in
the agreement including but not limited to dividends or distributions payable on
Common Stock, but will not be adjusted for accrued original issue discount. The
Company realized net proceeds, after expenses, from the issuance of these
securities of approximately $490,000,000.
The holders of the debt have the right to require the Company to repurchase the
debt on May 1, 2004, May 1, 2006, May 1, 2011 and May 1, 2016 at the then
accreted value. The Company has the right to fund such repurchases with shares
of its Common Stock, at the current market value, cash, or a combination of
Common Stock, and cash. The debt holders also have the right to require the
Company to repurchase the debt for cash, at the accreted value, if there is a
change in control of the Company, as defined, occurring on or before May 1,
2006. The Company may redeem all or a portion of the debt at the accreted value,
through cash payments, at any time after May 1, 2006. (On March 31, 2003 the
Company purchased LYONs with an amortized value of approximately $256,700,000
($384,600,000) aggregate principal value) pursuant to a Tender Offer - see Note
13 to Notes to Condensed Consolidated Financial Statements - "Subsequent
Events").
F-68
Note 8 - Comprehensive Income
Comprehensive income for a period encompasses net income and all other changes
in a company's equity other than from transactions with the company's owners.
Comprehensive income was comprised of the following for the periods indicated
(in thousands):
<Table>
<Caption>
Three Months Ended Six Months Ended
February 28, February 28,
2003 2002 2003 2002
-------- -------- -------- --------
Net income (loss) $ (7,872) $ 21,340 $ 8,581 $ 40,292
Additional pension liability not yet recognized in periodic
pension expense, net of taxes (6,300) -- (6,300) --
Foreign currency translation adjustments 489 (1,516) 1,785 (2,543)
Unrealized net gains (losses) on hedging activities, net of taxes 43 (88) 226 (177)
Unrealized gains (losses) on securities available for sale, net of taxes (79) (1) 294 (149)
Less: Reclassification adjustments for gains included in net income (48) -- (48) --
-------- -------- -------- --------
Total comprehensive income (loss) $(13,767) $ 19,735 $ 4,538 $ 37,423
======== ======== ======== ========
</Table>
As of February 28, 2003, the Company recorded a $6,300,000 net of tax liability
for one of its United Kingdom (U.K.) defined benefit retirement plans and its
Canadian defined benefit retirement plan. This liability is required to be
recognized on the plan sponsor's balance sheet when the accumulated benefit
obligations of the plan exceed the fair value of the plan's assets. In
accordance with SFAS No. 87 - "Employers Accounting For Pensions" the increase
in the minimum liability is recorded through a direct charge to stockholders'
equity and is, therefore, reflected, net of tax, as a component of accumulated
other comprehensive income (loss) on the Condensed Consolidated Balance Sheet.
This liability will require the Company to increase its future contributions to
the plan.
The foreign currency translation adjustments relate to the varying strength of
the U.S. dollar in relation to the British pound, Venezuelan Bolivar, Australian
and Canadian dollars and the Euro (prior to January 1, 2002, the Dutch guilder).
The Company's hedging activities (which are generally limited to foreign
exchange transactions) during the three months and six months ended February 28,
2003 and 2002 were not material.
Note 9 - Business Segments
During the quarter ended February 28, 2003 the Company reorganized its
operations, which resulted in a change in its operating segments. The Company
has segregated its business activities into three operating segments: ECM
(Engineering, Construction and Maintenance) segment, Environmental and
Infrastructure segment, and Fabrication, Manufacturing and Distribution segment.
The primary change from the Company's previously reported segments is that the
pipe fabrication and related operations were moved from the segment previously
reported as the Integrated EPC Services segment to the segment previously
reported as the Manufacturing and Distribution segment resulting in the new ECM
segment and the Fabrication, Manufacturing and Distribution segment,
respectively.
The following table presents information about segment results of operations and
assets for the periods indicated. Certain reclassifications, primarily related
to the new Environmental and Infrastructure segment established with the
acquisition of the IT Group, Inc. and the changes discussed in the prior
paragraph, have been made to conform the February 2002 information to the
February 28, 2003 presentation basis (in thousands):
F-69
<Table>
<Caption>
FABRICATION,
ENVIRONMENTAL MANUFACTURING
& AND
ECM INFRASTRUCTURE DISTRIBUTION CORPORATE TOTAL
-------------- -------------- -------------- -------------- --------------
THREE MONTHS ENDED FEBRUARY 28, 2003
Revenues from external customers $ 387,009 $ 269,028 $ 64,421 $ -- $ 720,458
Intersegment revenues 10,287 1,182 2,467 -- 13,936
Net income (loss) before income taxes (21,171) 21,261 3,541 (14,570) (10,939)
Total assets 854,324 512,953 301,841 395,655 2,064,773
THREE MONTHS ENDED FEBRUARY 28, 2002
Revenues from external customers $ 432,651 $ 35,336 $ 98,240 $ -- $ 566,227
Intersegment revenues 29 -- 465 -- 494
Net income before income taxes 26,044 3,444 13,744 (11,471) 31,761
Total assets 906,335 60,159 308,802 614,070 1,889,366
SIX MONTHS ENDED FEBRUARY 28, 2003
Revenues from external customers $ 1,001,430 $ 574,707 $ 141,227 $ -- $ 1,717,364
Intersegment revenues 20,027 3,334 6,226 -- 29,587
Net income (loss) before income taxes (7,513) 44,231 13,283 (32,740) 17,261
SIX MONTHS ENDED FEBRUARY 28, 2002
Revenues from external customers $ 759,472 $ 72,480 $ 187,884 $ -- $ 1,019,836
Intersegment revenues 126 -- 1,991 -- 2,117
Net income before income taxes 50,408 7,106 24,514 (20,881) 61,147
</Table>
Segment net income before income taxes does not include any Corporate management
charges. Corporate had charged $11,589,000 and $22,067,000 to its segments for
the three and six month periods ending February 28, 2002. As previously stated,
the Company has restated prior year's data to conform with the current year
presentation, including the elimination of these management charges. In fiscal
2003, Corporate began allocating certain depreciation to its segments; however,
the assets remain at Corporate. The total depreciation allocated is as follows
(in thousands).
<Table>
<Caption>
FABRICATION,
ENVIRONMENTAL MANUFACTURING
& AND
ECM INFRASTRUCTURE DISTRIBUTION CORPORATE TOTAL
-------------- -------------- -------------- -------------- --------------
THREE MONTHS ENDED FEBRUARY 28, 2003 $ 3,052 $ 11 $ -- $ (3,063) $ --
SIX MONTHS ENDED FEBRUARY 28, 2003 6,104 22 -- (6,126) --
</Table>
A reconciliation of total segment assets to consolidated total assets follows
(in thousands):
<Table>
<Caption>
FEBRUARY 28,
------------------------
2003 2002
---------- ----------
Total segment assets $2,064,773 $1,889,366
Elimination of intercompany payables (30,793) (57,145)
Income tax entries not allocated to segments (15,623) (1,377)
Other consolidation adjustments and eliminations (2,564) (8,749)
---------- ----------
Total consolidated assets $2,015,793 $1,822,095
========== ==========
</Table>
F-70
Note 10 - Earnings (loss) Per Common Share
Computations of basic and diluted earnings (loss) per share are presented below
(in thousands, except per share amounts).
<Table>
<Caption>
Three Months Ended Six Months Ended
February 28, February 28,
2003 2002 2003 2002
-------- -------- -------- --------
BASIC:
Income (loss) available to common shareholders $ (7,872) $ 21,340 $ 8,581 $ 40,292
======== ======== ======== ========
Weighted average common shares 37,741 40,299 38,081 40,610
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.21) $ 0.53 $ 0.23 $ 0.99
======== ======== ======== ========
DILUTIVE:
Income (loss) available to common shareholders $ (7,872) $ 21,340 $ 8,581 $ 40,292
Interest on convertible debt, net of taxes -- 2,652 -- 5,284
-------- -------- -------- --------
Income (loss) for diluted computation $ (7,872) $ 23,992 $ 8,581 45,576
======== ======== ======== ========
Weighted average common shares (basic) 37,741 40,299 38,081 40,610
Effect of dilutive securities:
Stock options -- 600 426 828
Convertible debt -- 6,556 -- 6,556
======== ======== ======== ========
Adjusted weighted average common shares and
assumed conversions 37,741 47,455 38,507 47,994
======== ======== ======== ========
Diluted earnings (loss) per common share $ (0.21) $ 0.51 $ 0.22 $ 0.95
======== ======== ======== ========
</Table>
For the three months and six months ended February 28, 2003 the Company had
approximately 4,800,000 and 3,500,000 weighted-average incremental shares
related to stock options that were excluded from the calculation of diluted
income per share because they were antidilutive. For the three month and six
months ended February 28, 2002 the Company had approximately 614,000 and 542,000
weighted-average incremental shares related to stock options that were excluded
from the calculation of diluted income per share because they were antidilutive.
Additionally, for the three months and six months ended February 28, 2003, the
effect of the LYONs convertible debt has been excluded from the calculation of
diluted income per share because it is antidilutive.
Note 11 - Goodwill and Other Intangibles
Goodwill
The following table reflects the changes (in thousands) in the carrying value of
goodwill from September 1, 2002 to February 28, 2003. Refer to Note 4 of Notes
to Condensed Consolidated Financial Statements for a more detailed discussion of
the accounting related to these acquisitions.
F-71
<Table>
Balance at September 1, 2002 $ 499,004
Allocation period adjustments, net - IT Group acquisition 2,590
LFG&E acquisition 355
Allocation period adjustments - Psycor (466)
Currency translation adjustment (120)
---------
Balance at February 28, 2003 $ 501,363
=========
</Table>
Goodwill associated with the IT Group acquisition which was completed in the
year ended August 31, 2002 has been preliminarily calculated as of February 28,
2003. The Company expects to revise these balances during the one year
allocation period as the Company has not obtained all appraisals of the property
and equipment it purchased nor has it completed all of its other review and
valuation procedures of the assets acquired and the liabilities assumed.
Amortizable Intangibles and Accrued Contract Loss Reserves
The Company's intangible assets include construction contract adjustments and
contract loss reserves established in purchase accounting, (related to the
acquisitions of the IT Group and Stone & Webster) and its proprietary ethylene
technology acquired in the Stone & Webster transaction, which is being amortized
over 15 years on a straight-line basis. The Company is still evaluating a
customer relationship intangible acquired in the IT Group acquisition - see Note
4 to Notes to Condensed Consolidated Financial Statements.
The following table presents the additions to and utilization/amortization of
intangible assets and accrued contract loss reserves for the periods indicated
(in thousands):
<Table>
<Caption>
ASSET OR COST OF
DECEMBER 1, LIABILITY REVENUES FEBRUARY 28,
Three months ended February 28, 2003 2002 INCREASE/ INCREASE/ 2003
- ------------------------------------ BALANCE DECREASE (DECREASE) BALANCE
------------ ------------ ------------ ------------
Contract (asset) adjustments $ (7,317) $ (1,020) $ 759 $ (7,578)
Contract liability adjustments 56,812 (4,790) (9,715) 42,307
Accrued contract loss reserves 13,899 11,250 (811) 24,338
------------ ------------ ------------ ------------
Total contract related items 63,394 5,440 (9,767) 59,067
Ethylene technology (24,311) -- 477 (23,834)
------------ ------------ ------------ ------------
Total $ 39,083 $ 5,440 $ (9,290) $ 35,233
============ ============ ============ ============
</Table>
<Table>
<Caption>
ASSET OR COST OF
SEPTEMBER 1, LIABILITY REVENUES FEBRUARY 28,
Six months ended February 28, 2003 2002 INCREASE/ INCREASE/ 2003
- ---------------------------------- BALANCE DECREASE (DECREASE) BALANCE
------------ ------------ ------------ ------------
Contract (asset) adjustments $ (12,150) $ 2,216 $ 2,356 $ (7,578)
Contract liability adjustments 69,140 (9,734) (17,099) 42,307
Accrued contract loss reserves 11,402 14,650 (1,714) 24,338
------------ ------------ ------------ ------------
Total contract related items 68,392 7,132 (16,457) 59,067
Ethylene technology (24,788) -- 954 (23,834)
------------ ------------ ------------ ------------
Total $ 43,604 $ 7,132 $ (15,503) $ 35,233
============ ============ ============ ============
</Table>
F-72
<Table>
<Caption>
ASSET OR COST OF
DECEMBER 1, LIABILITY REVENUES FEBRUARY 28,
Three months ended February 28, 2002 2001 INCREASE/ INCREASE/ 2002
- ------------------------------------ BALANCE DECREASE (DECREASE) BALANCE
------------ ------------ ------------ ------------
Contract liability adjustments $ 35,743 $ -- $ (5,997) $ 29,746
Accrued contract loss reserves 5,703 -- (769) 4,934
------------ ------------ ------------ ------------
Total contract related items 41,446 -- (6,766) 34,680
Ethylene technology (26,217) -- 477 (25,740)
------------ ------------ ------------ ------------
Total $ 15,229 $ -- $ (6,289) $ 8,940
============ ============ ============ ============
</Table>
<Table>
<Caption>
ASSET OR COST OF
SEPTEMBER 1, LIABILITY REVENUES FEBRUARY 28,
Six months ended February 28, 2002 2001 INCREASE/ INCREASE/ 2002
- ---------------------------------- BALANCE DECREASE (DECREASE) BALANCE
------------ ------------ ------------ ------------
Contract liability adjustments $ 43,801 $ -- $ (14,055) $ 29,746
Accrued contract loss reserves 6,906 -- (1,972) 4,934
------------ ------------ ------------ ------------
Total contract related items 50,707 -- (16,027) 34,680
Ethylene technology (26,694) -- 954 (25,740)
------------ ------------ ------------ ------------
Total $ 24,013 $ -- $ (15,073) $ 8,940
============ ============ ============ ============
</Table>
The Company previously referred to the fair value of the acquired contract
liability adjustments resulting from the Stone & Webster acquisition as gross
margin reserves. The increases/decreases in the contract (asset) and contract
liability adjustments for the six months ended February 28, 2003 represent
allocation period adjustments made with respect to the IT Group acquisition. The
contract (asset) adjustments are included in other current assets in the
accompanying condensed consolidated balance sheets. The $14,650,000 increase in
the accrued contract loss reserves for the six months ended February 28, 2003
was comprised of a $13,650,000 allocation period adjustment for the IT Group
acquisition and a $1,000,000 expense to accrue for anticipated losses on current
contracts not related to purchase accounting. The annual amortization related to
the ethylene technology is $1,906,000.
Note 12- Contingencies
Contingencies and Subsequent Developments Associated with Domestic Power Market
EPC Projects
In fiscal 2002 and 2001 the Company entered into several significant EPC
contracts for new domestic gas-fired combined cycle power plants. During fiscal
2002 and 2001, the Company recognized revenues of approximately $1,500,000,000
and $250,000,000, respectively, related to these contracts. For the three months
and six months ended February 28, 2003 and 2002, the Company recognized revenues
of approximately $223,000,000 and $611,000,000 in fiscal 2003 and $217,000,000
and $329,000,000 in fiscal 2002, respectively, related to these contracts. The
Company's customers for these power plants are major utility companies and
independent power producers ("IPPs"), several of which where wholly or partially
owned subsidiaries of major utilities. In fiscal 2002, demand for new capacity
in the domestic power market significantly decreased, resulting in, among other
things, financial distress among many participants in the domestic power
markets, particularly the IPPs. At the time the Company entered into these
contracts, all of these customers had investment grade credit ratings. During
2002, all of the Company's IPP customers received downgrades to their credit
ratings, reducing their credit ratings below investment grade. The condition of
the national power market, these credit downgrades and other factors resulted in
three projects being canceled or suspended. For one of these projects, Pike,
discussed further below, the Company was notified by the customer of their
intention to not make a scheduled milestone payment on its required due date. As
of February 28, 2003, the Company has approximately $393,000,000 remaining in
backlog related to gas-fired combined cycle power plant projects: $89,000,000
for IPPs on five projects with the remaining $304,000,000 for major utility
companies on
F-73
three projects. Approximately $52,000,000 of the IPP backlog is with NEG for the
Covert and Harquahala projects that are discussed below. The backlog does not
include amounts that may be received for settlements of claims on the NEG
Contracts.
In addition, under the terms of one contract with an IPP, the customer, at its
option, can pay a portion of the contract price in subordinated notes or cash.
The Company believes that the amount payable in subordinated notes will not
exceed $27,000,000 under the terms of the contract. The subordinated notes, if
issued, would bear interest at prime plus 4% and mature in October 2009.
However, if any amounts under the notes are unpaid 8 months following final
acceptance of the project, the unpaid notes, plus a cash payment of the amounts,
if any, paid on the notes through the conversion date, is convertible at the
option of the Company into a 49.9% equity interest in the related project. The
payments that could be made with these notes would be due in the first half of
calendar 2003 and final acceptance of the project is expected in the first half
of calendar 2003. As of February 28, 2003 the Company had recorded receivables
of approximately $ 13,000,000 related to claims and disputed changes orders with
respect to this contract.
Any potential loss on any of these projects will be recognized (charged to
earnings) in the period when it becomes evident that a loss has occurred and
amount of the loss can be reasonably estimated.
The Pike Project
During the fourth quarter of 2002, one of the Company's customers, LSP-Pike
Energy, LLC ("Pike") notified the Company of its intention to not pay a
scheduled milestone billing on the required due date of August 4, 2002. Pike is
a subsidiary of NRG Energy, Inc. ("NRG"), which is owned by Xcel Energy, Inc.
("Xcel"). In accordance with the terms of the contract, on September 4, 2002,
the Company notified the customer it was in breach of the terms of the contract
for nonpayment and, therefore, the contract was terminated. No amounts are
included in backlog related to this project.
Prior to the contract termination, the Company had executed
commitments/agreements to purchase equipment for the project and had also
entered into agreements with subcontractors to perform work on the project.
Certain of these commitments and agreements contain cancellation clauses and
related payment or settlement provisions. The Company has entered into
discussions with its vendors and subcontractors to determine the final amounts
owed based on the termination of the project. While the Company believes that,
pursuant to the terms of the contract with Pike, the Company has retained
ownership of a significant amount of equipment that was to be installed on the
project, the project lenders have advised the Company that they may have an
interest in certain of this equipment. Under the terms of the contract between
the Company and Pike, Pike is obligated to reimburse the Company for all of the
costs incurred by the Company, whether before or after the termination, and a
fee for the work performed prior to the termination. The Company believes that
it is owed approximately $130,000,000 in costs and fees over the amounts already
paid under the contract.
The Company is actively pursuing alternatives to collect all amounts owed under
the Pike contract. A lien has been filed on the project. On October 17, 2002,
the Company filed an involuntary petition for liquidation of Pike, under Chapter
7 of the U.S. Bankruptcy Code to protect its rights, claims, and security
interests in and to the assets of Pike. In December 2002, Pike disputed the
bankruptcy petition in court and discovery is currently proceeding. On March 20,
2003 the Court approved an agreed order submitted by the Company, Pike, and its
lenders, which allowed the Company to dispose of the equipment in its
possession, reserving the parties' rights with respect to any proceeds from
disposition. The Company also filed suit against NRG in U.S. District Court in
Mississippi to collect amounts due under a $100 million guarantee, and against
NRG and Xcel, along with certain of their officers for additional damages, and
costs under various legal theories including substantive consolidation,
alter-ego, and piercing the corporate veil. The Company has also joined in an
involuntary bankruptcy proceeding instituted against NRG by former executives in
Bankruptcy Court in Minnesota. In addition to the legal proceedings, the Company
is continuing discussions with Pike and its lenders in an effort to resolve
collection of the amounts owed.
The Company believes it will ultimately recover the costs it incurred and will
incur under the terms of the contract and the profit it had previously
recognized on the project. Because that contract was terminated on September 4,
2002 no
F-74
revenue or profit related to Pike was recognized for the six months ended
February 28, 2003. The Company will not recognize any additional profit it is
owed under this contract until it is probable it will collect that additional
amount.
Although the Company expects to recover amounts owed to it (including final
vendor and subcontractor settlements), it is also reasonably possible that the
Company will not recover all of its costs and profit recognized on the project;
particularly if NRG's financial condition continues to deteriorate and if (i)
any dispute regarding the ownership of the equipment in the possession of the
Company is resolved adversely to the Company; or (ii) such equipment cannot be
used on another similar project or liquidated by the Company to recover all or a
portion of the amount owed. NRG has announced that it is in default on certain
of its debt facilities, has failed to make certain principal and interest
payments, and is currently working on a comprehensive restructuring plan. Xcel
announced on March 26, 2003 that its Board of Directors had approved a tentative
settlement agreement with holders of NRG's long term notes and the steering
committee representing NRG's lenders. The settlement is subject to certain
conditions, including the approval of a majority of the NRG lenders and
long-term noteholders and definitive documentation. The terms of the settlement
call for Xcel to make payments to NRG over the next 13 months totaling up to
$752 million for the benefit of NRG's creditors in partial consideration for
their waiver of any existing and potential claims against Xcel. The amount, if
any, that the Company may not be able to recover is dependent upon the final
amounts to be expended by the Company related to the project, the amount to be
realized upon disposition of the equipment related to the project, the financial
wherewithal of the customer and NRG in the future, which is dependent upon its
ability to restructure and/or reach agreement with its creditors and or to
obtain additional funding from its parent company.
The Company has, in connection with its evaluation of the Pike project,
estimated that (i) it has or will incur costs of approximately $75,000,000 to
$80,000,000 over the amounts that have been previously collected from Pike and
(ii) equipment that was to be installed on the project could be liquidated for
approximately $40,000,000 to $60,000,000. Although the Company does not believe
a loss has been incurred as of February 28, 2003, based on these estimates, if
the Company is unable to collect additional amounts from its customer (or its
affiliates), the Company's potential future loss on the Pike project could range
from $15,000,000 to $40,000,000. As of February 28, 2003 the Company has
recorded $46,600,000 included in accounts receivable for costs incurred over
amounts received on the projects.
The Covert & Harquahala Projects
On October 10, 2002, the parent company, PG&E Corp. ("PG&E") of a customer, PG&E
National Energy Group, Inc. ("NEG") announced it had notified its lenders it did
not intend to make further equity contributions as required under the credit
facility to fund two projects, Covert and Harquahala, on which the Company is
the EPC contractor. As of February 2003, these two projects were each over 80%
complete.
Three related agreements for each project combine to effect the target price
contracts. One agreement with each NEG project entity provides for a fixed price
subject to increase based on change orders and claims, while the other
agreements provide for payment from NEG of costs in excess of the fixed price.
As of March 31, 2003 the Company's cost estimates indicate total costs for the
two projects will exceed the combined original target prices by approximately
$95 million, a portion of which the Company believes will be recovered through
change orders and claims. Approved change orders and claims are recoverable
under fixed price agreements from the project entities or the lender in the
event of assignment. Any costs in excess of the fixed price as revised for
approved change orders and claims, are nevertheless recoverable from NEG.
Although these costs will remain due from NEG, we may not be able to collect all
these costs from NEG if NEG is unable to pay. During the three months ended
November 30, 2002, the Company reversed $7,700,000 of profit previously
recognized on these projects, due to increases in cost estimates.
On December 13, 2002, the Company filed suit in the U.S. District Court in
Delaware seeking a declaration that NEG had repudiated the contracts and that
the Company was entitled to adequate assurances of performance and payment under
these contracts. The suit further requested that in the event adequate assurance
was not provided, the Company
F-75
be relieved of its obligation to complete the EPC services on these projects. In
addition, the Company provided a notice of default under the agreements to NEG
and its lenders, and of its right to terminate the contracts as early as January
15, 2003, unless adequate assurance of payment under the contracts was made.
The Company continued discussions with NEG and its lenders towards a mutually
agreeable resolution of contract issues and continued to work on the projects
while in discussions. On March 13, 2003, the Company filed a Notice of Dismissal
of its suit. On March 16, 2003, the Company notified NEG and its
lenders that it had terminated the Covert and Harquahala contracts, although the
Company continued to work on the projects. The Company elected to terminate the
contracts in order to preserve, and better enable the Company to assert certain
legal rights under the contracts.
On March 18, 2003, NEG's lenders filed suit against the Company in the U.S.
District Court for the District of Delaware claiming wrongful termination by the
Company of these projects and seeking damages "expected to be in excess of $100
million." The Company denies the allegations in this suit.
On April 10, 2003, after extensive negotiations with NEG's project entities,
NEG, and the lenders, all parties executed a term sheet that provides for
settlement of claims related to the Covert and Harquahala projects. The proposed
settlement provides for the amendment of the fixed price EPC contracts to
increase the total contract prices for both projects by a total of $65,000,000,
dismissal of the pending suit by the lenders, release by the Company of claims
based on change orders and the incurrence of other additional costs, revises the
schedule for completion of the projects, and generally addresses related issues.
The revised schedule would provide for the Company to complete the Harquahala
project in September 2003, and the Covert project in December 2003. The other
agreements which provided for recovery of costs in excess of the fixed price
contracts would be terminated. While this term sheet is non-binding and subject
to definitive documentation and ultimate approval of the lenders, the parties
are working diligently to that end, and expect this settlement to be consummated
before April 30, 2003. Based on this expected resolution and the Company's
revised estimated total costs to complete these projects, the Company took a
charge to earnings in the second quarter ended February 28, 2003 in the amount
of $30,000,000 to reflect settlement of the Company's claims amd change orders
for completion of the projects.
At March 31, 2003, the Company had recorded a net receivable of approximately
$17,500,000 related to these projects.
The Company believes that it has first lien rights, superior to the primary
lenders, on the partially completed projects. In the event this settlement is
not consummated and the Company stops work on the projects, although no
assurances can be made, the Company believes it will recover all amounts owed to
it under these terminated contracts including amounts related to change orders
and claims previously approved by NEG, through collection from NEG, the project
entities or their lenders or ultimately through its lien rights on the projects.
It is reasonably possible however, that, if the settlement is not consummated,
the Company may not collect all amounts owed to it under these projects, which
could have a material adverse effect on operating results in the period when the
uncollectible amounts would be recognized. Further, in the event termination of
the contracts is determined to have been wrongful, the Company could be subject
to claims for damages for breach of contract by NEG or its lenders, which claims
for damages could include the cost of third parties to complete the projects. As
previously noted, the suit by NEG's lenders claims damages in excess of $100
million. Such claims for damages could exceed our own estimates of the costs to
complete such projects. In such an event, any claims by NEG or its lenders would
likely be determined in a legal proceeding in which our claims against the
project entities, NEG, and its lenders would also be determined. We would also
be subject to the risks inherent in litigation as well as the risks inherent in
collecting any award we receive in litigation.
Guarantees
In November 2002 the Financial Accounting Standards Board issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees Including Indirect Guarantees of Indebtness of Others" ("FIN 45").
FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize
a liability for the fair value of the obligation it assumes under that
guarantee. In addition, FIN 45 requires additional disclosures about the
F-76
guarantees that an entity has issued. The initial recognition and measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002 and the disclosure requirements of FIN 45
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The recognition and measurement provisions of FIN 45 are not
expected to have a material effect on the Company's financial position, results
of operations or cash flows.
The Company's lenders issue letters of credit on its behalf to customers or
sureties in connection with its contract performance and in limited
circumstances certain other obligations of third parties. The Company is
required to reimburse the issuers of these letters of credit for any payments
which they make pursuant to these letters of credit. At February 28, 2003 the
amount of outstanding letters of credit was approximately $180,790,000.
The Company has also provided guarantees to certain of its joint ventures which
are reported under the equity method and are not consolidated on the
accompanying balance sheet. At February 28, 2003 the Company had guaranteed
approximately $12,000,000 of bank debt or letters of credit and $42,000,000 of
performance bonds with respect to its unconsolidated joint ventures.
Note 13 - Subsequent Events
Senior Notes and Tender Offer for LYONs
On March 17, 2003, the Company issued and sold $ 253,029,000, aggregate
principal amount at maturity, of 7-year 10.75% Senior Notes ("Senior Notes" or
"notes"), which mature on March 15, 2010. The Senior Notes were issued at
original discount price of $988.03 per $1,000 maturity value and have a yield to
maturity of 11.00%. The notes have a call (repurchase) feature that allows the
Company to repurchase all or a portion of the notes at the following prices (as
a percentage of maturity value) and dates.
<Table>
<Caption>
Price As Percentage of
Repurchase (Call) Dates Maturity Value
- ------------------------------ ----------------------
March 15, 2007 105.375 %
March 15, 2008 102.688 %
March 15, 2009 until maturity 100.000 %
</Table>
Additionally, prior to March 15, 2006, the Company may, at its option, utilize
the net cash proceeds from one or more specified equity offerings, within ninety
days of the Company's receipt of the equity funds, to repurchase up to 35% of
the then outstanding amount of Senior Notes at a price of 110.75% of the
maturity value of the notes. Prior to March 15, 2007 the Company may, at its
option, repurchase not less than all of the then outstanding notes at a price
equal to the principal amount of the notes plus a specified applicable premium.
Although the notes are unsecured, they are guaranteed by the Company's material
domestic subsidiaries.
On March 31, 2003 the Company completed the purchase of LYONs with an amortized
value of approximately $256,700,000 and an aggregate principal value of
approximately $384,600,000 for a cost of approximately $248,100,000, resulting
in a net gain after expenses and write-off of unamortized debt costs of
approximately $1,700,000. The Company used the total net proceeds, after fees,
from the sale of the Senior Notes of approximately $243,000,000 and internal
funds of approximately $5,100,000 to effect this repurchase. The LYONs were
purchased pursuant to a tender offer which commenced on February 26, 2003.
Amended Credit Facility
On March 17, 2003, concurrent with the closing of the Senior Notes offering, the
Company amended and restated its Credit Facility ("Amended Credit Facility") and
extended its term to March 16, 2006. The Amended Credit Facility
F-77
has a $250,000,000 credit limit. The Company may, by March 16, 2004, increase
the credit limit to a maximum of $300,000,000 by allowing one or more lenders to
increase their commitment or by adding new lenders.
Under the Amended Credit Facility, interest will be computed, at the Company's
option, using either the defined base rate or the defined LIBOR rate, plus an
applicable margin. The terms "base rate" and "LIBOR rate" have meanings
customary for financings of this type. The applicable margin is adjusted
pursuant to a pricing grid based on ratings by Standard and Poor's Rating
Services and Moody's Investor Services for the Amended Credit Facility or, if
the Amended Credit Facility is not rated, the ratings from these services
applicable to the Company's senior, unsecured long-term indebtedness. The
margins for Credit Facility loans may be in a range of (i) 1.00% to 3.00% over
the LIBOR or (ii) from the base rate to 1.50 % over the base rate.
The Company is required, with certain exceptions, to prepay loans outstanding
under the Amended Credit Facility with (i) the proceeds of new indebtedness;
(ii) net cash proceeds from equity sales to third parties (if not used for
acquisitions or other general corporate purposes within 90 days after receipt),
and (iii) insurance proceeds or condemnation awards in excess of $5,000,000 that
are not used to purchase a similar asset or for a like business purpose.
The collateral requirements did not change significantly as a result of the
amendment and restatement. The Amended Credit Facility contains certain
financial covenants, including a leverage ratio (which changes after May 1, 2004
representing the initial date LYONs may be submitted by LYONs holders for
repurchase by the Company - see Note7 to Notes to Condensed Consolidated
Financial Statements) and a minimum fixed charge coverage ratio, which requires
achievement of levels of defined net worth and EBITDA. Further, the Company is
required to obtain the consent of the lenders to prepay the Senior Notes or
amend the terms of the Senior Notes. The Amended Credit Facility permits the
Company to repurchase $10,000,000 of its LYONs obligations. Additional LYONs
repurchases are also permitted if (after giving effect to the repurchases), the
Company has the availability to borrow up to $50,000,000 million under the
Amended Credit Facility and the Company has the required amounts of cash and
cash equivalents. Prior to May 1, 2004, $100,000,000 of cash and cash
equivalents is required for purposes of this test and thereafter not less than
$75,000,000. Under the Amended Credit Facility, cash and cash equivalents for
purposes of this test consist of balances not otherwise pledged or escrowed
under the Company's Amended Credit Facility and are reduced by amounts borrowed
under the Amended Credit Facility.
At February 28, 2003, the interest rate on the Amended Credit Facility would
have been either 5.25% (if the prime rate index had been chosen) or 3.84% (if
the LIBOR rate index had been chosen).
Envirogen Acquisition
On March 21, 2003 the Company acquired all of the common stock of Envirogen,
Inc. for a cost of approximately $3,600,000. Envirogen, Inc. was a publicly
traded company and is a provider of soil and water remediation services to
commercial customers and specializes in remediating complex contaminants. It is
also a provider of contractual environmental research services to both
commercial and governmental customers.
Note 14 -- Unaudited Condensed Consolidating Financial Information - Interim
Periods Ended February 28, 2003 and February 28, 2002
The following presents summarized unaudited condensed consolidating financial
information for the Company and its subsidiaries as of February 28, 2003 with
respect to its financial position and for the six months ended February 28, 2003
and February 28, 2002 with respect to its results of operations and cash flows.
In connection with the Company's sale on March 17, 2003 of its 7 year, 10.75%
Senior Notes, due March 15, 2010, the Company's material wholly-owned domestic
subsidiaries issued joint and several guarantees in favor of the holders of the
Senior Notes or otherwise assumed the obligations under the indenture governing
the Senior Notes. These subsidiaries are referred to as the Guarantor
Subsidiaries in the condensed consolidating financial information which is
presented below. The Company's subsidiaries which have not issued guarantees for
the Senior Notes (primarily foreign subsidiaries) are referred to as the
Non-Guarantor Subsidiaries.
F-78
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING BALANCE SHEET
February 28, 2003
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination and
The Shaw Guarantor Non-Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- --------------- ------------
ASSETS
Current assets $ 219,672 $ 786,830 $ 214,718 $ (47,133) $ 1,174,087
Investment in subsidiaries
and joint ventures 833,620 5,787 23,402 (834,204) 28,605
Property and equipment 69,149 117,907 15,933 (1,576) 201,413
Goodwill -- 458,891 42,472 501,363
Other assets 38,260 79,602 2,841 (10,378) 110,325
------------ ------------ ------------ ------------ ------------
Total Assets $ 1,160,701 $ 1,449,017 $ 299,366 $ (893,291) $ 2,015,793
============ ============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current Liabilities $ (21,087) $ 704,793 $ 192,128 $ (64,792) $ 811,042
Long-term debt and capital
leases 527,639 2,303 207 -- 530,149
Other non-current liabilities 4,890 8,448 6,300 5,705 25,343
------------ ------------ ------------ ------------ ------------
Total Liabilities 511,442 715,544 198,635 (59,087) 1,366,534
Total Stockholders'
Equity 649,259 733,473 100,731 (834,204) 649,259
------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 1,160,701 $ 1,449,017 $ 299,366 $ (893,291) $ 2,015,793
============ ============ ============ ============ ============
</Table>
F-79
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the six months ended February 28, 2003
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination and
The Shaw Guarantor Non-Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- --------------- ------------
Revenues $ -- $ 1,577,753 $ 191,297 $ (51,686) $ 1,717,364
Cost of revenue -- 1,479,395 165,376 (51,686) 1,593,085
------------ ------------ ------------ ------------ ------------
Gross profit -- 98,358 25,921 -- 124,279
General and administrative
expenses 518 84,781 13,823 -- 99,122
------------ ------------ ------------ ------------ ------------
Operating income (loss) (518) 13,577 12,098 -- 25,157
Other (expenses)/income (15,961) 6,989 1,076 -- (7,896)
Equity in earnings of
subsidiaries 23,199 -- -- (23,199) --
------------ ------------ ------------ ------------ ------------
Income before income taxes
and earnings (losses) from
Unconsolidated entities 6,720 20,566 13,174 (23,199) 17,261
Provision for income taxes
(benefit) (4,913) 8,538 2,071 -- 5,696
------------ ------------ ------------ ------------ ------------
Income before earnings/
(losses) from
unconsolidated entities 11,633 12,028 11,103 (23,199) 11,565
Earnings (losses) from
unconsolidated
entities, net of taxes (3,052) 196 (128) -- (2,984)
------------ ------------ ------------ ------------ ------------
Net income $ 8,581 $ 12,224 $ 10,975 $ (23,199) $ 8,581
============ ============ ============ ============ ============
</Table>
F-80
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the six months ended February 28, 2002
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination and
The Shaw Guarantor Non-Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- --------------- ------------
Revenues $ -- $ 964,659 $ 122,111 $ (66,934) $ 1,019,836
Cost of revenue -- 851,300 105,218 (67,134) 889,384
------------ ------------ ------------ ------------ ------------
Gross profit -- 113,359 16,893 200 130,452
General and administrative
expenses (5,306) 56,437 12,803 -- 63,934
------------ ------------ ------------ ------------ ------------
Operating income 5,306 56,922 4,090 200 66,518
Other (expenses)/income (10,721) 5,114 236 -- (5,371)
Equity in earnings of
Subsidiaries 42,480 -- -- (42,480) --
------------ ------------ ------------ ------------ ------------
Income before income taxes
and earnings (losses) from
unconsolidated entities 37,065 62,036 4,326 (42,280) 61,147
Provision for income taxes
(benefit) (2,063) 22,426 1,584 72 22,019
------------ ------------ ------------ ------------ ------------
Income before earnings/
(losses) from
unconsolidated entities 39,128 39,610 2,742 (42,352) 39,128
Earnings (losses) from
unconsolidated
entities, net of taxes 1,164 (438) 438 -- 1,164
------------ ------------ ------------ ------------ ------------
Net income $ 40,292 $ 39,172 $ 3,180 $ (42,352) $ 40,292
============ ============ ============ ============ ============
</Table>
F-81
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended February 28, 2003
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination and
The Shaw Guarantor Non-Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- --------------- ------------
Net cash provided by (used in) operations $ (27,218) $ (114,889) $ 901 $ -- $ (141,206)
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable
securities held to maturity (94,190) -- -- -- (94,190)
Maturities of marketable 91,058 -- -- -- 91,058
securities held to maturity
Purchases of property and
equipment (5,305) (10,009) (1,301) -- (16,615)
Proceeds from sale of assets -- 1,081 1,867 -- 2,948
Investment in subsidiary -- (1,200) -- -- (1,200)
Investment in unconsolidated
subsidiaries and joint
ventures, net of cash
received -- 415 -- -- 415
Proceeds from sale of
securities 175 -- -- -- 175
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
In) investing activities (8,262) (9,713) 566 -- (17,409)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (47,837) -- -- -- (47,837)
(Repayment of) proceeds
from loans and leases (1,925) 33 705 -- (1,187)
Repayment of revolving
loan agreement -- -- (1,052) -- (1,052)
Issuance of common stock 301 -- -- 301
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
In) financing activities (49,461) 33 (347) -- (49,775)
------------ ------------ ------------ ------------ ------------
Effects of foreign exchange
rates on cash -- -- 519 -- 519
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash (84,941) (124,569) 1,639 -- (207,871)
Cash and cash equivalents at
the beginning of the period 236,153 156,379 105,732 498,264
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of the period $ 151,212 $ 31,810 $ 107,371 $ -- $ 290,393
============ ============ ============ ============ ============
</Table>
F-82
THE SHAW GROUP INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six months ended February 28, 2002
(unaudited)
(in thousands)
<Table>
<Caption>
Elimination and
The Shaw Guarantor Non-Guarantor Consolidation
Group Inc. Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- --------------- ------------
Net cash provided by (used in) operations $ 27,369 $ (9,198) $ 110,832 $ -- $ 129,003
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Maturities of marketable
securities held to maturity 71,898 -- -- -- 71,898
Purchases of marketable
securities held to
maturity (42,193) -- -- -- (42,193)
Investment in DIP loan, IT
Group, Inc. (44,000) -- -- -- (44,000)
Purchases of property and
Equipment (23,031) (11,397) (493) -- (34,921)
Purchase of real estate
option (12,183) -- -- (12,183)
Proceeds from sale of assets -- 102 -- 102
Receipts from
unconsolidated
Subsidiaries, net of
investments -- 74 -- -- 74
------------ ------------ ------------ ------------ ------------
Net cash used in investing
Activities (49,509) (11,221) (493) -- (61,223)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Purchase of treasury stock
Proceeds from revolving (27,131) -- -- -- (27,131)
loan agreement -- -- 5,437 -- 5,437
Repayment of loans and
leases (3,422) (279) -- -- (3,701)
Issuance of common stock 1,045 -- -- -- 1,045
Other (190) -- -- -- (190)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing activities (29,698) (279) 5,437 -- (24,540)
------------ ------------ ------------ ------------ ------------
Effect of foreign exchange
rates on cash -- -- (768) -- (768)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash (51,838) (20,698) 115,008 -- 42,472
Cash and cash equivalents at
the beginning of the period 303,218 115,656 24,430 443,304
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of the period $ 251,380 $ 94,958 $ 139,438 $ -- $ 485,776
============ ============ ============ ============ ============
</Table>
F-83
ANNEX A
LETTER OF TRANSMITTAL
TO TENDER
OUTSTANDING 10.75% SENIOR NOTES DUE 2010
OF
THE SHAW GROUP INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED ________ __, 2003
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ________________, 2003 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE COMPANY.
The Exchange Agent for the Exchange Offer is:
The Bank of New York
101 Barclay Street - 7 East
New York, New York 10286
Attention: Corporate Trust
Operations - Reorganization Unit
Facsimile: (212) 298-1915
Telephone: (212) 815-2742
IF YOU WISH TO EXCHANGE CURRENTLY OUTSTANDING 10.75% SENIOR NOTES DUE 2010 (THE
"OUTSTANDING NOTES") FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF NEW 10.75%
SENIOR NOTES DUE 2010 PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER
(AND NOT WITHDRAW) OUTSTANDING NOTES TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE BY CAUSING AN AGENT'S MESSAGE TO BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO SUCH TIME.
A-1
The undersigned hereby acknowledges receipt and review of the Prospectus,
dated May , 2003 (the "Prospectus"), of The Shaw Group Inc., a Louisiana
corporation (the "Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together describe the Company's offer (the "Exchange
Offer") to exchange its 10.75% Senior Notes Due 2010 (the "New Notes") that have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount of its issued and outstanding 10.75% Senior
Notes Due 2010 (the "Outstanding Notes"). Capitalized terms used but not defined
herein have the respective meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The Company
shall notify the Exchange Agent and each registered holder of the Outstanding
Notes of any extension by oral or written notice prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
This Letter of Transmittal is to be used by holders of the Outstanding Notes.
Tender of Outstanding Notes is to be made according to the Automated Tender
Offer Program ("ATOP") of the Depository Trust Company ("DTC") pursuant to the
procedures set forth in the prospectus under the caption "The Exchange Offer -
Procedures for Tendering." DTC participants that are accepting the Exchange
Offer must transmit their acceptance to DTC, which will verify the acceptance
and execute a book-entry delivery to the Exchange Agent's DTC account. DTC will
then send a computer generated message known as an "agent's message" to the
exchange agent for its acceptance. For you to validly tender your Outstanding
Notes in the Exchange Offer, the Exchange Agent must receive, prior to the
Expiration Date, an agent's message under the ATOP procedures that confirms
that:
- DTC has received your instructions to tender your Outstanding Notes; and
- You agree to be bound by the terms of this Letter of Transmittal.
BY USING THE ATOP PROCEDURES TO TENDER OUTSTANDING NOTES, YOU WILL NOT BE
REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER,
YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE
ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF
YOU HAD SIGNED IT.
A-2
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
1. By tendering Outstanding Notes in the Exchange Offer, you acknowledge
receipt of the Prospectus and this Letter of Transmittal.
2. By tendering Outstanding Notes in the Exchange Offer, you represent and
warrant that you have full authority to tender the Outstanding Notes described
above and will, upon request, execute and deliver any additional documents
deemed by the Company to be necessary or desirable to complete the tender of
Outstanding Notes.
3. You understand that the tender of the Outstanding Notes pursuant to all
of the procedures set forth in the Prospectus will constitute an agreement
between you and the Company as to the terms and conditions set forth in the
Prospectus.
4. By tendering Outstanding Notes in the Exchange Offer, you acknowledge
that the Exchange Offer is being made in reliance upon interpretations contained
in no-action letters issued to third parties by the staff of the Securities and
Exchange Commission (the "SEC"), including Exxon Capital Holdings Corp., SEC
No-Action Letter (available April 13, 1989), Morgan Stanley & Co., Inc., SEC
No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993), that the New Notes issued in exchange for the
Outstanding Notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than a broker-dealer
who purchased Outstanding Notes exchanged for such New Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act of 1933, as amended (the "Securities Act") and any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders are not participating in, and have no arrangement with any person to
participate in, the distribution of such New Notes.
5. By tendering Outstanding Notes in the Exchange Offer, you represent and
warrant that:
a. the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of your business, whether or not you are
the holder;
b. neither you nor any such other person is engaging in or intends to
engage in a distribution of such New Notes;
c. neither you nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
New Notes; and
d. neither the holder nor any such other person is an "affiliate," as such
term is defined under Rule 405 promulgated under the Securities Act, of
the Company.
6. You may, if you are unable to make all of the representations and
warranties contained in Item 5 above and as otherwise permitted in the
Registration Rights Agreement (as defined below), elect to have your Outstanding
Notes registered in the shelf registration statement described in the
Registration Rights Agreement, dated as of March 17, 2003 (the "Registration
Rights Agreement"), by and among the Company, the Subsidiary Guarantors (as
defined therein) and the Initial Purchasers (as defined therein). Such election
may be made only by notifying the Company in writing at 4171 Essen Lane, Baton
Rouge, Louisiana 70809, Attention: General Counsel. By making such election, you
agree, as a holder of Outstanding Notes participating in a shelf registration,
to indemnify and hold harmless the Company, each of the directors of the
Company, each of the officers of the Company who signs such shelf registration
statement, each person who controls the Company within the meaning of either the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and each other holder of Outstanding Notes, from and against any and all
losses, claims, damages or liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any shelf registration
statement or prospectus,
A-3
or in any supplement thereto or amendment thereof, or caused by the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; but only with respect to information
relating to the undersigned furnished in writing by or on behalf of the
undersigned expressly for use in a shelf registration statement, a prospectus or
any amendments or supplements thereto. Any such indemnification shall be
governed by the terms and subject to the conditions set forth in the
Registration Rights Agreement, including, without limitation, the provisions
regarding notice, retention of counsel, contribution and payment of expenses set
forth therein. The above summary of the indemnification provision of the
Registration Rights Agreement is not intended to be exhaustive and is qualified
in its entirety by the Registration Rights Agreement.
7. If you are a broker-dealer that will receive New Notes for its own account in
exchange for Outstanding Notes that were acquired as a result of market-making
activities or other trading activities, you acknowledge, by tendering
Outstanding Notes in the Exchange Offer, that you will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, you will not be deemed to admit that you are an
"underwriter" within the meaning of the Securities Act. If you are a
broker-dealer and Outstanding Notes held for your own account were not acquired
as a result of market-making or other trading activities, such Outstanding Notes
cannot be exchanged pursuant to the Exchange Offer.
8. Any of your obligations hereunder shall be binding upon your successors,
assigns, executors, administrators, trustees in bankruptcy and legal and
personal representatives of the undersigned.
A-4
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Book-Entry Confirmations.
Any confirmation of a book-entry transfer to the Exchange Agent's account
at DTC of Outstanding Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as an agent's message, and any other documents required
by this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date.
2. Partial Tenders.
Tenders of Outstanding Notes will be accepted only in integral multiples
of $1,000. THE ENTIRE PRINCIPAL AMOUNT OF OUTSTANDING NOTES DELIVERED TO THE
EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE
COMMUNICATED TO THE EXCHANGE AGENT. IF THE ENTIRE PRINCIPAL AMOUNT OF ALL
OUTSTANDING NOTES IS NOT TENDERED, THEN OUTSTANDING NOTES FOR THE PRINCIPAL
AMOUNT OF OUTSTANDING NOTES NOT TENDERED AND NOTES ISSUED IN EXCHANGE FOR ANY
OUTSTANDING NOTES ACCEPTED WILL BE DELIVERED TO THE HOLDER VIA THE FACILITIES OF
DTC PROMPTLY AFTER THE OUTSTANDING NOTES ARE ACCEPTED FOR EXCHANGE.
3. Validity of Tenders.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Outstanding Notes will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of which may, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
absolute right to waive any of the conditions of the Exchange Offer or any
defect or irregularity in the tender of any Outstanding Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions on this Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Outstanding Notes must be cured within such time as the Company shall
determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Outstanding Notes, neither the
Company, the Exchange Agent, nor any other person shall be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give such notification. Tenders of Outstanding Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Outstanding Notes received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
holders via the facilities of DTC, as soon as practicable following the
Expiration Date.
4. Waiver of Conditions.
The Company reserves the absolute right to waive, in whole or part, up to
the expiration of the exchange offer any of the conditions to the Exchange Offer
set forth in the Prospectus or in this Letter of Transmittal.
5. No Conditional Tender.
No alternative, conditional, irregular or contingent tender of Outstanding
Notes will be accepted.
6. Request for Assistance or Additional Copies.
Requests for assistance or for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address or
telephone number set forth on the cover page of this Letter of Transmittal.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
A-5
7. Withdrawal.
Tenders may be withdrawn only pursuant to the limited withdrawal rights
set forth in the Prospectus under the caption "Exchange Offer -- Withdrawal of
Tenders."
8. No Guarantee of Late Delivery.
There is no procedure for guarantee of late delivery in the Exchange
Offer.
IMPORTANT: BY USING THE ATOP PROCEDURES TO TENDER OUTSTANDING NOTES, YOU WILL
NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT.
HOWEVER, YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE
ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF
YOU HAD SIGNED IT.
A-6
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 83 of the Louisiana Business Corporation Law or the LBCL, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
business, foreign or nonprofit corporation, partnership, joint venture or other
enterprise. The indemnity may include expenses, including attorney fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Section
83 further provides that a Louisiana 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 director or officer shall have been adjudged to be liable for willful or
intentional misconduct in the performance of his duty to the corporation. Where
an officer or director is successful on the merits or otherwise in any defense
of any action referred to above or any claim therein, the corporation must
indemnify him against such expenses that such officer or directly actually
incurred. Section 83 permits a corporation to pay expenses incurred by the
officer or director in defending an action, suit or proceeding in advance of the
final disposition thereof if approved by the board of directors.
Pursuant to Section 83 of the LBCL, the Company has adopted provisions in its
articles of incorporation which require the Company to indemnify its directors
and officers to the fullest extent permitted by the LBCL.
The Company has entered into indemnification agreements with its directors
and certain of its officers which provide that the Company will, if certain
conditions are met and the director or officer acted in accordance with the
applicable and standards and subject to certain procedures and exceptions,
indemnify the persons for claims, judgments and related expenses resulting from
their services on behalf of the Company and its affiliated entities in any
pending, threatened or completed action, suit or proceeding, whether civil,
administrative or criminal, except where (1) the Company is prohibited by law
from providing such indemnification; (2) payment of the indemnification amounts
has been made under an insurance policy; or (3) the director or officer gained a
personal profit to which he or she was not legally entitled including profits
arising from the violation of certain securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed herewith pursuant to the
requirements of Item 601 of Regulation S-K:
3.1 Composite of the Restatement of the Articles of Incorporation of
The Shaw Group Inc., as amended by (i) Articles of Amendment dated
January 22, 2001 and (ii) Articles of Amendment dated July 31,
2001 (incorporated by reference to the designated Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2001).
3.2 Articles of Amendment of the Restatement of the Articles of
Incorporation of The Shaw Group Inc. dated January 22, 2001
(incorporated by reference to the designated Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 2001).
3.3 Articles of Amendment to Restatement of the Articles of
Incorporation of The Shaw Group Inc. dated July 31, 2001
(incorporated by reference to the designated Exhibit to The Shaw
Group Inc.'s Registration Statement on Form 8-A filed on July 30,
2001).
3.4 Amended and Restated By-Laws of The Shaw Group Inc. dated December
8, 1993 (incorporated by reference to the designated Exhibit to
The Shaw Group Inc.'s Annual Report on Form 10-K for the fiscal
year ended August 31, 1994, as amended).
II-1
4.1 Specimen Common Stock Certificate (incorporated by reference to
the designated Exhibit to the Company's Registration Statement
on Form S-1 filed on October 22, 1993, as amended (No.
33-70722)).
4.2 Indenture dated as of May 1, 2001, between The Shaw Group Inc. and
United States Trust Company of New York including Form of Liquid
Yield Option(TM) NoteDue2021 (Zero Coupon-Senior) (Exhibits A-1
and A-2) (incorporated herein by reference to the designated
Exhibit to the Company's Current Report on Form 8-K filed on May
11, 2001).
4.3 Rights Agreement, dated as of July 9, 2001, between The Shaw
Group Inc. and First Union National Bank, as Rights Agent,
including the Form of Articles of Amendment to the Restatement
of the Articles of Incorporation of the Company as Exhibit A,
---------
the form of Rights Certificate as Exhibit B and the form of the
---------
Summary of Rights to Purchase Preferred Shares as Exhibit C
---------
(incorporated by reference to the designated Exhibit to the
Company's Registration Statement on Form 8-A filed on July 30,
2001).
4.4 Indenture dated as of March 17, 2003, by and among The Shaw Group
Inc., the Subsidiary Guarantors party thereto, and The Bank of New
York, as trustee (incorporated by reference to the designated
Exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 2003).
4.5 Registration Rights Agreement dated as of March 17, 2003, by and
among The Shaw Group Inc. and Credit Suisse First Boston LLC,
UBS Warburg LLC, BMO Nesbit Burns Corp., Credit Lyonnais
Securities (USA) Inc., BNP Paribas Securities Corp. and U.S.
Bancorp Piper Jaffray Inc. (incorporated by reference to the
designated Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 2003).
4.6 Form of 10-3/4% Senior Note Due 2010 (Included as Exhibit I to the
Indenture incorporated by reference as Exhibit 4.4 hereto).
5.1 Opinion of Vinson & Elkins L.L.P. regarding the validity of the
securities being registered (filed herewith).
5.2 Opinion of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) regarding the validity of the securities being
registered (filed herewith).
10.1 The Shaw Group Inc. 1993 Employee Stock Option Plan, amended and
restated through October 8, 2001 (incorporated by reference to the
designated Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 2001).
10.2 The Shaw Group Inc. 1996 Non-Employee Director Stock Option Plan,
amended and restated through October 8, 2001 (incorporated by
reference to the designated Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 2001).
10.3 The Shaw Group Inc. 2001 Employee Incentive Compensation Plan,
amended and restated through October 8, 2001 (incorporated by
reference to the designated Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 2001).
10.4 The Shaw Group Inc. Stone & Webster Acquisition Stock Option
Plan (incorporated by reference to the to the Company's
Registration Statement on Form S-8 filed on June 12, 2001 (No
333-62856)).
10.5 Second Amended and Restated Credit Agreement dated as of
February 28, 2002, among The Shaw Group Inc. Bank One, NA,
Firstar Bank, N.A., Credit Lyonnais New York Branch and Union
Planters Bank, N.A. (incorporated by reference to the designated
Exhibit of the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 2002).
10.6 Employment Agreement dated as of April 10, 2001, by and between
The Shaw Group Inc. and J.M. Bernhard, Jr. (incorporated by
reference to the designated Exhibit to the Company's Annual
Report on From 10-K for the fiscal year ended August 31, 2001).
10.7 Employment Agreement dated as of May 5, 2000, by and between The
Shaw Group Inc. and Richard F. Gill and amended January 10,
2001(incorporated by reference to the designated Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 2001).
II-2
10.8 Employment Agreement dated as of May 1, 2000, by and between The
Shaw Group Inc. and Robert L. Belk (incorporated by reference to
the designated Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 2000).
10.9 Employment Agreement dated as of July 10, 2002, by and between
The Shaw Group Inc. and T. A. Barfield, Jr. (incorporated by
reference to the designated Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 2002).
10.10 Asset Purchase Agreement, dated as of July 14, 2000, among Stone &
Webster, Incorporated, certain subsidiaries of Stone & Webster,
Incorporated and The Shaw Group Inc. (incorporated by reference to
the designated Exhibit to the Company's Current Report on Form 8-K
filed on July 28, 2000).
10.11 Composite Asset Purchase Agreement, dated as of January 23,
2002, by and among The Shaw Group Inc., The IT Group, Inc. and
certain subsidiaries of The IT Group, Inc., including the
following amendments: (i) Amendment No. 1, dated January 24,
2002, to Asset Purchase Agreement, (ii) Amendment No. 2, dated
January 29, 2002, to Asset Purchase Agreement, and (iii) a
letter agreement amending Section 8.04(a)(ii) of the Asset
Purchase Agreement, dated as of April 30, 2002, between The IT
Group, Inc. and The Shaw Group Inc. (incorporated herein by
reference to designated Exhibit to the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on
May 16, 2002). Pursuant to Item 601(b)(2) of Regulation S-K,
the exhibits and schedules referred to in the Asset Purchase
Agreement are omitted. The Registrant hereby undertakes to
furnish supplementally a copy of any omitted schedule or exhibit
to the Commission upon request.
10.12 Amendment No. 3, dated May 2, 2002, to Asset Purchase Agreement
by and among The Shaw Group Inc., The IT Group, Inc. and certain
subsidiaries of The IT Group, Inc. (incorporated herein by
reference to the designated Exhibit to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on May 16, 2002). Pursuant to Item 601(b)(2) of
Regulation S-K, the exhibits and schedules referred to in
Amendment No. 3 are omitted. The Registrant hereby undertakes
to furnish supplementally a copy of any omitted schedule or
exhibit to the Commission upon request.
10.13 Amendment No. 4, dated May 3, 2002, to Asset Purchase Agreement
by and among The Shaw Group Inc., The IT Group, Inc. and certain
subsidiaries of The IT Group, Inc. (incorporated herein by
reference to the designated Exhibit to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on May 16, 2002.)
10.14 Third Amended and Restated Credit Agreement, dated as of March 17,
2003, by and among The Shaw Group Inc., as borrower, Credit
Lyonnais New York Branch, as a joint arranger and sole book
runner, Credit Suisse First Boston, as joint arranger, Harris
Trust and Savings Bank and BNP Paribas co-syndication agents, U.S.
Bank National Association, as documentation agent, and the other
lenders signatory thereto. (incorporated herein by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on March 19, 2003).
12.1 Computation of Ratios of Earnings and Fixed Charges (incorporated
herein by reference to the designated Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31,
2002.)
21.1 Subsidiaries of Shaw (incorporated herein by reference to the
designated Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002).
23.1 Consent of Ernst & Young LLP (filed herewith).
23.6 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.7 Consent of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) (included in Exhibit 5.2).
24.1 Power of Attorney (included in the signature pages of this
Registration Statement).
25.1* Statement of Eligibility on Form T-1 of The Bank of New York.
- ----------
* To be filed by amendment.
II-3
- ------------------------
(b) Financial Statement Schedules. Incorporated herein by reference to Item 8
of Shaw's annual report on Form 10-K for the year ended August 31, 2002
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of any
Registrant, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by any Registrant of expenses incurred
or paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Each registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) 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 the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(c) 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; and
(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.
(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.
(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement 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.
(5) 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.
II-4
(6) 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 this Registration Statement when it became effective.
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 Baton Rouge, State of
Louisiana on May 16, 2003.
THE SHAW GROUP INC.
By: /s/ Gary P. Graphia
---------------------------------------
Gary P. Graphia
Secretary and General Counsel
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ J. M. Bernhard, Jr. Chief Executive Officer and
- --------------------------------
J. M. Bernhard, Jr. Chairman of the Board of
Directors (Principal Executive
Officer)
/s/ Robert L. Belk Executive Vice President and
- --------------------------------
Robert L. Belk Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
/s/ Albert McAlister Director
- --------------------------------
Albert McAlister
/s/ L. Lane Grigsby Director
- --------------------------------
L. Lane Grigsby
/s/ David W. Hoyle Director
- --------------------------------
David W. Hoyle
/s/ John W. Sinders, Jr. Director
- --------------------------------
John W. Sinders, Jr.
/s/ William H. Grigg Director
- --------------------------------
William H. Grigg
II-6
/s/ Charles E. Roemer, III Director
- --------------------------------
Charles E. Roemer, III
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
B.F. SHAW, INC.
SHAW CONNEX, INC.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Jeff Ottosen, Sr. President (Principal
- ------------------------------------
Jeff Ottosen, Sr. Executive Officer)
/s/ Robert L. Belk Vice President, Treasurer
- ------------------------------------
Robert L. Belk and Director (Principal
Financial and Accounting
Officer)
/s/ Gary P. Graphia Director
- ------------------------------------
Gary P. Graphia
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
C.B.P. ENGINEERING CORP.
PROSPECT INDUSTRIES (HOLDINGS), INC.
SHAW PIPE SHIELDS, INC.
By: /s/ Robert L. Belk
-------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Richard F. Gill President and Director
- ------------------------------------ (Principal Executive Officer)
Richard F. Gill
/s/ Robert L. Belk Vice President, Treasurer and
- ------------------------------------ Director (Principal Financial
Robert L. Belk and Accounting Officer)
/s/ Gary P. Graphia Director
- ------------------------------------
Gary P. Graphia
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
FIELD SERVICES, INC.
SHAW A/DE, INC.
SHAW ALLOY PIPING PRODUCTS, INC.
SHAW FCI, INC.
SHAW GRP OF CALIFORNIA
SHAW INTELLECTUAL PROPERTY HOLDINGS, INC.
SHAW MANAGED SERVICES, INC.
SHAW MANAGEMENT SERVICES ONE, INC.
SHAW PIPE SUPPORTS, INC.
SHAW PROCESS AND INDUSTRIAL GROUP, INC.
SHAW PROCESS FABRICATORS, INC.
SHAW WORD INDUSTRIES FABRICATORS, INC.
STONE & WEBSTER ASIA, INC.
STONE & WEBSTER HOLDING ONE, INC.
STONE & WEBSTER HOLDING TWO, INC.
STONE & WEBSTER INTERNATIONAL, INC.
STONE & WEBSTER INTERNATIONAL
HOLDINGS, INC.
STONE & WEBSTER PROCESS TECHNOLOGY, INC.
By: /s/ Robert L. Belk
--------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Richard F. Gill President (Principal Executive
- -------------------------------- Officer)
Richard F. Gill
/s/ Robert L. Belk Vice President, Treasurer and
- -------------------------------- Director (Principal Financial
Robert L. Belk and Accounting Officer)
/s/ Gary P. Graphia Director
- ------------------------------------
Gary P. Graphia
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
EMCON/OWT, INC.
By: /s/ Richard Peluso
------------------------------------
Name: Richard Peluso
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Richard Peluso President (Principal Executive Officer)
- ------------------------------------
Richard Peluso
Executive Vice President, Treasurer and
/s/ Mary Geiger Chief Financial Officer (Principal
- ------------------------------------ Financial and Accounting Officer)
Mary Geiger
/s/ T. A. Barfield, Jr.
- ------------------------------------ Director
T. A. Barfield, Jr.
/s/ Gary P. Graphia
- ------------------------------------ Director
Gary P. Graphia
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
POWER TECHNOLOGIES, INC.
By: /s/ Reynolds M. Delgado
-----------------------------------
Name: Reynolds M. Delgado
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Reynolds M. Delgado President and Director (Principal
- ------------------------------------ Executive Officer)
Reynolds M. Delgado
/s/ Ronald Cayon Secretary, Treasurer and Director
- ------------------------------------ (Principal Financial and Accounting
Ronald Cayon Officer)
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW BENECO, INC.
By: /s/ Robert L. Belk
-----------------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
Chief Executive Officer and Chairman of the
/s/ T. A. Barfield, Jr. Board of Directors (Principal Executive
- ------------------------------------ Officer)
T. A. Barfield, Jr.
/s/ Robert L. Belk Executive Vice President and Treasurer
- ------------------------------------ (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ------------------------------------ Director
Gary P. Graphia
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW CAPITAL, INC.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ J. M. Bernhard, Jr. President (Principal Executive Officer)
- ----------------------------------------------
J. M. Bernhard, Jr.
/s/ Robert L. Belk Vice President, Treasurer and Director (Principal
- ---------------------------------------------- Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW CMS, INC.
By: /s/ T. A. Barfield, Jr.
-------------------------------
Name: T. A. Barfield, Jr.
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ T. A. Barfield, Jr. President and Director (Principal Executive
- ---------------------------------------------- Officer)
T. A. Barfield, Jr.
/s/ Scott LaGrange Executive Vice President and Treasurer
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Scott LaGrange
Daniel J. Shapiro
- ---------------------------------------------- Director
Daniel J. Shapiro
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW CONSTRUCTORS, INC.
By: /s/ Ronnie Volentine
------------------------
Name: Ronnie Volentine
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Ronnie Volentine President and Director (Principal Executive
- ---------------------------------------------- Officer)
Ronnie Volentine
/s/ Lee Barnett Treasurer (Principal Financial and Accounting
- ---------------------------------------------- Officer)
Lee Barnett
/s/ Michael L. Thomas
- ---------------------------------------------- Director
Michael L. Thomas
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Baton
Rouge, State of Louisiana on May 16, 2003.
SHAW E&I INVESTMENT HOLDINGS, INC.
SHAW ENVIRONMENTAL & INFRASTRUCTURE, INC.
SHAW FACILITIES, INC.
SHAW INFRASTRUCTURE, INC.
SHAW PROPERTY HOLDINGS, INC.
STONE & WEBSTER - IT RUSSIA MANAGEMENT
CONSULTANTS, INC.
By: /s/ Robert L. Belk
----------------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ T. A. Barfield, Jr. President and Director
- ---------------------------------------------- (Principal Executive Officer)
T. A. Barfield, Jr.
/s/ Robert L. Belk Executive Vice President and Treasurer
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW ENVIRONMENTAL, INC.
By: /s/ Robert L. Belk
------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ T. A. Barfield, Jr. President and Director
- ---------------------------------------------- (Principal Executive Officer)
T. A. Barfield, Jr.
Vice President and Treasurer (Principal
/s/ Robert L. Belk Financial and Accounting Officer)
- ----------------------------------------------
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW FABRICATORS, INC.
By: /s/ Robert L. Belk
----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/Michael Boudreaux President (Principal Executive Officer)
- ----------------------------------------------
Michael Boudreaux
/s/ Robert L. Belk Vice President, Treasurer and Director (Principal
- ---------------------------------------------- Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW FVF, INC.
By: /s/ Robert L. Belk
-----------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ David L. Landers President (Principal Executive Officer)
- ----------------------------------------------
David L. Landers
/s/ Robert L. Belk Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW GLOBAL ENERGY SERVICES, INC.
By: /s/ Robert L. Belk
-----------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Mitchell A. Rayner President and Director
- ---------------------------------------------- (Principal Executive Officer)
Mitchell A. Rayner
Vice President and Treasurer (Principal
/s/ Robert L. Belk Financial and Accounting Officer)
- ----------------------------------------------
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW HEAT, INC.
SHAW NAPTECH, INC.
SHAW SSS FABRICATORS, INC.
SHAW SUNLAND FABRICATORS, INC.
By: /s/ Robert L. Belk
---------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Mitchell A. Rayner President (Principal Executive Officer)
- ----------------------------------------------
Mitchell A. Rayner
/s/ Robert L. Belk Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW INDUSTRIAL SUPPLY CO., INC.
By: /s/ Robert L. Belk
----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Louis V. Stuart President (Principal Executive Officer)
- ----------------------------------------------
Louis V. Stuart
/s/ Robert L. Belk Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ----------------------------------------------- Director
Gary P. Graphia
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW INTERNATIONAL, INC.
By: /s/ Robert L. Belk
----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Michael H. Wootton President (Principal Executive Officer)
- ----------------------------------------------
Michael H. Wootton
/s/ Robert L. Belk Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Richard F. Gill
- ---------------------------------------------- Director
Richard F. Gill
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW MAINTENANCE, INC.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ N. Andrew Dupuy, Jr. President (Principal Executive Officer)
- ----------------------------------------------
N. Andrew Dupuy, Jr.
/s/ Robert L. Belk Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW POWER SERVICES, INC.
By: /s/ Robert L. Belk
----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
/s/ Frank Fronek President (Principal Executive Officer)
- ----------------------------------------------
Frank Fronek
/s/ Robert L. Belk Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
/s/ Gary P. Graphia
- ---------------------------------------------- Director
Gary P. Graphia
II-27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER CONSTRUCTION, INC.
By: /s/ Robert L. Belk
-------------------------------------
Name: Robert L. Belk
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Robert L. Belk President and Director
- ---------------------------------------------- (Principal Executive Officer)
Robert L. Belk
/s/ Gary P. Graphia Vice President, Secretary, Treasurer and
- ---------------------------------------------- Director (Principal Financial and Accounting
Gary P. Graphia Officer)
II-28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER, INC.
By: /s/ Robert L. Belk
------------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Richard F. Gill President and Director
- ---------------------------------------------- (Principal Executive Officer)
Richard F. Gill
/s/ Robert L. Belk Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Robert L. Belk
II-29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER - JSC MANAGEMENT
CONSULTANTS, INC.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Senior Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
/s/ Reynolds M. Delgado President and Director (Principal Executive
- ---------------------------------------------- Officer)
Reynolds M. Delgado
/s/ Robert L. Belk Senior Vice President and Treasurer (Principal
- ---------------------------------------------- Financial and Accounting Officer)
Robert L. Belk
/s/T. A. Barfield, Jr. Director
- ----------------------------------------------
T. A. Barfield, Jr.
II-30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER MANAGEMENT
CONSULTANTS, INC.
By: /s/ Robert L. Belk
----------------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Reynolds M. Delgado President and Director (Principal Executive
- ---------------------------------------------- Officer)
Reynolds M. Delgado
/s/ Robert L. Belk Vice President and Treasurer (Principal
- ---------------------------------------------- Financial and Accounting Officer)
Robert L. Belk
/s/ Reynolds M. Delgado
- ---------------------------------------------- Director
Richard F. Gill
II-31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER MASSACHUSETTS, INC.
By: /s/ Robert L. Belk
----------------------------------
Name: Robert L. Belk
Title: Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Gerald R. Doton President and Director
- ---------------------------------------------- (Principal Executive Officer)
Gerald R. Doton
/s/ Robert L. Belk Vice President and Treasurer (Principal
- ---------------------------------------------- Financial and Accounting Officer)
Robert L. Belk
/s/ Richard F. Gill
- ---------------------------------------------- Director
Richard F. Gill
/s/ Joseph A. Green
- ---------------------------------------------- Director
Joseph A. Green
II-32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER MICHIGAN, INC.
By: /s/ Richard M. Grieve
------------------------------------
Name: Richard M. Grieve
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Richard M. Grieve President and Director (Principal Executive
- ---------------------------------------------- Officer)
Richard M. Grieve
/s/ Robert L. Belk Treasurer (Principal Financial and Accounting
- ---------------------------------------------- Officer)
Robert L. Belk
/s/ Richard F. Gill
- ---------------------------------------------- Director
Richard F. Gill
/s/ A. Stanley Lucks
- ---------------------------------------------- Director
A. Stanley Lucks
II-33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
THE LANDBANK GROUP, INC.
By: /s/ T. A. Barfield, Jr.
--------------------------------------------------------
Name: T. A. Barfield, Jr.
Title: Chief Executive Officer and Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ T. A. Barfield, Jr. Chief Executive Officer and Chairman of the
- ---------------------------------------------- Board of Directors (Principal Executive Officer)
T. A. Barfield, Jr.
/s/ Dirk J. Wild Executive Vice President, Treasurer and Director
- ---------------------------------------------- (Principal Financial and Accounting Officer)
Dirk J. Wild
/s/ Daniel J. Shapiro
- ---------------------------------------------- Director
Daniel J. Shapiro
II-34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
AMERICAN PLASTIC PIPE AND SUPPLY, L.L.C.
SO-GLEN GAS CO., LLC
By: EMCON/OWT, INC.
As Sole Member
By: /s/ Robert L. Belk
---------------------------------------------------
Name: Robert L. Belk
Title: Executive Vice President, Assistant Treasurer
and Assistant Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Belk and Gary P. Graphia, and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Richard Peluso President (Principal Executive Officer) of
- ---------------------------------------------- EMCON/OWT, Inc., the sole member of the above named
Richard Peluso entities
Executive Vice President, Treasurer and Chief
/s/ Mary Geiger Financial Officer (Principal Financial and
- ---------------------------------------------- Accounting Officer) of EMCON/OWT, Inc., the sole
Mary Geiger member of the above named entities
/s/ T. A. Barfield, Jr. Director of EMCON/OWT, Inc., the sole member of the
- ---------------------------------------------- above named entities
T. A. Barfield, Jr.
/s/ Gary P. Graphia Director of EMCON/OWT, Inc., the sole member of the
- ---------------------------------------------- above named entities
Gary P. Graphia
II-35
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
ARLINGTON AVENUE E VENTURE, LLC
CAMDEN ROAD VENTURE, LLC
GREAT SOUTHWEST PARKWAY VENTURE, LLC
By: LANDBANK PROPERTIES, L.L.C.
As Sole Member
By: /s/ T. A. Barfield, Jr.
-----------------------------------------
Name: T. A. Barfield, Jr.
Title: Chief Executive Officer and Chairman
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
Chief Executive Officer and Chairman (Principal
Executive Officer) of LandBank Properties, L.L.C., the
sole member of the above named entities, and Director of
The LandBank Group, Inc., the sole member of LandBank
/s/ T. A. Barfield, Jr. Properties, L.L.C., the sole member of the above named
---------------------------------- entities
T. A. Barfield, Jr.
Executive Vice President and Treasurer (Principal
Financial and Accounting Officer) of LandBank
Properties, L.L.C., the sole member of the above named
entities, and Director of The LandBank Group, Inc., the
sole member of LandBank Properties, L.L.C., the sole
/s/ Dirk J. Wild member of the above named entities
----------------------------------
Dirk J. Wild
Director of The LandBank Group, Inc., the sole member of
LandBank Properties, L.L.C., the sole member of the
/s/ Daniel J. Shapiro above named entities
----------------------------------
Daniel J. Shapiro
II-36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
BENECIA NORTH GATEWAY II, L.L.C.
CHIMENTO WETLANDS, L.L.C.
HL NEWHALL II, L.L.C.
JERNEE MILL ROAD, L.L.C.
KATO ROAD II, L.L.C.
KIP I, L.L.C.
LANDBANK BAKER, L.L.C.
MILLSTONE RIVER WETLAND SERVICES, L.L.C.
OTAY MESA VENTURES II, L.L.C.
PLATTSBURG VENTURE, L.L.C.
RARITAN VENTURE I, L.L.C.
By: /s/ T. A. Barfield, Jr.
-----------------------------------------
Name: T. A. Barfield, Jr.
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
President (Principal Executive Officer) of the above
named entities and Director of The LandBank Group, Inc.,
the sole member of LandBank Properties, L.L.C., the sole
/s/ T. A. Barfield, Jr. member of the above named entities
----------------------------------
T. A. Barfield, Jr.
Executive Vice President and Treasurer (Principal
Financial and Accounting Officer) of the above named
entities and Director of The LandBank Group, Inc., the
sole member of LandBank Properties, L.L.C., the sole
/s/ Dirk J. Wild member of the above named entities
----------------------------------
Dirk J. Wild
Director of The LandBank Group, Inc., the sole member of
LandBank Properties, L.L.C., the sole member of the
/s/ Daniel J. Shapiro above named entities
----------------------------------
Daniel J. Shapiro
II-37
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
LANDBANK PROPERTIES, L.L.C.
By: /s/ T. A. Barfield, Jr.
-----------------------------------------
Name: T. A. Barfield, Jr.
Title: Chief Executive Officer and Chairman
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
Chief Executive Officer and Chairman
(Principal Executive Officer) of the above
/s/ T. A. Barfield, Jr. named entity and Director of The LandBank
---------------------------------- Group, Inc., the sole member of the above
T. A. Barfield, Jr. named entity
Executive Vice President and Treasurer
(Principal Financial and Accounting Officer)
of the above named entity and Director of The
/s/ Dirk J. Wild LandBank Group, Inc., the sole member of the
---------------------------------- above named entity
Dirk J. Wild
/s/ Daniel J. Shapiro Director of The LandBank Group, Inc., the sole
---------------------------------- member of the above named entity
Daniel J. Shapiro
II-38
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
LFG SPECIALITIES, L.L.C.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
President (Principal Executive Officer) of the
above named entity and Director of EMCON/OWT,
/s/ T. A. Barfield, Jr. Inc., the sole member of the above named entity
----------------------------------
T. A. Barfield, Jr.
Executive Vice President and Treasurer
/s/ Robert L. Belk (Principal Financial and Accounting Officer)
---------------------------------- of the above named entity
Robert L. Belk
/s/ Gary P. Graphia Director of EMCON/OWT, Inc., the sole member
---------------------------------- of the above named entity
Gary P. Graphia
II-39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
NORWOOD VENTURE I, L.L.C.
By: /s/ T. A. Barfield, Jr.
-----------------------------------------
Name: T. A. Barfield, Jr.
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
President (Principal Executive Officer) of the
above named entity and Director of The
LandBank Group, Inc., the sole member of
/s/ T. A. Barfield, Jr. LandBank Properties, L.L.C., the sole member
---------------------------------- of the above named entity
T. A. Barfield, Jr.
Executive Vice President of Special Projects
and Treasurer (Principal Financial and
Accounting Officer) of the above named entity
and Director of The LandBank Group, Inc., the
/s/ Dirk J. Wild sole member of LandBank Properties, L.L.C.,
---------------------------------- the sole member of the above named entity
Dirk J. Wild
Director of The LandBank Group, Inc., the sole
/s/ Daniel J. Shapiro member of LandBank Properties, L.L.C., the
---------------------------------- sole member of the above named entity
Daniel J. Shapiro
II-40
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
S C WOODS, L.L.C.
By: STONE & WEBSTER, INC.
As Sole Member
LFG SPECIALITIES, L.L.C.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
President (Principal Executive Officer) and
/s/ Richard F. Gill Director of Stone & Webster, Inc., the sole
---------------------------------- member of the above named entity
Richard F. Gill
Vice President, Treasurer (Principal Financial
/s/ Robert L. Belk and Accounting Officer) and Director of Stone &
---------------------------------- Webster, Inc., the sole member of the above
Robert L. Belk named entity
II-41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW CALIFORNIA, L.L.C.
By: /s/ T. A. Barfield, Jr.
-----------------------------------------
Name: T. A. Barfield, Jr.
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
President (Principal Executive Officer) of the
above named entity and Director of Shaw
/s/ T. A. Barfield, Jr. Environmental, Inc., the sole member of the
---------------------------------- above named entity
T. A. Barfield, Jr.
Executive Vice President and Treasurer
/s/ Dirk J. Wild (Principal Financial and Accounting Officer)
---------------------------------- of the above named entity
Dirk J. Wild
/s/ Gary P. Graphia Director of Shaw Environmental, Inc., the sole
---------------------------------- member of the above named entity
Gary P. Graphia
II-42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW ENVIRONMENTAL LIABILITY
SOLUTIONS, L.L.C.
By: /s/ T. A. Barfield, Jr.
-----------------------------------------
Name: T. A. Barfield, Jr.
Title: Chief Executive Officer and Chairman
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
Chief Executive Officer and Chairman (Principal
Executive Officer) of the above named entity and
/s/ T. A. Barfield, Jr. Director of Shaw E&I Investment Holdings, Inc.,
---------------------------------- the sole member of the above named entity
T. A. Barfield, Jr.
Executive Vice President and Treasurer (Principal
/s/ Scott LaGrange Financial and Accounting Officer) of the above
---------------------------------- named entity
Scott LaGrange
/s/ Gary P. Graphia Director of Shaw E&I Investment Holdings, Inc.,
---------------------------------- the sole member of the above named entity
Gary P. Graphia
II-43
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 Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW JV HOLDINGS, L.L.C.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ James T. Early President (Principal Executive Officer) of the
---------------------------------- above named entity
James T. Early
Executive Vice President and Treasurer (Principal
/s/ Robert L. Belk Financial and Principal Accounting Officer) of
---------------------------------- the above named entity
Robert L. Belk
Chairman of the Board of Directors of The Shaw
/s/ J.M. Bernhard, Jr. Group Inc., the sole member of the above named entity
----------------------------------
J.M. Bernhard, Jr.
/s/ William H. Grigg Director of The Shaw Group Inc., the sole member
---------------------------------- of the above named entity
William H. Grigg
/s/ L. Lane Grigsby Director of The Shaw Group Inc., the sole member
---------------------------------- of the above named entity
L. Lane Grigsby
/s/ David W. Hoyle Director of The Shaw Group Inc., the sole member
---------------------------------- of the above named entity
David W. Hoyle
II-44
/s/ Albert McAlister Director of The Shaw Group Inc., the sole member
---------------------------------- of the above named entity
Albert McAlister
/s/ Charles E. Roemer, III Director of The Shaw Group Inc., the sole member
---------------------------------- of the above named entity
Charles E. Roemer, III
/s/ John W. Sinders, Jr. Director of The Shaw Group Inc., the sole member
---------------------------------- of the above named entity
John W. Sinders, Jr.
II-45
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 Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW POWER SERVICES GROUP, L.L.C.
SHAW SERVICES, L.L.C.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ Richard F. Gill President (Principal Executive Officer) of the
---------------------------------- above named entities
Richard F. Gill
Executive Vice President and Treasurer
/s/ Robert L. Belk (Principal Financial and Principal Accounting
---------------------------------- Officer) of the above named entities
Robert L. Belk
Chairman of the Board of Directors of The Shaw
/s/ J.M. Bernhard, Jr. Group Inc., the sole member of the above named
---------------------------------- entities
J.M. Bernhard, Jr.
/s/ William H. Grigg Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entities
William H. Grigg
/s/ L. Lane Grigsby Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entities
L. Lane Grigsby
/s/ David W. Hoyle Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entities
David W. Hoyle
II-46
/s/ Albert McAlister Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entities
Albert McAlister
/s/ Charles E. Roemer, III Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entities
Charles E. Roemer, III
/s/ John W. Sinders, Jr. Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entities
John W. Sinders, Jr.
II-47
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 Baton Rouge, State of
Louisiana on May 16, 2003.
SHAW REMEDIATION SERVICES, L.L.C.
By: /s/ T. A. Barfield, Jr.
-----------------------------------------
Name: T. A. Barfield, Jr.
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ T. A. Barfield, Jr. President (Principal Executive Officer) of the
---------------------------------- above named entity
T. A. Barfield, Jr.
Executive Vice President and Treasurer
/s/ Dirk J. Wild (Principal Financial and Principal Accounting
---------------------------------- Officer) of the above named entity
Dirk J. Wild
Chairman of the Board of Directors of The Shaw
/s/ J.M. Bernhard, Jr. Group Inc., the sole member of the above named
---------------------------------- entity
J.M. Bernhard, Jr.
/s/ William H. Grigg Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entity
William H. Grigg
/s/ L. Lane Grigsby Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entity
L. Lane Grigsby
David W. Hoyle Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entity
David W. Hoyle
II-48
/s/ Albert McAlister Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entity
Albert McAlister
/s/ Charles E. Roemer, III Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entity
Charles E. Roemer, III
/s/ John W. Sinders, Jr. Director of The Shaw Group Inc., the sole
---------------------------------- member of the above named entity
John W. Sinders, Jr.
II-49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER CONSTRUCTION
SERVICES, L.L.C.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
President (Principal Executive Officer) of
the above named entity and Director of Stone
/s/ Robert L. Belk & Webster Construction, Inc., the sole member
---------------------------------- of the above named entity
Robert L. Belk
Vice President, Secretary, Treasurer
(Principal Financial and Accounting Officer)
of the above named entity and Director of
/s/ Gary P. Graphia Stone & Webster Construction, Inc., the sole
---------------------------------- member of the above named entity
Gary P. Graphia
II-50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
STONE & WEBSTER SERVICES, L.L.C.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
President (Principal Executive Officer) of the
above named entity and Director of Stone &
/s/ Richard F. Gill Webster, Inc., the sole member of the above
---------------------------------- named entity
Richard F. Gill
Executive Vice President
and Treasurer (Principal
Financial and Accounting
Officer) of the above
named entity and
Director of
/s/ Robert L. Belk Stone & Webster, Inc., the sole member of the
---------------------------------- above named entity
Robert L. Belk
II-51
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
SWINC ACQUISITION FIVE, L.L.C.
By: /s/ Robert L. Belk
-----------------------------------------
Name: Robert L. Belk
Title: Executive Vice President and Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
Chairman and President (Principal Executive
Officer) of the above named entity and
/s/ Richard F. Gill Director of Stone & Webster, Inc., the sole
---------------------------------- member of the above named entity
Richard F. Gill
Executive Vice President
and Treasurer (Principal
Financial and Accounting
Officer) of the above
named entity and
Director ofStone & Webster, Inc.,
/s/ Robert L. Belk the sole member of the
---------------------------------- above named entity
Robert L. Belk
II-52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State of
Louisiana on May 16, 2003.
WHIPPANY VENTURE I, L.L.C.
By: /s/ William P. Lynott
-----------------------------------------
Name: William P. Lynott
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert L. Belk and Gary P. Graphia, and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign on
his behalf individually and in each capacity stated below any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of the, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 16, 2003.
SIGNATURE CAPACITY
--------- --------
/s/ William P. Lynott President (Principal Executive Officer) of the
---------------------------------- above named entity
William P. Lynott
/s/ Steve Betts Treasurer (Principal Financial and Accounting
---------------------------------- Officer) of the above named entity
Steve Betts
/s/ T. A. Barfield, Jr. Director of The LandBank Group, Inc., the sole
---------------------------------- member of LandBank Properties, L.L.C., the sole
T. A. Barfield, Jr. member of the above named entity
Director of The LandBank Group, Inc., the sole
/s/ Daniel J. Shapiro member of LandBank Properties, L.L.C., the sole
---------------------------------- member of the above named entity
Daniel J. Shapiro
Director of The LandBank Group, Inc., the sole
/s/ Dirk J. Wild member of LandBank Properties, L.L.C., the sole
---------------------------------- member of the above named entity
Dirk J. Wild
II-53
INDEX TO EXHIBITS
3.1 Composite of the Restatement of the Articles of Incorporation of The
Shaw Group Inc., as amended by (i) Articles of Amendment dated January
22, 2001 and (ii) Articles of Amendment dated July 31, 2001
(incorporated by reference to the designated Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 2001).
3.2 Articles of Amendment of the Restatement of the Articles of
Incorporation of The Shaw Group Inc. dated January 22, 2001
(incorporated by reference to the designated Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28, 2001).
3.3 Articles of Amendment to Restatement of the Articles of Incorporation
of The Shaw Group Inc. dated July 31, 2001 (incorporated by reference
to the designated Exhibit to The Shaw Group Inc.'s Registration
Statement on Form 8-A filed on July 30, 2001).
3.4 Amended and Restated By-Laws of The Shaw Group Inc. dated December 8,
1993 (incorporated by reference to the designated Exhibit to The Shaw
Group Inc.'s Annual Report on Form 10-K for the fiscal year ended
August 31, 1994, as amended).
4.1 Specimen Common Stock Certificate (incorporated by reference to the
designated Exhibit to the Company's Registration Statement on Form S-1
filed on October 22, 1993, as amended (No. 33-70722)).
4.2 Indenture dated as of May 1, 2001, between The Shaw Group Inc. and
United States Trust Company of New York including Form of Liquid Yield
Option(TM) Note Due 2021 (Zero Coupon-Senior) (Exhibits A-1 and A-2)
(incorporated herein by reference to the designated Exhibit to the
Company's Current Report on Form 8-K filed on May 11, 2001).
4.3 Rights Agreement, dated as of July 9, 2001, between The Shaw Group Inc.
and First Union National Bank, as Rights Agent, including the Form of
Articles of Amendment to the Restatement of the Articles of
Incorporation of the Company as Exhibit A, the form of Rights
Certificate as Exhibit B and the form of the Summary of Rights to
Purchase Preferred Shares as Exhibit C (incorporated by reference to
the designated Exhibit to the Company's Registration Statement on Form
8-A filed on July 30, 2001).
4.4 Indenture dated as of March 17, 2003, by and among The Shaw Group Inc.,
the Subsidiary Guarantors party thereto, and The Bank of New York, as
trustee (incorporated by reference to the designated Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended February
28, 2003).
4.5 Registration Rights Agreement dated as of March 17, 2003, by and among
The Shaw Group Inc. and Credit Suisse First Boston LLC, UBS Warburg
LLC, BMO Nesbit Burns Corp., Credit Lyonnais Securities (USA) Inc., BNP
Paribas Securities Corp. and U.S. Bancorp Piper Jaffray Inc.
(incorporated by reference to the designated Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28, 2003).
4.6 Form of 10-3/4% Senior Note Due 2010 (Included as Exhibit I to the
Indenture incorporated by reference as Exhibit 4.4 hereto).
5.1 Opinion of Vinson & Elkins L.L.P. regarding the validity of the
securities being registered (filed herewith).
5.2 Opinion of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) regarding the validity of the securities being registered
(filed herewith).
10.1 The Shaw Group Inc. 1993 Employee Stock Option Plan, amended and
restated through October 8, 2001 (incorporated by reference to the
designated Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2001).
10.2 The Shaw Group Inc. 1996 Non-Employee Director Stock Option Plan,
amended and restated through October 8, 2001 (incorporated by reference
to the designated Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 2001).
10.3 The Shaw Group Inc. 2001 Employee Incentive Compensation Plan, amended
and restated through October 8, 2001 (incorporated by reference to the
designated Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2001).
10.4 The Shaw Group Inc. Stone & Webster Acquisition Stock Option Plan
(incorporated by reference to the to the Company's Registration
Statement on Form S-8 filed on June 12, 2001 (No 333-62856)).
10.5 Second Amended and Restated Credit Agreement dated as of February 28,
2002, among The Shaw Group Inc. Bank One, NA, Firstar Bank, N.A.,
Credit Lyonnais New York Branch and Union Planters Bank, N.A.
(incorporated by reference to the designated Exhibit of the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).
10.6 Employment Agreement dated as of April 10, 2001, by and between The
Shaw Group Inc. and J.M. Bernhard, Jr. (incorporated by reference to
the designated Exhibit to the Company's Annual Report on From 10-K for
the fiscal year ended August 31, 2001).
10.7 Employment Agreement dated as of May 5, 2000, by and between The Shaw
Group Inc. and Richard F. Gill and amended January 10,
2001(incorporated by reference to the designated Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended August
31, 2001).
10.8 Employment Agreement dated as of May 1, 2000, by and between The Shaw
Group Inc. and Robert L. Belk (incorporated by reference to the
designated Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2000).
10.9 Employment Agreement dated as of July 10, 2002, by and between The Shaw
Group Inc. and T. A. Barfield, Jr. (incorporated by reference to the
designated Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2002).
10.10 Asset Purchase Agreement, dated as of July 14, 2000, among Stone &
Webster, Incorporated, certain subsidiaries of Stone & Webster,
Incorporated and The Shaw Group Inc. (incorporated by reference to the
designated Exhibit to the Company's Current Report on Form 8-K filed on
July 28, 2000).
10.11 Composite Asset Purchase Agreement, dated as of January 23, 2002, by
and among The Shaw Group Inc., The IT Group, Inc. and certain
subsidiaries of The IT Group, Inc., including the following amendments:
(i) Amendment No. 1, dated January 24, 2002, to Asset Purchase
Agreement, (ii) Amendment No. 2, dated January 29, 2002, to Asset
Purchase Agreement, and (iii) a letter agreement amending Section
8.04(a)(ii) of the Asset Purchase Agreement, dated as of April 30,
2002, between The IT Group, Inc. and The Shaw Group Inc. (incorporated
herein by reference to designated Exhibit to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
May 16, 2002). Pursuant to Item 601(b)(2) of Regulation S-K, the
exhibits and schedules referred to in the Asset Purchase Agreement are
omitted. The Registrant hereby undertakes to furnish supplementally a
copy of any omitted schedule or exhibit to the Commission upon request.
10.12 Amendment No. 3, dated May 2, 2002, to Asset Purchase Agreement by and
among The Shaw Group Inc., The IT Group, Inc. and certain subsidiaries
of The IT Group, Inc. (incorporated herein by reference to the
designated Exhibit to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 16, 2002). Pursuant
to Item 601(b)(2) of Regulation S-K, the exhibits and schedules
referred to in Amendment No. 3 are omitted. The Registrant hereby
undertakes to furnish supplementally a copy of any omitted schedule or
exhibit to the Commission upon request.
10.13 Amendment No. 4, dated May 3, 2002, to Asset Purchase Agreement by and
among The Shaw Group Inc., The IT Group, Inc. and certain subsidiaries
of The IT Group, Inc. (incorporated herein by reference to the
designated Exhibit to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 16, 2002.)
10.14 Third Amended and Restated Credit Agreement, dated as of March 17,
2003, by and among The Shaw Group Inc., as borrower, Credit Lyonnais
New York Branch, as a joint arranger and sole book runner, Credit
Suisse First Boston, as joint arranger, Harris Trust and Savings Bank
and BNP Paribas co-syndication agents, U.S. Bank National Association,
as documentation agent, and the other lenders signatory thereto.
(incorporated herein by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 19, 2003).
12.1 Computation of Ratios of Earnings and Fixed Charges (incorporated
herein by reference to the designated Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 2002.)
21.1 Subsidiaries of Shaw (incorporated herein by reference to the
designated Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002).
23.1 Consent of Ernst & Young LLP (filed herewith).
23.6 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.7 Consent of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) (included in Exhibit 5.2).
24.1 Power of Attorney (included in the signature pages of this Registration
Statement).
25.1* Statement of Eligibility on Form T-1 of The Bank of New York.
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* To be filed by amendment.