Filed Pursuant to Rule 424(b)(3)
Registration No. 333-105347
PROSPECTUS
(THE SHAW GROUP LOGO)
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
- 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.
- 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.
- The exchange offer expires at 5:00 p.m., New York City time, on January 7,
2004, unless extended. We do not currently intend to extend the exchange
offer.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- 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
- The new notes will mature on March 15, 2010.
INTEREST
- Interest on the new notes is payable on March 15 and September 15 of each
year, beginning September 15, 2003.
- Interest will accrue from March 17, 2003.
REDEMPTION
- 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.
- 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
- If we experience a change of control, subject to certain conditions, we
must offer to purchase the new notes.
RANKING
- 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.
- The new notes are subordinated to our existing and future secured debt to
the extent of that security.
GUARANTEES
- 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 9 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.
Each broker-dealer that receives new notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal included
in this prospectus states that by so acknowledging 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. 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 by such broker-dealer as a
result of market-making activities or other trading activities. We have agreed
that, until 180 days after the consummation of this exchange offer, we will make
this prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The date of this prospectus is December 2, 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.
---------------------
TABLE OF CONTENTS
<Table>
WHERE YOU CAN FIND MORE INFORMATION......................... i
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 9
EXCHANGE OFFER.............................................. 27
USE OF PROCEEDS............................................. 34
DESCRIPTION OF THE NEW NOTES................................ 34
FEDERAL INCOME TAX CONSIDERATIONS........................... 74
PLAN OF DISTRIBUTION........................................ 75
LEGAL MATTERS............................................... 76
INDEPENDENT AUDITORS........................................ 76
FORWARD-LOOKING STATEMENTS.................................. 77
LETTER OF TRANSMITTAL....................................... ANNEX A
</Table>
Until March 1, 2004, all dealers that effect transactions in the new notes,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters with respect to their unsold allotments
or subscriptions.
---------------------
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 1-800-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, 2003,
as amended by Amendment No. 1 to our Annual Report on Form 10-K/A;
- Our Current Report on Form 8-K filed with the SEC 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 Report on Form 8-K filed with the SEC on October 24, 2003
(announcing the pricing of our common stock offering);
- Our Current Report on Form 8-K filed with the SEC on October 28, 2003;
- Our Current Report on Form 8-K filed with the SEC on October 29, 2003;
- Our Current Reports on Form 8-K filed with the SEC on November 19, 2003;
- Our Current Report on Form 8-K filed with the SEC on November 20, 2003;
and
- Our Current Report on Form 8-K filed with the SEC on November 21, 2003.
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 common stock is listed on the New York Stock Exchange under the symbol
"SGR."
Our executive offices are located at 4171 Essen Lane, Baton Rouge,
Louisiana 70809, and our telephone number is (225) 932-2500.
RECENT DEVELOPMENTS
On November 19, 2003, we repurchased approximately $280.4 million principal
amount at maturity of our outstanding Liquid Yield Option(TM) Notes, or LYONs,
pursuant to our tender offer for all of our outstanding LYONs. We repurchased
the LYONs that were tendered to us in the tender offer at a purchase price of
$675 per $1,000 principal amount, or at an aggregate cost of approximately
$190.0 million. We funded the repurchase of the LYONs with a portion of the
approximately $218.5 million of net proceeds of our underwritten offering of
23,000,000 shares of common stock, which closed on October 29, 2003. After
giving effect to the repurchase of LYONs tendered to us in the tender offer,
approximately $92.9 million principal amount at maturity of LYONs are
outstanding. We intend to use the remaining $28.5 million of net proceeds of our
common stock offering, together with cash on hand, for the future repurchase of
outstanding LYONs. On May 1, 2004, the first date on which the holders of
outstanding LYONs may require us to repurchase LYONs, the aggregate accreted
value of the outstanding LYONs will be approximately $63.9 million.
In connection with our common stock offering, we amended our senior secured
credit facility to increase the available credit to $300.0 million and to amend
certain covenants. Our amended credit facility requires us to use the remaining
net proceeds of our common stock offering to fund the future repurchase of
LYONs, in the open market or otherwise, and permits these repurchases so long as
we maintain specified levels of liquidity as defined in our amended credit
facility. Because of these restrictions, the remaining net proceeds of our
common stock offering are not available to us for general corporate purposes.
On November 21, 2003, we entered into an agreement to acquire Energy
Delivery Services, Inc., a business unit of Duke Energy, for $22.5 million. EDS
is a provider of design, engineering, procurement, construction and maintenance
services for electrical transmission and distribution systems primarily in North
America.
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
1
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 January 7, 2004, 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
- 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."
2
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, Reorganization Unit, 101 Barclay
Street -- 7 East, New York, New York, 10286,
Attention: Mr. Kin Lau; telephone: (212)
815-3750; facsimile: (212) 298-1915.
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
3
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:
- 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 credit facility;
- 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
- 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, including trade payables, of our
subsidiaries that are not providing guarantees.
Restrictive Covenants......... The terms of the notes place certain
limitations on our ability and the ability of
our restricted subsidiaries to, among other
things:
- incur or guarantee additional indebtedness or
issue preferred stock;
- pay dividends or make distributions to our
stockholders;
- repurchase or redeem 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;
- enter into transactions with our affiliates;
and
4
- 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 9 of this prospectus, for a
discussion of certain factors that you should consider before participating in
the exchange offer.
5
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data about us.
The selected historical financial data as of and for each of the five years
ended August 31, 2003 is derived from our audited consolidated financial
statements. Ernst & Young LLP audited our consolidated financial statements for
the fiscal years ended August 31, 2003 and 2002. Arthur Andersen LLP audited our
consolidated financial statements for each of the three fiscal years ended
August 31, 2001, 2000 and 1999.
You should read all of the information presented below with the information
set forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements, all of which
are included in our most recent Annual Report on Form 10-K/A which is
incorporated by reference in this prospectus.
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)(1)
STATEMENT OF OPERATIONS DATA:
Revenues............................... $3,306,762 $3,170,696 $1,538,932 $ 762,655 $494,014
Cost of revenues....................... 3,033,240 2,843,070 1,292,316 635,579 400,186
General and administrative expenses.... 200,874 161,248 139,660 74,297 60,082
---------- ---------- ---------- ---------- --------
Operating income....................... 72,648 166,378 106,956 52,779 33,746
Interest and other expense, net(2)..... (37,058) (15,366) (7,277) (7,784) (7,671)
---------- ---------- ---------- ---------- --------
Income before income taxes............. 35,590 151,012 99,679 44,995 26,075
Provision for income taxes............. 11,745 54,348 38,366 16,359 8,635
---------- ---------- ---------- ---------- --------
Income from operations before earnings
(losses) from unconsolidated
entities............................. 23,845 96,664 61,313 28,636 17,440
---------- ---------- ---------- ---------- --------
Earnings (losses) from unconsolidated
entities, net(3)..................... (2,979) 1,703 (316) 1,194 681
---------- ---------- ---------- ---------- --------
Income before cumulative effect of
accounting change.................... 20,866 98,367 60,997 29,830 18,121
========== ========== ========== ========== ========
Cumulative effect of accounting change,
net of taxes......................... -- -- -- (320) --
---------- ---------- ---------- ---------- --------
Net income............................. $ 20,866 $ 98,367 $ 60,997 $ 29,510 $ 18,121
========== ========== ========== ========== ========
Net income per common share:
Basic(4).......................... $ 0.55 $ 2.41 $ 1.52 $ 1.00 $ 0.76
========== ========== ========== ========== ========
Diluted(4)........................ $ 0.54 $ 2.26 $ 1.46 $ 0.96 $ 0.73
========== ========== ========== ========== ========
OTHER FINANCIAL DATA:
Depreciation and amortization.......... $ 44,805 $ 28,598 $ 39,740 $ 16,808 $ 13,271
Capital expenditures(5)................ 26,221 73,946 38,121 20,619 17,967
Backlog(6)............................. 4,751,000 5,605,000 4,497,000 1,914,000 818,000
Ratio of earnings to fixed
charges(7)........................... 1.8x 4.6x 5.0x 4.8x 3.4x
CASH FLOW DATA:
Net cash provided by (used in)
operating activities................. $ (202,002) $ 315,066 $ 11,405 $ (69,876) $ 28,241
Net cash provided by (used in)
investing activities................. 2,389 (198,286) 54,281 (15,807) (31,489)
Net cash provided by (used in)
financing activities................. (61,255) (61,974) 356,660 101,164 6,632
</Table>
6
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)(1)
BALANCE SHEET DATA (AT PERIOD END):
Total cash(8).......................... $ 242,983 $ 553,216 $ 488,934 $ 21,768 $ 6,901
Working capital(9)..................... 85,446 385,010 521,044 102,786 113,975
Total assets........................... 1,986,115 2,301,146 1,701,854 1,335,083 407,062
Total debt(10)......................... 513,155 528,501 521,454 285,216 139,459
Long term debt and capital lease
obligations net of current
maturities........................... 251,745 522,147 512,867 254,965 87,841
Shareholders' equity................... 662,290 692,257 598,393 377,275 174,239
Cash dividends declared per common
share................................ -- -- -- -- --
</Table>
- ---------------
(1) All of the financial information in the table below is historical. Includes
(i) the acquisition of Badger Technologies, Envirogen, Inc., and LFG&E
International, Inc. in fiscal 2003; (ii) the acquisition of certain assets
of the IT Group and PsyCor Inc. in fiscal 2002; (iii) the acquisition of
Scott, Sevin & Schaffer, Inc. and Technicomp, Inc. in fiscal 2001; and (iv)
the acquisition of certain assets of Stone & Webster and PPM Contractors,
Inc. in fiscal 2000 (see Note 4 of the notes to our consolidated financial
statements, which are included in our Annual Report on Form 10-K/A which is
incorporated by reference in this prospectus).
(2) During fiscal 2003, we adopted FAS 145, Rescission of FASB Statement No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. As
a result, we reclassified certain amounts related to the extinguishment of
debt and previously classified as an extraordinary item to other income
(expense).
(3) We own a 49% interest in Shaw-Nass Middle East, W.L.L., our Bahrain joint
venture, and a 50% interest in EntergyShaw, L.L.C., our joint venture with
Entergy Corporation. We account for both of these investments on the equity
basis.
(4) On November 13, 2000, the Company announced that its Board of Directors had
authorized a two-for-one stock split of its common stock payable on
December 15, 2000, to shareholders of record on December 1, 2000.
Additionally, earnings per share for fiscal 2000 and 1999 have been
restated to reflect the effect of the December 2000 two-for-one stock split
of the Company's common stock.
(5) Capital expenditures represent cash payments for the purchase of property
and equipment.
(6) We define our backlog in our ECM segment as a "working backlog" that
includes projects for which we have received a commitment from our
customers. This commitment typically takes the form of a written contract
for a specific project, a purchase order, or a specific 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 revenue, often based on
engineering and design specifications that have not been finalized and may
be revised over time.
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 estimates of work to be performed in
light of such customers' historic maintenance requirements.
Many of the contracts in backlog provide for cancellation fees in the
event the customer were to cancel projects. These cancellation fees
usually provide for reimbursement of our out-of-pocket costs and revenue
associated with work performed to date. Furthermore, certain ECM contracts
provide that, upon cancellation, we will receive a varying percentage of
the profits we would have realized had the contract been completed. In
addition to cancellation risks, projects may remain in our backlog for
extended periods of time.
7
>Backlog from our E&I segment includes the value of awarded contracts and
the estimated value of unfunded work. This unfunded backlog generally
represents various federal, state and local government project awards for
which the project funding has been partially authorized or awarded by the
relevant government authorities, for example, when an authorization or an
award has been provided for only the initial year or two of a multi-year
project. Because of appropriation limitations in the governmental budget
processes, firm funding is usually made for only one year at a time, and,
in some cases, for periods less than one year, with the remainder of the
years under the contract expressed as a series of one-year options.
Amounts included in backlog are based on the contract's total awarded
value and our estimates regarding the amount of the award that will
ultimately result in the recognition of revenue. These estimates are based
on our experience with similar awards and similar customers and average
approximately 75% of the total unfunded awards. Estimates are reviewed
periodically and appropriate adjustments are made to the amounts included
in backlog and in unexercised contract options. Our backlog does not
include any awards, funded or unfunded, for work expected to be performed
more than 5 years after the date of the financial statements presenting
such backlog. The amount of future actual awards may be more or less than
our estimates.
Backlog is not a measure defined in generally accepted accounting
principles, or GAAP, and the methodology used to determine our backlog may
not be comparable to the methodology used by other companies to determine
their backlogs.
(7) For purposes of computing the ratios of earnings to fixed charges, earnings
consist of income before provision for income taxes, earnings from
unconsolidated entities and cumulative effect of change in accounting
principle, plus cash distributions from unconsolidated entities and fixed
charges (excluding capitalized interest); and fixed charges consist of
interest expense, capitalized interest, amortization of debt discount and
deferred financing costs and the interest portion of rental expense.
(8) Includes cash, cash equivalents and marketable securities. At August 31,
2003 and August 31, 2002, cash also includes $58.0 million and $96.5
million, respectively, of escrowed cash which secures a performance bond on
an international project.
(9) Working capital represents current assets less current liabilities.
(10) Total debt includes short-term revolving lines of credit and obligations
under capital leases.
8
RISK FACTORS
You should carefully consider the following factors as well as the other
information contained or incorporated by reference in this prospectus before
deciding to participate in the exchange offer.
This prospectus also contains or incorporates forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of many
factors, including the risk factors described below and the other factors
described elsewhere, or incorporated by reference, in this prospectus.
RISKS RELATING 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 59% and 30%, respectively, of our backlog as of
August 31, 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.
For example, in fiscal 2002 and the first quarter of fiscal 2003, there was
a slowdown in construction activity and new construction awards for power
generation projects, primarily as a result of less activity by certain
independent power producers who had encountered financing and liquidity
problems. These factors contributed to the cancellation or suspension of a
number of projects by our customers in the fourth quarter of fiscal 2002,
resulting in a reduction of our backlog. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations" in our Annual Report on Form 10-K/A, which is incorporated by
reference in this prospectus, for a more complete discussion of the potential
impact of these cancellations and other factors.
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.
THE DOLLAR AMOUNT OF OUR BACKLOG, AS STATED AT ANY GIVEN TIME, IS NOT
NECESSARILY INDICATIVE OF OUR FUTURE EARNINGS.
As of August 31, 2003, our backlog was approximately $4.8 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 our backlog of approximately $300.0
million.
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 could 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
9
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. We estimate backlog associated with these IDO
agreements based on our experience with similar awards and similar customers,
and such backlog averages approximately 75% of the total unfunded awards.
Estimates are reviewed periodically and appropriate adjustments are made to the
amounts included in backlog and in unexercised contract options. Our backlog
does not include any awards (funded or unfunded) for work expected to be
performed more than five years after the date of our financial statements. The
amount of future actual awards may be more or less than our estimates.
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 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
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 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.
Any of these unexpected liabilities could have a material adverse effect on
us.
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. If we are unable
to identify acquisition opportunities or complete acquisitions we have
identified, our business could be materially adversely affected. In addition, 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 identifying
acquisition opportunities or 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
10
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.
OUR SIGNIFICANT ENGINEERING, PROCUREMENT AND CONSTRUCTION PROJECTS MAY
ENCOUNTER DIFFICULTIES THAT MAY RESULT IN ADDITIONAL COSTS TO US, REDUCTIONS
IN REVENUES OR THE PAYMENT OF LIQUIDATED DAMAGES.
Our EPC projects generally involve complex design and engineering,
significant procurement of equipment and supplies, and extensive construction
management. Many of our EPC projects involve design, engineering, procurement
and construction phases that may occur over extended time periods, often in
excess of two years. We may encounter difficulties in the design or engineering,
equipment and supply delivery, schedule changes, and other factors, some of
which are beyond our control, that impact our ability to complete the project in
accordance with the original delivery schedule. In addition, we generally rely
on third-party equipment manufacturers as well as third-party subcontractors to
assist us with the completion of EPC contracts. In some cases, the equipment we
purchase for a project or that is provided to us by the customer does not
perform as expected, and these performance failures may result in delays in
completion of the project and additional costs to us or the customer to complete
the project and, in some cases, may require us to obtain alternate equipment at
additional cost. Any delay by subcontractors to complete their portion of the
project, or any failure by a subcontractor to satisfactorily complete its
portion of the project, and other factors beyond our control may result in
delays in the overall progress of the project or may cause us to incur
additional costs, or both. These delays and additional costs may be substantial,
and we may be required to compensate the project customer for these delays.
While we may recover these additional costs from the responsible vendor,
subcontractor or other third party, we may not be able to recover all of these
costs in all circumstances.
For example, we are currently involved in litigation with the customer and
a third-party subcontractor relating to the engineering, design, procurement and
construction of a gas-fired, combined-cycle power plant in Texas. In this
litigation we are seeking payment from the customer for additional costs
incurred by us as a result of a fire at the construction site and certain
misrepresentations and we are seeking payment from a third-party equipment
vendor for additional costs and liquidated damages potentially payable by us as
a result of the failure of a turbine during start-up testing. To the extent we
do not receive these amounts, will recognize a charge to earnings. For a more
complete description of this litigation, see our Annual Report on Form 10-K/ A,
which is incorporated by reference in this prospectus.
In addition, the project customer may require that it provide us with
design or engineering information or with equipment or materials to be used on
the project. In some cases, the customer provides us with deficient design or
engineering information or equipment or provides the information or equipment to
us later than required by the project schedule. The project customer may also
determine, after commencement of the project, to change various elements of the
project. Our EPC project contracts generally require the customer to compensate
us for additional work or expenses incurred due to customer-requested change
orders or failure of the customer to provide us with specified design or
engineering information or equipment. Under these circumstances, we generally
negotiate with the customer with respect to the amount of additional time
required and the compensation to be paid to us. We are subject to the risk that
we are unable to obtain, through negotiation, arbitration, litigation or
otherwise, adequate amounts to compensate us for the additional work or expenses
incurred by us due to customer-requested change orders or failure by the
customer to timely provide items required to be provided by the customer. A
failure to obtain adequate compensation for these matters could require us to
record an adjustment to amounts of revenue and gross profit that were recognized
in prior periods under the percentage of completion accounting method. Any such
adjustments, if substantial, could have a material adverse effect on our results
of operations and financial condition.
11
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.
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 and could cause us to suffer damage to our reputation within
our industry and our client base.
THE NATURE OF OUR CONTRACTS COULD ADVERSELY AFFECT US.
Although approximately 77% of our backlog as of August 31, 2003 was from
cost-plus contracts, the remaining 23% was from fixed-price or unit-price
contracts. 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 certain 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. For example, in September 2003, we signed and
announced a $565.0 million fixed-price EPC contract to build a combined-cycle
power plant in Queens, New York that will be subject to the overrun risks
described above.
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.
Many of our contracts require us to satisfy specified design, engineering,
procurement or construction milestones in order to receive payment for the work
completed or equipment or supplies procured prior to achievement of the
applicable milestone. As a result, under these types of arrangements, we may
incur significant costs or perform significant amounts of services prior to
receipt of payment. If the customer determines not to proceed with the
completion of the project or if the customer defaults on its payment
obligations, we may face difficulties in collecting payment of amounts due to us
for the costs previously incurred or for the amounts previously expended to
purchase equipment or supplies. In addition, many of our
12
customers for large EPC projects are project-specific entities that do not have
significant assets other than their interests in the EPC project. It may be
difficult for us to collect amounts owed to us by these customers against the
customer's more credit-worthy parent company. If we are unable to collect
amounts owed to us for these matters, we may be required to record a charge
against previously recognized earnings related to the project under
percentage-of-completion accounting.
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.
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 compete 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 other contracting
agencies. 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 uncollectible receivables and customer claims and
recoveries of costs from subcontractors, vendors and others;
- provisions for income taxes and related valuation allowances;
13
- 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 Critical Accounting Policies and Related
Estimates That Have a Material Effect on Our Consolidated Financial Statements
and in the notes to our financial statements, all of which are included in our
Annual Report on Form 10-K/A, which is incorporated by reference 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 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 revenues, 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. In addition, we record claims when we believe recovery is probable
and the amounts can be reasonably estimated. Actual collection of claims could
differ from estimated amounts.
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 and cash flows can fluctuate from quarter to quarter
depending on the timing of our contract awards. In addition, many of these
contracts are subject to financing contingencies and, as a result, we are
subject to the risk that we or the customer will not be able to secure the
necessary financing for the project. In certain circumstances, customers may
require us to provide credit enhancements, including cash and letters of credit.
For example, our $565.0 million fixed-price EPC contract to build a
combined-cycle power plant in Queens, New York is subject to receipt of
financing and we have been asked to provide certain credit enhancements. As a
result, a contract award for a project may not result in revenue from the
project.
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.
14
In addition, timing of the revenues, earnings and cash flows 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.
WE ARE VULNERABLE TO THE CYCLICAL NATURE OF THE MARKETS WE SERVE.
Downturns in the businesses that use our ECM services can adversely affect
our revenues and operating profit. Many of our customers are in businesses that
are cyclical in nature and sensitive to changes in general economic conditions.
The demand for our ECM services is dependent upon the existence of projects with
engineering, procurement, construction and management needs. Our ECM segment,
which primarily services the power generation and process industries, has seen
strong growth in the past few years due to previously unmet power needs and
deregulation but is now seeing its business opportunities decrease relative to
the last few years. Industries such as these and many of the others we serve
have historically been and will continue to be vulnerable to general downturns
and are cyclical in nature. As a result, our past results have varied
considerably and may continue to vary depending upon the demand for future
projects in these industries.
POLITICAL AND ECONOMIC CONDITIONS IN FOREIGN COUNTRIES IN WHICH WE OPERATE
COULD ADVERSELY AFFECT US.
Approximately 15% of our fiscal 2003 revenues were attributable to projects
in international markets, some of which are subject to political unrest and
uncertainty. We have operations in Russia, China, the Middle East, Europe and
Australia. 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.
For example, in June 2003 we closed our operations in Venezuela due to the
political unrest and the economic uncertainty of doing business in Venezuela.
Our results of operations could be materially adversely affected if any of these
risks occur.
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.
15
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 2003, approximately 13% 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 August 31, 2003. Including
our backlog from TVA, a Government-owned entity, backlog from the U.S.
Government or U.S. Government-owned entities accounted for 67% of backlog at
August 31, 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 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 our acquisition of the IT Group, it 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
16
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 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
was acquired in the IT Group acquisition. 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 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 these sites even
if we did not place the contamination there. 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. However, we
cannot assure you that our risk management strategies and these products and
laws will adequately protect us 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. We cannot assure you 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;
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- 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 obligations, 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 for the entire cost of a clean-up can be
imposed upon any responsible party. The principal federal environmental
legislation affecting our Environmental & Infrastructure subsidiaries and
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 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 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. We cannot assure you 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. Future changes could result in increased or decreased
demand for some of our services. The ultimate impact of the future 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
affected.
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
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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 E&I 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 and 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 E&I segment will be
able to compete successfully given the intense competition and trends in its
industry.
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 CONTINUE TO 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
19
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 $511.4 million as of August 31, 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 occurs 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 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
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 and in August 2003,
we repurchased another $32.0 million aggregate principal amount at maturity of
LYONs in open market purchases. In November 2003, we repurchased $280.4 million
aggregate principal amount at maturity pursuant to another tender offer for the
LYONs. After giving effect to the total repurchases of $697.0 million aggregate
principal amount at maturity of LYONs, the aggregate principal amount at
maturity of the LYONs that remain outstanding is approximately $92.9 million (or
a current accreted value of approximately $62.9 million). At May 1, 2004, the
first date on which the holders can require us to repurchase the LYONs, the
aggregate accreted value will be approximately $63.9 million.
The closing price of our common stock on the New York Stock Exchange on
December 1, 2003 was $13.33 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 May 1, 2004, 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.
We anticipate that we will have sufficient cash resources to repurchase up
to the remaining $63.9 million in accreted value of the LYONs with cash on May
1, 2004. However, to the extent the accreted value of the LYONs exceeds our cash
designated for such repurchases, if we elect to fund all or substantially all of
this repurchase obligation with cash, we will reduce our available cash
resources or other forms of liquidity.
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The use of cash to repurchase LYONs at a later date 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. If we need
to seek to refinance or restructure our obligations under the LYONs, including
the incurrence of additional borrowings, we might not be successful in doing so
or the refinancing or restructuring might result in terms less favorable to us
and the holders of the notes than the terms of the LYONs. 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 at least $75.0 million of cash and cash equivalents. 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:
- 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;
- be required to dedicate a substantial portion of cash flows from
operations to the repayment of debt and the interest associated with that
debt;
- fail to comply with the terms of our credit facility;
- incur increased lending fees, costs and interest rates; and
- experience difficulty in financing future acquisitions and/or continuing
operations.
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
21
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 our
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 of any of our key officers could adversely affect us. We do not
maintain key employee insurance on any of our executive officers.
RISKS RELATING 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.
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, as of August 31, 2003 we would have
had total outstanding indebtedness of approximately $513.2 million,
approximately $5.5 million of which was secured indebtedness, including
indebtedness under capital leases, and approximately $1.6 million of which
represented liabilities of our subsidiaries that will not guarantee the notes.
In addition, as of August 31, 2003, letters of credit issued for our account in
an aggregate amount of $164.3 million were outstanding. Subsequent to August 31,
2003, we reduced our outstanding indebtedness by repurchasing a portion of our
outstanding LYONs. See "Prospectus Summary -- Recent Developments."
Nevertheless, we still have substantial indebtedness 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;
22
- 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 $300.0 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 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 all or a
substantial portion of our outstanding LYONs as early as May 1, 2004. See
"Prospectus Summary -- Recent Developments." 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.
23
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
$341.7 million of our revenues during the year ended August 31, 2003 and the
non-guarantor subsidiaries had approximately 13% of our consolidated assets as
of August 31, 2003 and approximately $1.6 million of indebtedness (other than
intercompany debt) as of August 31, 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;
- 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;
24
- 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 and a minimum fixed charge coverage ratio. Beginning
in 2004, the leverage ratio becomes more restrictive over time. We may not be
able to satisfy these ratios, especially if our operating results fall below
management's expectations. In addition, in order to remain in compliance with
the covenants in our amended credit facility, we may be limited in our
flexibility to take actions resulting in non-cash charges, including as a result
of our settling claims. 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 constitutes
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 SUBSIDIARIES' GUARANTEES.
Under the U.S. federal bankruptcy laws and comparable provisions of state
fraudulent conveyance laws, a court could void obligations under the subsidiary
guarantees, subordinate those obligations to other obligations of our subsidiary
guarantors or require you to repay any payments made pursuant to the subsidiary
guarantees, if:
(1) fair consideration or reasonably equivalent value was not received
in exchange for the obligation; and
(2) at the time the obligation was incurred, the obligor:
- was insolvent or rendered insolvent by reason of the obligation;
- was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay them as the debts matured.
The measure of insolvency for these purposes will depend upon the law of
the jurisdiction being applied. Generally, however, a company will be considered
insolvent if:
- the sum of its debts, including contingent liabilities, is greater than
the saleable value of all of its assets at a fair valuation;
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
matured; or
- it could not pay its debts as they become due.
Moreover, regardless of solvency, a court might void the guarantees, or
subordinate the guarantees, if it determined that the transaction was made with
intent to hinder, delay or defraud creditors.
25
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, however, may not be effective to protect the
subsidiary guarantees from attack under fraudulent transfer law.
The indenture requires that certain subsidiaries must guarantee the notes
in the future. These considerations will also apply to these guarantees.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES.
The notes will constitute a new issue of securities for which there is no
established trading market. We do not intend 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, and if a trading market
develops it may not continue. The lack of an active trading market would have a
material adverse effect on the market price and liquidity of the notes. If a
market for the notes develops, they may trade at a discount from par.
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 substantial volatility in prices. It is possible
that any 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 without notice, 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 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 in this
26
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 in
this prospectus.
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 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 under the Securities Act 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:
- changes in law or 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
27
- certain holders notify us in writing that they are not eligible to
participate 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 or otherwise do not receive freely tradable new notes on the
date of exchange.
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,
(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) in
connection with resales of the notes;
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 received by you will be acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person to participate
in the distribution of the outstanding notes or the new notes;
- if you are not a broker-dealer, you are not engaged in and do not intend
to engage in the distribution of the new notes;
28
- 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, or if you are our affiliate you will comply with any applicable
registration and prospectus delivery requirements 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. We may
exclude you from such registration statement if you unreasonably fail to furnish
the requested information to us within a reasonable time after receiving our
request. 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.
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.
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.
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 your outstanding notes 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
29
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
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 January
7, 2004, 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 extension, 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.
30
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 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.
31
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 "Prospectus Summary -- The Exchange
Offer -- Exchange Agent."
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, irregularity or condition 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 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.
32
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 to participate
in the distribution of the outstanding notes or the new notes;
- if you are not a broker-dealer, 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, or if you are our affiliate you will comply with any applicable
registration and prospectus delivery requirements of the Securities Act.
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.
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 5:00 p.m., New York City time, on the expiration date.
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;
33
- 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 participate. 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.
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.
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").
34
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 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.
35
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:
<Table>
<Caption>
REDEMPTION
PERIOD PRICE
- ------ ----------
2007........................................................ 105.375%
2008........................................................ 102.688
2009 and thereafter......................................... 100.000
</Table>
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 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
36
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.
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
37
Agreement, 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
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 August 31, 2003, after giving effect to this offering:
(1) the Company's Senior Indebtedness, including outstanding letters
of credit issued by the lenders under the Company's Credit Agreement in an
aggregate amount of approximately $164.3 million, would have been
approximately $677.5 million, including approximately $5.5 million of
secured indebtedness and approximately $144.9 million attributable to the
Company's guarantees with respect to letters of credit issued on behalf of
the Company's subsidiaries; and
38
(2) the Senior Indebtedness, including outstanding letters of credit
issued by the lenders under the Company's Credit Agreement in an aggregate
amount of approximately $164.3 million, of the Subsidiary Guarantors would
have been approximately $422.0 million, including approximately $3.2
million of secured indebtedness, approximately $19.4 million attributable
to the Subsidiary Guarantors' guarantees with respect to letters of credit
issued by the Company and approximately $250.1 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 year ended August 31, 2003,
our Subsidiaries that are not Subsidiary Guarantors accounted for approximately
$341.7 million of our revenue and, at the end of such period, approximately
$255.3 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 August 31, 2003, the total liabilities of our subsidiaries (other than
the Subsidiary Guarantors) were approximately $163.1 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.
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;
39
(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.
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.
40
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.
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
41
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 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.
42
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.
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.
43
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",
(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
44
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;
(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;
45
(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.
(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.
46
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 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.
47
(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 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.
48
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;
(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
49
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.
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
50
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 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;
51
(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";
(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;
52
(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 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
53
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 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
54
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
(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.
55
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;
(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.
56
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, 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 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.
57
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 are 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.
"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
58
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 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.
59
"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)
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
60
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;
(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;
61
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 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,
62
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 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;
63
(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 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.
64
"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;
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;
65
(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.
"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
66
(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) Notes Due 2021 (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, 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
67
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 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
68
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
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
69
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
(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.
70
"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.
"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.
71
"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;
(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.
72
"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;
(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
73
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 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.
FEDERAL INCOME TAX CONSIDERATIONS
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.
74
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
consummation of this exchange offer, 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 March 1, 2004, 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, 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 and any profit on any
such resale of new notes and any commission or concession received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of this exchange offer, 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.
We have agreed to pay all expenses incident to the exchange offer (including the
expenses of one counsel for the holders of the notes) other than commissions or
concessions of any broker-
75
dealers and will indemnify the holders of the 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 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 on Form 10-K for the year ended August 31,
2003, as amended by Amendment No. 1 on Form 10-K/A, and incorporated by
reference herein, 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 by reference herein 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
incorporation by reference of their report in this prospectus or in the
registration statement of which this prospectus forms a part. 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, as amended by Form 8-K/A filed on July 12,
2003 and as further amended by Form 8-K/A filed on May 16, 2003, 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.
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
76
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 or
incorporated by reference in this prospectus that are not historical facts
(including without limitation statements to the effect that we "believe,"
"expect," "anticipate," "plan," "intend," "foresee," or 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. All comments
concerning our expectations for future revenue and operating results are based
on our forecasts for our existing operations and do not include the potential
impact of any future acquisitions. 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Form 10-K/A for the year ended August 31, 2003, which is incorporated herein by
reference, and those factors summarized below:
- cyclical changes in demand for our products and services;
- liabilities associated with various acquisitions, including the Stone &
Webster and IT Group acquisitions;
- our ability to successfully identify, integrate and complete
acquisitions;
- delays or difficulties related to our significant engineering,
procurement and construction projects;
- our dependence on subcontractors and equipment manufacturers;
- the failure to meet schedule or performance requirements of our
contracts;
- the nature of our contracts, particularly fixed-price contracts;
- risks associated with being a government contractor;
- changes in the estimates and assumptions we use to prepare our financial
statements;
- the effect of our percentage-of-completion accounting policies;
- our ability to obtain new contracts for large-scale domestic and
international projects and the timing of the performance of these
contracts;
- cyclical nature of the individual markets in which our customers operate;
- changes in the political and economic conditions of the foreign countries
in which we operate;
- currency fluctuations;
77
- our dependence on one or a few significant customers;
- potential professional liability, product liability, warranty and other
potential claims;
- potential contractual and operational costs related to our environmental
and infrastructure operations;
- risks associated with our integrated environmental solutions businesses;
- changes in environmental laws and regulations;
- limitation or expiration of the Price Anderson Act's nuclear contractor
indemnification authority;
- the presence of competitors with greater financial resources and the
impact of competitive products, services and pricing;
- our failure to attract and retain qualified personnel;
- changes in the U.S. economy and global markets as a result of terrorists'
actions;
- a determination regarding our acquisitions that requires a write-off of a
significant amount of intangible assets;
- various legal, regulatory and litigation risks;
- our ability to fund our repurchase obligation under the LYONs on the
initial put date of May 1, 2004;
- our inability to fulfill our obligations under the notes and our amended
credit facility due to inadequate financial performance;
- covenants in our amended credit facility and indenture relating to the
notes that restrict our ability to pursue our business strategies;
- our liquidity position;
- work stoppages and other labor problems;
- our competitors' ability to develop or otherwise acquire equivalent or
superior technology; and
- our ability to retain key members of our management.
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."
78
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 DECEMBER 2, 2003
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JANUARY 7, 2004 (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
Corporate Trust Operations
Reorganization Unit
101 Barclay Street -- 7 East
New York, New York 10286
Attention: Mr. Kin Lau
Facsimile: (212) 298-1915
Telephone: (212) 815-3750
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.
The undersigned hereby acknowledges receipt and review of the Prospectus,
dated December 2, 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
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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.
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
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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, 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.
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
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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.
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.
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UNTIL MARCH 1, 2004, ALL DEALERS THAT EFFECT TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
(THE SHAW GROUP INC. LOGO)
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
December 2, 2003