FRIEDE GOLDMAN INTERNATIONAL INC, S-1/A, 1997-07-16

FRIEDE GOLDMAN INTERNATIONAL INC
S-1/A, 1997-07-16
OIL & GAS FIELD MACHINERY & EQUIPMENT

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1997
REGISTRATION NO. 333-27599

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

AMENDMENT NO. 3
TO

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------
FRIEDE GOLDMAN INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 3731 72-1362492
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR 525 E. CAPITOL STREET, SUITE 402
ORGANIZATION) JACKSON, MISSISSIPPI 39201
(601) 352-1107
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

---------------
J. L. HOLLOWAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
525 E. CAPITOL STREET, SUITE 402
JACKSON, MISSISSIPPI 39201
(601) 352-1107
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)

---------------
copy to: copy to:

THOMAS P. MASON ROBERT D. CAMPBELL
Andrews & Kurth L.L.P. Thompson & Knight, P.C.
4200 Texas Commerce Tower 1700 Pacific Avenue, Suite 3300
Houston, Texas 77002 Dallas, Texas 75201-4693
(713) 220-4200 (214) 969-1700

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
---------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, $.01 par value............... $85,836,000 $26,011
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</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).

(2) The Company has previously paid a fee of $19,202.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JULY 16, 1997

PROSPECTUS

LOGO
[LOGO OF FRIEDE GOLDMAN APPEARS HERE]

4,665,000 SHARES

FRIEDE GOLDMAN INTERNATIONAL INC.
COMMON STOCK

------------

Friede Goldman International Inc. ("Friede Goldman International" or the
"Company") is offering 2,650,000 shares, and certain selling stockholders (the
"Selling Stockholders") are offering 2,015,000 shares, of common stock (the
"Common Stock") of the Company (the "Offering"). Prior to the Offering, there
has been no public market for the Common Stock. The Common Stock has been
approved for quotation on the NASDAQ National Market, subject to official
notice of issuance, under the symbol "FGII." It is currently estimated that the
initial public offering price will be between $14.00 and $16.00 per share. See
"Underwriting" for factors to be considered in determining the initial public
offering price.

------------

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.

------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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<TABLE>
<S> <C> <C> <C> <C>
PRICE PROCEEDS PROCEEDS TO
TO UNDERWRITING TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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Per Share........................ $ $ $ $
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Total(3)......................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated to be $467,500.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 699,750 additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."

------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters.
The Underwriters reserve the right to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor in New York, New York on or about , 1997.

JEFFERIES & COMPANY, INC.
BEAR, STEARNS & CO. INC.
JOHNSON RICE & COMPANY L.L.C.

, 1997
<PAGE>

[PICTURES OF DRILLING RIGS BEING CONVERTED AND RETROFITTED]

FRIEDE GOLDMAN INTERNATIONAL INC. CONVERTS, RETROFITS AND REPAIRS OFFSHORE
DRILLING RIGS AT ITS EXISTING SHIPYARD IN PASCAGOULA, MISSISSIPPI.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) included
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes that the Underwriters' over-allotment option with
respect to the sale of Common Stock will not be exercised. Except as otherwise
specified, (a) all references to the Company include Friede Goldman
International Inc. and, unless the context otherwise requires, its wholly-owned
subsidiaries, HAM Marine, Inc. ("HAM Marine") and Friede & Goldman, Ltd.
("Friede & Goldman"), and (b) all references to the activities of Friede &
Goldman prior to December 2, 1996 relate to the activities of the predecessor
company with respect to which the Company acquired certain of its assets and
business on such date (the "Friede Acquisition") and all references to Friede &
Goldman refer to the assets and business of such predecessor company acquired
by the Company. See "The Company--Corporate Restructuring."

THE COMPANY

Friede Goldman International Inc. is a leading provider of conversion,
retrofit and repair services for offshore drilling rigs, including jackups,
submersibles, semisubmersibles and drillships, and has entered the emerging
market for conversion of offshore drilling units and tankers into deepwater
floating production, storage and offloading vessels ("FPSOs"). In the last
seven years, the Company has completed 47 offshore drilling rig conversion or
retrofit projects. The Company, through its acquisition of Friede & Goldman in
December 1996, is also one of the world's largest designers of offshore
drilling rigs. The Company offers its customers a full range of design,
engineering, construction, conversion, retrofit and repair services for
offshore drilling rigs, including construction of new-build offshore drilling
rigs. The Company's customers consist primarily of drilling contractors that
drill offshore exploratory and development wells for oil and gas companies
throughout the world, particularly in the Gulf of Mexico, the North Sea and
areas offshore of West Africa and South America.

The Company currently operates a 32-acre shipyard that is strategically
located in Pascagoula, Mississippi with direct access to the Gulf of Mexico.
The shipyard has the capacity to provide conversion, retrofit and repair
services on six offshore drilling rigs simultaneously. Due to increased demand
for its services, the Company has increased its backlog from $15.4 million at
March 31, 1996 to $66.9 million at March 31, 1997. To accommodate this
increased demand, the Company has recently leased additional dock space and
fabrication buildings adjacent to its existing shipyard in Pascagoula,
Mississippi and has increased its workforce from approximately 300 employees at
December 1, 1996 to approximately 800 employees at March 31, 1997.

OFFSHORE DRILLING INDUSTRY

The level of worldwide offshore drilling activity has increased substantially
over the last two years, resulting in an increase in worldwide utilization for
marketed offshore drilling rigs to 99% in May 1997. Dayrates worldwide for
cantilever jackups capable of drilling in water depths of 300 or more feet have
increased from a weighted average of $36,600 in May 1996 to a weighted average
of $61,100 in May 1997, with a recently reported high of $116,000. Similarly,
dayrates worldwide for third and fourth generations of semisubmersibles

3
<PAGE>

have increased from a weighted average of $83,500 in May 1996 to a weighted
average of $118,200 in May 1997, with a recently reported high of $175,000. In
addition, oil and gas operators have recently begun to enter into multi-year
contracts with drilling contractors for offshore drilling rigs due to the
tightness of supply for available units. In deepwater areas where larger and
more technically advanced drilling rigs are needed, increased drilling activity
has also increased demand for retrofitting offshore drilling rigs to enhance
their technical capabilities and improved pricing levels for such services. In
addition, increased drilling activity in and around more mature fields in
shallower waters has contributed to the increase in demand for conversion,
retrofit and repair services for jackups and other offshore drilling rigs.

The Company believes that these positive trends will continue due to (i) the
increasing percentage of worldwide oil supply being produced from offshore
areas, (ii) the increases in capital expenditure budgets of oil and gas
companies for offshore drilling activity, (iii) technological advancements that
have increased drilling success rates and (iv) the increased focus on deepwater
exploration and production projects, particularly in the Gulf of Mexico.

The Company believes that the current supply of offshore drilling rigs
worldwide is inadequate to satisfy increasing demand. From 1985 to 1996, there
has been a decrease in the total number of offshore drilling rigs worldwide
from 809 to 639 rigs. The Company believes that, of the 366 jackups currently
marketed worldwide, only 47 are capable of drilling in water depths greater
than 300 feet and, of the 139 semisubmersibles currently marketed worldwide,
only 25 are capable of drilling in water depths greater than 3,000 feet. In
addition, substantially all of the current fleet of offshore drilling rigs were
built more than ten years ago, and many of these rigs need to be converted or
modified in order to continue to operate economically or to meet the
requirements for deepwater drilling.

COMPANY OPERATIONS

The Company's operations currently consist primarily of conversion, retrofit
and repair services for offshore drilling rigs and the development of designs
for new offshore drilling rigs. The Company plans to construct a new shipyard
designed to build new offshore drilling rigs, which shipyard could also be used
for conversion, retrofit and repair services.

CONVERSION, RETROFIT AND REPAIR SERVICES. The Company's conversion and
retrofit projects primarily include the conversion of jackup drilling rigs from
a slot design to a cantilever design, the lengthening of legs on jackup rigs,
the conversion of submersible rigs into semisubmersible rigs and the retrofit
of early generation semisubmersible rigs to provide the enhanced capabilities
associated with later generation semisubmersibles. These conversion and
retrofit projects are designed to improve the operating efficiency of a
drilling rig or provide increased technical capabilities, such as the ability
to operate in deeper water. The Company also has been involved in the
conversion of offshore drilling units and tankers to production units,
including FPSOs and mobile offshore production units ("MOPUs"). In addition,
the Company provides a broad range of structural rig repairs, including the
replacement of legs on jackup rigs, the repair of pontoons on semisubmersible
rigs and the repair of deck structures on offshore drilling rigs and production
platforms.

OFFSHORE DRILLING RIG AND FPSO DESIGN. In December 1996, the Company acquired
Friede & Goldman, a company that designs mobile offshore drilling and
production units, including jackups, semisubmersibles, drillships and FPSOs,
and provides design and engineering services with respect to conversion and
retrofit projects. Friede & Goldman has more than 50 years of experience in
premier offshore rig design, beginning with the design of the first
semisubmersibles to operate in the Gulf of Mexico. The Company's designs
include the Friede & Goldman L-780 jackup design and Pacesetter and Trendsetter
semisubmersible designs. Approximately 10% of jackup rigs and approximately 30%
of semisubmersible rigs currently operating worldwide were designed by Friede &
Goldman. The Company has recently designed a new jackup for use in water depths
of approximately 400 feet that the Company believes would provide increased
operational efficiencies over

4
<PAGE>

currently available designs, at a cost to construct that would be similar to
the last generation of jackups. The Company has also developed a series of
FPSOs suitable for operations worldwide and is currently in the process of
developing new designs for a semisubmersible drilling rig for use in deepwater
environments.

CONSTRUCTION OF NEW OFFSHORE DRILLING RIGS AND FPSOS. Since the early 1980's
and until recently, there has not been any significant construction of new-
build offshore drilling rigs. The Company has recently completed a survey of
its customers that has indicated a substantial interest in new rig
construction. In addition, as of May 1997, 15 new offshore drilling rigs were
being constructed worldwide, consisting of six jackups, six semisubmersibles
and three drillships. Management of the Company attributes this increased
demand for new-build offshore drilling rigs to (i) the recent increases in
offshore drilling rig dayrates, (ii) the recent increases in offshore drilling
rig utilization and (iii) the recent willingness of oil and gas companies to
enter into longer-term contracts with drilling contractors.

Due to capacity constraints of the Company's existing shipyard, the Company
has not been able to participate in the developing market for new offshore
drilling rig construction. In order to participate in this market, the Company
plans to commence construction in the second quarter of 1997 of a state-of-the-
art shipyard scheduled to be operational by early 1998 and completed later that
year at a total cost of approximately $29 million. The new shipyard has been
designed specifically for the construction of new offshore drilling rigs and
FPSOs, and it will have the capacity to perform various stages of construction
and outfitting activities on up to four drilling rigs or FPSOs simultaneously.
In addition, the Company may use its shipyard facilities, or establish a
separate manufacturing facility, to construct and assemble various components
of Friede & Goldman designed jackups that it would sell as kits that could be
used in the construction of new-build jackups either at the Company's shipyards
or at other shipyards. These kits would consist of such manufactured
components, including Friede & Goldman's patented rack chock leg fixation
system, and a Friede & Goldman jackup design.

In addition to new offshore drilling rig construction, 13 new FPSOs were
under construction worldwide in early 1997, and management of the Company
anticipates that there will be an increase in the demand for new construction
of FPSOs for use in deepwater areas where there is not sufficient pipeline
infrastructure to adequately transport oil and gas production onshore. FPSOs
have only recently been constructed, typically through the conversion of a
crude oil tanker or a semisubmersible rig. The Company believes that demand for
FPSOs will increase as deepwater drilling activity increases, and that newly
constructed FPSOs will be more cost-effective than conversions of existing
crude oil tankers or semisubmersible rigs.

BUSINESS STRATEGY

The Company's business strategy is to be a leading participant in the
developing market for new offshore drilling rig and FPSO construction and to
enhance its position as a leader in the conversion, retrofit and repair of
offshore drilling rigs and production units. The key elements of the Company's
business strategy are as follows:

MAINTAIN FOCUS ON RIG CONVERSION, RETROFIT AND REPAIR SERVICES. Due to
increased demand for offshore drilling rigs with enhanced technical
capabilities, the demand for the Company's conversion, retrofit and repair
services has increased significantly during the past 12 months. As a result,
the Company's backlog has increased from $15.4 million at March 31, 1996 to
$66.9 million at March 31, 1997.

PURSUE NEW OFFSHORE DRILLING RIG AND FPSO CONSTRUCTION. The Company believes
that a market for construction of new offshore drilling rigs and FPSOs is
developing. The Company intends to pursue opportunities to construct new
offshore drilling rigs and FPSOs by capitalizing on its existing relationships
with drilling contractors, its expertise and reputation for design of new
offshore drilling rigs, its reputation for high quality and reliability and the
state-of-the-art construction capabilities of its new shipyard. In particular,
the Company intends to pursue the construction of offshore drilling rigs
utilizing new Friede & Goldman designs, including its design for a JU 2000
jackup rig capable of drilling in water depths of approximately 400 feet.

5
<PAGE>

CAPITALIZE ON FRIEDE & GOLDMAN DESIGN CAPABILITIES. The Company intends to
emphasize its research and development efforts with respect to new designs for
offshore drilling rigs and floating production units. The Company believes that
its ability to provide its customers new designs for offshore drilling rigs and
production units will provide it with a competitive advantage in the developing
market for construction of new offshore drilling rigs and FPSOs.

PROVIDE INTEGRATED SERVICES. The Company offers its customers a full range of
design, engineering, construction, conversion, retrofit and repair services for
offshore drilling rigs, including construction of new-build drilling rigs. The
Company believes that its full range of services will enable it to achieve
vertical integration with respect to new-build offshore drilling rigs through
the ability to provide state-of-the-art designs, the ability to provide
engineering expertise and the capability to build drilling rigs at the
Company's facilities.

PURSUE STRATEGIC ACQUISITIONS AND JOINT VENTURES. The Company is actively
pursuing prospects to broaden its international exposure and expand its
capabilities to convert, retrofit and repair offshore drilling rigs, as well as
fabricate certain components of new offshore drilling rigs, through
acquisitions, joint ventures or subcontracting arrangements with one or more
shipyards in the U.S. or in foreign countries.

THE OFFERING (1)

<TABLE>
<C> <S>
Common Stock offered by the Company. 2,650,000 shares
Common Stock offered by the
Selling Stockholders............... 2,015,000 shares
Total Common Stock offered......... 4,665,000 shares
Common Stock to be outstanding
after the Offering................. 11,850,000 shares
Use of proceeds..................... To fund a portion of the Company's
anticipated capital requirements over the
next 12 to 18 months, including capital
expenditures to construct and equip a new
shipyard, capital expenditures to improve
the productive capacity and efficiency of
the existing shipyard, research and
development costs relating to the design
of new offshore drilling rigs and
floating production units, working
capital requirements and other general
corporate purposes. See "Use of
Proceeds."
NASDAQ National Market Symbol....... FGII
</TABLE>
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(1) Excludes the shares subject to the Underwriters' over-allotment option as
well as options to purchase 138,410 shares which are currently outstanding
and options to purchase 346,500 shares which are expected to be granted
upon consummation of this Offering. See "Management--Equity Incentive
Plan."

6
<PAGE>

SUMMARY FINANCIAL DATA

The following table sets forth summary historical financial data as of the
dates and for the periods indicated. The historical financial data for the year
ended July 31, 1992 and for each of the years ended December 31, 1994, 1995 and
1996 are derived from the audited financial statements of the predecessors of
the Company (the "Predecessors"). The historical financial data for the year
ended December 31, 1993, for the three months ended March 31, 1996 and 1997 and
as of March 31, 1997 are derived from unaudited financial statements of the
Predecessors. The unaudited financial statements of the Predecessors for the
three months ended March 31, 1996 and 1997 and as of March 31, 1997 reflect, in
the opinion of the Company's management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of its
financial condition and results of operations for such periods. The following
table also sets forth pro forma statement of operations data of the Company for
the year ended December 31, 1996 that give pro forma effect to certain
transactions, including the Friede Acquisition and the issuance of Common Stock
of the Company in exchange for all of the outstanding common stock of the
Predecessors (the "Reorganization"). The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the historical financial statements of the
Predecessors and the related notes thereto, the historical financial statements
of the predecessor company to Friede & Goldman and the related notes thereto,
the historical balance sheet of the Company and the related notes thereto and
the pro forma statement of operations of the Company and the related notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
YEAR -------------------------------------------- THREE MONTHS
ENDED PRO ENDED MARCH 31,
JULY 31, FORMA ----------------
1992(1) 1993(1) 1994 1995 1996 1996(2) 1996 1997
-------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $22,703 $10,355 $23,891 $19,865 $21,759 $25,533 $ 2,965 $18,655
Cost of revenue......... 18,186 6,770 18,063 13,510 15,769 18,663 2,426 12,800
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 4,517 3,585 5,828 6,355 5,990 6,870 539 5,855
Selling, general and
administrative
expenses(3)............ 1,961 1,699 2,203 3,862 6,673 7,318 942 2,622
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................ 2,556 1,886 3,625 2,494 (684) (448) (404) 3,232
Net interest expense.... (265) (135) (346) (197) (448) (538) (83) (120)
Gain on asset sales(4).. 3 11 808 1,869 349 349 230 1,379
Litigation
settlement(5).......... -- -- -- 750 3,467 3,467 3,467 --
Other................... 84 55 23 6 104 104 (27) 66
------- ------- ------- ------- ------- ------- ------- -------
Net income............. $ 2,378 $ 1,817 $ 4,110 $ 4,921 $ 2,788 $ 2,934 $ 3,183 $ 4,558
======= ======= ======= ======= ======= ======= ======= =======
UNAUDITED PRO FORMA
DATA:
Net income as reported
above.................. $ 2,378 $ 1,817 $ 4,110 $ 4,921 $ 2,788 $ 2,934 $ 3,183 $ 4,558
Pro forma provision for
income taxes(6)........ (880) (672) (1,521) (1,821) (1,032) (1,090) (1,178) (1,685)
------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income... $ 1,498 $ 1,145 $ 2,589 $ 3,100 $ 1,756 $ 1,844 $ 2,005 $ 2,873
======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income per
share(7)............... $ 0.18 $ 0.19 $ 0.30
Common and equivalent
shares outstanding..... 9,668 9,668 9,454
STATEMENT OF CASH FLOWS
DATA:
Cash provided by
operating activities... $ 2,542 $ 3,062 $ 3,094 $ 269 $ 4,875 $ 1,092 $ 5,352
Cash provided by (used
in) investing
activities............. (644) (1,143) 410 (2,410) (3,866) (2,228) (777)
Cash provided by (used
in) financing
activities............. (2,033) (1,704) (3,123) 2,581 (706) 879 (3,989)
OTHER FINANCIAL DATA:
Depreciation and
amortization........... $ 426 $ 339 $ 347 $ 425 $ 696 $ 896 $ 174 $ 215
Capital expenditures.... 144 1,167 1,150 2,670 2,357 2,502 1,596 1,358
EBITDA(8)............... 2,982 2,225 4,054 2,919 1,092 2,066 (230) 3,922
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------
PRO FORMA AS
HISTORICAL ADJUSTED(9)(10)
---------- ---------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C>
Working capital...................................... $ 2,387 $30,911
Net property, plant and equipment.................... 6,043 6,043
Total assets......................................... 31,456 54,694
Long-term debt....................................... 1,979 1,979
Stockholders' equity................................. 8,717 36,441
</TABLE>
- --------
(1) Prior to December 31, 1992, the Company utilized a July 31 fiscal year end.
Beginning in 1993, the Company adopted a calendar year as its fiscal year.
Contract revenues for the five-month period ended December 31, 1992 were
approximately $2.6 million. Other statement of operations data for the
five-month period ended December 31, 1992 have not been presented because
the amounts were not material.

(2) The pro forma statement of operations data for the year ended December 31,
1996 give pro forma effect to (i) the Friede Acquisition as if it had
occurred as of the beginning of the period presented and (ii) the
Reorganization.

(3) Included in selling, general and administrative expenses are bonuses paid
to three executive officers and stockholders of HAM Marine (the
"Stockholder Employees") of approximately $0.2 million, $1.2 million and
$2.1 million for the years ended December 31, 1994, 1995 and 1996,
respectively, which were intended primarily to provide a means by which the
Stockholder Employees could meet the individual income tax obligations
arising from the pass through of the Company's taxable income to the
Stockholder Employees due to the status of the Predecessors as S
Corporations in 1996 and prior periods. See Note 6 below. Cash compensation
paid to the Stockholder Employees during the year ended December 31, 1996
exceeded the amount of compensation levels set forth in the employment
contracts entered into between the Company and the Stockholder Employees in
May 1997 by approximately $1.9 million. Also included in selling, general
and administrative expenses for the year ended December 31, 1996, and the
three months ended March 31, 1997, is non-cash compensation expense of
$1,080,000 and $475,000, respectively, related to stock issued to
employees. Such amounts are based on an estimated initial public offering
price of the Company's Common Stock, less a 10% discount. See Note 2 of
Notes to the historical financial statements of the Predecessors included
elsewhere in this Prospectus.

(4) The gain on asset sales in 1994 and 1996 resulted primarily from the sale
of assets not used in the Company's operations. The gain on asset sales in
1995 resulted from the sale of assets acquired from an affiliated entity.
Gain on asset sales for the three months ended March 31, 1997 includes
approximately $0.9 million related to the distribution of real estate held
for investment and an airplane to the stockholders of one of the
Predecessors. The assets were not used directly in the Company's
operations. See Notes 7 and 14 of Notes to the historical financial
statements of the Predecessors included elsewhere in this Prospectus.

(5) The litigation settlement in 1995 represents the amount received as a
result of a claim by the Company against a general contractor for which the
Company served as a subcontractor. The litigation settlement in 1996
represents the amount received by the Company as a result of a claim
against a customer. See Note 13 of Notes to the historical financial
statements of the Predecessors included elsewhere in this Prospectus.

(6) The pro forma provision for income taxes gives pro forma effect to the
application of federal and state income taxes to the Company as if it were
a C Corporation for tax purposes. For all periods presented herein, the
Company and the Predecessors have operated as S Corporations for federal
and state income tax purposes. Prior to the consummation of the Offering,
the stockholders of the Company and the Predecessors will have terminated
the S Corporation status of such entities. As a result, the Company will
become subject to corporate level income taxation following such
termination. See "The Company--Corporate Restructuring," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 1 and 2 of Notes to the historical financial statements of the
Predecessors included elsewhere in this Prospectus.

8
<PAGE>

(7) Pro forma net income per share is based on the number of shares of Common
Stock to be outstanding immediately after the Reorganization (9,200,000) as
if such shares had been outstanding throughout each period presented, as
increased for each period to reflect sufficient additional shares required
to be sold for such period to pay the pro forma distribution payable to
stockholders in excess of historical net income for such period. The number
of such additional shares is based on the assumed initial public offering
price of $15.00 per share, net of offering expenses. See "The Company--
Corporate Restructuring."

(8) EBITDA represents operating income plus depreciation, amortization and non-
cash compensation expense related to the issuance of stock and stock
options to employees. EBITDA is not a measure of cash flow, operating
results or liquidity as determined by generally accepted accounting
principles. The Company has included information concerning EBITDA as
supplemental disclosure because management believes that EBITDA is commonly
accepted as providing useful information regarding a company's historical
ability to incur and service debt. Management of the Company believes that
factors which should be considered by investors in evaluating EBITDA
include, but are not limited to, trends in EBITDA as compared to cash flow
from operations, debt service requirements, and capital expenditures.
Management of the Company believes that the trends depicted by the
Company's historical EBITDA reflect historical fluctuations in the
Company's business and the recent increase in the level of the Company's
activities. EBITDA as defined and measured by the Company may not be
comparable to similarly titled measures of other companies. Further EBITDA
should not be considered in isolation or as an alternative to, or more
meaningful than, net income or cash flow provided by operations as
determined in accordance with generally accepted accounting principles as
an indicator of the Company's profitability or liquidity.

(9) The pro forma balance sheet data of the Company as of March 31, 1997 give
pro forma effect to (i) the distribution of cash to the stockholders of one
of the Predecessors prior to the closing of the Offering in an amount equal
to the estimated federal and state income taxes payable by such
stockholders on the undistributed earnings of such Predecessor through the
closing of the Offering, (ii) the distribution of marketable securities and
the assumption by such stockholders of the margin account indebtedness
associated with such marketable securities, (iii) borrowings of $4.5
million under the Company's revolving credit facility to fund a portion of
the cash distribution to such stockholders, (iv) the recording of a
deferred tax liability as a result of the termination of the status of the
Predecessors as S Corporations prior to the closing of the Offering and (v)
the Reorganization, in each case as if such event had occurred as of March
31, 1997. See "The Company--Corporate Restructuring" and "Capitalization."

(10) Assumes the public offering of 2,650,000 shares of Common Stock by the
Company at an assumed price of $15.00 per share resulting in net proceeds
of $36.5 million (after deducting the underwriting discount and expenses
of the Offering estimated at $3.3 million) and the application thereof as
described herein. See "Use of Proceeds."

9
<PAGE>

WORLDWIDE OFFSHORE DRILLING RIG UTILIZATION

The following table sets forth certain information relating to worldwide
offshore drilling rig utilization for the years ended December 31, 1992, 1993,
1994, 1995 and 1996 and the three months ended March 31, 1997. All information
in the following table has been derived from Offshore Data Services.

<TABLE>
<CAPTION>
AVERAGE FOR THE
AVERAGES FOR THE YEAR ENDED DECEMBER 31, THREE MONTHS
---------------------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SEMISUBMERSIBLES:
Number of Total
Rigs(1).............. 167 161 159 142 143 144
Utilization of Total
Rigs(2).............. 77% 79% 78% 84% 92% 95%
Utilization of
Marketed Rigs(3)..... 82% 86% 85% 91% 99% 99%
JACKUPS:
Number of Total
Rigs(1).............. 399 394 392 388 382 378
Utilization of Total
Rigs(2).............. 76% 85% 82% 84% 91% 94%
Utilization of
Marketed Rigs(3)..... 84% 90% 87% 89% 96% 99%
ALL OFFSHORE DRILLING
RIGS:
Number of Total
Rigs(1).............. 682 666 661 644 639 636
Utilization of Total
Rigs(2).............. 76% 83% 81% 84% 89% 92%
Utilization of
Marketed Rigs(3)..... 83% 89% 87% 90% 96% 97%
</TABLE>
- --------
(1) Includes rigs held for disposition.

(2) Defined as rigs working as a percentage of total rigs.

(3) Defined as rigs working as a percentage of rigs available for work
(excludes mothballed, out of service, cold stacked and shipyard rigs).

10
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the following factors as
well as the other information contained in this Prospectus.

DEPENDENCE ON CONDITIONS IN THE OFFSHORE DRILLING INDUSTRY

The Company's business and operations depend principally upon conditions
prevailing in the offshore drilling industry. In particular, the level of
demand for the Company's services is affected by the level of demand for the
services of offshore drilling contractors, which in turn is dependent upon the
condition of the oil and gas industry and, in particular, the level of capital
expenditures of oil and gas companies with respect to offshore drilling
activities. These capital expenditures are influenced by prevailing oil and
natural gas prices, expectations about future prices, the cost of exploring
for, producing and delivering oil and gas, the sale and expiration dates of
offshore leases in the United States and overseas, the discovery rate of new
oil and gas reserves in offshore areas, local and international political and
economic conditions, and the ability of oil and gas companies to access or
generate capital sufficient to fund capital expenditures for offshore
exploration, development and production activities. Although the trend of oil
and natural gas prices over the past year has been generally favorable, over
the past several years, oil and natural gas prices and the level of offshore
drilling and exploration activity have fluctuated substantially. A significant
or prolonged reduction in oil or natural gas prices in the future would likely
depress offshore drilling and development activity. A substantial reduction of
such activity would reduce demand for the Company's services and could have a
material adverse effect on the Company's financial condition and results of
operations.

EXPANSION OF OPERATIONS

Expansion of Existing Shipyard; Acquisition of Rig Design Business. The
Company has recently expanded its capacity to convert, retrofit and repair
offshore drilling rigs through the lease of additional dockspace and
fabrication buildings adjacent to its existing shipyard in Pascagoula,
Mississippi and the charter of a drydock vessel. In addition, the Company has
increased its number of employees from approximately 300 employees at December
1, 1996 to approximately 800 employees at March 31, 1997. There can be no
assurance that the Company will effectively manage its additional capacity and
additional laborers. The Company has also recently acquired Friede & Goldman,
a company that designs offshore drilling rigs and floating production units.
As the rig design business is a new activity for the Company, the Company will
be dependent upon retaining the employees of the predecessor to Friede &
Goldman who have become employees of Friede & Goldman, as well as additional
managers hired by the Company, to manage this business effectively.

New Shipyard. The Company has recently entered into a memorandum of
understanding with Jackson County, Mississippi to construct a new shipyard on
85 acres approximately six miles from its existing shipyard that would be
capable of building new drilling rigs as well as converting, retrofitting and
repairing existing drilling rigs. In conjunction with such actions, the
Company plans to utilize its existing capabilities to fabricate the structural
components of drilling rigs, the design capabilities of Friede & Goldman and
the production capabilities of the new shipyard to build new drilling rigs to
the extent market conditions permit such applications to be commercially
viable. There can be no assurance that market conditions, including dayrates
realized by offshore drilling contractors, will permit the Company to obtain
orders for the construction of new drilling rigs on a profitable basis or that
the Company will realize orders for a sufficient quantity of new drilling rigs
to justify the costs and expenses of constructing, equipping and operating the
new shipyard. In addition, the Company has not completed all of the
arrangements necessary to commence construction of the new shipyard or to
establish a new jackup component manufacturing operation. In particular, with
respect to the new shipyard, the Company has not completed the negotiation of
a construction contract to build the shipyard and has not received all
necessary governmental approvals. As a result, there can be no assurance that
the new shipyard will be completed or, if completed, that the new shipyard
will be completed on the schedule or at the total cost to complete currently
estimated by the Company.

Additional Expansion Possibilities. The Company is exploring opportunities
for establishing a manufacturing operation, either at its shipyards or at
another location, that would be capable of constructing components for new-
build jackups that the Company would sell, along with Friede & Goldman jackup
designs,

11
<PAGE>

as kits that could be used in the construction of new-build jackups. In
addition, the Company is considering various opportunities to acquire, or to
enter into joint venture or subcontracting arrangements with, existing
shipyards in the United States, Mexico and Canada that would provide
additional capabilities to perform structural fabrication or repair
operations. The Company has not determined that it will proceed with the
establishment of a jackup component manufacturing operation nor has it
determined to make any acquisition, or enter into any joint venture or
subcontracting arrangement to obtain additional fabrication and repair
capabilities. As a result, there can be no assurance that the Company will
establish such an operation or obtain such additional capabilities.

Risks Related to Managing Growth. Any significant increase in the level of
conversion, retrofit and repair activity, as well as the development of a new
drilling and production unit construction business, will impose significant
added responsibilities on members of senior management, including the need to
identify, recruit and integrate additional management personnel and skilled
laborers. Although the Company has hired senior level management personnel who
have experience in the business of building new drilling rigs, there can be no
assurance that additional management personnel or skilled laborers will be
identified and retained by the Company. In addition, there can be no assurance
that the Company's systems, procedures and controls will be adequate to
support the Company's operations as they expand. If the Company is unable to
manage its growth efficiently and effectively, or if it is unable to attract
and retain additional qualified management personnel and skilled laborers,
there could be a material adverse effect on the Company's financial condition
and results of operations.

OPERATING RISKS

The Company's activities relating to conversion, retrofit and repair of
drilling rigs and its proposed activities relating to new construction of
drilling rigs and production units involve the fabrication and refurbishment
of large steel structures, the operation of cranes and other heavy machinery
and other operating hazards that can cause personal injury or loss of life,
severe damage to and destruction of property and equipment and suspension of
operations. The failure of the structure of a drilling rig after the rig
leaves the Company's shipyard can result in similar injuries and damages. In
addition, the Company's employees who are engaged in offshore operations are
covered by provisions of the Jones Act, the Death on the High Seas Act and
general maritime law, which laws operate to exempt these employees from the
limits of liability established under worker's compensation laws and, instead,
permit them or their representatives to maintain actions against the Company
for damages or job-related injuries, with no limitations on the Company's
potential liability. The operation of the drydock vessel bareboat chartered by
the Company can give rise to large and varied liability risks, such as risks
of collisions with other vessels or structures, sinkings, fires and other
marine casualties, which could result in significant claims for damages
against both the Company and third parties for, among other things, personal
injury, death, property damage, pollution and loss of business. The failure to
adequately design a drilling rig or production unit could also result in
personal injury, loss of life or severe damage to and destruction of property
and equipment. Litigation arising from any such occurrences may result in the
Company being named as a defendant in lawsuits asserting large claims. In
addition, due to their proximity to the Gulf of Mexico, the Company's
facilities are subject to the possibility of physical damage caused by
hurricanes or flooding.

RISKS OF INADEQUATE INSURANCE

Although the Company maintains such insurance protection as it considers
economically prudent, there can be no assurance that any such insurance will
be sufficient or effective under all circumstances or against all hazards to
which the Company may be subject. In particular, due to the high cost of
errors and omissions policies relating to the design of drilling rigs and
production units, the Company does not carry insurance covering claims for
personal injury, loss of life or property damage relating to such design
activity. A successful claim for which the Company is not fully insured could
have a material adverse effect on the Company. Moreover, no assurance can be
given that the Company will be able to maintain adequate insurance in the
future at rates that it considers economical.

CONTRACT BIDDING RISKS

Due to the nature of the drilling rig construction industry, the Company
generally performs a portion of the work on each project on a fixed-price
basis and a portion of the work on a cost-plus basis, particularly for
projects

12
<PAGE>

completed in stages. With respect to the fixed-price portions of a project,
the Company receives the price fixed for such portion, and therefore the
Company must absorb any cost overruns relating to such portion of the project.
Under cost-plus arrangements, the Company receives its direct labor cost and
material cost plus specified percentages of such labor costs and material
costs. As a result, the Company is protected against cost overruns under these
cost-plus arrangements but does not benefit directly from cost savings. See
"Business--Contract Structure and Pricing."

The revenue and costs associated with the fixed-price portion of any
particular project will often vary from the amounts originally estimated
therefor because of variations in the cost of labor and materials and
variations in productivity of labor from the original estimates. These
variations and the risks inherent in the drilling rig construction industry
may result in revenue and gross profits different from those originally
estimated and may result in reduced profitability or losses on projects.
Depending on the size of a project, variations from estimated performance may
have a significant impact on the Company's operating results for any
particular fiscal quarter or year.

PERCENTAGE-OF-COMPLETION ACCOUNTING

Most of the Company's revenue is earned on a percentage-of-completion basis
based generally on the ratio of total costs incurred to the total estimated
costs. Accordingly, contract price and cost estimates are reviewed
periodically as the work progresses, and adjustments to income proportionate
to the percentage of completion are reflected in the period when such
estimates are revised. To the extent that these adjustments result in a
reduction or elimination of previously reported profits, the Company would
have to recognize a charge against current earnings, which may be significant
depending on the size of the project or the adjustment. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON SIGNIFICANT CUSTOMERS

A large portion of the Company's revenue has historically been generated by
a few customers, although not necessarily the same customers from year to
year. For the years ended December 31, 1994, 1995 and 1996, the Company's
three largest customers in such years collectively accounted for 86%, 82% and
72% of revenue, respectively. For 1996, the Company derived more than 10% of
its revenue from each of Diamond Offshore Drilling, Inc., Hercules Offshore
Corporation, Noble Drilling Corporation and Sedco Forex S.A. Based on its
current backlog of projects, the Company expects that a significant portion of
the Company's revenues for 1997 will be derived from one customer, Noble
Drilling Corporation. Because the level of services that the Company may
provide to any particular customer depends on that customer's needs for
drilling rig conversion, retrofit or repairs in a particular year, customers
that account for a significant portion of revenue in one fiscal year may
represent an immaterial portion of revenue in subsequent years. However, the
loss of a significant customer for any reason, including a sustained decline
in that customer's capital expenditure budget or competitive factors, could
result in a substantial loss of revenue and could have a material adverse
effect on the Company's operating performance. See "Business--Customers and
Marketing."

BACKLOG

The Company's backlog is based on management's estimate of future revenue
attributable to (i) the remaining amounts to be invoiced with respect to those
projects, or portions of projects, as to which a customer has authorized the
Company to begin work or purchase materials and (ii) projects, or portions of
projects, that have been awarded to the Company as to which the Company has
not commenced work. All projects currently included in the Company's backlog
are subject to change and/or termination at the option of the customer, either
of which could substantially change the amount of backlog currently reported.
In the case of a termination, the customer is required to pay the Company for
work performed and materials purchased through the date of termination;
however, due to the large dollar amounts of backlog estimated for each of a
small number of projects, amounts included in the Company's backlog could
decrease substantially if one or more of these projects were to be terminated
by the Company's customers. In particular, approximately 82% of the Company's
backlog as of March 31, 1997 was attributable to three projects, two of which
were with one customer. A termination of one or more of these large projects
or the loss of a significant customer could have a material adverse effect on
the Company's revenue, net income and cash flow for 1997. See "Business--
Backlog."

13
<PAGE>

REGULATORY AND ENVIRONMENTAL MATTERS

The Company's operations and properties are subject to and affected by
various types of governmental regulation, including numerous federal, state
and local environmental protection laws and regulations, compliance with which
is becoming increasingly complex, stringent and expensive. These laws may
provide for "strict liability" for damages to natural resources or threats to
public health and safety, rendering a party liable for the environmental
damage without regard to its negligence or fault. Sanctions for noncompliance
may include revocation of permits, corrective action orders, administrative or
civil penalties and criminal prosecution. Certain environmental laws provide
for strict, joint and several liability for remediation of spills and other
releases of hazardous substances. In addition, companies may be subject to
claims alleging personal injury or property damage as a result of alleged
exposure to hazardous substances. Such laws and regulations may also expose
the Company to liability for the conduct of or conditions caused by others, or
for acts of the Company that were in compliance with all applicable laws at
the time such acts were performed. In addition, the Company depends on the
demand for its services from the oil and gas industry and is affected by
changing taxes, price controls and other laws and regulations relating to the
oil and gas industry generally. The adoption of laws and regulations
curtailing exploration and development drilling for oil and gas for economic,
environmental and other policy reasons would adversely affect the Company's
operations by limiting demand for its services. The Company cannot determine
to what extent future operations and earnings of the Company may be affected
by new legislation, new regulations or changes in existing regulations. See
"Business--Government and Environmental Regulation."

FRIEDE ACQUISITION DEFAULT PROVISIONS

Pursuant to the terms of the Friede Acquisition, the Company is obligated to
pay the former owner of the predecessor company to Friede & Goldman (i)
certain design and licensing payments on sales by Friede & Goldman of designs
for new-build vessels and (ii) specified payments in the event the Company
fails to design at least 20% of the new-build vessels ordered by U.S.-based
drilling companies (subject to a maximum payment of $1 million per year), in
each case with respect to a 10-year period that commenced in December 1996. In
the event the Company fails to make such required payments, the former owner
of such predecessor company will have the right to (i) require the Company to
return all Friede & Goldman assets purchased by the Company (including the
design for drilling rigs and production units in existence at the time of the
acquisition but excluding the name Friede & Goldman and derivatives thereof
and excluding new designs developed by the Company after the acquisition) and
(ii) terminate the consulting and noncompetition provisions of such
acquisition. See "Business--Friede Acquisition."

DEPENDENCE ON KEY PERSONNEL

The Company's operations are dependent on the continued efforts of its
executive officers. Although each of the Company's executive officers has
entered into an employment agreement with the Company, there can be no
assurance that any individual will continue in such capacity for any
particular period of time. The loss of key personnel, or the inability to hire
and retain qualified employees, could have an adverse effect on the Company's
business, financial condition and results of operations. The Company does not
carry key-person life insurance on any of its employees. See "Management."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

Following the completion of the Offering, the Company's executive officers
and directors will beneficially own 58.3% of the outstanding shares of Common
Stock (55.1% if the Underwriters' over-allotment option is exercised in full).
In addition, J. L. Holloway, the Company's Chairman of the Board, Chief
Executive Officer and President, will beneficially own 48.5% of the
outstanding shares of Common Stock (45.8% if the Underwriters' over-allotment
option is exercised in full). Consequently, these persons, if they were to act
together, would have the ability to exercise control over the Company's
affairs, to elect the entire Board of Directors and to control the disposition
of any matter submitted to a vote of stockholders. See "Principal and Selling
Stockholders."

14
<PAGE>

NO PRIOR MARKET, POSSIBLE VOLATILITY OF STOCK

Prior to this Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting" for the factors to be considered in determining
the initial public offering price. Application has been made to list the
Common Stock on the NASDAQ National Market, but no assurance can be given that
an active trading market for the Common Stock will develop or, if developed,
continue after the Offering. The market price of the Common Stock after the
Offering may be subject to significant fluctuations from time to time in
response to numerous factors, including variations in the reported financial
results of the Company and changing conditions in the economy in general or in
the Company's industry in particular. In addition, the stock markets
experience significant price and volume volatility from time to time which may
affect the market price of the Common Stock for reasons unrelated to the
Company's performance.

CERTAIN ANTI-TAKEOVER EFFECTS

The Company's Amended and Restated Certificate of Incorporation (the
"Charter") and Bylaws contain various provisions that may hinder, delay or
prevent the acquisition of control of the Company without the approval of the
Board of Directors of the Company. Certain provisions of the Charter and the
Bylaws, among other things, (i) authorize the issuance of "blank-check"
Preferred Stock without stockholder action, (ii) divide the Company's Board
into three classes, the members of which (after an initial transition period)
will serve for three-year terms, (iii) establish advance notice requirements
for director nominations and stockholder proposals to be considered at annual
meetings and (iv) prohibit stockholder action by written consent. Certain
provisions of the Delaware General Corporation Law may also discourage
takeover attempts that have not been approved by the Board of Directors. See
"Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to the closing of the Offering, 9,200,000 shares of Common
Stock of the Company will be issued and outstanding. None of these shares was
or will be issued in a transaction registered under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, other than any such
shares included in the Offering, the shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration, including the exemption contained in Rule 144 under the
Securities Act. When these shares become saleable, the market price of the
Common Stock could be adversely affected by the sale of substantial amounts of
the shares in the public market. The current stockholders of the Company have
certain registration rights with respect to their shares. If such
stockholders, by exercising such registration rights, cause a large number of
shares to be registered and sold in the public market, such sales may have an
adverse effect on the market price of the Common Stock. See "Description of
Capital Stock--Registration Rights" and "Shares Eligible for Future Sale."

Upon the closing of this Offering, the Company also will have outstanding
options to purchase up to a total of 484,910 shares of Common Stock issued
pursuant to the Company's 1997 Equity Incentive Plan (the "Equity Incentive
Plan"). A total of 1,150,000 shares will be issuable pursuant to the Equity
Incentive Plan. The Company intends to register all the shares subject to
these options under the Securities Act for public resale. See "Management--
Equity Incentive Plan."

The effect, if any, that the availability for sale, or sale, of the shares
of Common Stock eligible for future sale will have on the market price of the
Common Stock prevailing from time to time is unpredictable, and no assurance
can be given that the effect will not be adverse.

DILUTION

The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the net tangible book value of their shares of $12.03
per share (assuming an initial public offering price of $15.00 per share). See
"Dilution." In the event the Company issues additional shares of Common Stock
in the future, including shares which may be issued in connection with
acquisitions or other public or private financings, purchasers of Common Stock
in the Offering may experience further dilution in the net tangible book value
per share of the Common Stock of the Company.

15
<PAGE>

THE COMPANY

GENERAL

RECENT DEVELOPMENTS

Recently, the Company has taken several strategic initiatives to capitalize
on offshore drilling industry trends towards increased rig conversions and
retrofits and new rig construction.

. THE FRIEDE ACQUISITION. The Company recently acquired Friede & Goldman,
one of the world's largest designers of offshore drilling rigs. The
Friede Acquisition broadened the Company's range of services that it
can provide to its customers, and the Company believes that its design
capabilities will provide it with a competitive advantage with respect
to attracting new offshore drilling rig construction business.

. CAPACITY EXPANSION. In December 1996, the Company significantly
expanded its Pascagoula shipyard through the lease of additional
dockspace, land and covered buildings for machine and fabrication
shops, blast painting and storage.

. INCREASED WORKFORCE. The Company has increased its workforce from
approximately 300 employees at December 1, 1996 to approximately 800
employees at March 31, 1997 from the available supply of skilled
shipyard workers in the Pascagoula, Mississippi area.

. UNIQUE TOWABLE DRYDOCK VESSEL. The Company recently entered into a
bareboat charter that gives the Company operational control of a
towable drydock vessel with heavy lift capacity and 30,000-ton load
bearing capabilities. The Company believes that the towable drydock is
the only vessel of its kind in the Gulf of Mexico, where increasing
offshore vessel activity has significantly constrained drydock
capacity.

. NEW STATE-OF-THE-ART SHIPYARD. The Company plans to commence
construction in the second quarter of 1997 of a modern 85-acre yard
designed specifically for new offshore drilling rig construction and
could also be used for conversion, retrofit and repair of existing
offshore drilling rigs and production units. The Company expects that
its new shipyard will be operational by early 1998 and completed later
that year.

As a result of these strategic initiatives, the Company believes it is well
positioned to meet the needs of offshore drilling contractors and offshore
operators as they convert, retrofit, repair and expand their offshore drilling
rig fleets and floating production systems for the Gulf of Mexico and other
areas of the world.

CORPORATE RESTRUCTURING

The Company's business of converting, retrofitting and repairing offshore
drilling rigs has been conducted by HAM Marine since its formation in 1982. In
December 1996, a company controlled by the stockholders of HAM Marine acquired
certain assets and business of the predecessor company of Friede & Goldman
("Friede Predecessor"), including substantially all of the designs developed
by Friede Predecessor and the name "Friede & Goldman, Ltd." and all
derivatives thereof. Following the completion of the acquisition, the
acquiring company changed its name to Friede & Goldman, Ltd.

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<PAGE>

The Company was incorporated in Delaware in February 1997 to serve as the
holding company for HAM Marine and Friede & Goldman, collectively referred to
herein as the Predecessors. The stockholders of each of HAM Marine and Friede
& Goldman have entered into an agreement (the "Exchange Agreement") pursuant
to which such stockholders will exchange their shares in such corporations for
shares of Common Stock of the Company prior to the closing of the Offering. In
accordance with the terms of the Exchange Agreement, the stockholders of HAM
Marine and Friede & Goldman will receive a number of shares of Common Stock
proportionate to their relative share holdings in each of HAM Marine and
Friede & Goldman.

Each of HAM Marine and Friede & Goldman has operated as an S Corporation for
federal and state income tax purposes. As a result, each of the Predecessors
currently pays no federal or state income tax, and their earnings are subject
to tax directly at the stockholder level. In June 1997, the stockholders of
each of the Predecessors made an election to terminate the S Corporation
status of such Predecessors. Accordingly, each of the Predecessors became
subject to corporate level income taxation following the termination of such
elections and, as a result, the Company will be required to record a net
deferred income tax liability through a charge to earnings estimated to be
approximately $0.8 million in the second quarter of 1997 attributable
primarily to the difference in financial reporting and tax reporting methods
of accounting for depreciation and sales-type leases. See the pro forma
statement of operations of the Company and related notes thereto included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

In the past, each of the Predecessors has made distributions to its
stockholders in order to provide a cash return to them and to fund their
federal and state income tax liability that resulted from the S Corporation
status of the Predecessors. In accordance with this practice, one of the
Predecessors intends to make a distribution, prior to the completion of the
Offering, of cash in an amount equal to the estimated federal and state income
taxes payable by the stockholders of the Predecessors on the aggregate
undistributed earnings of the Predecessors through the date of their election
to terminate S Corporation status of the Predecessors, which amount is
expected to be approximately $5.9 million. In addition, in March 1997, one of
the Predecessors made a distribution to its stockholders of certain
nonoperating assets that have a fair market value of approximately $1.6
million in the aggregate. One of the Predecessors also plans to distribute to
its stockholders, prior to the completion of the Offering, (i) cash of
approximately $0.7 million received by such Predecessor in June 1997 in
settlement of claims for unpaid amounts related to a project completed prior
to 1997 and (ii) marketable securities having a fair market value of
approximately $4.8 million as of March 31, 1997. In connection with the
distribution of marketable securities, such stockholders will assume the
related margin account indebtedness ($2.7 million as of March 31, 1997).

The Company's executive offices are located at 525 E. Capitol Street, Suite
402, Jackson, Mississippi 39201, and its telephone number at that address is
(601) 352-1107.

17
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company, after deducting the underwriting discount and offering
expenses payable by the Company, are estimated to be approximately $36.5
million (approximately $46.3 million if the Underwriters' over-allotment
option is exercised in full), based on an assumed initial public offering
price of $15.00 per share.

The Company currently intends to utilize the net proceeds to be received by
it from the Offering to fund a portion of its anticipated capital requirements
over the next 12 to 18 months of between $50 million and $65 million,
including (i) approximately $29 million to construct and equip its new
shipyard, (ii) approximately $3 million for capital expenditures to increase
the productive capacity and efficiency of its existing shipyard, (iii)
approximately $3 million for research and development expenditures related to
the design of new, technologically innovative offshore drilling rigs and
floating production units, (iv) between $10 million and $20 million of
additional working capital related to increased levels of conversion, retrofit
and repair activities and new construction of offshore drilling rigs and
floating production units and (v) $5 million to $10 million for general
corporate purposes, which may include the establishment of a manufacturing
operation, either at the Company's shipyards or at another location, that
would be capable of constructing and assembling components of new-build
jackups or the acquisition of one or more businesses that are complementary to
the Company's operations.

The Company is currently exploring opportunities for acquiring additional
shipyard capacity, either in the United States, Canada or Mexico, at which the
Company could construct and assemble new-build jackup rig components, such as
the rack chock system and the jacking components. Although the Company is
investigating several opportunities to acquire additional shipyard capacity
for this purpose, it does not have any agreements or understandings with
respect to any acquisition, and there can be no assurances that the Company
will be successful in acquiring such additional capacity on terms satisfactory
to the Company. The Company is not currently pursuing any other acquisition
opportunities but may do so in the future.

The Company would expect to fund the remaining portion of its anticipated
capital requirements from cash flow from operations, borrowings available
under its existing revolving credit facility or additional borrowings. As an
additional source of borrowing capacity, the Company has received a commitment
letter from the United States Maritime Administration ("MARAD") specifying
that, subject to the completion of documentation and the satisfaction of
certain other conditions, MARAD would provide its guarantee, supported by the
full faith and credit of the United States, for up to $24.8 million of bonds
to be issued by the Company. The proceeds from the sale of any MARAD-
guaranteed bonds may be used only for capital expenditures relating to the
costs of constructing and equipping the Company's new shipyard. The terms of
the MARAD financing permit the Company to issue and sell bonds in increments.
Due to the generally favorable interest rates and payment terms of MARAD
financing, the Company anticipates that it would sell bonds under the MARAD
financing arrangement in increments as capital expenditures are incurred with
respect to the new shipyard. Any funds obtained from the MARAD financing would
result in the availability of other sources of capital, including proceeds
from the Offering, cash from operations and other borrowings, for use to
satisfy the Company's other capital requirements described above. There can be
no assurance that the Company will sell any MARAD- guaranteed bonds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Pending the Company's use of the net proceeds of the Offering, the Company
intends to repay borrowings under its existing revolving credit facility ($2.6
million in principal amount of borrowings outstanding as of March 31, 1997 and
$7.1 million as of March 31, 1997 giving pro forma effect to borrowings to be
incurred to fund a distribution of proceeds to the stockholders of one of the
Predecessors prior to the closing of the Offering) and to invest the remaining
net proceeds to be received by it from the Offering in short-term, investment-
grade, interest-bearing instruments. For a description of the terms of the
revolving credit facility, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company will not realize any of the proceeds from the sale of
the shares offered by the Selling Stockholders.

18
<PAGE>

DIVIDEND POLICY

It is the Company's current intention to retain earnings to finance the
expansion of its business. Any future dividends will be at the discretion of
the Board of Directors of the Company after taking into account various
factors, including, among others, the Company's financial condition, results
of operations, cash flows from operations, current and anticipated cash needs
and expansion plans, the income tax laws then in effect and the requirements
of Delaware law. In addition, HAM Marine's current credit facility prohibits
the payment of dividends from HAM Marine to the Company in the event that HAM
Marine defaults under the terms of such facility. In such an event, the
Company's ability to receive sufficient funds from HAM Marine to pay dividends
to the Company's stockholders would be significantly impaired. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

19
<PAGE>

CAPITALIZATION

The following table sets forth as of March 31, 1997 (i) the historical
capitalization of the Predecessors, (ii) the capitalization of the Company on
a pro forma basis prior to the Offering giving effect to (a) the distribution
of cash during April and May 1997 to the stockholders of one of the
Predecessors of approximately $1.4 million, primarily to provide the
stockholders with cash to meet income tax obligations for income of the
Predecessor prior to 1997, (b) cash distributions expected to be made in July
1997, using borrowings under the Company's existing credit facilities, of
approximately $4.5 million to provide the stockholders of one of the
Predecessors with cash to meet income tax obligations for income of the
Company from January 1, 1997 through June 15, 1997, the date of the
termination of the Predecessors' status as S Corporations, (c) distributions
of marketable securities with a fair value of approximately $4.8 million,
together with related margin account debt of approximately $2.7 million, and
(d) the transfer of the balance in retained earnings (deficit) at the date of
the S Corporation termination of $(1.8) million to additional paid in capital,
and (iii) the capitalization of the Company on a pro forma basis after the
Offering giving effect to (a) the pro forma adjustments prior to the Offering
described in clause (ii) above, (b) the recording of a deferred income tax
liability as a result of the termination of the status of the Predecessors as
S Corporations prior to the closing of the Offering and (c) the completion of
the Reorganization, as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom. See "The Company--
Corporate Restructuring" and "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of the
Predecessors and the related notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
PRIOR TO AFTER
ACTUAL OFFERING OFFERING
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents(1)................. $ 3,203 $1,822 $31,222
======= ====== =======

Short-term debt and current maturities of
long-term debt(2)........................... $ 7,506 $9,321 $ 2,221
======= ====== =======
Long-term debt, less current maturities...... $ 1,979 $1,979 $ 1,979
------- ------ -------
Stockholders' equity:
Preferred Stock: $0.01 par value, 5,000,000
shares authorized; no shares issued and
outstanding............................... -- -- --
Common Stock: $0.01 par value, 25,000,000
shares authorized; 9,200,000 shares issued
and outstanding, 11,850,000 shares issued
and outstanding pro forma as adjusted
after Offering(3)......................... 5 5 119
Additional paid-in capital................... 2,532 736 36,322
Retained earnings............................ 5,276 -- --
Unrealized gain on marketable securities..... 905 -- --
------- ------ -------
Total stockholders' equity................. 8,717 741 36,441
------- ------ -------
Total capitalization..................... $10,696 $2,720 38,420
======= ====== =======
</TABLE>
- --------
(1) Includes certificates of deposit that are pledged as security for short-
term borrowings.

(2) Short-term debt and current maturities of long-term debt include $1.1
million of short-term debt secured by certificates of deposit and $2.7
million of brokerage margin account debt secured by marketable securities.

(3) Excludes the shares of Common Stock subject to the Underwriters' over-
allotment option as well as options to purchase 138,410 shares which are
currently outstanding and options to purchase 346,500 shares which are
expected to be granted upon consummation of this Offering.

20
<PAGE>

DILUTION

As of March 31, 1997, the net tangible book value per share of Common Stock
was $0.82. The "net tangible book value per share" represents the amount of
the net tangible book value (total book value of tangible assets less total
liabilities) of the Company divided by the number of shares of Common Stock
outstanding. After giving effect to the distribution of cash to the
stockholders of one of the Predecessors prior to the closing of the Offering
and the sale of the shares of Common Stock offered hereby (at an assumed price
of $15.00 per share and after deducting the estimated underwriting discount
and estimated offering expenses payable by the Company), the pro forma net
tangible book value of the Company at March 31, 1997 would have been $35.2
million or $2.97 per share, representing an immediate increase in net tangible
book value of $2.15 per share to existing stockholders and an immediate
dilution of $12.03 per share to the investors purchasing shares of Common
Stock in the Offering ("New Investors"). See "The Company--Corporate
Restructuring" and "Use of Proceeds." The following table illustrates this
dilution to New Investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $15.00
Net tangible book value per share at March 31, 1997............. $0.82
Increase per share attributable to sale of Common Stock in the
Offering....................................................... 2.15
-----
Pro forma net tangible book value per share after giving effect to
the Offering..................................................... 2.97
------
Dilution in net tangible book value per share to New Investors.... $12.03
======
</TABLE>

The following table sets forth as of the date of this Prospectus the number
of shares of Common Stock purchased from the Company, the total consideration
received by the Company and the average price per share paid by existing
stockholders of the Company and by New Investors, assuming a public offering
price of $15.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)(2)....... 9,200,000 77.6% $ 2,536,567 6.0% $ 0.28
New Investors............. 2,650,000 22.4 39,750,000 94.0% 15.00
---------- ----- ----------- -----
Total................... 11,850,000 100.0% $42,286,567 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) The existing stockholders of the Company, after giving effect to the
Reorganization, will have acquired all of their shares of Common Stock in
exchange for the common stock of the Predecessors. Accordingly, the total
consideration paid by the existing stockholders for their shares of Common
Stock of the Company represents the total consideration paid by the
existing stockholders for their shares of common stock of the
Predecessors.

(2) The information shown for existing stockholders excludes options to
purchase an aggregate of 484,910 shares of Common Stock to be held by
employees, officers and directors of the Company upon the closing of the
Offering. See "Management--Equity Incentive Plan."

21
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth summary historical financial data as of the
dates and for the periods indicated. The historical financial data for the
year ended July 31, 1992 and for each of the years ended December 31, 1994,
1995 and 1996 are derived from the audited financial statements of the
Predecessors. The historical financial data for the year ended December 31,
1993, for the three months ended March 31, 1996 and 1997 and as of March 31,
1997 are derived from unaudited financial statements of the Predecessors. The
unaudited financial statements of the Predecessors for the three months ended
March 31, 1996 and 1997 and as of March 31, 1997 reflect, in the opinion of
the Company's management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of its financial condition and
results of operations for such periods. The following table also sets forth
pro forma statement of operations data of the Company for the year ended
December 31, 1996 that give pro forma effect to certain transactions,
including the Friede Acquisition and the Reorganization. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the historical financial
statements of the Predecessors and the related notes thereto, the historical
financial statements of the predecessor company to Friede & Goldman and the
related notes thereto, the historical balance sheet of the Company and the
related notes thereto and the pro forma statement of operations of the Company
and the related notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
YEAR -------------------------------------------- THREE MONTHS
ENDED PRO ENDED MARCH 31,
JULY 31, FORMA ----------------
1992(1) 1993(1) 1994 1995 1996 1996(2) 1996 1997
-------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................. $22,703 $10,355 $23,891 $19,865 $21,759 $25,533 $ 2,965 $18,655
Cost of revenue.......... 18,186 6,770 18,063 13,510 15,769 18,663 2,426 12,800
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 4,517 3,585 5,828 6,355 5,990 6,870 539 5,855
Selling, general and
administrative
expenses(3)............... 1,961 1,699 2,203 3,862 6,673 7,318 942 2,622
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss). 2,556 1,886 3,625 2,494 (684) (448) (404) 3,232
Net interest expense..... (265) (135) (346) (197) (448) (538) (83) (120)
Gain on asset sales(4)... 3 11 808 1,869 349 349 230 1,379
Litigation settlement(5). -- -- -- 750 3,467 3,467 3,467 --
Other.................... 84 55 23 6 104 104 (27) 66
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 2,378 $ 1,817 $ 4,110 $ 4,921 $ 2,788 $ 2,934 $ 3,183 $ 4,558
======= ======= ======= ======= ======= ======= ======= =======
UNAUDITED PRO FORMA DATA:
Net income as reported
above................... $ 2,378 $ 1,817 $ 4,110 $ 4,921 $ 2,788 $ 2,934 $ 3,183 $ 4,558
Pro forma provision for
income taxes(6)......... (880) (672) (1,521) (1,821) (1,032) (1,090) (1,178) (1,685)
------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income.... $ 1,498 $ 1,145 $ 2,589 $ 3,100 $ 1,756 $ 1,844 $ 2,005 $ 2,873
======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income per
share(7)................ $ 0.18 $ 0.19 $ 0.30
Common and equivalent
shares outstanding...... 9,668 9,668 9,454
STATEMENT OF CASH FLOWS
DATA:
Cash provided by
operating activities.... $ 2,542 $ 3,062 $ 3,094 $ 269 $ 4,875 $ 1,092 $ 5,352
Cash provided by (used
in) investing
activities.............. (644) (1,143) 410 (2,410) (3,866) (2,228) (777)
Cash provided by (used
in) financing
activities.............. (2,033) (1,704) (3,123) 2,581 (706) 879 (3,989)
OTHER FINANCIAL DATA:
Depreciation and
amortization............ $ 426 $ 339 $ 347 $ 425 $ 696 $ 896 $ 174 $ 215
Capital expenditures..... 144 1,167 1,150 2,670 2,357 2,502 1,596 1,358
EBITDA(8)................ 2,982 2,225 4,054 2,919 1,092 2,066 (230) 3,922
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
AS OF AS OF DECEMBER 31, -----------------------------
JULY 31, ----------------------------- PRO FORMA
1992 1993 1994 1995 1996 HISTORICAL AS ADJUSTED(9)(10)
-------- ------ ------ ------- ------- ---------- ------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital......... $ 653 $ 88 $2,370 $ 2,714 $ 1,104 $ 2,387 $30,911
Net property, plant and
equipment.............. 3,337 2,952 3,582 4,079 5,546 6,043 6,043
Total assets............ 6,921 7,069 8,584 14,980 27,582 31,456 54,694
Long-term debt.......... 3,589 3,252 3,217 3,270 2,853 1,979 1,979
Stockholders' equity.... 2,622 1,980 2,681 5,255 6,219 8,717 36,441
</TABLE>
- --------
(1) Prior to December 31, 1992, the Company utilized a July 31 fiscal year
end. Beginning in 1993, the Company adopted a calendar year as its fiscal
year. Contract revenues for the five-month period ended December 31, 1992
were approximately $2.6 million. Other statement of operations data for
the five-month period ended December 31, 1992 have not been presented
because the amounts were not material.

(3) Included in selling, general and administrative expenses are bonuses paid
to the Stockholder Employees of approximately $0.2 million, $1.2 million
and $2.1 million for the years ended December 31, 1994, 1995 and 1996,
respectively, which were intended primarily to provide a means by which
the Stockholder Employees could meet the individual income tax obligations
arising from the pass through of the Company's taxable income to the
Stockholder Employees due to the status of the Predecessors as S
Corporations in 1996 and prior periods. See Note 6 below. Cash
compensation paid to the Stockholder Employees during the year ended
December 31, 1996 exceeded the amount of compensation levels set forth in
the employment contracts entered into between the Company and the
Stockholder Employees in May 1997 by approximately $1.9 million. Also
included in selling, general and administrative expenses for the year
ended December 31, 1996, and the three months ended March 31, 1997, is
non-cash compensation expense of $1,080,000 and $475,000, respectively,
related stock issued to employees. Such amounts are based on an estimated
initial public offering price of the Company's Common Stock, less a 10%
discount. See Note 2 of Notes to the historical financial statements of
the Predecessors included elsewhere in this Prospectus.

(5) The litigation settlement in 1995 represents the amount received as a
result of a claim by the Company against a general contractor for which
the Company served as a subcontractor. The litigation settlement in 1996
represents the amount received by the Company as a result of a claim
against a customer. See Note 13 of Notes to the historical financial
statements of the Predecessors included elsewhere in this Prospectus.

(6) The pro forma provision for income taxes gives pro forma effect to the
application of federal and state income taxes to the Company as if it were
a C Corporation for tax purposes. For all periods presented herein, the
Company and the Predecessors have operated as S Corporations for federal
and state income tax purposes. In June 1997, the stockholders of the
Company and the Predecessors made elections terminating the S Corporation
status of the Company and the Predecessors. As a result, the Company
became subject to corporate level income taxation following the
termination of such elections. See "The Company--Corporate Restructuring,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Notes 1 and 2 of Notes to the historical financial
statements of the Predecessors included elsewhere in this Prospectus.

23
<PAGE>

(7) Pro forma net income per share is calculated based on the number of shares
of Common Stock to be outstanding immediately after the Reorganization
(9,200,000) as if such shares had been outstanding throughout each period
presented, as increased for each period to reflect sufficient additional
shares required to be sold for such period to pay the pro forma
distribution payable to stockholders in excess of historical net income
for such period. The number of such additional shares is based on the
assumed initial public offering price of $15.00 per share, net of offering
expenses. See "The Company--Corporate Restructuring."

(8) EBITDA represents operating income plus depreciation, amortization and
non-cash compensation expense related to the issuance of stock and stock
options to employees. EBITDA is not a measure of cash flow, operating
results or liquidity as determined by generally accepted accounting
principles. The Company has included information concerning EBITDA as
supplemental disclosure because management believes that EBITDA is
commonly accepted as providing useful information regarding a company's
historical ability to incur and service debt. Management of the Company
believes that factors which should be considered by investors in
evaluating EBITDA include, but are not limited to, trends in EBITDA as
compared to cash flow from operations, debt service requirements, and
capital expenditures. Management of the Company believes that the trends
depicted by the Company's historical EBITDA reflect historical
fluctuations in the Company's business and the recent increase in the
level of the Company's activities. EBITDA as defined and measured by the
Company may not be comparable to similarly titled measures of other
companies. Further EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flow provided
by operations as determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.

(9) The pro forma balance sheet data of the Company as of March 31, 1997 gives
pro forma effect to (i) the distribution of cash to the stockholders of
one of the Predecessors prior to the closing of the Offering in an amount
equal to the estimated federal and state income taxes payable by such
stockholders on the undistributed earnings of such Predecessor through the
closing of the Offering, (ii) the distribution of marketable securities
and the assumption by such stockholders of the margin account indebtedness
associated with such marketable securities, (iii) borrowings of $4.5
million under the Company's revolving credit facility to fund a portion of
the cash distribution to such stockholders, (iv) the recording of a
deferred tax liability as a result of the termination of the status of the
Predecessors as S Corporations prior to the closing of the Offering and
(v) the Reorganization, in each case as if such event had occurred as of
March 31, 1997. See "The Company--Corporate Restructuring" and
"Capitalization."

24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company's results of operations are affected primarily by conditions
affecting offshore drilling contractors, including the level of offshore
drilling activity by oil and gas companies. The level of offshore drilling
activity is affected by a number of factors, including prevailing and expected
oil and natural gas prices, the cost of exploring for, producing and
delivering oil and gas, the sale and expiration dates of offshore leases in
the United States and overseas, the discovery rate of new oil and gas reserves
in offshore areas, local and international political and economic conditions
and the ability of oil and gas companies to access or generate capital
sufficient to fund capital expenditures for offshore exploration, development
and production activities. Improving oil and gas price levels over the past
five years have led to increased drilling activity in the Gulf of Mexico. This
increase in drilling activity is also attributable to a number of recent
industry trends, including three-dimensional seismic mapping, directional
drilling and other advances in technology that have increased drilling success
rates and efficiency and have led to the discoveries of oil and gas in subsalt
geological formations (which generally are located in depths of 300 to 800
feet of water) and deepwater areas of the Gulf of Mexico. In the deepwater
areas where larger and more technically advanced drilling rigs are needed,
increased drilling activity has increased demand for retrofitting offshore
drilling rigs and improved pricing levels for such services. In addition,
increased drilling activity in and around more mature fields in shallower
waters has contributed to the increase in demand for conversion, retrofit and
repair services for jackups and other offshore drilling rigs.

The Company believes that the current supply of offshore drilling rigs
worldwide is inadequate to satisfy increasing demand. From 1985 to 1996, there
has been a decrease in the number of offshore drilling rigs worldwide from 809
to 639 rigs. The Company believes that, of the 366 jackups currently marketed
worldwide, only 47 are capable of drilling in water depths greater than 300
feet and, of the 139 semisubmersibles currently marketed worldwide, only 25
are capable of drilling in water depths greater than 3,000 feet. In addition,
substantially all of the current fleet of offshore drilling rigs were built
more than ten years ago, and many of these rigs need to be converted or
modified in order to continue to operate economically or to meet the
requirements for deepwater drilling.

Due to increased demand for its services, the Company's backlog has
increased from $15.4 million at March 31, 1996 to $66.9 million at March 31,
1997. To accommodate this increased demand, the Company has recently leased
additional acreage adjacent to its existing shipyard in Pascagoula,
Mississippi that provides it with additional dockspace and covered fabrication
capacity and has increased its workforce from approximately 300 employees at
December 1, 1996 to approximately 800 employees at March 31, 1997. In
addition, the Company plans to commence construction in the second quarter of
1997 of a state-of-the-art shipyard that will be capable of constructing new
offshore drilling rigs and production units as well as converting,
retrofitting and repairing existing offshore drilling rigs and production
units. The addition of such facilities and capacity and the related increase
in workforce will cause a significant increase in the Company's costs due to
increased labor, lease rental and depreciation and amortization expenses.
Selling, general and administrative expenses and interest expense are also
expected to increase as a result of these business growth activities.
Management expects the increases in such costs will directly correlate to
anticipated increases in revenue from increased construction, conversion,
retrofit and repair activity. If such activity does not increase to the extent
management anticipates, the Company's gross profits, operating income and net
income could be adversely impacted by such increased costs.

For the last several years, substantially all of the Company's work force
was leased to the Company by employee leasing companies serving the Company
exclusively. All employee leasing arrangements were terminated as of May 18,
1997, and the Company now directly employs its employees at levels of wages
and benefits substantially equivalent to those formerly provided by the
employee leasing companies. Management of the Company believes that the costs
of directly employing its laborers will be essentially the same as the
historic

25
<PAGE>

cost of the employee leasing arrangement most recently terminated. In
connection with the termination of employee leasing arrangements, the Company
restructured its workmen's compensation insurance arrangements and utilizes a
different carrier from that used by the employee leasing companies. Management
of the Company believes that the change in workmen's compensation insurance
arrangements and carriers will not result in costs which are significantly
different than those which would have been incurred under the previous
arrangements.

The Company generally performs conversion, retrofit and repair services
pursuant to contracts that provide for a portion of the work to be performed
on a fixed-price basis and a portion of the work to be performed on a cost-
plus basis. In addition, the scope of the services to be performed with
respect to a particular drilling rig often increases as the project progresses
due to additional retrofits or modifications requested by the customer or
additional repair work necessary to meet the safety or environmental standards
established by the Coast Guard or other regulatory authorities. With respect
to the fixed-price portions of a project, the Company receives the negotiated
contract price, subject to adjustment only for change orders placed by the
customer. As a result, under fixed price arrangements, the Company retains all
cost savings but is also responsible for all cost over-runs. Under cost-plus
arrangements, the Company receives specified amounts in excess of its direct
labor and materials cost so that it is protected against cost overruns but
does not benefit from cost savings. The cost and productivity of the Company's
labor force are primary factors affecting the Company's operating profits.
Accordingly, control by the Company of the cost and productivity of direct
labor hours worked on its projects is essential. The Company has developed a
cost reporting system that provides accurate cost information to the Company's
project managers on a daily basis. The Company believes that the access to
information provided in this system allows it to better manage its current
projects as well as to negotiate contracts on new projects on a profitable
basis. See "Business--Customers and Marketing."

The Company's operations are subject to variations from quarter to quarter
resulting from fluctuations in demand for the Company's services and, due to
the large amounts of revenue that are typically derived from a small quantity
of projects, the timing of the receipt of awards for new projects. In
addition, the Company schedules projects based on the timing of available
capacity to perform the services requested and, to the extent that there are
delays in the arrival of a drilling rig or production unit into the shipyard,
the Company generally is not able to utilize the excess capacity created by
such delays. Although the Company may be able to offset the effect of such
delays through adjustments to the size of its skilled labor force on a
temporary basis, such delays may adversely affect the Company's results of
operations in any period in which such delays occur.

The Company's revenue on contracts is earned, for the most part, on the
percentage-of-completion method based upon the percentage that incurred costs
to date bear to total estimated costs. Accordingly, contract price and costs
estimates are reviewed periodically as the work progresses, and adjustments
proportionate to the percentage of completion are reflected in the accounting
period in which the facts which require such adjustments become known.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Other changes, including those
arising from contract penalty provisions and final contract settlements, are
recognized in the period in which the revisions are determined. To the extent
that these adjustments result in a reduction or elimination of previously
reported profits, the Company would report such a change by recognizing a
charge against current earnings, which might be significant depending on the
size of the project or the adjustment. Cost of revenue includes costs
associated with the fabrication process and can be further broken down between
direct costs (such as direct labor hours and raw materials) allocated to
specific projects and indirect costs (such as supervisory labor, utilities,
welding supplies and equipment costs) that are associated with production but
are not directly related to a specific project.

26
<PAGE>

through a charge to earnings estimated to be approximately $0.8 million in the
second quarter of 1997 attributable primarily to the difference in financial
reporting and tax reporting methods of accounting for depreciation and sales-
type leases.

RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 1996 and 1997

During the three months ended March 31, 1997, the Company generated revenue
of $18.7 million, an increase of 529%, compared to the $3.0 million generated
in the three months ended March 31, 1996. This increase reflects the
substantial increase in demand for conversion and retrofit services for the
three months ended March 31, 1997, including a greater number of relatively
larger projects, as compared to the three months ended March 31, 1996.

Cost of revenue was $12.8 million for the three months ended March 31, 1997,
compared to $2.4 million for the three months ended March 31, 1996, reflecting
the significant increase in contract revenue. Gross profit for the three
months ended March 31, 1997 was $5.9 million as compared to $0.5 million for
the three months ended March 31, 1996. As a percent of revenue, gross profit
for the three months ended March 31, 1997 increased as a result of the nature
of the projects being performed. Generally, larger scale conversion and
modification projects provide an opportunity for a higher gross profit than do
repair and inspection services.

Selling, general and administrative expenses ("SG&A expenses") were $2.6
million for the three months ended March 31, 1997 compared to $0.9 million for
the three months ended March 31, 1996. The increase in SG&A expenses is
primarily the result of the expansion of the Company's administrative staff
and facilities in relation to increased contract activity. SG&A expenses for
the three months ended March 31, 1997 also include $0.5 million in non-cash
compensation expenses related to stock granted to an employee. The decline in
SG&A expenses as a percent of revenue for the three months ended March 31,
1997 as compared to the three months ended March 31, 1996 is a result of the
relatively low level of contract activity in the three months ended March 31,
1996.

Operating income increased to $3.2 million for the three months ended March
31, 1997, from an operating loss of $0.4 million for the three months ended
March 31, 1996, reflecting primarily the significant increase in contract
revenue and related gross profit.

Net interest expense was $0.1 million for each of the three months ended
March 31, 1997 and 1996, reflecting a relatively stable interest rate
environment and a consistent level of net borrowings by the Company.

During the three months ended March 31, 1996, the Company received
approximately $3.5 million in proceeds from the settlement of a lawsuit filed
in 1992 related to a contract. There were no similar settlement proceeds
received in 1997.

In the three months ended March 31, 1997, the Company realized a gain of
approximately $0.9 million as a result of the distribution of certain
appreciated assets not used in the business to the stockholders of one of the
Predecessors. Also, gains of approximately $0.5 million resulted from the sale
of real estate held for investment and marketable securities. The gain on the
asset sales in the three months ended March 31, 1996 relates primarily to the
sale of marketable securities.

The pro forma provision for income taxes is the result of the application of
a combined federal and state tax rate (37%) to income before income taxes.
Prior to the consummation of the Offering, the stockholders of the Company and
the Predecessors will have terminated the S Corporation status of such
entities. As a result, the Company will become subject to corporate level
income taxation following such termination.

Comparison of the Years Ended December 31, 1996 and 1995

During the year ended December 31, 1996, the Company generated revenue of
$21.8 million, an increase of 9.5%, compared to the $19.9 million generated in
1995. This increase was caused primarily by an increase in

27
<PAGE>

overall demand for conversion and retrofit services and a general increase in
the size of the conversion and retrofit projects in 1996 as compared to 1995.

Cost of revenue was $15.8 million in 1996 compared to $13.5 million in 1995,
resulting in a decline in gross profit from $6.4 million in 1995 to $6.0
million in 1996. This decline is primarily the result of the change in nature
of the contracts performed in each year. In 1995, a much larger portion of
contract revenue was derived from contracts performed under a pooled resources
arrangement between the Company and PMB Engineering, Inc. ("PMB"), a
subsidiary of Bechtel Corporation. See "Business--PMB Arrangement." Under this
arrangement, the Company's cost of revenue consisted primarily of direct and
indirect labor related charges. Gross profit, as a percentage of revenue,
under such arrangements was generally higher than under contracts performed
solely by the Company. For contracts performed solely by the Company, cost of
contract revenue includes charges related to materials purchased on which the
gross profit percentage realized by the Company is generally lower, resulting
in an lower overall gross profit percentage.

SG&A expenses were $6.7 million in 1996 compared to $3.9 million in 1995.
SG&A expenses for 1996 and 1995 include bonuses of approximately $2.1 million
and $1.2 million, respectively, paid to the Stockholder Employees. Cash
compensation paid to the Stockholder Employees during the year ended December
31, 1996 exceeded the amount of compensation levels set forth in the
employment contracts entered into between the Company and the Stockholder
Employees in May 1997 by approximately $1.9 million. SG&A expenses for 1996
include $1.1 million of compensation expense related to the issuance of stock
to an employee of one of the Predecessors. Excluding such bonuses from both
years and the compensation expense related to the issuance of stock, SG&A
expenses increased by approximately $0.8 million. Such increase is primarily
the result of costs incurred by the Company related to increased business
development activities, including the pursuit of alternatives to increase the
Company's shipyard capacity, the opening of a Houston sales office and an
increase in charitable contributions resulting from a one-time contribution of
real property to a college.

Operating income declined by $3.2 million as a result of a slightly lower
gross profit margin combined with higher SG&A expenses. Excluding the effect
of the increase in bonuses and the issuance of stock discussed above,
operating income declined approximately $1.2 million, reflecting the change in
gross profit margin and the increase in SG&A expenses.

Net interest expense increased to $0.4 million in 1996 from $0.2 million in
1995. Interest expense increased by $0.2 million as a result of increased
borrowings to finance capital expenditures and approximately $2.1 million in
increased brokerage margin account borrowings. Interest income remained
constant at approximately $0.4 million, representing primarily interest on
certificates of deposit pledged against borrowings and interest earned on a
sales-type lease.

During 1996, the Company received approximately $3.5 million in proceeds
from the settlement of a lawsuit filed in 1992 related to a contract. In 1995,
the Company received $0.8 million in settlement proceeds related to a claim
against a general contractor for which the Company had served as a
subcontractor.

The gain on the sale of assets in 1996 relates to the disposition of certain
nonoperating assets, primarily land, and, to a lesser degree, the sale of
certain marketable securities. The 1995 gain on sale of assets relates to the
sale, under a sales-type lease, of certain land, buildings and a dock facility
formerly operated by the Company.

Comparison of the Years Ended December 31, 1995 and 1994

During the year ended December 31, 1995, the Company generated revenue of
$19.9 million, a decrease of 16.9%, compared to the $23.9 million generated in
1994. This decrease was caused primarily by a decrease in demand for
conversion and retrofit services and a general decrease in the size of the
conversion and modification

28
<PAGE>

projects in 1995 as compared to 1994. In February 1994, the Company entered
into a pooled resources arrangement with PMB which resulted in a large
contract that accounted for approximately $16.2 million in contract revenues
in 1994 and $8.7 million in contract revenues in 1995.

Cost of revenue was $13.5 million in 1995 compared to $18.1 million in 1994,
resulting in an increase in gross profit from $5.8 million in 1994 to $6.4
million in 1995. This increase is primarily as a result of change orders and
contract renegotiations which occurred in 1995 during the later stages of a
major contract begun in 1994, thereby enabling the Company to realize a higher
gross profit than was realized in 1994 during the earlier stages of the
contract.

SG&A expenses were $3.9 million in 1995 compared to $2.2 million in 1994.
SG&A expenses for 1995 include bonuses of approximately $1.2 million paid to
the Stockholder Employees whereas SG&A expenses for 1994 include only $0.2
million of such bonuses. Excluding such bonuses from both years, SG&A expenses
increased by approximately $0.7 million in 1995. Such increase is primarily
the result of increases in marketing and corporate travel, and the addition to
administrative personnel.

Operating income declined by $1.1 million from 1994 to 1995 primarily as a
result of higher SG&A expenses. Excluding the effect of the increases in
bonuses discussed above, operating income declined approximately $0.1 million
reflecting the increase in gross profit and the increase in SG&A expenses
discussed above.

Net interest expense decreased from $0.3 million in 1994 to $0.2 million in
1995. Interest expense increased by $0.3 million as a result of increased
borrowings to finance capital expenditures and to provide working capital.
Interest income increased by $0.4 million, representing primarily interest on
certificates of deposit pledged against borrowings and interest earned on a
sales-type lease.

The gain on the sale of assets in 1994 resulted primarily from the sales of
nonoperating assets.

PRO FORMA RESULTS OF OPERATIONS

On December 2, 1996, the Company completed the Friede Acquisition. On a pro
forma basis for 1996, giving effect to the Friede Acquisition as if completed
on January 1, 1996, the Company's revenues would have been $25.5 million,
gross profit would have been $6.9 million and operating income (loss) would
have been ($0.5) million. Excluding the $1.1 million of compensation expense
related to stock issued to employees and the $1.9 million amount by which cash
compensation paid to the Stockholder Employees exceeded the amount of
compensation levels set forth in the employment contracts entered into between
the Company and the Stockholder Employees in May 1997, pro forma operating
income would have been approximately $2.3 million. See the Pro Forma Statement
of Operations of the Company and the related notes thereto included elsewhere
in this Prospectus.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has financed its business activities through funds
generated from operations, a credit facility secured by accounts receivable,
and long-term borrowings secured by assets purchased with proceeds from such
borrowings. Net cash provided by operations was $3.1 million, $0.3 million and
$4.9 million for 1994, 1995 and 1996, respectively and $1.1 million and $5.4
million for the three months ended March 31, 1996 and 1997, respectively. Net
borrowings from all credit arrangements were $0.1 million, $4.8 million and
$4.0 million for 1994, 1995 and 1996, respectively, and $1.7 million for the
three months ended March 31, 1996. For the three months ended March 31, 1997,
the Company made net repayments on all credit arrangements of $3.6 million.

The Company's capital requirements historically have been primarily for
improvements to its facilities and related equipment. During 1996, capital
expenditures were approximately $2.4, including $1.2 million for the purchase
of cranes, $0.3 million for the improvements to existing facilities and $0.6
million for equipment. Capital expenditures were approximately $2.7 million in
1995 and $1.1 million in 1994, primarily for real estate and shipyard
equipment.

29
<PAGE>

At March 31, 1997, the Company had approximately $9.5 million of outstanding
indebtedness, of which approximately $3.8 million was secured by certificates
of deposit or marketable securities. Management expects to repay $1.1 million
of such indebtedness upon maturity of the remaining certificates of deposit in
July 1997. Of the remaining debt, approximately $1.4 million is secured by a
sales-type lease under which the lessee makes payments directly to the lender.

At March 31, 1997, the Company held marketable securities with a fair market
value of approximately $4.8 million that were considered available for sale.
At March 31, 1997, the Company also owed $2.7 million on brokerage margin
account borrowings.

In March 1997, HAM Marine entered into a new credit facility (the "Credit
Facility") which provides for borrowings of up to $10.0 million, subject to a
borrowing base limitation equal to 80% of eligible receivables. The Credit
Facility is secured by contract-related receivables. In connection with
obtaining the Credit Facility, HAM Marine repaid all outstanding indebtedness
under the provisions of the existing credit facility and such facility was
terminated. At March 31, 1997, $2.6 million was outstanding under the Credit
Facility and the borrowing base amount was $6.7 million. Borrowings under the
Credit Facility bear interest equal to the lender's prime lending rate plus
1/2% per annum. At March 31, 1997, the interest rate under the Credit Facility
was 9.0% per annum. The Credit Facility contains a number of restrictions,
including a provision which would prohibit the payment of dividends by HAM
Marine to the Company in the event that HAM Marine defaults under the terms of
such facility.

The Company currently intends to utilize the net proceeds of the Offering to
fund a portion of its anticipated capital requirements over the next 12 to 18
months of between $50 million and $65 million, including (i) approximately $29
million to construct and equip its new shipyard, (ii) approximately $3 million
for capital expenditures to increase the productive capacity and efficiency of
its existing shipyard, (iii) approximately $3 million for research and
development expenditures related to the design of new, technologically
innovative offshore drilling rigs and floating production units, (iv) between
$10 million and $20 million of additional working capital related to increased
levels of conversion, retrofit and repair activities and new construction of
offshore drilling rigs and floating production units and (v) $5 million to $10
million for general corporate purposes, which may include the establishment of
a manufacturing operation, either at the Company's shipyards or at another
location, that would be capable of constructing and assembling components of
new-build jackups or the acquisition of one or more businesses that are
complementary to the Company's operations. The Company would expect to fund
the remaining portion of its anticipated capital requirements from cash flow
from operations, borrowings available under its existing revolving credit
facility or additional borrowings. Pending the Company's use of the net
proceeds of the Offering, the Company intends to repay borrowings under its
existing revolving credit facility ($2.6 million in principal amount of
borrowings outstanding as of March 31, 1997 and $7.2 million as of March 31,
1997 giving pro forma effect to borrowings to be incurred to fund a
distribution of proceeds to the stockholders of one of the Predecessors prior
to the closing of the Offering) and to invest the remaining net proceeds to be
received by it from the Offering in short-term, investment-grade, interest-
bearing instruments.

As an additional source of borrowing capacity, the Company has received a
commitment letter from MARAD specifying that, subject to the completion of
documentation and the satisfaction of certain other conditions, MARAD would
provide its guarantee, supported by the full faith and credit of the United
States, for up to $24.8 million of bonds to be issued by the Company. The
proceeds from the sale of any MARAD-guaranteed bonds may be used only for
capital expenditures relating to the costs of constructing and equipping the
Company's new shipyard. The terms of the MARAD financing would permit the
Company to issue and sell bonds in increments. Due to the generally favorable
interest rates and payment terms of MARAD financing, the Company anticipates
that it would sell bonds under the MARAD financing arrangement in increments
as capital expenditures are incurred with respect to the new shipyard. Any
funds obtained from the MARAD financing would result in the availability of
other sources of capital, including proceeds from the Offering, cash from
operations and other borrowings, for use to satisfy the Company's other
capital requirements described above. There can be no assurance that the
Company will sell any MARAD-guaranteed bonds.

30
<PAGE>

Management believes that the net proceeds from the Offering, cash generated
by operating activities, and funds available under the Credit Facility will be
sufficient to fund the construction of the new shipyard and its working
capital needs at current levels of activity; however, additional debt
financing (such as the MARAD financing) or equity financing may be required in
the future if the Company increases its conversion, retrofit and repair
business or obtains orders to construct new drilling rigs or production units.
Although the Company believes that, under such circumstances, it would be able
to obtain additional financing, there can be no assurance that any additional
debt or equity financing will be available to the Company for these purposes
or, if available, will be available on terms satisfactory to the Company.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"
("SFAS No. 121"). The Company adopted SFAS No. 121 on January 1, 1996 and
there was no material impact on the Company's financial statements.

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." The disclosure
requirements of this Statement are effective for the Company's financial
statements beginning in fiscal 1996. The Company intends to apply the
accounting provisions of Account Principles Board Opinion 25, "Accounting for
Stock Issued to Employees." With the Company's plan of adoption, the impact
will be limited to additional footnote disclosure.

In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128"), "Earnings Per Share," which adopts a revised
methodology for computing earnings per share for publicly owned companies. The
Company will be required to adopt the new methodology in the fourth quarter of
1997 and could also be required to restate previously reported amounts. Early
adoption of SFAS No. 128 is not permitted. The Company does not expect the
application of SFAS No. 128 to materially change the Company's reported
earnings per share.

31
<PAGE>

BUSINESS

Friede Goldman International Inc. is a leading provider of conversion,
retrofit and repair services for offshore drilling rigs, including jackups,
submersibles, semisubmersibles and drillships, and has entered the emerging
market for conversion of offshore drilling units and tankers into deepwater
FPSOs. The Company, through its subsidiary HAM Marine, has been continuously
engaged in the business of converting, retrofitting and repairing offshore
drilling rigs since 1982. In the last seven years, the Company has completed
47 offshore drilling rig conversion or retrofit projects. The Company, through
its acquisition of Friede & Goldman in December 1996, is one of the world's
largest designers of offshore drilling rigs. Friede & Goldman and its
predecessors have been continuously engaged in the business of offshore rig
design for more than 50 years. The Company offers its customers a full range
of design, engineering, construction, conversion, retrofit and repair services
for offshore drilling rigs, including construction of new-build offshore
drilling rigs. The Company's customers consist primarily of drilling
contractors that drill offshore exploratory and development wells for oil and
gas companies throughout the world, particularly in the Gulf of Mexico, the
North Sea and areas offshore of West Africa and South America.

The Company currently operates a 32-acre shipyard that is strategically
located in Pascagoula, Mississippi with direct access to the Gulf of Mexico.
The shipyard has the capacity to provide conversion, retrofit and repair
services on six offshore drilling rigs simultaneously. Due to increased demand
for its services, the Company has increased its backlog from $15.4 million at
March 31, 1996 to $66.9 million at March 31, 1997. To accommodate this
increased demand, the Company has recently leased additional dock space and
fabrication buildings adjacent to its existing shipyard in Pascagoula,
Mississippi and has increased its workforce from approximately 300 employees
at December 1, 1996 to approximately 800 employees at March 31, 1997.

The Company plans to commence construction in the second quarter of 1997 of
a new state-of-the-art shipyard on a 85-acre site located approximately six
miles from the existing shipyard. The new shipyard has been designed
specifically to promote the most timely and efficient construction of new
offshore drilling rigs, and could also be used for conversion, retrofit and
repair services. The Company believes that the expected efficiencies of its
new shipyard, together with the Company's offshore drilling rig design
capabilities, its established relationships with its drilling contractor
customers and its extensive construction experience, will provide the Company
with competitive advantages in the developing market for new construction of
offshore drilling rigs. In addition, the Company may use its shipyards, or
establish a separate manufacturing facility, to construct and assemble various
components of Friede & Goldman designed jackups that it would sell as kits
that could be used in the construction of new-build jackups either at the
Company's shipyards or other shipyards. These kits would include such
manufactured components, including Friede & Goldman's patented rack chock leg
fixation system, and a Friede & Goldman jackup design.

OFFSHORE DRILLING INDUSTRY

The level of worldwide offshore drilling activity has increased substantially
over the last two years, resulting in an increase in worldwide drilling rig
utilization to 99% in May 1997. Dayrates worldwide for cantilever jackups
capable of drilling in water depths of 300 or more feet have increased from a
weighted average of $36,600 in May 1996 to a weighted average of $61,100 in
May 1997, with a recently reported high of $116,000. Similarly, dayrates
worldwide for third and fourth generations of semisubmersibles have increased
from a weighted average of $83,500 in May 1996 to a weighted average of
$118,200 in May 1997, with a recently reported high of $175,000. In addition,
oil and gas operators have recently begun to enter into multi-year contracts
with drilling contractors for offshore drilling rigs due to the tightness of
supply for available units. In deepwater areas where larger and more
technically advanced drilling rigs are needed, increased drilling activity has
also increased demand for retrofitting offshore drilling rigs to enhance their
technical capabilities and improved pricing levels for such services. In
addition, increased drilling activity in and around more mature fields in
shallower waters has contributed to the increase in demand for conversion,
retrofit and repair services for jackups and other offshore drilling rigs.

The Company believes that these positive trends will continue due to (i) the
increasing percentage of worldwide oil supply being produced from offshore
areas, (ii) the large increases in cash flow experienced by

32
<PAGE>

many oil and gas companies, (iii) the increases in capital expenditure budgets
for offshore drilling activity by oil and gas companies, (iv) technological
advancements relating to exploration, development and production techniques,
including three-dimensional seismic mapping and geological interpretation,
directional drilling and subsea completions, that have increased drilling
success rates and improved efficiencies of development and production
activities and (v) the increased focus on deepwater exploration and production
projects, particularly in the Gulf of Mexico, as evidenced by significant
increases in the number of deepwater blocks under lease and the prices paid
for deepwater leases during each of the last five years and the record $1.25
billion paid for offshore leases at the most recent lease sale held in March
1997.

The Company believes that the current supply of offshore drilling rigs
worldwide is inadequate to satisfy increasing demand. From 1985 to 1996, there
has been a decrease in the total number of offshore drilling rigs worldwide
from 809 to 639 rigs. The Company believes that, of the 366 jackups currently
marketed worldwide, only 47 are capable of drilling in water depths greater
than 300 feet and, of the 139 semisubmersibles currently marketed worldwide,
only 25 are capable of drilling in water depths greater than 3,000 feet. In
addition, substantially all of the current fleet of offshore drilling rigs
were built more than ten years ago, and many of these rigs need to be
converted or modified in order to continue to operate economically or to meet
the requirements for deepwater drilling.

COMPETITIVE STRENGTHS

The Company believes that one of its principal competitive strengths is its
capability to offer its drilling contractor customers a full range of design,
engineering, construction, conversion, retrofit and repair services for
offshore drilling rigs, including construction of new-build offshore drilling
rigs. The Company also believes that its reputation for quality and
reliability, its long-standing relationships with most of the large offshore
drilling contractors, its experienced management team, its existing skilled
labor force and its extensive fabrication and construction experience are
competitive strengths. In addition, the Company's existing shipyard and the
site for its proposed new shipyard are located in an area that has a long
history of shipyard activity due to its access to the Gulf of Mexico. As a
consequence of slowdowns in the construction of other types of marine ships
and vessels, particularly those used for military defense purposes, the
Company believes that there are currently additional skilled workers available
in this area whom the Company could employ to the extent necessary to satisfy
any increased demand for conversion, retrofit and repair services and to staff
the new shipyard.

CURRENT ACTIVITIES

The following table sets forth certain information relating to the
conversion, retrofit and repair projects as to which the Company is currently
involved or recently completed.

<TABLE>
<CAPTION>
NAME OF
CUSTOMER TYPE OF RIG DRILLING RIG NATURE OF PROJECT
-------- ----------- ------------ -----------------
<S> <C> <C> <C>
Noble Drilling Jackup Bill Jennings Convert slot jackup to
Corporation cantilevered jackup(1)
Noble Drilling Jackup Leonard Jones Convert slot jackup to
Corporation cantilevered jackup(1)
Sedco Forex S.A. Semisubmersible Bill Shoemaker Retrofit semisubmersible
for deepwater capabilities(1)
Noble Drilling Semisubmersible Paul Romano Convert submersible to
Corporation semisubmersible with
deepwater capabilities(1)
Marine Drilling Jackup Marine 15 Replace hull and quarters
Companies, Inc. damaged by fire(2)
Diamond Offshore Semisubmersible Saratoga Perform U.S. Coast Guard
Drilling, Inc. mandated 5-year inspection(2)
Reading & Bates Semisubmersible M. G. Hulme, Jr. Drill floor upgrade(1)
Corporation
Global Industries, Ltd. Crane barge Hercules Structural upgrade(1)
</TABLE>
- --------
(1) Projects currently in progress.
(2) Projects recently completed.

33
<PAGE>

On July 7, 1997, a subsidiary of Noble Drilling Corporation authorized the
Company to perform the fabrication and installation of pontoons and columns in
connection with the conversion of a submersible drilling rig to a
semisubmersible drilling rig. The Company plans to perform the installation of
the lower hull pontoons aboard the Company's towable drydock.

OVERVIEW OF OFFSHORE DRILLING EQUIPMENT

The Company's primary customers are drilling contractors with operations in
the Gulf of Mexico, the North Sea, offshore West Africa and South America and
other offshore areas of the world. These drilling contractors generally own
and operate offshore drilling rigs and provide drilling services to oil and
gas companies. Several factors determine the type of rig most suitable for a
particular project, the more significant of which are the marine environment,
water depth and seabed conditions at the proposed drilling location, whether
the drilling is to be done over a production platform or other fixed
structure, the intended well depth, and variable deck load and well control
requirements. A brief description of the types of offshore drilling rigs and
production units currently serviced by the Company is set forth below.

SEMISUBMERSIBLES. Semisubmersible rigs consist of an upper working and
living deck resting on vertical columns connected to lower hull members. Such
rigs operate in a "semi-submerged" position, remaining afloat, in a position
which places the water-line approximately half way between the top of the
lower hulls and bottom of the deck. The rig is typically anchored in position
and remains stable for drilling in the semi-submerged floating position.

LOGO
[LOGO APPEARS HERE]

FRIEDE & GOLDMAN DESIGN PACESETTER - CLASS SEMISUBMERSIBLE

There have been four generations of semisubmersible drilling rigs, with each
successive generation incorporating improvements which enable the rigs to
drill more efficiently and in increasingly harsh marine environments. Fourth
generation semisubmersibles are typically capable of operating in water depths
of up to 5,000 feet and, in some cases, greater depths. Certain fourth
generation semisubmersibles are equipped with computer controlled thrusters to
allow for dynamic positioning of the rig, which allows it to remain on
location over a drillsite in deep waters without the use of anchors.

While the Company has performed some modification and repair work on fourth
generation semisubmersibles, the majority of the Company's work to date has
involved the retrofit and repair of earlier generation semisubmersibles which
generally operate in maximum water depths of between 1,000 to 2,000 feet.

34
<PAGE>

The design of many of these semisubmersible rigs, including long fatigue-life
and advantageous stress characteristics, together with increasing demand for
deepwater drilling capabilities have made them well-suited for significant
retrofitting projects. The Company has completed 17 projects involving
semisubmersibles and is currently working on a conversion of a submersible rig
to a semisubmersible rig, the retrofit of a semisubmersible for deepwater
capabilities and one inspection of a semisubmersible required by U.S. Coast
Guard regulations.

JACKUPS. Jackup rigs are mobile, self-elevating drilling platforms equipped
with legs that are lowered to the ocean floor until a foundation is
established to support the drilling platform. The rig hull includes the
drilling rig, jacking system, crew quarters, loading and unloading facilities,
storage areas for bulk and liquid materials,
heliport and other related equipment. Jackups are used extensively for
drilling in water depths from 20 feet to 400 feet. Some jackup rigs have a
lower hull (mat) attached to the bottom of the rig legs, while others have
independent legs.

LOGO
[LOGO APPEARS HERE]

FRIEDE & GOLDMAN DESIGN L-780 JACKUP

Jackup rigs can be generally characterized by their design as either slot
jackups or cantilevered jackups. Slot jackups are generally of an older
vintage and are configured for drilling operations to take place through a
slot at the aft of the hull. A slot design is generally appropriate for
drilling exploratory wells in the absence of any existing permanent structure,
such as a production platform. A cantilevered jackup can extend its drill
floor and derrick and either drill exploratory wells or drill over an
existing, fixed structure, thereby permitting the rig to drill new wells or
work over existing wells through such a structure. Many slot-design rigs have
been converted to cantilever configurations. The Company has completed 27
projects involving jackups and is currently working on conversions of two slot
jackups to cantilevered jackups as well as replacing the hull and quarters of
a third jackup damaged by fire.

35
<PAGE>

DRILLSHIPS. Drillships, which are typically self-propelled, are positioned
over a drillsite through the use of either a mooring system or a computer
controlled thruster (dynamic positioning) system similar to those used on
certain fourth generation semisubmersible rigs. Drillships are capable of
operating in water depths ranging from 200 feet to 10,000 feet.

LOGO
[LOGO APPEARS HERE]

FRIEDE & GOLDMAN DESIGN DRILLSHIP

FLOATING PRODUCTION FACILITIES. A floating production facility ("FPF")
consists of a ship or semisubmersible vessel upon which drilling and production
equipment is mounted. In most cases, the hull is a converted tanker (often
referred to as a floating, production, storage and offloading, or FPSO, unit).
In addition, semisubmersible drilling units have been converted into floating
production units. In a few cases, a new hull has been purpose-built as a FPF.
For harsh weather locations, FPFs are designed with a mooring system that
provides weathervaning capability so that the FPF can be rotated on location to
minimize the effects of wave, wind and current actions. The production risers
in these FPFs are connected to the hull through a swivel system that also
accommodates the mooring system. The hull of an FPF is typically used for on-
board oil storage, which is an important feature for remote locations where
export pipelines are not available and fixed oil storage availability is
limited or nonexistent. The Company has been involved in the conversion of a
tanker into a FPSO and the conversion of a semisubmersible into a FPS.

LOGO
[LOGO APPEARS HERE]

FRIEDE & GOLDMAN DESIGN FPSO

36
<PAGE>

DESCRIPTION OF OPERATIONS

The Company's current operations consist primarily of conversion, retrofit
and repair projects for offshore drilling contractors. In the last seven
years, the Company has been involved in 47 conversion, retrofit or repair
projects, consisting of 27 jackup projects, 17 semisubmersible projects and
three submersible projects. Significant conversion or retrofit projects such
as these generally take eight to 14 months to complete, whereas certain repair
projects may require only one to three months to complete. A brief summary of
the types of projects the Company completes is set forth below.

CONVERSIONS. Conversions consist generally of the conversion of one type of
drilling rig into a different type, such as the conversion of a slot jackup to
a cantilevered jackup, the conversion of a submersible rig to a
semisubmersible rig, or the conversion of a drilling rig or tanker into a FPF.
The Company has completed four conversions since 1988. Of these conversions,
three consisted of converting drilling rigs (jackups and semisubmersibles)
into FPFs and the other conversion consisted of the conversion of a
supertanker into a FPSO. FPF conversions typically require the demolition and
removal of all drilling equipment and substructure (including the derrick
system, rotary system, tubulars, mud treating and pumping units and well
control systems) and the reconfiguration of the decks to accommodate heavy
skid mounted processing modules and production risers and handling equipment.
This production equipment is then interconnected through the installation of
piping, electrical wiring and walkways. Because production, processing and
storage facility additions typically increase a rig's variable deck load, the
Company is typically required to complete hull reinforcements and buoyancy and
stability enhancements.

The Company is currently in the process of converting two slot jackups to
cantilevered jackups and converting a submersible drilling rig into a
semisubmersible drilling rig.

A description of selected conversion projects completed by the Company is
set forth below:

<TABLE>
<CAPTION>
CUSTOMER PROJECT TYPE TASKS COMPLETED
-------- ------------ ---------------
<C> <C> <S>
Oceaneering Production Conversion of a tanker into a . fabrication and
Systems FPSO installation of 770
tons of structural
steel
. replacement of 130
tons of deteriorated
tank steel
. installation of 27
process modules
. installation of 24,000
feet of 18" process
piping
. installation of 5,000
feet of 26" ship
service, ballast and
cargo pipe
Oceaneering International, Inc. Conversion of jackup to a FPF . removal of 550 tons of
drilling equipment and
substructure
. replacement of 60 leg
members and joints and
bottom shell plate
. installation of
foundations and hull
reinforcement for
skid-on modules
. installation of
production modules,
together with piping,
wiring, walkways and
platforms
. installation of new
heliport
. renovation of crew
quarters
. installation of hull
ventilation system
. installation of 10-
year anode system for
leg protection
</TABLE>

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<PAGE>

RETROFITS. Retrofits consist generally of improvements to the technical
capabilities, tolerances and systems of drilling and production equipment.
Retrofits performed on semisubmersible rigs include buoyancy and stability
enhancements (typically pontoon extensions and additional column sponsons) and
the addition or improvement of self-propulsion systems, positioning thrusters
and self-contained mooring systems. Jackup retrofits include strengthening and
extending the rig legs and reinforcing the spud cans on the existing legs.

The Company is also capable of upgrading living quarters and facilities to
accommodate harsh environment drilling conditions and to meet North Sea
regulatory requirements, improving ventilation systems and strengthening or
replacing heliports to accommodate larger aircraft.

A description of selected retrofit projects completed by the Company is set
forth below:

<TABLE>
<CAPTION>
CUSTOMER PROJECT TYPE TASKS COMPLETED
-------- ------------ ---------------
<C> <C> <S>
Sedco Forex S.A. Semisubmersible retrofit . dry dock of 12,000 ton
rig
. modification and
repair of pipe rack
deck
. installation of 10-
year anode system for
leg protection
. installation of
additional mud pits
. replacement of
production piping
. fabrication and
installation of hull
sponsons
. fabrication and
installation of third
level quarters and
helideck
Hercules Offshore Jackup retrofit (legs and hull) . removal of existing
Corporation lower legs
. repair and recondition
at upper 140' of legs
. acquisition,
fabrication and
installation of new
300 ton lower leg
sections
. dry docking for
replacement of 113
tons of deteriorated
steel in mat base
Noble Drilling Corporation Submersible retrofit and . refurbishment of
refurbishment columns and footing
. installation of
permanent access and
work platforms
. installation of water
tight bulkhead and
flats
. exterior blasting,
cleaning and painting
CONOCO, INC. TLP(1) retrofit . fabrication and
installation of
production manifolds
. installation of mud
piping and completion
fluid lines
. fabrication and
installation of towing
and mooring padeyes,
production riser
porches, drilling
substructure landing
guides
. exterior blasting,
cleaning and painting
</TABLE>
- --------
(1) Tension Leg Platform

REPAIRS. The Company performs a broad range of inspection and repair work
for its clients. Necessary repairs are identified both in connection with
retrofit and conversion projects as well as in connection with periodic
inspections performed at the shipyard which are required by the U.S. Coast
Guard and by vessel classification societies such as the American Bureau of
Shipping. Rigs are typically inspected for systems operability and structural
integrity, with ultrasonic thickness gauge readings employed to detect
structural fatigue or aberrations. Repair work may include the repair or
renewal of piping, spud cans, electrical and drilling systems, removal and
replacement of deteriorated or pitted steel and blasting, coating and painting
of exterior surfaces. The Company's repair work has also included the
refurbishment of drilling systems as well as the

38
<PAGE>

overhaul of generators, boilers, condensers, ballast and cargo valves, rig
cranes and production compressors. The Company recently completed the
replacement of the hull and living quarters for a jackup.

PROPERTY AND EQUIPMENT

PASCAGOULA SHIPYARD

FACILITIES. The Company's principal shipyard is located on the Pascagoula
River in Pascagoula, Mississippi. The shipyard occupies 32 acres and includes
a 1,000 foot long concrete cap pile reinforced dock with 38 feet of water
depth dockside. The shipyard is adjacent to the port's turning basin and has
unobstructed access to the Gulf of Mexico. The shipyard includes approximately
13,000 square feet of office space, a 4,500 square foot pipe shop, a 7,500
square foot structural shop and 24,000 square feet of fabrication platens. The
Company leases the shipyard from the Jackson County Port Authority pursuant to
a long-term lease which expires in May 2005 with two additional ten-year
options for renewal. In December 1996, the Company entered into a two-year
lease for 522.5 additional feet of dockspace and 160,000 additional square
feet of covered fabrication areas adjacent to its current facility. The
Company is currently constructing a 20,000 square foot building that will be
used for engineering and administrative personnel, which building is located
on land covered by the long-term lease relating to the main shipyard facility.
This building is expected to be completed in July 1997.

EQUIPMENT. The Company owns and has access to a broad range of material
handling, cutting and beveling, and blasting and painting equipment. Both the
fabrication shop and pipe shops at the existing shipyard are equipped with 10-
ton and 5-ton overhead gantry cranes. In addition, the Company has a 300-ton
barge mounted crane and one 600-ton, one 200-ton and three 150-ton mobile land
cranes. Other equipment includes six cherry pickers with capacities ranging
from 15 to 55 tons and three fork lifts.

The Company utilizes a variety of oxy-gas cutting equipment for use in its
structural and piping work, including both manual hand-held equipment and
semi-automatic equipment. If appropriate for the work involved, the Company
also utilizes the services of numerous steel suppliers in the region who have
fully automatic multi-head equipment which produces materials which are fully
cut and beveled and ready for final assembly. The Company also owns a full
range of blasting and painting equipment capable of handling small and large
blasting and painting projects. The Company owns eight portable diesel
compressors ranging in size from 385 cubic feet per minute to 1,600 cubic feet
per minute totaling in excess of 9,000 cubic feet per minute for use in these
operations.

The Company utilizes the services of local steel suppliers and vendors who
efficiently provide for the majority of the Company's plate forming and
rolling requirements.

NEW SHIPYARD

In December 1996, the Company entered into an agreement with the Port
Authority of Jackson County, Mississippi pursuant to which the Company will
develop a new shipyard on 85 acres located approximately six miles from the
Company's existing shipyard. The new shipyard will have approximately 35 feet
of water depth dockside and will have unobstructed access to the Gulf of
Mexico. The design for the state-of-the-art shipyard provides for extensive
use of automated construction equipment, floating and dockside cranes, panel
lines, launchways and 1,100 feet of reinforced bulkhead dockspace and an
additional 1,950 feet of dockspace that could be developed in the future.
Improvements planned to be constructed on the site include an assembly area
covering in excess of 100,000 square feet, a 60,000 square foot fabrication
building, a 15,000 square foot machinery building, a 10,000 square foot office
building, a 10,000 square foot pipe shop and a 20,000 square foot warehouse.
Other planned buildings will house a welding shop, paint storage, bulk gas
storage, air compressor facilities, a safety building and warehouse space. The
new shipyard is expected to cost approximately $29 million to construct and
equip. In connection with the construction of the new shipyard, the County of
Jackson, Mississippi has agreed to dredge the ship channel and build roads and
other infrastructure related to the new shipyard, at a total cost to the
County of approximately $6 million, under an economic incentive program.

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<PAGE>

The Company plans to commence construction of the new shipyard in the second
quarter of 1997 and expects that the shipyard will be operational by early
1998 and completed later that year.

NEW MANUFACTURING OPERATION

The Company is currently considering the establishment of a manufacturing
operation, either at its shipyards or at a separate location, that would be
capable of constructing and assembling various components of Friede & Goldman
designed jackups, including Friede & Goldman's patented rack chock leg
fixation system, the jacking system (gears, pinions, jacking motors and
jacking controls), leg racks, chords, tubular members and the jacking system
foundation structure. If the Company determines to pursue this operation, it
expects that it would sell these components, along with Friede & Goldman
jackup designs, as kits that could be used in the construction of new-build
jackups either at the Company's new shipyard or at other shipyards. The
Company anticipates that it would pursue the establishment of this operation
if it concludes that there is sufficient demand for these kits and that such
operation would be profitable in light of the necessary expenditures involved
and the anticipated revenues and costs associated with such operation.

FRIEDE ACQUISITION

In December 1996, a company owned by certain of the current stockholders of
the Company entered into an agreement, as amended (the "Purchase Agreement"),
with the Friede Predecessor and Jerome L. Goldman, the sole owner of Friede
Predecessor. Pursuant to the terms of the Purchase Agreement, the acquiring
company purchased all of the Friede Predecessor's assets used in the creation,
development, licensing and sale of engineering designs for mobile offshore
drilling units and mobile production vessels. Friede Predecessor retained all
assets used in the design of marine vessels such as river craft and oceangoing
ships. The purchased assets included the corporate name Friede & Goldman (and
variations thereof), certain patents as well as all completed and drilling
vessel designs under development, business methods, engineering, know-how,
blueprints, drawings and computer programs relating to drilling vessels. The
Purchase Agreement specifically excludes from the purchased assets Friede
Predecessor's Mod V and Mod VI drilling vessel designs. The Mod V and Mod VI
are jackup designs, commonly referred to as the "Monarch Class," "Galaxy
Class" or "Universe Class," and have been sold by Friede Predecessor under a
separate agreement to a Singapore shipbuilding company. Following the
completion of the Friede Acquisition, the acquiring company changed its name
to Friede & Goldman, Ltd., and the Friede Predecessor discontinued use of such
name as its company name.

In conjunction with the execution of the Purchase Agreement, Friede
Predecessor entered into a non-competition agreement with Friede & Goldman
which prohibits Friede Predecessor from competing with Friede & Goldman (or
the Company) for a period of two years in Louisiana, Texas, Singapore, South
Korea, Japan, the United Kingdom, Norway and Brazil. Mr. Goldman likewise
entered into a ten-year consulting agreement with Friede & Goldman which
contains similar non-competition provisions. Friede & Goldman currently
employs most of Friede Predecessor's former employees.

40
<PAGE>

a maximum of $1 million to be paid in any year with respect to any such three-
year period. In the event that Friede & Goldman fails to make any of the
payments described on a timely basis, Friede Predecessor has the right to
require that all of the assets purchased from Friede Predecessor (other than
the name "Friede & Goldman" and derivatives thereof) be returned to Friede
Predecessor and the right to terminate the consulting and non-compete
provisions of the Purchase Agreement.

MATERIALS

The principal materials used by the Company in its fabrication business are
standard steel shapes, steel plate, pipe, welding wire and gases, fuel oil,
gasoline and paint. The Company believes that such materials are currently
available in adequate supply from many sources. The Company does not depend
upon any single supplier or source.

SAFETY AND QUALITY ASSURANCE

Management is concerned with the safety and health of the Company's
employees and maintains a stringent safety assurance program to reduce the
possibility of accidents. The Company's safety department establishes
guidelines to ensure compliance with all applicable state and federal safety
regulations and provides training and safety education through orientations
for new employees and subcontractors, weekly crew safety meetings and first
aid and CPR training. The Company also employs a registered nurse as an in-
house medic. The Company has a comprehensive drug program and conducts
periodic employee health screenings. A safety committee, whose members consist
of management representatives and field supervisors, meet monthly to discuss
safety concerns and suggestions that could prevent future accidents. The
Company has contracted with a third party safety consultant to provide
training and suggestions and a licensed emergency medical technician in its
ongoing commitment to a safe and healthy work environment. The Company
believes that its safety program and commitment to quality are vital to
attracting and retaining customers and employees.

The Company fabricates according to the standards of the American Bureau of
Shipping, Det Norski Veritas, American Petroleum Institute, the American
Welding Society, the American Society of Mechanical Engineers and specific
customer specifications. The Company uses welding and fabrication procedures
in accordance with the latest technology and industry requirements. Training
programs have been instituted to train skilled personnel and to maintain high
quality standards. In addition, the Company contracts with independent
contractors to perform x-ray inspections of steel and pipe welds. Management
believes that these programs enhance the quality of its products and reduce
their repair rate.

CUSTOMERS AND MARKETING

The Company's customers are primarily offshore drilling contractors, many of
whom have been customers of the Company for more than 15 years, and the
Company believes that it has developed strong relationships with its customer
base. During the past five years, the Company has provided conversion,
retrofit and repair services to substantially all of the large offshore
drilling contractors. During such period, the Company's customers have
included Atwood Oceanics, Inc., Cliffs Drilling Company, Diamond Offshore
Drilling, Inc., ENSCO International Incorporated, Falcon Drilling Company,
Inc., Hercules Offshore Corporation, Marine Drilling Companies, Inc., Noble
Drilling Corporation, Reading & Bates Corporation, Sedco Forex S.A.,
Transocean Offshore Inc. and Oceaneering Production Systems. The Company has
recently commenced work on a project for Noble Drilling Corporation to convert
the Paul Romano submersible drilling rig into a semisubmersible drilling rig
capable of drilling in deeper water and to improve its technical drilling
capabilities.

The Company's marketing efforts are conducted from its sales offices in
Pascagoula and Houston and target drilling contractors located primarily in
the Gulf Coast area and in Europe. The Company's sales staff attempts to
identify future contracts by contacting its clients on a regular basis (in
some cases weekly) in order to anticipate projects that will be competitively
bid or negotiated exclusively with the Company. The Company's sales force
often invites potential clients to the Pascagoula shipyard for a tour and
presentation.

41
<PAGE>

The Company is actively involved in strengthening its relationships with
drilling contractors through continuous interaction between the Company's
project managers and the customers' project supervisors with respect to
ongoing projects. To accommodate the needs of the customers' project
supervisors, the Company has established on-site office facilities that such
project supervisors may use during the duration of a major conversion or
retrofit project. In addition, the Company has established an advisory
committee, comprised of key management personnel from many of the largest U.S.
drilling contractors, that meets with the Company's management quarterly to
provide the Company with insight and advice with respect to both individual
current and future needs as well as broader industry trends that the Company
utilizes for planning purposes.

A large portion of the Company's revenue has historically been generated by
a few customers although not necessarily the same customers from year-to-year.
For example, the Company's largest customers (those which individually
accounted for more than 10% of revenue in a particular year) collectively
accounted for 86%, 82% and 72%, of revenue for 1994, 1995 and 1996,
respectively. For 1996, the Company derived more than 10% of its revenue from
each of Diamond Offshore Drilling, Inc., Hercules Offshore Corporation, Noble
Drilling Corporation and Sedco Forex S.A. Based on its current backlog of
projects, the Company expects that a significant portion of the Company's
revenues for 1997 will be derived from one customer, Noble Drilling
Corporation. Because the level of conversion, retrofit or repair work that the
Company may provide to any particular customer depends on the size of that
customer's capital expenditure budget devoted to such projects in a particular
year, customers that account for a significant portion of revenue in one
fiscal year may represent an immaterial portion of revenue in subsequent
years.

CONTRACT STRUCTURE AND PRICING

The Company generally performs conversion, retrofit and repair services
pursuant to contracts that provide for a portion of the work to be performed
on a fixed-price basis and a portion of the work to be performed on a cost-
plus basis. In many cases, the Company commences work with respect to certain
portions of a drilling rig conversion, retrofit or repair project on a cost-
plus arrangement as soon as the drilling rig arrives in the Company's shipyard
and thereafter the scope and pricing arrangements with respect to other
aspects of the project are negotiated. In the interest of expediting the
completion of a conversion, retrofit or repair project, a drilling rig may
arrive in the Company's shipyard before the design work for such project is
finished or before all necessary budgetary approval for such project has been
received at the appropriate level of management of the customer. In many of
these cases, the portion of the project as to which no firm pricing
arrangement has been agreed to at the time the drilling rig arrives at the
Company's shipyard ultimately becomes a significant portion of the overall
project. In addition, the scope of the services to be performed with respect
to a particular drilling rig often increases as the project progresses due to
additional retrofits or modifications requested by the customer or additional
repair work necessary to meet the safety, environmental or construction
standards established by the U.S. Coast Guard or other regulatory or vessel
classification authorities.

With respect to the fixed-price portions of a project, the Company receives
the price fixed in the contract for such aspect of the project, subject to
adjustment only for change orders placed by the customer. The Company
typically receives a significant number of change orders on each of its fixed-
price projects as to which the Company and its customer negotiate a separate
charge. With respect to fixed-price contracts, the Company generally retains
the ability to capture cost savings and must absorb cost over-runs. Under
cost-plus arrangements, the Company receives specified amounts in excess of
its direct labor and materials cost and so is protected against cost overruns
but does not benefit directly from cost savings. The Company generally prices
materials at a mark-up under its contracts. The Company believes that recently
it has realized a majority of its revenue under fixed-price contracts,
although historically the percentages of revenue it has derived from fixed-
price contracts and cost-plus contracts have fluctuated significantly from
project to project and from period to period based on the nature of the
projects involved, the type of pricing arrangements preferred by its
customers, the timing of the commencement of work on a project in relation to
the timing of the completion of the negotiation and contracting process, and
other factors.

42
<PAGE>

COMPETITION

The Company has two primary competitors for conversion, retrofit and repair
projects for drilling rigs that operate in the Gulf of Mexico. In
international markets, the Company competes with several companies located,
primarily in the United States, Europe and the Far East. The Company believes
it competes favorably against companies located in Europe or the Far East for
conversion, retrofit and repair projects relating to drilling rigs operating
in the Gulf of Mexico and, to a lesser extent, rigs operating offshore West
Africa and South America. The Company believes this is due to (i) generally
higher labor costs in Europe, (ii) costs associated with transporting drilling
systems, mud treatment systems and other equipment necessary to convert or
retrofit a drilling rig (which items are generally produced in the U.S. Gulf
of Mexico region) to Europe or the Far East, (iii) costs associated with
relocating supervisory personnel of the owner of the drilling rig to oversee
the conversion and retrofit project, (iv) costs to transport the drilling rig
to and from the shipyard and (v) the loss of revenues during the time
necessary to transport the drilling rig to or from such foreign locations. In
addition, the Company believes that these same factors will enable it to
compete favorably against companies located in Europe and in the Far East with
respect to the construction and outfitting of new drilling rigs to be used in
the Gulf of Mexico, offshore West Africa and South America.

The Company believes that its reputation for quality and reliability, its
long-standing relationships with most of the large drilling contractors, its
experienced management team, its existing skilled labor force, its access to
additional skilled labor in the Pascagoula, Mississippi area and its extensive
fabrication experience with drilling rigs are its key advantages in competing
for projects. The Company also believes that its capabilities to design new
drilling rigs and production units will provide it with a competitive
advantage with respect to new rig construction business.

The Company believes that certain barriers exist that prevent new companies
from competing with the Company for conversion, retrofit and repair
activities, as well as for new rig construction activity, including the
investment required to establish an adequate facility, the difficulty of
locating a facility adjacent to an adequate waterway due to environmental and
wetland regulations, and the limited availability of experienced supervisory
and management personnel. Although new companies can enter the market for
small projects more easily, management believes these factors will likely
prevent an increase in domestic competition for larger projects, especially
major conversions and retrofits and new rig construction.

BACKLOG

As of March 31, 1997, the Company's backlog was approximately $66.9 million,
all of which management expects to be performed within the 12 months ending
March 31, 1998. The Company's backlog as of March 31, 1996 was $15.4 million.
Of the $66.9 million of backlog as of March 31, 1997, approximately 82% was
attributable to three projects.

GOVERNMENT AND ENVIRONMENTAL REGULATION

OVERVIEW. Many aspects of the Company's operations and properties are
materially affected by federal, state and local regulation, as well as certain
international conventions and private industry organizations. These
regulations govern worker health and safety and the manning, construction and
operation of vessels. For

43
<PAGE>

example, the Company is subject to the jurisdiction of the U.S. Coast Guard,
the National Transportation Safety Board, the U.S. Customs Service and the
Maritime Administration of the U.S. Department of Transportation, as well as
private industry organizations such as the American Bureau of Shipping. These
organizations establish safety criteria and are authorized to investigate
vessel accidents and recommend improved safety standards. In addition, the
exploration and development of oil and gas properties located on the outer
continental shelf of the United States is regulated primarily by the Minerals
Management Service ("MMS"). The MMS has promulgated federal regulations under
the Outer Continental Shelf Lands Act requiring the construction of offshore
platforms located on the outer continental shelf to meet stringent engineering
and construction specifications. Violations of these regulations and related
laws can result in substantial civil and criminal penalties as well as
injunctions curtailing operations. The Company believes that its operations
are in compliance with these and all other regulations affecting the
fabrication of platforms for delivery to the outer continental shelf of the
United States.

In addition, the Company depends on the demand for its services from the oil
and gas industry and, therefore, is affected by changing taxes, price controls
and other laws and regulations relating to the oil and gas industry. For
example, the U.S. Coast Guard regulates and enforces various aspects of marine
offshore vessel operations, such as certification, routes, drydocking
intervals, manning requirements, tonnage requirements and restrictions, hull
and shafting requirements and vessel documentation. U.S. Coast Guard
regulations require that all drilling and production vessels are drydocked for
inspection at least once within a five-year period, and such inspections and
resulting repair requirements constitute a significant portion of the
Company's revenues. In 1996, approximately 35% of the Company's revenues were
generated by inspections and repairs required by applicable U.S. Coast Guard
regulations. While the Company is not aware of any proposals to reduce the
frequency or scope of such inspections, any such reduction could adversely
affect the Company's results of operations. In addition, offshore construction
and drilling in certain areas have been opposed by environmental groups and,
in certain areas, has been restricted. To the extent laws are enacted or other
governmental actions are taken that prohibit or restrict offshore construction
and drilling or impose environmental protection requirements that result in
increased costs to the oil and gas industry in general and the offshore
construction industry in particular, the business and prospects of the Company
could be adversely affected. The Company cannot determine to what extent
future operations and earnings of the Company may be affected by new
legislation, new regulations or changes in existing regulations.

ENVIRONMENTAL. The Company's operations and properties are subject to a wide
variety of increasingly complex and stringent foreign, federal, state and
local environmental laws and regulations, including those governing discharges
into the air and water, the handling and disposal of solid and hazardous
wastes, the remediation of soil and groundwater contaminated by hazardous
substances and the health and safety of employees. These laws may provide for
"strict liability" for damages to natural resources and threats to public
health and safety, rendering a party liable for the environmental damage
without regard to negligence or fault on the part of such party. Sanctions for
noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for strict, joint and several liability for
remediation of spills and other releases of hazardous substances, as well as
damage to natural resources. In addition, the Company may be subject to claims
alleging personal injury or property damage as a result of alleged exposure to
hazardous substances. Such laws and regulations may also expose the Company to
liability for the conduct of or conditions caused by others, or for acts of
the Company that were in compliance with all applicable laws at the time such
acts were performed.

The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and similar laws provide for responses to and liability for
releases of hazardous substances into the environment. Additionally, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Safe Drinking Water Act, the Emergency Planning and Community Right to Know
Act, each as amended, and similar foreign, state or local counterparts to
these federal laws, regulate air emissions, water discharges, hazardous
substances and wastes, and require public disclosure related to the use of
various hazardous substances. For example, the Company's paint operations must
comply with a number of environmental regulations. All blasting and painting
is done in accordance with the requirements of the Company's air discharge
permit and disposal of paint waste is made in accordance with the National
Pollution Discharge Elimination System stormwater

44
<PAGE>

pollution plan. Lead based paint is vacuum blasted and all blasting debris is
contained for hazardous waste disposal. Company policy requires that existing
coating be sampled and tested prior to blasting operations to eliminate the
possibility of lead contamination and to assure that lead based paint is
appropriately treated. The Company has been classified as a "small quantity
hazardous waste generator" and is registered with the State of Mississippi
Department of Environmental Quality as such. Compliance with these and other
environmental laws and regulations may require the acquisition of permits or
other authorizations for certain activities and compliance with various
standards or procedural requirements. The Company believes that its facilities
are in substantial compliance with current regulatory standards.

The Company's compliance with these laws and regulations has entailed
certain additional expenses and changes in operating procedures. The Company
believes that compliance with these laws and regulations will not have a
material adverse effect on the Company's business or financial condition for
the foreseeable future. However, future events, such as changes in existing
laws and regulations or their interpretation, more vigorous enforcement
policies of regulatory agencies, or stricter or different interpretations of
existing laws and regulations, may require additional expenditures by the
Company, which expenditures may be material.

The Company has recently entered into a bareboat charter providing for the
operation by the Company of a towable drydock vessel. Employees of the Company
who are engaged in offshore activities relating to such vessel may be covered
by the provisions of the Jones Act, the Death on the High Seas Act and general
maritime law, which laws operate to make the liability limits established
under state workers' compensation laws inapplicable to these employees and,
instead, permit them or their representatives to pursue actions against the
Company for damages or job related injuries, with generally no limitations on
the Company's potential liability.

HEALTH AND SAFETY MATTERS. The Company's facilities and operations are
governed by laws and regulations, including the federal Occupational Safety
and Health Act, relating to worker health and workplace safety. The Company
believes that appropriate precautions are taken to protect employees and
others from workplace injuries and harmful exposure to materials handled and
managed at its facilities. While it is not anticipated that the Company will
be required in the near future to expend material amounts by reason of such
health and safety laws and regulations, the Company is unable to predict the
ultimate cost of compliance with these changing regulations.

In addition to government regulation, various private industry
organizations, such as the American Bureau of Shipping, the American Petroleum
Institute, the American Society of Mechanical Engineers and the American
Welding Society, promulgate technical standards that must be adhered to in the
fabrication process.

INSURANCE

The Company maintains insurance against property damage caused by fire,
flood, explosion and similar catastrophic events that may result in physical
damage or destruction to the Company's facilities. The Company also maintains
commercial general liability insurance including ship repairers' legal
liability coverage and builders' risk coverage if required. Workers'
compensation and employers' liability is provided in accordance with the
Mississippi Workers' Compensation Act and includes the U.S. Longshore and
Harbor Workers Act and maritime and outer continental shelf endorsements. The
Company currently maintains excess and umbrella policies in addition to
primary liability insurance for up to a $20 million limit. Other coverages
currently in place include water pollution, aviation, automobile and
commercial crime coverage. Although management believes that the Company's
insurance is adequate, there can be no assurance that the Company will be able
to maintain adequate insurance at rates which management considers
commercially reasonable, nor can there be any assurance such coverage will be
adequate to cover all claims that may arise.

PMB ARRANGEMENT

In February 1994, the Company entered into an agreement with PMB, a wholly-
owned subsidiary of Bechtel Corporation, in connection with the conversion of
an offshore drilling rig. The Company recognized revenue of $8.7 million and
$16.2 million in 1995 and 1994, respectively, from the 1994 joint venture. The
1994

45
<PAGE>

arrangement terminated upon the completion of such project. In December 1995,
the Company and PMB entered into a second agreement to jointly pursue rig
design, conversion and retrofit projects for a term of five years. Revenues
attributable to the 1995 arrangement were approximately $9.8 million for the
year ended December 31, 1996. The 1995 arrangement was terminated by mutual
agreement in April 1996.

LEGAL PROCEEDINGS

The Company is a party to various routine legal proceedings primarily
involving commercial claims and workers' compensation claims. While the
outcome of these claims and legal proceedings cannot be predicted with
certainty, management believes that the outcome of all such proceedings, even
if determined adversely, would not have a material adverse effect on the
Company's business or financial condition.

EMPLOYEES

The Company's workforce varies based on the level of ongoing fabrication
activity at any particular time. As of March 31, 1997, the Company had
approximately 800 employees. For the last several years, substantially all of
the Company's work force has been leased to the Company by employee leasing
companies serving the Company exclusively. In exchange for its leasing
services, these employee leasing companies charged the Company an amount which
covered wages paid to such employees, together with a mark-up designed to
cover health and workers' compensation insurance, the provision of a 401(k)
plan, payroll taxes, all other required insurance and a nominal return to such
companies. Payments for contract labor totaled approximately $10.1 million in
1996. All contract leasing arrangements had been terminated as of May 18,
1997, and the Company now directly employs its employees at levels of wages
and benefits substantially equivalent to those formerly provided by the
employee leasing companies. The Company believes that the cost of directly
employing its laborers will be essentially the same as the historic cost of
the employee leasing arrangement most recently terminated. None of the
Company's employees is employed pursuant to a collective bargaining agreement,
and the Company believes that its relationship with its employees is good.

The Company's ability to remain productive and profitable depends
substantially on its ability to attract and retain skilled construction
workers, primarily welders, fitters and equipment operators. In addition, the
Company's ability to expand its operations depends primarily on its ability to
increase its labor force. The Company believes that its location in Pascagoula
gives it a strategic advantage over many other Gulf of Mexico shipyards due to
the long history of sophisticated marine construction in the Pascagoula area
and the substantial excess capacity of skilled labor which is currently
available in this area. While the Company believes its relationship with its
skilled labor force is good, a significant increase in the wages paid by
competing employers or an increase in the activity of those employers could
result in a reduction in the Company's skilled labor force, increases in the
wage rates paid by the Company, or both. If either of these occurred, in the
near-term, the profits expected by the Company from work in progress could be
reduced or eliminated and, in the long-term, the production capacity of the
Company would be diminished and the growth potential of the Company could be
impaired.

The Company has facilities to train its employees on productivity and safety
matters. The Company is committed to training its employees and offers
advancement through in-house training programs.

46
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's Board of Directors currently has nine directors. In accordance
with the Charter of the Company, the members of the Board of Directors are
divided into three classes and are elected for a term of office or until a
successor is duly elected and qualified. The Charter also provides that such
classes shall be as nearly equal in number as possible. The terms of office of
the Class I, Class II and Class III directors expire at the annual meeting of
stockholders to be held in 1998, 1999 and 2000, respectively. All officers
serve at the discretion of the Board of Directors, subject to terms of their
employment agreements, if applicable. See "--Employment Agreements."

The following table sets forth information concerning the Company's
directors and executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
J. L. Holloway........................ 53 Chairman of the Board, Chief
Executive Officer and
President of the Company(1)
Carl M. Crawford...................... 53 Executive Vice President of
the Company
Richard L. Marler..................... 54 Chief Operating Officer and
Director of the Company(3)
Ronald W. Schnoor..................... 43 President of HAM Marine and
Director of the Company(1)
James A. Lowe, III.................... 39 General Counsel, Secretary and
Director of the Company(2)
John F. Alford........................ 37 Senior Vice President, Chief
Financial Officer and
Director of the Company(2)
Bruce Malcolm......................... 49 President of Friede & Goldman
and Director of the
Company(3)
Jerome L. Goldman(4).................. 72 Director of the Company(2)
Raymond E. Mabus, Jr.(4)(5)........... 48 Director of the Company(3)
Howell W. Todd(5)..................... 53 Director of the Company(1)
</TABLE>
- --------
(1) Class III Director.
(2) Class II Director.
(3) Class I Director.
(4) Member of audit committee.
(5) Member of compensation committee.

Set forth below are descriptions of the backgrounds of the executive
officers and directors of the Company and their principal occupations for the
past five years.

J. L. Holloway has served as the Chairman of the Board, Chief Executive
Officer and President of the Company since April 1997. In addition, Mr.
Holloway has served as the Chairman of the Board, Chief Executive Officer and
President of HAM Marine from its formation in 1982 until April 1997, and from
April 1997 Mr. Holloway has been the Chairman of the Board of HAM Marine. Mr.
Holloway also serves as a Director of Delta Health Group, a company that
operates and manages health care facilities in the South and as President of
State Street Properties, Inc., a commercial real estate development firm
headquartered in Mississippi.

Carl M. Crawford has served as Executive Vice President of the Company since
May 1997. Mr. Crawford also serves as the Executive Vice President of HAM
Marine, a position he has held for more than the last five years. Prior to
joining HAM Marine in 1982, Mr. Crawford had been employed in management and
marketing positions with a number of equipment and manufacturing companies.

47
<PAGE>

Richard L. Marler joined the Company as Chief Operating Officer in July
1997. Prior to joining the Company, Mr. Marler was a Vice President of Ingalls
Shipbuilding, Litton Industries, where he was employed for 23 years. At
Ingalls Shipbuilding, Mr. Marler was involved in progress management, business
development, contracts management, estimating and related business activities.

Ronald W. Schnoor has served as President of HAM Marine since April 1997 and
a Director of the Company since May 1997. Previously, Mr. Schnoor served as
the Vice President, Manager of Operations of HAM Marine since 1992. Mr.
Schnoor joined HAM Marine in 1984 and previously served as both Senior Project
Engineer and as a Project Manager.

James A. Lowe, III has served as General Counsel, Secretary and Director of
the Company since May 1997. Mr. Lowe joined HAM Marine on January 1, 1997 as
General Counsel. He has also served as Director of HAM Marine and Director and
Secretary of Friede & Goldman since February 1997. Prior to joining HAM
Marine, Mr. Lowe was an attorney with the firm of Watkins & Eager PLLC, a law
firm in Jackson, Mississippi, for seven years, the last four of which he was a
member of such firm.

John F. Alford has served as Senior Vice President, Chief Financial Officer
and Director of the Company since May 1997. Mr. Alford joined HAM Marine in
1996. Mr. Alford began his career in banking and previously served as a member
of the Board of Directors and as Chief Operating Officer of Baton Rouge Bank
and Trust Company, and a related financial firm, for more than the past five
years.

Bruce G. Malcolm was elected President of Friede & Goldman in May 1997. Mr.
Malcolm joined Friede & Goldman as Vice President of Operations in March 1997.
Prior to joining Friede & Goldman, Mr. Malcolm was a construction manager for
Bechtel Corporation from January 1996 to March 1997 and an Operations and
Technical Director for Dolphin Drilling, Ltd. from June 1993 to December 1995.
From May 1992 to June 1993, he was an independent consultant.

Jerome L. Goldman is currently the Chairman and sole owner of J. L. Goldman
Associates, Inc., naval architects and marine engineers. Mr. Goldman
previously served as Chairman of Friede & Goldman, Ltd. since co-founding the
company in 1949.

Raymond E. Mabus, Jr. has served as Of Counsel to the law firm of Baker,
Donelson, Bearman & Caldwell since October 1996. From July 1994 through May
1996, Mr. Mabus served as Ambassador to the Kingdom of Saudi Arabia. From
February 1992 through June 1994, Mr. Mabus served as Chairman of the Committee
on the Future of the South and as a consultant in the private sector. From
January 1988 through January 1992, Mr. Mabus served as Governor of the State
of Mississippi.

Howell W. Todd has served as President of Mississippi College since 1994.
Dr. Todd previously served as Executive Director and Chief Executive Officer
of the South Dakota Board of Regents, the governing board for the public
higher education system in the state of South Dakota. Dr. Todd holds a Ph.D.
from the University of Illinois.

COMMITTEES OF THE BOARD

The Board of Directors has established an Audit Committee and Compensation
Committee. The Audit Committee recommends the appointment of auditors and
oversees the accounting and audit functions of the Company. The Compensation
Committee determines executive officers' and key employees' salaries and
bonuses and administers the Equity Incentive Plan. Messrs. Goldman and Mabus
will serve as members of the Company's Audit Committee, and Messrs. Mabus and
Todd will serve as members of the Company's Compensation Committee.

48
<PAGE>

DIRECTOR COMPENSATION

Following completion of the Offering, each nonemployee director will receive
a fee of $1,000 for attendance at each Board of Directors meeting and $250 for
each committee meeting, as well as stock options to purchase 1,000 shares of
Common Stock annually. See "--Equity Incentive Plan." Directors of the Company
are also reimbursed for out-of-pocket expenses incurred in attending meetings
of the Board of Directors or committees thereof, and for other expenses
incurred in their capacity as directors of the Company.

EXECUTIVE COMPENSATION

The following table sets forth for 1996 the compensation of (i) the
Company's chief executive officer and (ii) each executive officer of the
Company whose total annual salary and bonus during 1996 exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
LONG-
OTHER ANNUAL TERM ALL OTHER
YEAR SALARY BONUS COMPENSATION(1) AWARDS COMPENSATION
---- -------- ---------- -------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. L. Holloway.......... 1996 $196,000 $1,626,687 $ -- $ -- $ --
Chairman of the Board,
Chief Executive
Officer and President
of the Company
Carl M. Crawford........ 1996 70,540 333,668 84,213 -- --
Executive Vice
President of the
Company
Ronald W. Schnoor....... 1996 93,400 157,889 -- -- --
President of HAM Marine
</TABLE>
- --------
(1) Other annual compensation for Mr. Crawford consists of sales commissions.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messrs. Holloway,
Marler and Alford and HAM Marine has entered into employment agreements with
Messrs. Crawford, Schnoor and Lowe. Pursuant to the terms of such agreements,
the salaries of these persons in 1997 will be: Mr. Holloway, $350,000; Mr.
Marler, $150,000; Mr. Schnoor, $138,000; Mr. Crawford, $120,000; Mr. Lowe,
$120,000; and Mr. Alford, $100,000.

The employment agreements relating to Messrs. Holloway, Crawford and Schnoor
were effective on January 1, 1997, have initial terms of one year and, unless
earlier terminated pursuant to the terms thereof, continue thereafter on a
year-to-year basis. Each of such agreements is terminable by the employer for
"cause" upon ten days' written notice and without "cause" by either party upon
thirty days' written notice. In the event an officer's employment is
terminated by the employer without "cause," such officer will be entitled to
receive a lump-sum severance payment at the effective time of termination
equal to the base salary at the rate then in effect for a period of 30 days.
In addition, the employment agreements restrict these individuals from
competing with the Company for a period of 30 days from the date of
termination.

The Company has entered into an employment agreement with Mr. Marler,
effective as of July 7, 1997, which agreement is terminable without cause by
either party upon 30 days written notice. Pursuant to the agreement, Mr.
Marler was granted options to purchase an aggregate of 100,000 shares of the
Company's Common Stock, subject to a vesting schedule relating to the
exercisability of such options, at a price of $2.50 per share. In the event of
the termination of the agreement for any reason whatsoever, the agreement
restricts Mr. Marler from competing with the Company for a period of two years
from the date of such termination.

HAM Marine has entered into an employment agreement with Mr. Lowe effective
January 1, 1997, which agreement is terminable by HAM Marine at any time. In
the event the agreement is terminated by HAM Marine

49
<PAGE>

for any reason, Mr. Lowe will receive a lump-sum severance payment of $60,000.
Pursuant to the agreement, Mr. Lowe received shares of common stock in HAM
Marine which will be exchanged for 76,820 shares of the Company's Common Stock
pursuant to the Reorganization.

The Company and HAM Marine entered into an employment agreement with Mr.
Alford on May 21, 1997, which agreement is terminable by the Company at any
time. Pursuant to the agreement, Mr. Alford received shares of common stock of
HAM Marine which will be exchanged for 38,410 shares of the Company's Common
Stock pursuant to the Reorganization. In addition, Mr. Alford was granted
options to purchase additional shares of common stock of HAM Marine effective
as of February 14, 1997 which, upon completion of the Reorganization, will be
converted into options to purchase an aggregate of 38,410 shares of the
Company's Common Stock, subject to a vesting schedule relating to the
exercisability of such options, at a purchase price of $2.39 per share.

CASH BONUSES

The Company's Board of Directors has approved the payment of bonuses to key
employees of the Company for 1997 in an aggregate amount not to exceed five
percent of the Company's EBITDA (defined as operating income plus
depreciation, amortization and non-cash compensation expenses related to the
issuance of stock and stock options to employees). The Board of Directors will
determine the actual amount of the bonus pool, subject to the limitation
described above, and the key employees who would be recipients of any such
cash bonuses and the individual amount of the cash bonus for each such key
employee following a determination of EBITDA for 1997.

RETIREMENT PLAN

The Company has adopted a 401(k) plan for its employees. Employees are
eligible to participate in the plan after one year of service with the
Company, provided they work at least 1,000 hours during that first year. Under
the plan, but subject to certain limitations imposed under the Internal
Revenue Code, eligible employees are permitted to contribute up to 15% of
compensation plus 100% of any cash bonus paid by the Company on a pre-tax
basis. The plan provides for the Company to provide matching contributions of
an amount equal to a percentage of employee contributions to be set by the
Company, in its sole discretion, prior to the end of each calendar year. The
Company is also permitted to make qualified non-elective and discretionary
contributions in proportion to each eligible employee's compensation as a
ratio of the aggregate compensation of all eligible employees. The amounts
held under the plan are invested in investment funds maintained under the plan
in accordance with the directions of each participant.

All employees' contributions are immediately 100% vested. Contributions by
the Company vest at a rate of 20% a year beginning with the second year after
any such contribution. Upon attaining age 65, participants are automatically
100% vested, even with respect to Company contributions. Participants or their
designated beneficiaries are entitled to payment of vested benefits upon
termination of employment. On attaining age 65, participants are entitled to
distribution of the full value of their benefits even if they continue to be
employed by the Company. Such employees also have the option of deferring
payment until April 1 following the year they attain the age of 70 1/2. In
addition, hardship and other in-service distributions and loans to
participants from the plan are available under certain circumstances and
subject to certain conditions. The amount of benefits ultimately payable to a
participant under the plan depends on the level of the participant's salary
deferral contributions under the plan, the amount of Company discretionary and
matching contributions made to the plan and the performance of the investment
funds maintained under the plan in which participants are invested.

EQUITY INCENTIVE PLAN

The Equity Incentive Plan was adopted by the Board of Directors of the
Company and approved by the Company's stockholders in May 1997. The Equity
Incentive Plan permits the granting of any or all of the following types of
awards ("Awards"): stock appreciation rights, stock options, restricted stock,
dividend equivalents, performance units, automatic director options, phantom
shares, limited stock appreciation rights

50
<PAGE>

("LSAR's"), bonus stock and cash tax rights. All officers and employees of,
and any consultants to, the Company or any affiliate of the Company will be
eligible for participation in all Awards under the Equity Incentive Plan other
than director options with tandem LSAR's. The non-employee directors of the
Company will only receive automatic grants of director options with tandem
LSAR's.

An aggregate of 1,150,000 shares of Common Stock have been authorized and
reserved for issuance pursuant to the Equity Incentive Plan. As of the date of
this Prospectus, options to purchase an aggregate of 484,910 shares of Common
Stock have been granted under the Equity Incentive Plan, of which options to
purchase an aggregate of 346,500 shares will have an exercise price equal to
the initial public offering price for shares of Common Stock sold in this
Offering, and options to purchase 138,410 shares have a weighted average
exercise price of $2.07 per share. The Equity Incentive Plan is administered
by the Compensation Committee of the Company's Board of Directors. The
Compensation Committee will select the participants who will receive Awards,
determine the type and terms of Awards to be granted and interpret and
administer the Equity Incentive Plan. No Awards may be granted under the
Equity Incentive Plan after December 31, 2006.

CERTAIN TRANSACTIONS

The Company has from time to time made loans to and paid expenditures on
behalf of its stockholders. At March 31, 1997, outstanding loans to Messrs.
Holloway, Crawford and Schnoor were approximately $139,000 in the aggregate.
During 1996, Mr. Holloway made payments to the Company of $209,013 on amounts
previously advanced.

In October 1996, Mr. Holloway, the Chairman of the Board, Chief Executive
Officer and President of the Company, and Carl M. Crawford, Executive Vice
President of the Company, entered into personal guarantees of $5 million each
to secure a credit facility of HAM Marine. In addition, as of December 31,
1996, Mr. Holloway guaranteed a note of HAM Marine to an unrelated party with
a principal balance of $197,508. In March 1997, Mr. Holloway and Mr. Crawford
entered into personal guarantees of $2.5 million each to secure the Credit
Facility.

In March 1997, HAM Marine made a distribution of property, including real
estate previously held for investment, along with the related debt guaranteed
by Mr. Holloway, and an airplane, to Messrs. Holloway, Crawford and Schnoor,
which property, and related liability, was contributed by such stockholders
into a newly formed company owned by Messrs. Holloway, Crawford and Schnoor.
Subsequent to such distribution, the Company chartered the airplane from such
company on a "when needed" basis at fair market charter rates through June
1997.

At December 31, 1996, marketable securities owned by the Company with a
market value of approximately $1.4 million were pledged as collateral for a
loan from a bank to Mr. Holloway to finance a portion of the purchase price of
certain assets of Friede Predecessor, which loan proceeds were, in turn,
loaned by Mr. Holloway to Friede & Goldman. Friede & Goldman recorded a $1.4
million payable to Mr. Holloway in recognition of the loan. On March 31, 1997,
the Company transferred the pledged marketable securities to Mr. Holloway in
payment of the obligation.

In July 1997, the Company purchased a crane from a company owned by Messrs.
Holloway, Crawford and Schnoor. The Company paid the same price for such crane
as such other company paid to acquire the crane from an unrelated party in
April 1997.

In July 1997, the Company entered into an agreement with a company owned by
Mr. Holloway, Mr. Crawford and Mr. Schnoor pursuant to which the Company
agreed to lease an airplane from such company for a monthly payment of $50,000
per month. In addition, the Company agreed to maintain the airplane in good
working condition, to pay all operating expenses related to the airplane and
to maintain insurance on the airplane. The agreement has a term of one year
and renews automatically on an annual basis unless terminated by either party
upon 30 days' written notice to the other party. The Company believes that the
terms of such agreement are no less favorable than the Company could have
received from an unrelated party.

51
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock before and after giving effect to the
Offering, by (i) all persons known to the Company to be the beneficial owner
of more than 5% thereof, (ii) each director, (iii) each executive officer,
(iv) all executive officers and directors as a group and (v) each Selling
Stockholder. The address of each such person is c/o Friede Goldman
International Inc., 525 E. Capitol Street, Suite 402, Jackson, Mississippi
39201. All persons listed have sole voting and investment power with respect
to their shares unless otherwise indicated.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR OWNERSHIP AFTER
TO OFFERING(1) NUMBER OF OFFERING(1)
----------------- SHARES -----------------
NUMBER OF BEING NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
--------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
J. L. Holloway(2)................ 7,362,979 80.0% 1,615,750 5,747,229 48.5%
Carl M. Crawford................. 1,085,835 11.8% 299,400 786,435 6.6%
Richard L. Marler................ -- -- -- -- --
Ronald W. Schnoor................ 362,481 3.9% 69,850 292,631 2.5%
James A. Lowe, III............... 76,820 * 20,000 56,820 *
John F. Alford................... 38,410 * 10,000 28,410 *
Bruce G. Malcolm................. -- -- -- -- --
Jerome L. Goldman................ -- -- -- -- --
Raymond E. Mabus, Jr............. -- -- -- -- --
Howell W. Todd................... -- -- -- -- --
All executive officers and
directors as a group (10
persons)........................ 8,926,525 97.0% 2,015,000 6,911,525 58.3%
</TABLE>
- --------
* Less than one percent.

(1) Excludes shares of Common Stock issuable pursuant to stock options not
exercisable within 60 days following the date of the Prospectus. See
"Management--Equity Incentive Plan."
(2) Includes 1,920,500 shares of Common Stock owned by a limited partnership
of which Mr. Holloway is a general partner.

52
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share. Immediately prior to the closing of the
Offering, there were 9,200,000 shares of Common Stock outstanding which were
held of record by five stockholders, and no shares of Preferred Stock
outstanding. After the closing of the Offering, 11,850,000 shares of Common
Stock will be issued and outstanding, assuming no exercise of the
Underwriters' over-allotment option, and 1,150,000 shares of Common Stock will
be reserved for issuance pursuant to the Equity Incentive Plan. The following
summary of the terms and provisions of the Company's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
Company's Charter and Bylaws, which have been filed as exhibits to the
Company's registration statement, of which this Prospectus is a part, and
applicable law.

COMMON STOCK

VOTING RIGHTS. Each share of Common Stock entitles the holder to one vote on
each matter submitted to a vote of the Company's stockholders, including the
election of directors. There is no cumulative voting. After the Offering, the
current officers and directors of the Company will hold approximately 58.3% of
the issued and outstanding Common Stock (55.1% if the Underwriters' over-
allotment option is exercised in full) and will hold the voting power to
determine the outcome of all matters upon which a majority vote of the
stockholders of the Company is required for approval. The Charter prohibits
the taking of any action by written stockholder consent in lieu of a meeting.

DIVIDENDS. The holders of Common Stock are entitled to receive dividends if,
as and when such dividends are declared by the Board of Directors of the
Company out of assets legally available therefor after payment of dividends
required to be paid on shares of Preferred Stock, if any.

LIQUIDATION OR DISSOLUTION. Upon liquidation or dissolution, holders of
Common Stock are entitled to share ratably in all net assets available for
distribution to stockholders after payment of any liquidation preferences to
holders of Preferred Stock.

OTHER PROVISIONS. The Common Stock carries no conversion or preemptive
rights. All outstanding shares of Common Stock are, and the shares of Common
Stock to be sold by the Company in the Offering when issued will be, duly
authorized, validly issued, fully paid and nonassessable.

TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Common Stock is American Stock Transfer & Trust Company.

LISTING. The Common Stock has been approved for quotation on the NASDAQ
National Market, subject to official notice of issuance, under the trading
symbol "FGII."

PREFERRED STOCK

The Board of Directors of the Company is authorized, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, to determine the number of shares of each series, to fix the rights,
powers, preferences and privileges of each series and any qualifications,
limitations or restrictions thereon and to increase or decrease the number of
shares of each such series. Among the specific matters that may be determined
by the board of directors are: the annual rate of dividends; the redemption
price, if any; the terms of a sinking or purchase fund, if any; the amount
payable in the event of any voluntary liquidation, dissolution or winding up
of the affairs of the Company; conversion rights, if any; and voting powers,
if any. Depending upon the terms of the Preferred Stock established by the
Board of Directors, any or all series of Preferred Stock could have
preferences over the Common Stock with respect to dividends and other
distributions and upon liquidation

53
<PAGE>

of the Company or could have voting or conversion rights that could adversely
affect the holders of the outstanding Common Stock. The Company has no current
plans to issue any shares of Preferred Stock of any class or series.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. If, in the exercise of its fiduciary obligations, the
Board of Directors were to determine that a takeover proposal was not in the
Company's best interest, such shares could be issued by the Board of Directors
without stockholder approval in one or more transactions that might prevent or
make more difficult or costly the completion of the takeover transaction by
diluting the voting or other rights of the proposed acquiror or insurgent
stockholder group, by creating a substantial voting block in institutional or
other hands that might undertake to support the position of the incumbent
Board of Directors, by effecting an acquisition that might complicate or
preclude the takeover, or otherwise. In this regard, the Company's Charter
grants the Board of Directors broad power to establish the rights and
preferences of the authorized and unissued Preferred Stock, one or more series
of which could be issued that would entitle holders (i) to vote separately as
a class on any proposed merger or consolidation, (ii) to cast a
proportionately larger vote together with the Common Stock on any such
transaction or for all purposes, (iii) to elect directors having terms of
office or voting rights greater than those of other directors, (iv) to convert
Preferred Stock into a greater number of shares of Common Stock or other
securities, (v) to demand redemption at a specified price under prescribed
circumstances related to a change of control or (vi) to exercise other rights
designated to impede a takeover. Accordingly, the issuance of shares of
Preferred Stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the rights of holders of, or the market price of,
the Common Stock.

CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS AND DELAWARE LAW

Certain provisions of the Charter and Bylaws are intended to enhance the
likelihood of continuity and stability in the Board of Directors of the
Company and in its policies, but might have the effect of delaying or
preventing a change in control of the Company and may make more difficult the
removal of incumbent management even if such transactions could be beneficial
to the interests of stockholders. Set forth below is a summary description of
such provisions:

NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL. The Charter provides that
the number of directors constituting the Company's Board of Directors shall be
fixed by the Board of Directors, but shall not be less than three nor more
than 15. The Charter further provides that the directors shall be divided into
three classes, each class serving staggered three-year terms. The Board of
Directors of the Company, acting by a majority of the directors then in
office, may fill any vacancy or newly created directorship.

ADVANCE NOTICE OF INTENTION TO NOMINATE A DIRECTOR. The Charter and Bylaws
permit a stockholder to nominate a person for election as a director only if
written notice of such stockholder's intent to make a nomination has been
given to the Secretary of the Company not less than 60 days or more than 90
days prior to the anniversary of the annual meeting held for the immediately
preceding year (subject to certain adjustments if the annual meeting date is
changed by more than 30 days from the date of the prior annual meeting) or, in
the case of a special meeting at which directors are to be elected, not less
than 40 days notice or prior public disclosure of the date of the meeting is
given, in which case notice by the stockholder must be received on the 10th
day after notice of the meeting or prior public disclosure of the date of the
meeting was given. This provision also requires that the stockholder's notice
set forth, among other things, a description of all arrangements or
understandings between the nominee and the stockholder pursuant to which the
nomination is to be made or the nominee is to be elected and such other
information regarding the nominee as would be required to be included in a
proxy statement filed pursuant to the proxy rules promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), had the
nominee been nominated by the Board of Directors of the Company. Any
nomination that fails to comply with these requirements may be disqualified.

54
<PAGE>

STOCKHOLDERS' RIGHT TO CALL SPECIAL MEETING. The Bylaws provide that a
special stockholders' meeting may not be called by stockholders.

REMOVAL OF DIRECTORS; FILLING VACANCIES ON BOARD OF DIRECTORS. The Bylaws
provide that any director or the entire Board may be removed at any time for
cause by a vote of the holders of not less than a majority of the shares of
the Company entitled to vote in the election of directors. The Bylaws also
provide that any vacancies on the Board of Directors (including any resulting
from an increase in the authorized number of directors) may be filled by the
affirmative vote of a majority of the remaining directors.

ADOPTION AND AMENDMENT OF BYLAWS. The Bylaws provide that they may be
amended or repealed by either a majority vote of the Board of Directors or the
holders of at least 80% of the total voting power of all shares of stock of
the Company entitled to vote in the election of directors voting as one class.
Any provisions amended or repealed by the stockholders may be re-amended or
re-adopted by the Board of Directors.

AMENDMENT OF CERTAIN PROVISIONS OF THE ARTICLES; OTHER CORPORATE ACTION.
Under Delaware law, unless a corporation's articles of incorporation specify
otherwise, a corporation's articles of incorporation may be amended by the
affirmative vote of the holders of a majority of the voting power of each
class of stock entitled to vote thereon. The Charter requires the affirmative
vote of not less than 80% of the total voting power of the Company to amend,
alter or repeal certain provisions of the Company's Charter with respect to
(i) the classification, filling of vacancies and removal of the Board of
Directors, (ii) amendments to the Bylaws, (iii) the application of certain
anti-takeover provisions of Delaware law to which the Company is currently
subject, (iv) changes to stockholder vote requirements, (v) limitation of
liability of directors and (vi) requirements for special meetings called by
stockholders.

ANTI-TAKEOVER PROVISIONS. Delaware law permits a corporation's board of
directors to adopt certain anti-takeover measures in response to proposals to
acquire the corporation, its assets or its outstanding capital stock. Measures
to be adopted could include a stockholder rights plan or bylaw provisions
requiring supermajority stockholder approval of acquisition proposals.

LIMITATION ON PERSONAL LIABILITY OF DIRECTORS. Delaware law authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach of a
director's fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them.
Absent the limitations authorized by Delaware law, directors are accountable
to corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such
as injunction or rescission. The Charter limits the liability of directors of
the Company to the Company or its stockholders (in their capacity as directors
but not in their capacity as officers) to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.

The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.
The Company's Bylaws provide indemnification to the Company's officers and
directors and certain other persons with respect to certain matters.

INDEMNIFICATION ARRANGEMENTS. The Charter and Bylaws provide that, to the
fullest extent permitted by the Delaware General Corporation Law, the
directors and officers of the Company shall be indemnified and shall be

55
<PAGE>

advanced expenses in connection with actual or threatened proceedings and
claims arising out of their status as such. The Company has entered into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the Delaware General Corporation Law.

NO ACTION BY WRITTEN CONSENT. The Charter prohibits the taking of any action
by written stockholder consent in lieu of a meeting. Such provisions may not
be amended or repealed without the affirmative vote of the holders of at least
80% of the capital stock of the Company entitled to vote on such matters.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from
the date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder, (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans), or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15%
or more of the outstanding voting stock of the corporation or (ii) an
affiliate or associate of the corporation and who was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its charter or bylaws by action of its stockholders to
exempt itself from coverage, provided that such bylaw or charter amendment
shall not become effective until 12 months after the date it is adopted. The
Company has not adopted such a charter or bylaw amendment.

REGISTRATION RIGHTS

Pursuant to the terms of a Registration Rights Agreement among the Company
and all of its current stockholders (the "Registration Agreement"), the
Company has provided such stockholders with certain registration rights,
including three demand registration rights and certain "piggy-back"
registration rights, with respect to Common Stock owned by such stockholders.
The Company's obligation is subject to certain limitations relating to a
minimum amount of Common Stock required for registration, the timing of
registration and other similar matters. For example, the Company will not be
obligated to register the Common Stock when, in the good faith judgment of its
Board of Directors, such registration would materially adversely affect a
pending or proposed public offering of the Company's securities, provided that
such delay may not extend for more than 180 days. The Company will indemnify
such stockholders for certain liabilities in connection with any such
offering, other than liabilities resulting or arising from untrue statements
or omissions made in conformity with information furnished to the Company in
writing by any such stockholder. The Company is obligated to pay all expenses
incidental to any such registration, excluding underwriters' discounts and
commissions and certain legal fees and expenses of such stockholders.

56
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the sale
of substantial amounts of Common Stock in the public market. Immediately prior
to the closing of the Offering, 9,200,000 shares of Common Stock were issued
and outstanding. All of the 4,665,000 shares sold in the Offering, except for
shares acquired by affiliates of the Company, will be freely tradeable.

None of the 9,200,000 shares outstanding immediately prior to the closing of
the Offering was issued in a transaction registered under the Securities Act,
and, accordingly, such shares may not be sold except in transactions
registered under the Securities Act or pursuant to an exemption from
registration, including the exemption contained in Rule 144 under the
Securities Act.

In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned his or her shares for
at least one year, or a person who may be deemed an "affiliate" of the Company
who has beneficially owned shares for at least one year, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the proposed sale is sent to the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person who is not deemed to
have been an affiliate of the Company at any time for 90 days preceding a sale
and who has beneficially owned his shares for at least two years would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions, notice requirements or the
availability of current public information about the Company.

The Company has authorized the issuance of 1,150,000 shares of its Common
Stock in accordance with the terms of the Equity Incentive Plan. Options to
purchase an aggregate of 484,910 shares of Common Stock have been granted as
of the date of this Prospectus to employees, officers and directors of the
Company. See "Management--Equity Incentive Plan." The Company intends to file
a registration statement on Form S-8 under the Securities Act registering the
issuance of shares upon exercise of options granted under the Equity Incentive
Plan. As a result, such shares will be eligible for resale in the public
market.

For limitations on the ability of the Company, the Selling Stockholders and
the directors and executive officers of the Company to sell shares of Common
Stock during the period of 180 days from the date of this Prospectus, see
"Underwriting."

Prior to this Offering, there has been no established trading market for the
Common Stock, and no predictions can be made as to the effect that sales of
Common Stock under Rule 144, pursuant to a registration statement, or
otherwise, or the availability of shares of Common Stock for sale, will have
on the market price prevailing from time to time. Sales of substantial amounts
of Common Stock in the public market, or the perception that such sales could
occur, could depress the prevailing market price. Such sales may also make it
more difficult for the Company to issue or sell equity securities or equity-
related securities in the future at a time and price that it deems
appropriate. See "Risk Factors--Shares Eligible for Future Sale."

Certain officers, directors and stockholders, whose holdings immediately
following the closing of this Offering will aggregate 6,911,525 shares of
Common Stock, are entitled to certain rights with respect to the registration
of their shares of Common Stock under the Securities Act. If the Company
proposes to register any of its securities under the Securities Act, such
stockholders are entitled to notice of such registration and are entitled to
include, at the Company's expense, all or a portion of their shares therein,
subject to certain conditions.

57
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Stockholders have severally agreed to sell to the
underwriters named below (the "Underwriters"), for whom Jefferies & Company,
Inc. ("Jefferies"), Bear, Stearns & Co. Inc. and Johnson Rice & Company L.L.C.
are acting as representatives (the "Representatives"), and the Underwriters
have severally agreed to purchase, the number of shares of Common Stock set
forth opposite their respective names in the table below at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Jefferies & Company, Inc........................................
Bear, Stearns & Co. Inc.........................................
Johnson Rice & Company L.L.C....................................
---------
Total......................................................... 4,665,000
=========
</TABLE>

The Underwriting Agreement provides that the obligation of the Underwriters
to purchase the shares of Common Stock offered hereby is subject to certain
conditions. The Underwriters are committed to purchase all of the shares of
Common Stock offered hereby (other than those covered by the over-allotment
option described below), if any are purchased.

The Underwriters propose to offer the Common Stock initially at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share to certain other dealers. After the initial
public offering of Common Stock, the public offering price, concession to
selected dealers and reallowance to other dealers may be changed by the
Representatives.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 699,750 additional shares
of Common Stock at the initial public offering price, less the underwriting
discount. The Underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the shares of Common
Stock offered by this Prospectus. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
additional shares of Common Stock proportionate to such Underwriters' initial
commitment as indicated in the preceding table.

The Company, the Selling Stockholders and the directors and executive
officers of the Company have agreed not to offer for sale, sell or otherwise
dispose of any shares of Common Stock or options, rights or warrants to
acquire any Common Stock, or any securities convertible into or exchangeable
for Common Stock, for a period of 180 days from the date of this Prospectus,
without the prior written consent of Jefferies.

The Representatives have informed the Company that they do not expect the
Underwriters to confirm sales of shares of Common Stock offered by this
Prospectus to any accounts over which they exercise discretionary authority.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection
with the Offering, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.

58
<PAGE>

Prior to the Offering, there has been no public trading market for the
Common Stock and there can be no assurance that an active trading market will
develop or be sustained upon the completion of the Offering. The initial
public offering price of the Common Stock will be determined by negotiations
among the Company, the Selling Stockholders and the Representatives. The
material factors considered in determining such public offering price will be
the history of and the prospects for the industry in which the Company
competes, an assessment of the Company's management, the Company's past and
present operations, the Company's past and present earnings and the trend of
its earnings, the general condition of the securities markets at the time of
the Offering and the price-earnings ratio and market prices of publicly traded
securities of companies that the Company and the Representatives believe to be
comparable to the Company.

In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase, the
Common Stock in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an Underwriter or a dealer in
distributing the Common Stock in the Offering, if the syndicate repurchases
previously distributed shares of Common Stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston,
Texas, for the Selling Stockholders by Watkins & Eager PLLC, Jackson,
Mississippi and for the Underwriters by Thompson & Knight, P.C., Dallas,
Texas.

EXPERTS

The audited balance sheet of the Company, the audited financial statements
of the Predecessors to Friede Goldman International Inc. and the audited
statement of operations of Friede & Goldman, Ltd. included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all the information contained in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements made
in the Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected, without charge, at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at

59
<PAGE>

Citicorp Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and 7
World Trade Center, Suite 1300, New York, NY 10048 or on the Internet at
http://www.sec.gov. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm for each fiscal year.

60
<PAGE>

FRIEDE GOLDMAN INTERNATIONAL INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of the Predecessors to Friede Goldman International
Inc.:
Report of Independent Public Accountants................................ F-2
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997
(unaudited)............................................................ F-3
Statements of Operations For the Years Ended December 31, 1994, 1995 and
1996, and the Three Months ended March 31, 1996 and 1997 (unaudited)... F-4
Statements of Stockholders' Equity For the Years Ended December 31,
1994, 1995 and 1996 and the Three Months Ended March 31, 1997
(unaudited)............................................................ F-5
Statements of Cash Flows For the Years Ended December 31, 1994, 1995 and
1996 and the Three Months Ended March 31, 1996 and 1997 (unaudited).... F-6
Notes to Financial Statements........................................... F-8
Financial Statements of Friede & Goldman, Ltd.:
Report of Independent Public Accountants................................ F-22
Statement of Income For the Eleven Months Ended November 30, 1996....... F-23
Notes to Statement of Income............................................ F-24
Financial Statements of Friede Goldman International Inc.:
Report of Independent Public Accountants................................ F-26
Balance Sheet as of April 21, 1997...................................... F-27
Notes to Balance Sheet.................................................. F-28
Pro Forma Statement of Operations (unaudited):
Pro Forma Statement of Operations For the Year Ended December 31, 1996.. F-30
Notes to Pro Forma Statement of Operations.............................. F-31
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Friede Goldman International Inc.:

We have audited the accompanying balance sheet of the principal predecessor
to Friede Goldman International Inc., a Delaware corporation (the "Company"),
as of December 31, 1995 and the accompanying combined balance sheet of its
predecessors as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three year period ended December 31, 1996. The financial statements as of
December 31, 1996, and for the year then ended have been restated. See Notes 1
and 2. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the principal predecessor
of Friede Goldman International Inc. as of December 31, 1995 and the combined
financial position of its predecessors as of December 31, 1996, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Jackson, Mississippi,
July 10, 1997.

F-2
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

BALANCE SHEETS (NOTE 1)

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ MARCH 31, MARCH 31,
1995 1996 1997 1997
----------- ----------- ----------- -----------
ASSETS
------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 1,207,206 $ 1,509,876 $ 2,095,555 $ 715,081
Restricted certificates of
deposit.................... 4,456,267 4,651,964 1,107,030 1,107,030
Marketable securities, at
fair market value.......... 2,040,001 6,618,766 4,780,950 --
Accounts receivable......... 1,035,057 4,869,576 11,726,569 11,726,569
Inventory and stockpiled
materials.................. -- 577,904 753,181 753,181
Investment in sales-type
lease, current portion..... 381,352 457,710 394,249 394,249
Costs and estimated earnings
in excess of billings on
uncompleted contracts...... -- 284,052 1,101,142 1,101,142
Prepaid expenses............ 49,346 644,482 1,187,452 1,187,452
----------- ----------- ----------- -----------
Total current assets...... 9,169,229 19,614,330 23,146,128 16,984,704
Property, plant and equipment,
net of accumulated
depreciation................. 4,078,961 5,546,399 6,043,349 6,043,349
Investment in sales-type
lease, less current portion.. 1,628,915 1,171,205 1,049,477 1,049,477
Intangibles and other assets.. 103,182 1,250,121 1,216,620 1,216,620
----------- ----------- ----------- -----------
Total assets.............. $14,980,287 $27,582,055 $31,455,574 $25,294,150
=========== =========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Short-term debt, including
current portion of long-
term debt.................. $ 5,752,603 $10,235,349 $ 7,506,482 $ 9,321,165
Advance from stockholder.... -- 1,400,000 -- --
Accounts payable, trade..... 396,314 3,075,216 5,794,552 5,794,552
Accrued expenses............ 305,949 537,786 590,215 590,215
Billings in excess of costs
and estimated earnings on
uncompleted contracts...... -- 3,262,168 6,868,230 6,868,230
----------- ----------- ----------- -----------
Total current liabilities. 6,454,866 18,510,519 20,759,479 22,574,162
Long-term debt, less current
maturities................... 3,270,173 2,852,649 1,978,806 1,978,806
----------- ----------- ----------- -----------
Total liabilities......... 9,725,039 21,363,168 22,738,285 24,552,968
----------- ----------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par
value; 2,000 shares
authorized, none
outstanding................ -- -- -- --
Common stock, $0.01 par
value; 1,000 shares
authorized, 501.25 shares
issued and outstanding at
December 31, 1995 and 1996
........................... 5,013 5,013 5,013 5,013
Additional paid-in capital.. 876,554 2,056,554 2,531,554 736,169
Retained earnings........... 4,531,924 2,548,649 5,276,111 --
Unrealized gain (loss) on
marketable securities...... (158,243) 1,608,671 904,611 --
----------- ----------- ----------- -----------
Total stockholders'
equity................... 5,255,248 6,218,887 8,717,289 741,182
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity..... $14,980,287 $27,582,055 $31,455,574 $25,294,150
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

STATEMENTS OF OPERATIONS (NOTE 1)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................. $23,890,885 $19,864,895 $21,758,715 $2,964,895 $18,654,636
Cost of revenue......... 18,063,371 13,509,781 15,768,980 2,426,160 12,799,897
----------- ----------- ----------- ---------- -----------
Gross profit.......... 5,827,514 6,355,114 5,989,735 538,735 5,854,739
Selling, general and
administrative
expenses............... 2,202,569 3,861,564 6,673,371 942,297 2,622,481
----------- ----------- ----------- ---------- -----------
Operating income
(loss)............... 3,624,945 2,493,550 (683,636) (403,562) 3,232,258
----------- ----------- ----------- ---------- -----------
Other income (expense):
Interest expense...... (369,819) (650,171) (891,458) (199,832) (201,360)
Interest income....... 24,019 452,882 443,317 116,786 81,527
Gain on sale or
distribution of
assets............... 807,611 1,868,885 348,793 230,029 1,378,842
Litigation settlement. -- 750,000 3,466,635 3,466,635 --
Other................. 22,973 5,760 104,487 (26,663) 66,249
----------- ----------- ----------- ---------- -----------
Total other income.. 484,784 2,427,356 3,471,774 3,586,955 1,325,258
----------- ----------- ----------- ---------- -----------
Net income.......... $ 4,109,729 $ 4,920,906 $ 2,788,138 $3,183,393 $ 4,557,516
=========== =========== =========== ========== ===========
Unaudited pro forma data
(Note 2):
Net income, reported
above................ $ 4,109,729 $ 4,920,906 $ 2,788,138 $3,183,393 $ 4,557,516
Pro forma provision
for income taxes
related to operations
as
S Corporation........ 1,521,000 1,821,000 1,032,000 1,178,000 1,685,000
----------- ----------- ----------- ---------- -----------
Pro forma net income.. $ 2,588,729 $ 3,099,906 $ 1,756,138 $2,005,393 $ 2,872,516
=========== =========== =========== ========== ===========
Unaudited pro forma per
share data (Note 1):
Weighted average
shares outstanding... 9,667,880 9,454,266
=========== ===========
Pro forma net income
per share............ $ 0.18 $ 0.30
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 1)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN
$10 PAR VALUE ADDITIONAL (LOSS) ON TOTAL
-------------- PAID-IN RETAINED TREASURY MARKETABLE STOCKHOLDERS'
NUMBER AMOUNT CAPITAL EARNINGS STOCK SECURITIES EQUITY
------ ------ ---------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 500.00 $5,000 $1,211,812 $ 986,303 $(222,870) $ -- $1,980,245
Retirement of treasury
stock................ (18.75) (187) (222,683) -- 222,870 -- --
Merger with Gulf Boat,
Inc.................. -- -- (194,562) -- -- -- (194,562)
Distributions to
stockholders......... -- -- -- (3,258,877) -- -- (3,258,877)
Issuance of stock as
compensation......... 20.00 200 81,987 -- -- -- 82,187
Unrealized loss on
marketable
securities........... -- -- -- -- -- (37,467) (37,467)
Net income............ -- -- -- 4,109,729 -- -- 4,109,729
------ ------ ---------- ---------- --------- --------- ----------
Balance, December 31,
1994................... 501.25 5,013 876,554 1,837,155 -- (37,467) 2,681,255
Distributions to
stockholders......... -- -- -- (2,226,137) -- -- (2,226,137)
Unrealized loss on
marketable
securities........... -- -- -- -- -- (120,776) (120,776)
Net income............ -- -- -- 4,920,906 -- -- 4,920,906
------ ------ ---------- ---------- --------- --------- ----------
Balance, December 31,
1995................... 501.25 5,013 876,554 4,531,924 -- (158,243) 5,255,248
Distributions to
stockholders......... -- -- -- (4,771,413) -- -- (4,771,413)
Capital contribution
from stockholders.... -- -- 100,000 -- -- -- 100,000
Stock granted to
employees as
compensation......... -- -- 1,080,000 -- -- -- 1,080,000
Unrealized gain on
marketable
securities........... -- -- -- -- -- 1,766,914 1,766,914
Net income............ -- -- -- 2,788,138 -- -- 2,788,138
------ ------ ---------- ---------- --------- --------- ----------
Balance, December 31,
1996................... 501.25 5,013 2,056,554 2,548,649 -- 1,608,671 6,218,887
Distributions to
stockholders......... -- -- -- (1,830,054) -- -- (1,830,054)
Stock granted to
employees as
compensation......... -- -- 475,000 -- -- -- 475,000
Unrealized loss on
marketable
securities........... -- -- -- -- -- (704,060) (704,060)
Net income............ -- -- -- 4,557,516 -- -- 4,557,516
------ ------ ---------- ---------- --------- --------- ----------
Balance, March 31, 1997. 501.25 $5,013 $2,531,554 $5,276,111 $ -- $ 904,611 $8,717,289
====== ====== ========== ========== ========= ========= ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

STATEMENTS OF CASH FLOWS (NOTE 1)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 4,109,729 $ 4,920,906 $ 2,788,138 $ 3,183,393 $ 4,557,516
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 347,190 425,445 695,551 173,903 215,080
Compensation expense
related to stock
issued to employees. 82,187 -- 1,080,000 -- 475,000
(Gain) loss on sale
of assets........... (807,611) (1,868,885) (348,793) 21,869 (1,430,969)
Net increase
(decrease) in
billings related to
costs and estimated
earnings on
uncompleted
contracts........... (534,891) 856,622 2,978,116 -- 2,788,972
Other................ (8,455) (21,119) -- -- --
Net effect of changes
in assets and
liabilities:
Restricted
certificates of
deposit........... (1,004,940) (3,451,327) (195,697) (23,306) 3,544,934
Accounts
receivable........ 1,081,483 (402,360) (3,834,519) (2,928,210) (7,022,369)
Inventory and
stockpiled
materials......... -- -- (571,000) -- (175,277)
Prepaid expenses
and other assets.. 11,072 41,338 (464,966) 26,921 (509,469)
Accounts payable
and accrued
expenses.......... (181,704) (231,444) 2,747,893 637,180 2,908,805
----------- ----------- ----------- ----------- -----------
Net cash provided
by operating
activities....... 3,094,060 269,176 4,874,723 1,091,750 5,352,223
----------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Capital expenditures
for plant and
equipment............ (1,149,725) (2,669,855) (2,356,999) (1,596,430) (1,357,942)
Cash received upon
acquisition.......... -- -- 163,020 -- --
Proceeds from sale of
property, plant and
equipment............ 3,309,296 1,431,770 578,521 279,641 395,521
Development costs of
land held for resale. (148,373) -- -- -- --
Payments received on
sales-type lease..... -- 317,733 381,352 100,577 185,189
Release of (investment
in) long-term
restricted cash...... (569,731) 569,731 -- -- --
Investment in
marketable
securities........... (1,115,717) (2,058,910) (2,631,756) (1,011,978) --
Cash received in
merger with Gulf
Boat, Inc............ 83,920 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
investing
activities....... 409,670 (2,409,531) (3,865,862) (2,228,190) (777,232)
----------- ----------- ----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
financing activities:
Net borrowings
(repayments) under
lines of credit...... $ (93,812) $3,924,059 $3,822,030 $1,141,526 $(2,227,960)
Proceeds from
borrowings under debt
facilities........... 943,741 6,188,196 1,736,109 588,978 290,212
Repayments on
borrowings under debt
facilities........... (713,598) (5,304,775) (1,492,917) -- (1,664,962)
Distributions to
shareholders......... (3,258,877) (2,226,137) (4,771,413) (851,276) (386,602)
---------- ---------- ---------- ---------- -----------
Net cash provided by
(used in) financing
activities............. (3,122,546) 2,581,343 (706,191) 879,228 (3,989,312)
---------- ---------- ---------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 381,184 440,988 302,670 (257,212) 585,679
Cash and cash
equivalents at
beginning of year...... 385,034 766,218 1,207,206 1,207,206 1,509,876
---------- ---------- ---------- ---------- -----------
Cash and cash
equivalents at end of
year................... $ 766,218 $1,207,206 $1,509,876 $ 949,994 $ 2,095,555
========== ========== ========== ========== ===========
Supplemental disclosure
of cash flow
information--Cash paid
during the period for
interest............... $ 369,468 $ 621,387 $ 751,522 $ 167,412 $ 204,278
========== ========== ========== ========== ===========
Issuance of common
stock as
compensation......... $ 81,987 $ -- $1,080,000 $ -- $ 475,000
========== ========== ========== ========== ===========
Non-cash distributions
to stockholders...... $ -- $ -- $ -- $ -- $ 1,641,000
========== ========== ========== ========== ===========
Assumption of note
payable by
stockholder.......... $ -- $ -- $ -- $ -- $ 198,000
========== ========== ========== ========== ===========
Distribution of
marketable securities
to stockholder to
satisfy note payable. $ -- $ -- $ -- $ -- $ 1,400,000
========== ========== ========== ========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS:

The principal predecessor to Friede Goldman International Inc. (the
"Company"), HAM Marine, Inc. ("HAM"), was formed in 1982 under the laws of the
State of Mississippi. HAM's primary business is to provide conversion,
retrofit and repair services for offshore drilling rigs. HAM's primary
customers are offshore drilling contractors who utilize the Company's services
in connection with the conversion and modification of existing drilling rigs
in order to increase their technical capabilities or to improve their
efficiency. As of March 31, 1997, substantially all of HAM's services were
conducted at a deepwater dock facility on land leased from the Port Authority
in Pascagoula, Mississippi.

Acquisition of Friede & Goldman, Ltd.

On December 2, 1996, a company related to HAM through identical equity
ownership, J.L. Holloway Holdings, Inc. ("Holdings"), purchased certain assets
and rights, including the rights to the trade name "Friede & Goldman" from an
unrelated third party ("Mr. Goldman"). Simultaneously with the closing of the
purchase, Holdings changed its name to Friede & Goldman, Ltd. ("Friede &
Goldman"). Prior to Holdings' purchase of assets and rights, Holdings had no
material assets, liabilities or operations. These transactions are accounted
for under the purchase method of accounting by the Company in the accompanying
financial statements. The operations of Friede & Goldman for the period from
December 2, 1996 to December 31, 1996, which were immaterial, are included in
the accompanying financial statements. For the eleven months ended November
30, 1996, revenues, gross profit and net income generated by the seller were
$3.7 million, $1.1 million and $0.6 million, respectively.

Assets acquired included property and equipment with a value of
approximately $216,000, and designs and patents which, at December 31, 1996,
had a carrying value of approximately $1,246,000.

In addition to the cash consideration paid by Friede & Goldman to Mr.
Goldman, the Purchase Agreement requires Friede & Goldman, until December
2006, to pay Mr. Goldman certain licensing and design fees received by Friede
& Goldman from the designs of new-build independent leg jackups and
semisubmersible drilling rigs as well as a percentage of all amounts collected
from sales of a patented rack chock system designed by Friede Predecessor, a
system which improves the strength of the connection between the legs and the
hull of a jackup drilling rig. Friede & Goldman is also required to make
payments to Mr. Goldman in the event that future sales of designs purchased
from Friede Predecessor and new designs developed by Friede & Goldman
constitute 20% or less of all new-build independent leg jackup and
semisubmersible drilling rigs for which construction has begun by domestic
drillers (other than any domestic driller that builds rigs for its own use
with its own shipyard) during any consecutive three-year period prior to the
end of the year 2006, with the first three-year period commencing at the time
construction begins with respect to a new-build drilling rig. In such an
event, Friede & Goldman is required to pay Mr. Goldman $300,000 (subject to
adjustment for inflation and certain maximum amounts) for each drilling unit
design sale by which Friede & Goldman is short of the 20% threshold for any
such three-year period, subject to a maximum of $1 million for any such three-
year period (the "Market Share Payment"). In the event that Friede & Goldman
fails to make any of the payments described on a timely basis, Friede
Predecessor has the right to require that all of the assets purchased from
Friede Predecessor (other than the name "Friede Goldman" and derivatives
thereof) be returned to Friede Predecessor and the right to terminate the
consulting and non-compete provisions of the Purchase Agreement. The payments
to Mr. Goldman by the Company attributable to license and design fees or sales
will be charged to costs of revenue in connection with the related contracts.
Any amounts paid by the Company to Mr. Goldman attributable to the Market
Share Payment will be charged to expense in the period in which it becomes
known that such a payment will be required.

F-8
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

Friede & Goldman's primary business is the design of offshore drilling and
production units, including jackups, semisubmersibles, drillships and floating
production, storage and offloading vessels, for new construction and with
respect to upgrade and modification projects. Friede & Goldman's offices are
located in New Orleans, Louisiana.

Reorganization

The Company was incorporated under the laws of the State of Delaware in
February 1997. In anticipation of the Company's proposed initial public
offering of its common stock (see Note 14), the stockholders of HAM and Friede
& Goldman will contribute all of their ownership in HAM and Friede & Goldman
to the Company in exchange for shares of common stock in the Company; and HAM
and Friede & Goldman will become wholly-owned subsidiaries of the Company (the
"Reorganization"). Because HAM and Friede & Goldman are owned in substantially
identical proportions, the number of shares of common stock of the Company
received by each of the stockholders of HAM and Freide & Goldman in the
Reorganization will be determined based on each stockholder's percentage of
ownership of HAM shares. The Reorganization will be accounted for as a
reorganization of entities under common control. Accordingly, the accompanying
financial statements include the accounts of HAM for all dates and periods
presented and of Friede & Goldman for the period since December 2, 1996. All
significant intercompany accounts and transactions have been eliminated. The
financial statements have been restated from those previously reported to
reflect a change in selling, general and administrative expenses related to
stock issued to employees. See Note 2. References to the "Company" included
herein include HAM and Friede & Goldman, which are also sometimes collectively
referred to as "the Predecessors".

The Company's certificate of incorporation established authority to issue
1,000 shares of $0.01 par value preferred stock and 2,000 shares of $0.01 par
value common stock. Preferred stock may be issued in one or more series and in
such amounts as may be determined by the Company's board of directors. The
voting powers, designations, preferences and relative, participating, optional
or other special rights, if any, and the qualifications, limitations or
restrictions, if any, of each preferred stock issue shall be fixed by
resolution of the board of directors providing for the issue. All shares of
common stock of the Company shall be identical, and, except as otherwise
provided in a resolution of the board of directors with respect to preferred
stock, the holders of common stock shall exclusively possess all voting power
with each share of common stock having one vote.

Unaudited Pro Forma March 31, 1997 Balance Sheet Data

Between March 31 and June 30, 1997, one of the Predecessors made cash
distributions to its stockholders of approximately $1.4 million, primarily to
provide the stockholders with cash to meet income tax obligations on earnings
of such Predecessor prior to 1997. In addition, in contemplation of the
proposed initial public offering, one of the Predecessors plans to distribute
to its stockholders marketable securities with a fair value of approximately
$4.8 million, together with related margin account debt of approximately $2.7
million (See Notes 3 and 6). Further, one of the Predecessors plans to
distribute approximately $4.5 million to its stockholders representing the
stockholders' estimated income tax obligations on the earnings of the
Predecessor during 1997 through the date of termination of its S Corporation
status. The $4.5 million distribution is expected to be funded through
borrowings under the Company's existing revolving credit facility (See Note
6). Such borrowings are expected to be repaid with a portion of the proceeds
from the initial public offering. The unaudited pro forma balance sheet data
as of March 31, 1997, reflect the impact on cash, marketable securities, short
term debt and stockholders' equity of the distributions discussed above as if
they had occurred as of that date, excluding, however, the anticipated
proceeds from the initial public offering. The unaudited pro forma balance
sheet data should not be considered indicative of actual balance sheet data
subsequent to such distributions.

F-9
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

Unaudited Pro Forma Earnings Per Share

In May 1997, in conjunction with the Company's plan to undertake an initial
public offering of its common stock (see Note 14), the Company authorized an
increase in the amount of authorized shares to 5,000,000 shares of $0.01 par
value preferred stock and 25,000,000 shares of $0.01 par value common stock.
Effective prior to the public offering, the Company anticipates issuing,
pursuant to a stock exchange agreement, 9,200,000 shares of the Company's
common stock to the stockholders of HAM and Friede & Goldman as described
above. Therefore, for the pro forma per share data included in the statement
of operations, the weighted average number of common shares outstanding
includes 9,200,000 shares for all periods presented. As discussed above, one
of the Predecessors has made or expects to make significant distributions to
its stockholders in contemplation of and in connection with the proposed
initial public offering. Such distributions exceed the earnings of the
Predecessor for the year ended December 31, 1996, and the twelve months ended
March 31, 1997. Accordingly, for purposes of the calculation of pro forma
earnings per share for the year ended December 31, 1996 and the three months
ended March 31, 1997, the weighted average number of shares outstanding has
been increased by the number of shares of common stock whose proceeds from the
initial public offering would be necessary to pay the amount by which such
distributions exceed earnings for the prior twelve month period. Because a
portion of the expected distributions represents amounts attributable to
operating results subsequent to March 31, 1997, pro forma earnings per share
should not be considered indicative of actual earnings per share.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

The Company records revenue on contracts on the percentage-of-completion
method. Contract revenue is earned based upon the percentage that incurred
costs to date, excluding the costs of any purchased but uninstalled materials,
bear to total estimated costs, commencing when progress reaches a point where
experience is sufficient to estimate final results with reasonable accuracy.
As contracts extend over one or more years, revisions in costs and earnings
estimates during the course of the work are reflected in the accounting period
in which the facts which require the revisions become known. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Other changes, including those arising from contract
penalty provisions, and final contract settlements are recognized in the
period in which the revisions are determined.

Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. Selling, general, and
administrative costs are charged to expense as incurred.

The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.

Inventories and Stockpiled Materials

Inventories and stockpiled materials consist primarily of materials
purchased for specific contracts and are stated at the lower of specifically
identified cost or market (replacement cost or net realizable value).

F-10
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line basis over the
estimated useful lives of the assets, which range from 5 to 39 years. Ordinary
maintenance and repairs which do not extend the physical or economic lives of
the plant or equipment are charged to expense as incurred.

Intangible Assets

Intangible assets consist primarily of design and patents acquired in
connection with the acquisition of Friede & Goldman which are being amortized
over a 10 year period. Amortization expense for the period from December 2,
1996 to December 31, 1996 and for the three months ended March 31, 1997 was
immaterial.

Income Taxes

The stockholders of the Predecessors have elected to have each entity taxed
as an S Corporation for federal and state income tax purposes, whereby the
stockholders are liable for individual federal and state income taxes on their
allocated portions of such entity's taxable income. Accordingly, the
accompanying financial statements do not include any provision for income
taxes.

As discussed in Note 14, the Company is contemplating a public offering of
equity securities. Before the closing of the public offering, the stockholders
of the Predecessors will elect to terminate the status of each Predecessor as
an S Corporation, and the Company and the Predecessors will be subject to
federal and state income taxes. This will result in the establishment of a net
deferred tax liability calculated at applicable federal and state income tax
rates resulting primarily from temporary differences arising from differences
in depreciation rates for tax and financial reporting purposes, timing of gain
recognition related to sales-type lease and unrealized appreciation in
marketable securities. At December 31, 1996, and March 31, 1997, such net
deferred tax liability would have been approximately $1,410,000 and
$1,100,000, respectively.

The pro forma provision for income taxes is the result of the application of
a combined federal and state rate (37%) to income before income taxes.

Executive Compensation

HAM has historically used distributions or bonuses, or a combination
thereof, to the stockholders, who are also employees, in order to provide a
means by which the stockholders can meet their income tax obligations arising
from the pass through of HAM's taxable income due to the status of HAM as an S
Corporation. Included in selling, general and administrative expenses are
bonuses of approximately $223,000, $1,225,000 and $2,118,000 for the years
ended December 31, 1994, 1995 and 1996, respectively, which were primarily
intended to assist the stockholders with their personal income tax liabilities
resulting from HAM's earnings. Subsequent to December 31, 1996, the Company
has entered into employment agreements with the employees, who are also
stockholders, which establish base compensation for the employees and provide
for the eligibility of the employees for participation in cash bonuses, if
any. (See Note 10.)

Also included in selling, general and administrative expenses for the year
ended December 31, 1996, and the three months ended March 31, 1997, is non
cash compensation expense of $1,080,000 and $475,000, respectively, related to
stock issued to employees. In December 1996, HAM entered into an employment

F-11
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

agreement with an individual whereby the Company agreed to grant the employee
shares of HAM's common stock equal to 0.835% of the common shares outstanding
as of January 1, 1997 (76,820 shares calculated on the pro forma share basis
described in Note 1). As a result, HAM charged to selling, general, and
administrative expenses in 1996 $1,080,000 representing the value of the
shares granted based on an estimated initial public offering price for the
Company's common stock, less a 10% discount because the shares received by the
employee are not registered. The Securities and Exchange Commission ("SEC")
mandates this valuation methodology. In February 1997, HAM granted another
employee fully vested shares of common stock of HAM equal to approximately
0.418% of the common shares then outstanding (38,410 shares calculated on the
pro forma share basis described in Note 1), and granted that employee options
to purchase an equal amount of additional shares at $2.39 per share (on the
pro forma share basis described in Note 1) that vest ratably on January 1,
1999, 2000 and 2001, subject to forfeiture if the employee terminates
employment. The options granted expire if unexercised by December 31, 2006.
Accordingly, HAM recognized selling, general, and administrative expenses in
the three months ended March 31, 1997 of $475,000 based on the SEC mandated
valuation methodology. HAM will recognize over the three-year vesting period
approximately $400,000 of compensation expense related to the options to
purchase additional shares. The deferred compensation to be recognized by the
Company related to options granted is based on the estimated initial public
offering price of the Company's common stock less the exercise price of the
options.

The Company previously reported its financial statements for the year ended
December 31, 1996, and the three months ended March 31, 1997, reflecting
compensation expense related to stock issued to employees that management
believes was representative of the estimated fair market value of the shares
granted at the date of the agreements. The accompanying financial statements
have been restated to reflect selling, general and administrative expenses
based on the valuation methodology mandated by the SEC. The impact of such
restatement was to decrease net income for the year ended December 31, 1996,
and the three months ended March 31, 1997, by $804,000 and $100,000,
respectively.

In July 1997, the Company granted another employee options to purchase
common shares of the Company equal to approximately 1% of the common shares
then outstanding (100,000 shares at $2.50 per share on the pro forma share
basis described in Note 1) that vest ratably each year from 1998 to 2002. The
options expire if unexercised by December 31, 2006. The Company will recognize
over the five-year vesting period approximately $1,100,000 of compensation
expense related to the options to purchase additional shares. The deferred
compensation to be recognized by the Company is based on the estimated initial
public offering price of the Company's common stock less the exercise price of
the options.

All of the shares issued to employees in connection with the agreements
described above will be exchanged for shares of the Company in connection with
the Reorganization. In addition, any options to purchase shares of HAM
outstanding at the time of the Reorganization will be exchanged for options to
purchase shares of the Company, with the number of shares and option price
being changed based on the share exchange ratio used in the Reorganization.

Cash Equivalents and Restricted Certificates of Deposit

For purposes of the statement of cash flows, the Company considers all
short-term cash investments with an original maturity of less than three
months to be cash equivalents. The restricted certificates of deposit are held
by financial institutions as collateral on debt facilities and are therefore
not considered a cash equivalent.

F-12
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

Use of Estimates

These financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements, the
Company is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the dates of the balance sheets and
the reported amounts of revenues and expenses for the years then ended. Actual
results could differ materially from those estimates.

Fair Value of Financial Instruments

The carrying amount of the Company's financial instruments at December 31,
1995 and 1996 and March 31, 1996 and 1997, including cash, restricted
certificates of deposit, marketable securities, contracts receivable,
investments in sales-type lease and notes payable, approximates fair value.

Recently Issued Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of "
("SFAS No. 121"). The Company adopted SFAS No. 121 on January 1, 1996 and
there was no material impact on the Company's financial statements.

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The
disclosure requirements of this Statement are effective for the Company's
financial statements beginning in fiscal 1996. The Company intends to apply
the accounting provisions of Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees." With the Company's plan of
adoption, the impact will be limited to additional footnote disclosure. The
Company's adoption of this statement does not materially impact the
disclosures that have been made for stock-based compensation granted through
March 31, 1997. For options that may subsequently be granted at the Company's
discretion, the impact of adoption of this statement will be limited to
additional footnote disclosure.

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which adopts a
revised methodology for computing earnings per share for publicly owned
companies. The Company will be required to adopt the new methodology in the
fourth quarter of 1997 and will also be required to restate previously
reported earnings per share. Early adoption of SFAS No. 128 is not permitted.
The Company does not expect the application of SFAS No. 128 to materially
change the Company's reported earnings per share.

3. MARKETABLE SECURITIES:

At December 31, 1995 and 1996 and March 31, 1997, the Company held
marketable equity securities with historical costs of $2,198,244, $5,010,095
and $3,876,339, respectively. In accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," these securities are classified as available for sale. As
such, their carrying values are adjusted to fair market value with net
unrealized gains/losses included as separate component of stockholders'
equity. At December 31, 1995, the fair market value of marketable securities
was $2,040,001 resulting in net unrealized losses of $158,243. At December 31,
1996, the fair market value of marketable securities was $6,618,766 resulting
in net unrealized gains of $1,608,671. At March 31, 1997, the fair market
value of marketable securities was $4,780,950 resulting in net unrealized
gains of $904,611.

F-13
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

During the years ended December 31, 1995 and 1996, the Company sold
securities classified as available for sale for proceeds of $216,770 and
$5,269,110, respectively, resulting in realized losses of $5,733 in 1995 and
realized gains of $180,095 in 1996. There were no significant sales of
securities during 1994. The cost basis of securities sold was calculated using
the specific identification method.

4. ACCOUNTS RECEIVABLE:

A summary of accounts receivable follows:

<TABLE>
<CAPTION>
DESCRIPTION DECEMBER 31,
----------- --------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Accounts receivable, contracts................ $ 717,108 $4,318,999 $11,474,311
Due from employment contractor (Note 8)....... 108,936 413,881 104,436
Due from stockholders (Note 12)............... 209,013 128,323 139,149
Other......................................... -- 8,373 8,673
---------- ---------- -----------
Total accounts receivable................... $1,035,057 $4,869,576 $11,726,569
========== ========== ===========

5. PROPERTY, PLANT AND EQUIPMENT:

A summary of property, plant and equipment follows:

<CAPTION>
DESCRIPTION DECEMBER 31,
----------- --------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Land.......................................... $ 249,836 $ -- $ --
Land held for investment...................... 409,833 409,833 --
Buildings..................................... 639,213 333,694 771,758
Machinery and equipment....................... 4,013,739 6,115,284 6,436,927
Dock facility................................. 2,402,148 2,741,493 2,951,864
---------- ---------- -----------
Total property, plant and equipment......... 7,714,769 9,600,304 10,160,549
Less accumulated depreciation................. 3,635,808 4,053,905 4,117,200
---------- ---------- -----------
Property, plant and equipment, net.......... $4,078,961 $5,546,399 $ 6,043,349
========== ========== ===========
</TABLE>

Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $347,190, $425,445 and $695,551, respectively. Depreciation expense for
the three months ended March 31, 1996 and 1997 was $173,903 and $215,080,
respectively.

F-14
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

6. FINANCING ARRANGEMENTS:

A summary of short and long-term debt follows:

<TABLE>
<CAPTION>
DESCRIPTION DECEMBER 31,
----------- --------------------- MARCH 31,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Borrowings under 1996 Credit Facility........ $ -- $1,501,000 $ --
Borrowings under 1997 Credit Facility........ -- -- 2,600,000
Notes payable to banks bearing interest at
rates ranging from 6.10% to 6.25%, maturing
at dates ranging from February 1997 to July
1997, secured by certificates of deposit.... 2,025,000 4,475,000 1,100,000
Brokerage margin account bearing interest at
7.75%, due on demand and secured by equity
securities.................................. 526,247 2,637,277 2,685,317
Note payable to a bank bearing interest at
10%, repayable in monthly installments,
maturing March 2005, secured by sales-type
lease and related real estate (See Note 7).. 2,010,267 1,628,915 1,443,726
Notes payable to financial institutions and
others bearing interest at rates ranging
from 5% to 9.15%, payable in monthly
installments, maturing at dates ranging from
January 1998 to January 2000 and secured by
equipment, lease and real property.......... 2,221,262 2,845,806 1,656,245
Three revolving master notes with a bank
providing for aggregate borrowings up to
$3,000,000, bearing interest at rates
ranging from 5.94% to prime plus 1.75%
depending on amounts outstanding, secured by
certificates of deposit, accounts receivable
and contract rights......................... 2,240,000 -- --
---------- ---------- ----------
Total...................................... 9,022,776 13,087,998 9,485,288
Less: short-term debt and current
maturities of long-term debt.............. 5,752,603 10,235,349 7,506,482
---------- ---------- ----------
Long-term debt less current maturities..... $3,270,173 $2,852,649 $1,978,806
========== ========== ==========
</TABLE>
As of December 31, 1996, the Company has a line of credit facility (the
"1996 Credit Facility") with a bank which permits borrowings of up to the
lesser of $5,000,000 or 80% of eligible receivables. Borrowings under the 1996
Credit Facility bear interest at prime plus 1% (9.25% at December 31, 1996)
and are secured by accounts receivable and personal guarantees of certain
stockholders of the Company. The 1996 Credit Facility, which expires in July
1997, requires the Company to maintain certain minimum net worth and working
capital levels and debt to equity ratios and also requires the Company to
maintain at least $500,000 in unrestricted cash or marketable securities. As
of December 31, 1996, the Company was in compliance with these requirements.
At December 31, 1996, additional borrowings of $1,610,990 were available to
the Company under the 1996 Credit Facility.

On March 20, 1997, the Company entered into a new credit facility (the "1997
Credit Facility") which provides for accounts receivable and contract related
inventory based borrowings of up to $10,000,000 at prime plus 1/2% through
March 20, 1998. The 1997 Credit Facility contains similar provisions to those
required by the 1996 Credit Facility with respect to net worth and working
capital levels and debt to equity ratios. At March 31, 1997, additional
borrowings of $4,146,075 were available under the 1997 credit facility.

Short-term borrowings averaged $435,000 in 1994, $1,697,000 in 1995 and
$5,396,000 in 1996, . Such borrowings were at average interest rates of 8.5%,
7.0% and 7.6%, respectively. The weighted average interest

F-15
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)
rate on all of the Company's short-term borrowings was 6.2% and 7.2% at
December 31, 1995 and 1996, respectively.

A summary of short and long-term debt maturities at December 31, 1996,
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ -----------
<S> <C>
1997.......................................................... $10,235,349
1998.......................................................... 1,327,776
1999.......................................................... 672,495
2000.......................................................... 131,015
2001.......................................................... 143,419
Thereafter.................................................... 577,944
-----------
Total maturities............................................ $13,087,998
===========
</TABLE>

The Company expects to use the proceeds from maturing certificates of
deposit to repay the notes payable secured by such certificates, and to repay
the brokerage margin account upon the ultimate sale of the related marketable
securities.

7. ACQUISITION, LEASE AND SALE OF ASSETS:

In November 1994, the Company merged with Gulf Boats, Inc. ("Gulf Boats"),
an entity with ownership identical to the Company's (See Note 12). In
connection with that acquisition, the Company assumed a long-term lease
obligation for certain land, buildings and a dock facility, as well as certain
other long term obligations to individuals affiliated with the owner of the
leased facilities. In February 1995, the Company purchased the leased assets
from the lessor for approximately $1.1 million and, in connection therewith,
was released from its obligations to the individuals. No gain or loss was
recognized in connection with the purchase of the leased assets.

In March 1995, the Company entered into an arrangement with an unrelated
party (the "Lessee") for lease of the property for a term of ten years. The
lease provides for monthly payments from the Lessee of $50,000 during the
first thirty-six months and $17,425 per month during the remaining term. At
about the same time, the Company borrowed $2,328,000 from a bank with the
lease being assigned as security for the loan. The loan bears interest at 10%
with the monthly payments and term of the promissory note equal to the lease
payments receivable from the Lessee. The Company granted the Lessee an option
to purchase the property at any time for an amount equal to the outstanding
principal balance, plus accrued interest, of the bank loan. This lease has
been accounted for as a sale-type lease by the Company. Accordingly, the
present value of future lease payments of $2,328,000 was recorded as an
investment in sales-type lease.

In connection with the purchase of the property, release of obligations and
subsequent sales-type lease, the Company realized a gain of approximately $1.7
million which is included in gain on sale of assets in the 1995 statement of
operations. Such gain represented the amount by which the present value of
future lease payments under the sales type lease exceeded the Company's
carrying value of the leased assets. The unearned discount attributable to
future lease payment is being recognized as interest income over the remaining
term of the lease on the interest method.

During 1994, the Company sold 106 acres of real estate not used in the
Company's operations for proceeds of $3,260,000. The sale resulted in a net
realized gain of approximately $769,000 which is included in gain on sale of
assets in the 1994 statement of operations.

F-16
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

8. CONTRACT LABOR ARRANGEMENT:

In May 1997, the Company terminated its contract for craft labor with a
contract labor company. As a result, craft labor is directly employed by the
Company at levels of wages and benefits substantially equivalent to those
formerly provided. Prior to termination of the contract company, the Company's
craft labor was provided by a contract employment company which was owned by
the spouse of an employee of the Company and whose only contract was with the
Company. The Company was charged the actual labor rate paid to the employees
plus a markup for employment taxes and insurance and the employment company's
profit, which was intended to be nominal. The marked up rates were reviewed
periodically and adjustments were made as considered necessary. Payments for
contract employment labor totaled $12,981,786, $8,386,028 and $10,131,603 for
the years ended December 31, 1994, 1995 and 1996, respectively.

In connection with the termination of contract labor arrangements, the
Company restructured its workmen's compensation insurance arrangements and
utilizes a different carrier from that used by the contract labor company. The
insurer who provided workmen's compensation coverage to the employment
contractor has asserted that rates higher than those charged during part of
1995, all of 1996 and through the date of termination of the contract labor
arrangement were more appropriate and has submitted billings to the labor
contractor totaling approximately $630,000. The labor contractor believes the
original rates charged by the insurer were appropriate and is vigorously
disputing the additional billings. No billings have been submitted to the
Company or claims asserted against the Company by the labor contractor or the
insurer. However, it is reasonably possible that the insurer may assert a
claim against the Company. Management of the Company is unable to assess
whether such a claim will be asserted. Management of the Company believes that
the Company has no obligation to the insurer, and that the outcome of this
matter will not have a material impact on the Company's financial position or
results of operations.

9. POOLED RESOURCES ARRANGEMENT AND SIGNIFICANT CUSTOMERS:

In February 1994, the Company entered into an agreement (the "1994 Joint
Venture") with an unrelated entity to jointly perform services in connection
with the modification and upgrade of a customer's offshore drilling rig. Under
the terms of the 1994 Joint Venture, both the Company and the unrelated entity
were compensated for services each provided in connection with the contract at
agreed upon rates. Any net profits from the 1994 Joint Venture were shared
equally. The contract was completed during 1995, and the 1994 Joint Venture
was terminated. The Company recognized as contract revenue the amounts charged
to the 1994 Joint Venture for services provided during 1994 and 1995, together
with the Company's share of the net profit from the 1994 Joint Venture, using
the percentage of completion method. Such amounts were approximately
$16,249,000 and $8,652,000 in 1994 and 1995, respectively.

In December 1995, the Company and the same unrelated third party entered
into another agreement (the "1995 Joint Venture") to jointly pursue contract
opportunities and perform the related services. The 1995 Joint Venture was
originally for a term of five years; however, it was terminated by mutual
agreement in November 1996. The terms of the 1995 Joint Venture provided for
each party to be paid agreed upon rates for services performed in connection
with related contracts and for any net profits from the 1995 Joint Venture to
be shared equally. For the year ended December 31, 1995, activity conducted
through the 1995 Joint Venture was immaterial. For the year ended December 31,
1996, the Company recognized contract revenues of $9,838,000, together with
the Company's share of net profits from the 1995 Joint Venture. At December
31, 1996, the partners were involved in the dissolution of the joint venture
agreement.

F-17
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

The nature of the conversion and modification projects undertaken by the
Company can result in an individual contract comprising a large percentage of
a fiscal year's contract revenues. Similarly, relatively few companies own
offshore rigs. As a result, contracts performed for an individual customer may
comprise a significant portion of a particular year's contract revenue. During
the year ended December 31, 1996, the largest single contract represented 15%
of contract revenues and contracts with four separate customers comprised 12%,
17%, 24% and 31% of contract revenues. During the year ended December 31,
1995, the most significant customer had a single contract with the Company
which represented 52% of contract revenue, with revenues derived from the next
largest customer representing 3% of contract revenue. During the year
endedDecember 31, 1994, the most significant customer had a single contract
with the Company which represented 16% of contract revenue, with revenues from
the next largest customer representing 7% of contract revenue.

10. EMPLOYEE BENEFIT PLANS:

Effective July 1, 1995, the Company adopted a qualified 401(k) employee
savings and profit sharing plan for the benefit of substantially all eligible
employees, including those of the labor contractors (See Note 8). Under the
plan, employees can contribute and defer taxes on compensation contributed.
The Company matches 25% of the contributions of the employees up to a maximum
of 5% of salary. The Company also has the option to make an additional profit
sharing contribution to the plan. Employer contributions to the plan during
the years ended December 31, 1995 and 1996, amounted to $10,171 and $38,109,
respectively.

The Board of Directors of the Company has approved the payment of bonuses to
key employees of the Company for 1997 in an aggregate amount not to exceed
five percent of the Company's EBITDA (defined as operating income plus
depreciation, amortization and non-cash compensation expenses related to the
issuance of stock and stock options to employees). The Board of Directors will
determine the actual amount of the bonus pool and recipients of any such
bonuses following a determination of EBITDA for 1997. The Company has recorded
accrued bonuses through March 31, 1997 based on management's estimate of
bonuses through that date. The actual amount of bonuses, if any, paid by the
Company attributable to earnings through March 31, 1997 may differ from the
estimated amount accrued.

11. LEASES:

The Company entered into a lease agreement in May 1985, with the Jackson
County Port Authority ("Port Authority") for the lease of land for its dock
facility. The primary lease agreement expires in May 2005, with two additional
ten-year options for renewal. Effective June 31, 1995, the original lease
agreement was revised to include additional land. The revised agreement
increased the annual lease payment from $29,870 to $49,331. The lease has been
recorded as an operating lease for financial reporting purposes. In addition
to the lease payment, the Company pays $30,000 annually to the Port Authority
in dredging fees related to this lease.

In December 1996, the Company entered into another lease with the Port
Authority for additional dockspace and buildings adjacent to the Company's
existing shipyard facility. This lease agreement is for a period of two years
beginning in December 1996 and requires annual rental payments of $500,000.
The entire first year's rent was paid in December 1996 and is included in
prepaid expenses in the December 31, 1996 balance sheet, net of approximately
$26,000 amortized to lease expense.

The Company is also committed to the lease of office space in two locations
at combined annual rentals of approximately $185,000.

F-18
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

The Company also entered into a lease in March 1997 for additional
undeveloped land located near the Company's existing shipyard. This lease is
for a period of 2 years and requires minimum annual lease rentals of $41,000.
The Company has also recently entered into an arrangement that will give the
Company use of additional equipment for a period of 12 months. The
arrangement, which may be extended for an additional 12 month period by mutual
consent of the parties, requires a minimum annual payment under the
arrangement of $1.2 million.

Future minimum lease payments from all of the above arrangements are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, TOTAL
------------------------ ----------
<S> <C>
1997................................... $1,998,982
1998................................... 805,815
1999................................... 271,648
2000................................... 253,595
2001................................... 219,935
Thereafter............................. 282,765
----------
$3,832,740
==========
</TABLE>

Lease expense was $29,870, $37,367 and $173,577 for the years ended December
31, 1994, 1995 and 1996, respectively, and $32,640 and $464,594 for the three
months ended March 31, 1996 and 1997.

12. RELATED PARTY TRANSACTIONS:

HAM Industrial, Inc.

The Stockholders of the Company are also stockholders in HAM Industrial,
Inc. ("Industrial"). Prior to 1996, the Company paid certain common expenses,
such as officers' and administrative payroll which were allocated from
Industrial. These transactions between the Company and Industrial were
accounted for through a non-interest bearing intercompany loan account. There
were no transactions with Industrial during 1996, and, as of December 31,
1996, Industrial has no material assets or liabilities. A summary of
transactions between Industrial and the Company for the years ended December
31, 1995 and 1994, follows:

<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Balance due from Industrial, beginning of year..... $ 19,207 $ 310,836
Activity during the year:
Cash advanced to Industrial...................... 2,042,791 995,340
Repayment of advances by Industrial.............. (950,000) (1,262,170)
Payroll and administrative overhead paid by
Industrial for the Company...................... (828,588) (71,049)
Other............................................ 27,426 27,043
---------- -----------
Total activity, net............................ 291,629 (310,836)
---------- -----------
Balance due from Industrial, end of year........... $ 310,836 $ --
========== ===========
</TABLE>

Modular Fabricators, Inc.

Some of the stockholders are also stockholders in Modular Fabricators, Inc.
("Modular"). During 1995, Modular advanced the Company $1,113,934 which the
Company repaid. Additionally, the Company advanced

F-19
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)
Modular $103,610 with Modular repaying $56,416. The remaining amount due from
Modular was forgiven during 1995.

Gulf Boats, Inc.

As stated in Note 7, the stockholders were also stockholders in Gulf Boats.
The Company performed certain services for Gulf Boats totaling $282,781 during
the period from January 1, 1994 to November 30, 1994. On November 30, 1994,
Gulf Boats was merged into the Company, and Gulf Boats' total assets of
$955,655, including cash of $83,920, trade accounts receivable of $174,299 and
receivables from stockholders of $630,000, and total liabilities of
$1,150,217, including a payable to the Company of $282,781, were recorded by
the Company at Gulf Boats' historical cost basis.

Transactions with Stockholders

The Company has made loans to and paid expenditures on behalf of its
stockholders. These transactions are accounted for through a non-interest
bearing loan account. During the years ended December 31, 1994, 1995 and 1996,
the Company made advances to stockholders of $96,503, $209,013 and $128,323,
respectively. Additionally, the Company fully repaid a loan from a stockholder
in the amount of $55,797 during 1995. During the years ended December 31, 1995
and 1996, stockholders made payments to the Company of $177,941 and $209,013,
respectively. No amounts were repaid by stockholders during 1994. These
transactions resulted in receivables from stockholders of $209,013 and
$128,323 at December 31, 1995 and 1996, respectively. Two stockholders have
entered into personal guarantees of $5,000,000 each to secure a line of credit
with a bank. Additionally, a stockholder guarantees a note to an individual
with a principal balance of $197,508. See Note 6.

At December 31, 1996, marketable securities owned by the Company with a
market value of approximately $1,390,000 were pledged as collateral for a
$1,400,000 loan from a financial institution to a stockholder which was used
to purchase the assets of Friede & Goldman, Ltd. (See Note 1). In connection
with the transfer of the purchased assets to Friede & Goldman, Friede &
Goldman recorded a $1,400,000 payable to the stockholder. On March 31, 1997,
the Company transferred the pledged marketable securities to the stockholder
in payment of the $1,400,000 payable and realized a gain of approximately
$237,868.

On March 31, 1997, HAM distributed certain assets to its stockholders.
Assets distributed included real estate previously held for investment with an
estimated market value of $1,075,000 and a carrying value of approximately
$302,000, along with related debt of $198,000, an airplane with an estimated
market value of $566,000 and a carrying value of approximately $486,000. The
difference between the estimated fair market value and the carrying of the
distributed assets has been recognized as a gain in the Statement of
Operations for the three months ended March 31, 1997.

13. LITIGATION SETTLEMENTS AND CONTINGENCIES:

In August 1992, the Company filed suit against a third party for breach of
contract in connection with a contract. In May 1994, the Company was awarded a
judgment totaling $3,725,000. The judgment was appealed to the United States
Court of Appeals, which, in December 1995, upheld a judgment for approximately
$3,517,000. The defendants in the suit petitioned the court for a rehearing.
The rehearing was ultimately denied, and, in February 1996, the Company
received $3,466,635 as settlement of this litigation. Because the ultimate
outcome of any litigation is uncertain, the Company recorded the settlement
proceeds as income in the period in which such proceeds were received.

F-20
<PAGE>

THE PREDECESSORS TO
FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(DATA WITH RESPECT TO MARCH 31, 1996 AND 1997 ARE UNAUDITED)

In 1995, the Company settled a lawsuit against a general contractor for
which Gulf Boats had served as a subcontractor prior to Gulf Boats' merger
into the Company. Settlement proceeds of $750,000 are included in the
statement of operations for the year ended December 31, 1995.

The nature of the Company's activities relating to the conversion, retrofit
and repair of drilling rigs subjects its property and employees, along with
the property and employees of its customers and others to hazards which can
cause personal injury or damage or destruction of property. Although the
Company maintains such insurance protection as it considers economically
prudent, there can be no assurance that any such insurance will be sufficient
or effective under all circumstances or against all hazards to which the
Company may be subject. In particular, due to the high cost of errors and
omissions policies related to the design of drilling rigs and production
units, the Company does not carry insurance covering claims for personal
injury, loss of life or property damage relating to such design activity. A
successful claim for which the Company is not fully insured could have a
material adverse effect on the Company.

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.

14. SUBSEQUENT EVENTS:

In January 1997, the Company announced plans to build an additional shipyard
at a location approximately six miles from the Company's existing shipyard in
Pascagoula, Mississippi, that will have unobstructed deep water access to the
Gulf of Mexico. The new shipyard will be located on real estate leased from
the Port Authority, and is expected to be completed in 1998. The new shipyard
is expected to cost approximately $29 million to construct and equip. In
connection with the construction of the new shipyard, the County of Jackson,
Mississippi has agreed to dredge the ship channel and build roads and other
infrastructure related to the new shipyard, at a total cost to the county of
approximately $6 million, under an economic incentive program. In that regard,
the Company has received a commitment letter from the United States Maritime
Administration for Title XI debt financing which, if fully utilized by the
Company, would provide up to $24.8 million of the funds needed for completion
of the new shipyard. Specific terms of any such Title XI debt financing are
not yet known. The Company's existing shipyard facility is expected to remain
in use by the Company.

Management of the Company have indicated their intention to undertake an
initial public offering of the Company's common stock during 1997. Proceeds to
the Company are intended to be used for capital expenditures to construct and
equip the new shipyard, capital expenditures to improve the productive
capacity and efficiency of the existing shipyard, research and development
costs relating to the design of new offshore drilling rigs and floating
production units, working capital requirements and other general corporate
purposes. There can be no assurance, however, that the offering will occur or
that the proceeds, if any, will be sufficient for their intended use.

Additionally, in early 1997, the Company began construction of a new Company
office building with an estimated total cost of approximately $1.2 million.

F-21
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Friede Goldman International Inc.:

We have audited the accompanying statement of income of Friede & Goldman,
Ltd., a Louisiana corporation, (the "Friede Predecessor") for the eleven-month
period ended November 30, 1996. This financial statement is the responsibility
of the Friede Predecessor's management. Our responsibility is to express an
opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of income is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of income. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the statement of income referred to above presents fairly,
in all material respects, the results of operations of Friede & Goldman, Ltd.
for the eleven-month period ended November 30, 1996, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

New Orleans, Louisiana,
February 28, 1997.

F-22
<PAGE>

FRIEDE & GOLDMAN, LTD.

STATEMENT OF INCOME

FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1996

<TABLE>
<S> <C>
REVENUES:
Contract fees..................................................... $3,733,989
Part sales........................................................ 40,372
----------
Total revenues.................................................. 3,774,361
Contract costs.................................................... 2,653,710
----------
Gross margin.................................................... 1,120,651
----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Depreciation...................................................... 67,630
Amortization...................................................... 7,208
Accounting and legal.............................................. 32,661
Automotive........................................................ 9,372
Books and periodicals............................................. 6,539
Computer licenses and maintenance................................. 19,205
Dues and registration fees........................................ 10,900
Office and drafting supplies...................................... 32,180
Postage and transportation........................................ 13,374
Rent.............................................................. 172,858
Taxes, payroll.................................................... 78,060
Taxes and licenses................................................ 13,002
Telephone......................................................... 42,023
Repairs and maintenance........................................... 6,502
Other............................................................. 8,133
----------
519,647
----------
INCOME FROM OPERATIONS.............................................. 601,004
INTEREST AND DIVIDEND INCOME........................................ 16,076
----------
NET INCOME.......................................................... $ 617,080
==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-23
<PAGE>

FRIEDE & GOLDMAN, LTD.

NOTES TO STATEMENT OF INCOME

FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1996

1. ORGANIZATION:

Friede & Goldman, Ltd. (the "Friede Predecessor") is a closely-held company
formed in 1949. The Friede Predecessor engages in offshore design of offshore
drilling and production units, including jackups, submersibles,
semisubmersibles, drillships and floating production, storage and offloading
vessels, for construction and with respect to upgrade and modification
projects. In addition, the Friede Predecessor designs floating and bottom
supported platforms for drilling, pipelay and accommodation services. The
Friede Predecessor offices are located in New Orleans, Louisiana.

On December 2, 1996 certain assets and rights of the Friede Predecessor,
including all rights to the trade name "Friede & Goldman," were sold to an
unrelated third party.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Accounting

The accompanying statements have been prepared in accordance with generally
accepted accounting principles.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reporting amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Friede Predecessor records revenue on contracts on the percentage-of-
completion method. Contract revenue is earned based upon the percentage that
incurred costs to date, excluding the costs of any purchased but uninstalled
materials, bear to total estimated costs, commencing when progress reaches a
point where experience is sufficient to estimate final results with reasonable
accuracy. As contracts extend over one or more years, revisions in costs and
earnings estimates during the course of the work are reflected in the
accounting period in which the facts which require the revisions become known.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Other changes, including those
arising from contract penalty provisions, and final contract settlements are
recognized in the period in which the revisions are determined. There were no
contracts in progress at November 30, 1996.

Depreciation

Depreciation expense is calculated based on the following useful lives:

<TABLE>
<CAPTION>
USEFUL
LIFE
----------
<S> <C>
Furniture and fixtures......................................... 7 years
Equipment and machinery........................................ 5-7 years
Computer software.............................................. 3 years
Leasehold improvements......................................... 5-19 years
</TABLE>

F-24
<PAGE>

FRIEDE & GOLDMAN, LTD.

NOTES TO STATEMENT OF INCOME--(CONTINUED)

FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1996

Depreciation expense totaled $67,630 for the 11 months ended November 30,
1996.

Income Taxes

The Friede Predecessors is an S corporation for income tax reporting
purposes. As a result, income from the corporation is treated as taxable
income of the individual shareholder. Accordingly, no provision for income
taxes has been included in the accompanying financial statements.

Amortization

Patents are stated at cost less accumulated amortization and are amortized
over fifteen years. Original cost totaled $119,303, accumulated amortization
totaled $63,037 at November 30, 1996 and amortization expense totaled $7,208
for the 11 months ended November 30, 1996.

3. OPERATING LEASES:

The Friede Predecessors leases office space and an automobile under
operating leases. Office lease expense was $175,191 and auto lease expense was
$1,954 for the 11 months ended November 30, 1996. Future minimum payments due
under non-cancellable operating leases for the next five calendar years are as
follows:

<TABLE>
<S> <C>
1997..................................... $146,329
1998..................................... 146,329
1999..................................... 146,329
2000..................................... 144,421
2001..................................... 140,604
Thereafter............................... 11,717
</TABLE>

F-25
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Friede Goldman International Inc.:

We have audited the accompanying balance sheet of Friede Goldman
International Inc. ( a recently formed Delaware Corporation) as of April 21,
1997. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Friede Goldman International Inc.
as of April 21, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Jackson, Mississippi,
April 22, 1997

F-26
<PAGE>

FRIEDE GOLDMAN INTERNATIONAL INC.
(A RECENTLY FORMED DELAWARE CORPORATION)

BALANCE SHEET

APRIL 21, 1997

<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash.................................................................. $1,000
------
Total assets........................................................ $1,000
======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
LIABILITIES $ --
------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000 shares authorized; none issued
or outstanding....................................................... --
Common stock, $0.01 par value, 2,000 shares authorized; 1,000 shares
issued outstanding................................................... 10
Additional paid-in capital............................................ 990
------
Total stockholders' equity.......................................... 1,000
------
Total liabilities and stockholders' equity.......................... $1,000
======
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-27
<PAGE>

FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO BALANCE SHEET

APRIL 21, 1997

1. ORGANIZATION AND NATURE OF BUSINESS:

Friede Goldman International Inc. (the "Company") was incorporated under the
laws of the State of Delaware in February 1997. Through April 22, 1997, the
Company has had no operations other than receipt of initial capital.

Management of the Company have indicated their intention to undertake an
initial public offering of the Company's equity securities during 1997. In
anticipation of the Company's proposed public offering, the stockholders of
the Company's predecessor entities, HAM Marine, Inc. ("HAM") and Friede &
Goldman, Ltd. ("Friede & Goldman"), will contribute all of their ownership in
HAM and Friede & Goldman to the Company in exchange for shares of common stock
in the Company; and HAM and Friede & Goldman will become wholly-owned
subsidiaries of the Company.

In May 1997, in conjunction with the Company's plan to undertake an initial
public offering of its common stock, the Company authorized an increase in the
amount of authorized shares to 5,000,000 shares of $0.01 par value preferred
stock and 25,000,000 shares of $0.01 par value common stock. Effective
immediately prior to the public offering, the Company anticipates issuing,
pursuant to a stock exchange agreement, 9,200,000 shares of the Company's
common stock to the stockholders of HAM and Friede & Goldman as described
above.

HAM, the principal predecessor to the Company, was formed in 1982 under the
laws of the State of Mississippi. HAM's primary business is to provide
conversion, retrofit and repair services for offshore drilling rigs. HAM's
primary customers are offshore drilling contractors who utilize the Company's
services in connection with the conversion and modification of existing
drilling rigs in order to increase their technical capabilities or to improve
their efficiency. Substantially all of HAM's services are conducted at a deep
water dock facility on land leased from the Port Authority in Pascagoula,
Mississippi.

On December 2, 1996, a company related to HAM through substantially
identical equity ownership, J.L. Holloway Holdings, Inc. ("Holdings"),
purchased certain assets and rights, including the rights to the trade name
"Friede & Goldman" from an unrelated third party. Simultaneously with the
closing of the purchase, Holdings changed its name to Friede & Goldman, Ltd.
Friede & Goldman's primary business is the design of offshore drilling and
production units, including jackups, semisubmersibles, drillships and floating
production, storage and offloading vessels, for new construction and with
respect to upgrade and modification projects. Friede & Goldman's offices are
located in New Orleans, Louisiana.

Proceeds of the public offering to the Company are intended to be used for
capital expenditures to construct and equip the new shipyard, capital
expenditures to improve the productive capacity and efficiency of the existing
shipyard, research and development costs relating to the design of new
offshore drilling rigs and floating production units, working capital
requirements and other general corporate purposes. There can be no assurance,
however, that the offering will occur or that the proceeds, if any, will be
sufficient for their intended use.

F-28
<PAGE>

PRO FORMA STATEMENT OF OPERATIONS
OF FRIEDE GOLDMAN INTERNATIONAL INC.
(UNAUDITED)

The following pro forma condensed statement of operations of the Company for
the year ended December 31, 1996 reflects the combined historical financial
results of the Predecessors and gives effect to (1) the acquisition of the
Friede Predecessor as if such acquisition had occurred as of January 1, 1996,
and (2) the change in tax status of each of the Predecessors from an S
Corporation to a C Corporation as if such change had occurred as of January 1,
1996. The adjustments are described in more detail in the accompanying notes.
The pro forma condensed statement of operations should not be considered
indicative of the actual results that would have been achieved had the events
described above been consummated as of January 1, 1996, and does not purport
to indicate results of operations as of any date or for any future period. The
pro forma condensed statement of operations should be read in conjunction with
the historical financial statements of the Company, the predecessors to the
Company and the Friede Predecessor, and the respective notes thereto, included
elsewhere in the Prospectus.

F-29
<PAGE>

FRIEDE GOLDMAN INTERNATIONAL INC.

PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
FRIEDE &
COMBINED GOLDMAN,
PREDECESSORS LTD. PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue.................. $21,758,715 $3,774,361 $ -- $25,533,076
Cost of revenue.......... 15,768,980 2,653,710 240,000 (1) 18,662,690
----------- ---------- ----------- -----------
Gross profit........... 5,989,735 1,120,651 (240,000) 6,870,386
Selling, general and
administrative expenses. 6,673,371 519,647 125,000 (2) 7,318,018
----------- ---------- ----------- -----------
Operating income....... (683,636) 601,004 (365,000) (447,632)
----------- ---------- ----------- -----------
Other income (expense):
Interest expense....... (891,458) -- (106,000)(3) (997,458)
Interest income........ 443,317 16,076 -- 459,393
Gain on sale or
distribution of
assets................ 348,793 -- -- 348,793
Litigation settlement.. 3,466,635 -- -- 3,466,635
Other.................. 104,487 -- -- 104,487
----------- ---------- ----------- -----------
Total other income
(expense)............. 3,471,774 16,076 (106,000) 3,381,850
----------- ---------- ----------- -----------
Pro forma income
before income tax
expense............. 2,788,138 617,080 (471,000) 2,934,218
Income tax expense....... -- -- 1,090,000 (4) 1,090,000
----------- ---------- ----------- -----------
Pro forma net income..... $ 2,788,138 $ 617,080 $(1,561,000) $ 1,844,218
=========== ========== =========== ===========
Pro forma net income per
share(5)................ $ 0.19
===========
</TABLE>

The accompanying notes are an integral part of this pro forma financial
statement.

F-30
<PAGE>

FRIEDE GOLDMAN INTERNATIONAL INC.

NOTES TO PRO FORMA STATEMENT OF OPERATIONS

The following are explanations of the Pro Forma Adjustments:

(1) Reflects the amount which would have been paid to the former owner of
the assets of Friede & Goldman for license and design fees as called for by
the Purchase Agreement as if such agreement had been in place as of January
1, 1996. See "Business--Friede Acquisition".

(2) Reflects amortization of the intangible assets which resulted from
the Friede Acquisition using an amortization period of 10 years.

(3) Reflects interest expense at 8.25% on the $1,400,000 advance from
stockholder which was utilized to finance a portion of the purchase price
as if the advance had been made on January 1, 1996.

(4) Prior to the consummation of the Offering, the Company will terminate
its status as an S Corporation and will become subject to corporate income
taxes. This adjustment reflects the pro forma provision for income taxes
using a combined federal and state rate of 37% applied to pro forma income
before income tax expense as if the Company had been subject to corporate
income taxes during 1996.

(5) Pro forma net income per share is based on the number of shares of
common stock of the Company outstanding after the reorganization
(9,200,000) discussed elsewhere in this Prospectus, as increased to reflect
sufficient additional shares required to be sold for the period to pay the
pro forma distribution payable to stockholders in excess of historical net
income for the period. The number of such additional shares is based on an
assumed initial public offering price of $15.00 per share, net of offering
expenses.

F-31
<PAGE>

NIGHT VIEW OF THE FRIEDE GOLDMAN INTERNATIONAL INC. SHIPYARD IN PASCAGOULA,
MISSISSIPPI.

<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO PERSON, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
IN SUCH STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
The Company............................................................... 16
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 32
Management................................................................ 47
Principal and Selling Stockholders........................................ 52
Description of Capital Stock.............................................. 53
Shares Eligible for Future Sale........................................... 57
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Financial Statements............................................. F-1
</TABLE>

----------------

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

4,665,000 SHARES

LOGO
[LOGO OF FRIEDE GOLDMAN APPEARS HERE]

FRIEDE GOLDMAN
INTERNATIONAL INC.

COMMON STOCK

----------------

PROSPECTUS

----------------

JEFFERIES & COMPANY, INC.

BEAR, STEARNS & CO. INC.

JOHNSON RICE & COMPANY L.L.C.

, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)

<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 26,011
NASD Filing Fee................................................. 8,210
NASDAQ Listing Fee.............................................. 47,125
Accounting Fees and Expenses.................................... 125,000
Legal Fees and Expenses......................................... 150,000
Printing Expenses............................................... 100,000
Transfer Agent's Fees........................................... 2,500
Miscellaneous................................................... 8,654
--------
Total......................................................... $467,500
========
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Subsection (a) of section 145 of the General Corporation Law of the State of
Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.

Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted
in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.

Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; that indemnification provided
for by Section 145 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of such person's heirs,
executors and administrators; and empowers the corporation to

II-1
<PAGE>

purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities
under Section 145.

Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a Charter may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit.

Article Ninth of the Company's Charter states that:

No director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty by such
director as a director; provided, however, that this Article Ninth shall not
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to or repeal of
this Article Ninth shall apply to, or have any effect on, the liability or
alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal. If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.

In addition, Article VI of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors and employees to the fullest
extent permitted by law.

The Company intends to enter into indemnification agreements with each of
its executive officers and directors.

Under Section 7 of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under
certain conditions, the Company, its officers and directors, and persons who
control the Company within the meaning of the Securities Act of 1933, as
amended, against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The only securities issued by the Company during the past three years that
were not registered under the Securities Act of 1933 consist of (i) 1,000
shares of Common Stock issued to J.L. Holloway in connection with the
Company's organization, (ii) the 9,200,000 shares of Common Stock issued in
connection with the Reorganization and (iii) options to purchase an aggregate
of 484,910 shares of Common Stock granted pursuant to the Equity Incentive
Plan. These transactions were completed without registration under the
Securities Act of 1933 in reliance on the exemption provided by Section 4(2)
of the Securities Act of 1933.

II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
*1.1 --Form of Underwriting Agreement.
*3.1 --Amended and Restated Certificate of Incorporation.
*3.2 --Bylaws.
*4.1 --Specimen Common Stock Certificate.
*4.2 --Form of Registration Rights Agreement among Friede Goldman
International Inc., J. L. Holloway, Carl M. Crawford, Ronald W.
Schnoor, James A. Lowe, III and John F. Alford.
*4.3 --Form of Amendment No. 1 to Registration Rights Agreement among
Friede Goldman International Inc., J. L. Holloway, Carl M. Crawford,
Ronald W. Schnoor, James A. Lowe, III, John F. Alford, Holloway
Partners, L.P., Carl Crawford Children's Trust and Bodin Children's
Trust.
5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered.
*10.1 --Form of Officer and Director Indemnification Agreement.
*10.2 --Form of Employment Agreement between Friede Goldman International
Inc. and J. L. Holloway.
*10.3 --Form of Amendment No. 1 to Employment Agreement between Friede
Goldman International Inc. and J. L. Holloway.
*10.4 --Form of Employment Agreement between HAM Marine, Inc. and each of
Carl M. Crawford and Ronald W. Schnoor.
*10.5 --Form of Amendment No. 1 to Employment Agreement between HAM Marine,
Inc. and each of Carl M. Crawford and Ronald W. Schnoor.
*10.6 --Form of Employment Agreement between Friede Goldman International
Inc. and John F. Alford.
*10.7 --Form of Amendment No. 1 to Employment Agreement between Friede
Goldman International Inc. and John F. Alford.
*10.8 --Form of Employment Agreement between HAM Marine, Inc. and James A.
Lowe, III.
*10.9 --Form of Amendment No. 1 to Employment Agreement between HAM Marine,
Inc. and James A. Lowe, III.
*10.10 --Form of Employment Agreement between Friede Goldman International
Inc. and Richard L. Marler.
*10.11 --1997 Equity Incentive Plan.
*10.12 --Amendment No. 1 to 1997 Equity Incentive Plan.
*10.13 --Revolving Credit Agreement, dated as of March 20, 1997, by and among
HAM Marine, Inc., as borrower, Friede & Goldman, Ltd., J.L. Holloway
and Carl Crawford, as guarantors, and Bank One, Louisiana, National
Association, as the Bank.
*10.14 --Amended Lease Agreement, dated June 22, 1995, by and among the
Jackson County Port Authority, the Board of Supervisors of Jackson
County, Mississippi and HAM Marine, Inc. (Pascagoula shipyard).
*10.15 --Lease Contract, dated December 12, 1996, by and among the Jackson
County Port Authority, the Board of Supervisors of Jackson County,
Mississippi and HAM Marine, Inc.
*10.16 --Memorandum of Understanding, dated December 30, 1996, by and among
the Board of Supervisors of Jackson County, Mississippi and HAM
Marine, Inc. (New shipyard).
*10.17 --The Baltic and International Maritime Council Standard Bareboat
Charter, dated February 28, 1997 between Pontwin N.V. and HAM Marine,
Inc.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
*10.18 --Form of Amended and Restated Stock Exchange Agreement by and among
Friede Goldman International Inc., HAM Marine, Inc., Friede & Goldman
Ltd., J. L. Holloway, Carl M. Crawford, Ronald W. Schnoor, James A.
Lowe, III, John F. Alford, Holloway Partners, L.P., Carl Crawford
Children's Trust and Bodin Children's Trust.
*10.19 --Business Purchase Agreement, dated November 22, 1996, by and among
J. L. Holloway Holdings, Inc., Friede & Goldman, Ltd. and Jerome L.
Goldman.
*10.20 --Amendment to Business Purchase Agreement, dated December 3, 1996, by
and among Friede & Goldman, Ltd. (f/k/a J.L. Holloway Holdings,
Inc.), J.L. Goldman Associates, Inc. (f/k/a Friede & Goldman, Ltd.)
and Jerome L. Goldman.
*10.21 --Second Amendment to Business Purchase Agreement, dated May 19, 1997,
by and among Friede & Goldman, Ltd., J.L. Goldman Associates, Inc.
and Jerome L. Goldman.
*10.22 --Third Amendment to Business Purchase Agreement, dated June 13, 1997,
by and among Friede & Goldman, Ltd., J. L. Goldman Associates, Inc.
and Jerome L. Goldman.
*10.23 --Form of Aircraft Dry Lease, dated as of July 1, 1997, by and between
Equipment Management Systems, LLC and HAM Marine, Inc.
23.1 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
*23.2 --Consent of Arthur Andersen LLP.
*24.1 --Powers of Attorney (included in signature page).
*27.1 --Financial Data Schedule
</TABLE>
- --------
* Previously filed

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.

(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jackson, State of
Mississippi, on July 16, 1997.

Friede Goldman International Inc.

/s/ James A. Lowe, III
By___________________________________
James A. Lowe, III
General Counsel and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------
J. L. Holloway Chairman of the Board,
President and Chief
Executive Officer
(Principal Executive
Officer) July 16, 1997
*
- ------------------------------------
John F. Alford Chief Financial Officer
(Principal Financial
Officer) July 16, 1997
*
- ------------------------------------
Robert C. Andrews, Jr. Treasurer (Chief Accounting
Officer) July 16, 1997

- ------------------------------------
Richard L. Marler Director
*
- ------------------------------------
Ronald W. Schnoor Director July 16, 1997
/s/ James A. Lowe, III
- ------------------------------------
James A. Lowe, III Director July 16, 1997
*
- ------------------------------------
Bruce G. Malcolm Director July 16, 1997
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

- ------------------------------------
Jerome L. Goldman Director
*
- ------------------------------------
Ray Mabus Director July 16, 1997
*
- ------------------------------------
Howell W. Todd Director July 16, 1997
</TABLE>

*By: /s/ James A. Lowe, III
-------------------------
James A. Lowe, III
Attorney-in-Fact

II-6
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
*1.1 --Form of Underwriting Agreement.
*3.1 --Amended and Restated Certificate of Incorporation.
*3.2 --Bylaws.
*4.1 --Specimen Common Stock Certificate.
*4.2 --Form of Registration Rights Agreement among Friede Goldman
International Inc., J. L. Holloway, Carl M. Crawford, Ronald W.
Schnoor, James A. Lowe, III and John F. Alford.
*4.3 --Form of Amendment No. 1 to Registration Rights Agreement among
Friede Goldman International Inc., J. L. Holloway, Carl M.
Crawford, Ronald W. Schnoor, James A. Lowe, III, John F.
Alford, Holloway Partners, L.P., Carl Crawford Children's Trust
and Bodin Children's Trust.
5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered.
*10.1 --Form of Officer and Director Indemnification Agreement.
*10.2 --Form of Employment Agreement between Friede Goldman
International Inc. and J. L. Holloway.
*10.3 --Form of Amendment No. 1 to Employment Agreement between Friede
Goldman International Inc. and J. L. Holloway.
*10.4 --Form of Employment Agreement between HAM Marine, Inc. and each
of Carl M. Crawford and Ronald W. Schnoor.
*10.5 --Form of Amendment No. 1 to Employment Agreement between HAM
Marine, Inc. and each of Carl M. Crawford and Ronald W.
Schnoor.
*10.6 --Form of Employment Agreement between Friede Goldman
International Inc. and John F. Alford.
*10.7 --Form of Amendment No. 1 to Employment Agreement between Friede
Goldman International Inc. and John F. Alford.
*10.8 --Form of Employment Agreement between HAM Marine, Inc. and
James A. Lowe, III.
*10.9 --Form of Amendment No. 1 to Employment Agreement between HAM
Marine, Inc. and James A. Lowe, III.
*10.10 --Form of Employment Agreement between Friede Goldman
International Inc. and Richard L. Marler.
*10.11 --1997 Equity Incentive Plan.
*10.12 --Amendment No. 1 to 1997 Equity Incentive Plan.
*10.13 --Revolving Credit Agreement, dated as of March 20, 1997, by and
among HAM Marine, Inc., as borrower, Friede & Goldman, Ltd.,
J.L. Holloway and Carl Crawford, as guarantors, and Bank One,
Louisiana, National Association, as the Bank.
*10.14 --Amended Lease Agreement, dated June 22, 1995, by and among the
Jackson County Port Authority, the Board of Supervisors of
Jackson County, Mississippi and HAM Marine, Inc. (Pascagoula
shipyard).
*10.15 --Lease Contract, dated December 12, 1996, by and among the
Jackson County Port Authority, the Board of Supervisors of
Jackson County, Mississippi and HAM Marine, Inc.
*10.16 --Memorandum of Understanding, dated December 30, 1996, by and
among the Board of Supervisors of Jackson County, Mississippi
and HAM Marine, Inc. (New shipyard).
*10.17 --The Baltic and International Maritime Council Standard
Bareboat Charter, dated February 28, 1997 between Pontwin N.V.
and HAM Marine, Inc.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
*10.18 --Form of Amended and Restated Stock Exchange Agreement by and
among Friede Goldman International Inc., HAM Marine, Inc.,
Friede & Goldman Ltd., J. L. Holloway, Carl M. Crawford, Ronald
W. Schnoor, James A. Lowe, III, John F. Alford, Holloway
Partners, L.P., Carl Crawford Children's Trust and Bodin
Children's Trust.
*10.19 --Business Purchase Agreement, dated November 22, 1996, by and
among J. L. Holloway Holdings, Inc., Friede & Goldman, Ltd. and
Jerome L. Goldman.
*10.20 --Amendment to Business Purchase Agreement, dated December 3,
1996, by and among Friede & Goldman, Ltd. (f/k/a J.L. Holloway
Holdings, Inc.), J.L. Goldman Associates, Inc. (f/k/a Friede &
Goldman, Ltd.) and Jerome L. Goldman.
*10.21 --Second Amendment to Business Purchase Agreement, dated May 19,
1997, by and among Friede & Goldman, Ltd., J.L. Goldman
Associates, Inc. and Jerome L. Goldman.
*10.22 --Third Amendment to Business Purchase Agreement, dated June 13,
1997, by and among Friede & Goldman, Ltd., J. L. Goldman
Associates, Inc. and Jerome L. Goldman.
*10.23 --Form of Aircraft Dry Lease, dated as of July 1, 1997, by and
between Equipment Management Systems, LLC and HAM Marine, Inc.
23.1 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
*23.2 --Consent of Arthur Andersen LLP.
*24.1 --Powers of Attorney (included in signature page).
*27.1 --Financial Data Schedule
</TABLE>
- --------
* Previously filed

<PAGE>

EXHIBIT 5.1

July 16, 1997

Friede Goldman International Inc.
52 E. Capitol Street
Suite 402
Jackson, Mississippi 39201

Gentlemen:

We have acted as counsel for Friede Goldman International Inc., a Delaware
corporation (the "Company"), in connection with the Company's Registration
Statement on Form S-1 (the "Registration Statement") relating to the
registration under the Securities Act of 1933, as amended, of the offering and
sale of up to an aggregate of 5,364,750 shares (the "Shares") of common stock,
$.01 par value per share (the "Common Stock"). The Shares include 2,650,000
shares being offered by the Company, 2,015,000 shares being offered by certain
selling stockholders and 669,750 shares of Common Stock being offered by the
Company which may be sold pursuant to an over-allotment option granted to the
Underwriters named in the Registration Statement.

As the basis for the opinion hereinafter expressed, we have examined such
statutes, regulations, corporate records and documents, certificates of
corporate and public officials, and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. In such examination we
have assumed the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies.

Based upon the foregoing and having due regard for such legal
considerations as we deem relevant, we are of the opinion that the Shares have
been duly authorized and, when sold in the manner described in the Registration
Statement, will be legally issued and constitute fully paid and nonassessable
shares of Common Stock.

This opinion is limited in all respects to the General Corporation Law of
the State of Delaware and the laws of the United States of America insofar as
such laws are applicable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus without admitting that we are "experts" under
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.

Very truly yours,

ANDREWS & KURTH L.L.P.