<PAGE> 1
PROSPECTUS
$90,000,000
FIRST WAVE LOGO
FIRST WAVE MARINE, INC.
11% SENIOR NOTES DUE 2008
The 11% Senior Notes due 2008 (the "Notes") are being offered (the
"Offering") by First Wave Marine, Inc., a Delaware corporation (the "Company" or
"First Wave"). The Offering is conditioned upon the consummation of the
Bludworth Acquisition (as defined herein).
Interest on the Notes will be payable semi-annually on February 1 and August
1 of each year, commencing August 1, 1998. The Notes will mature on February 1,
2008, unless previously redeemed. The Notes will be redeemable in cash at the
option of the Company, in whole or in part, on or after February 1, 2003, at the
redemption prices set forth herein, together with accrued interest thereon to
the date of redemption. In addition, the Company will be entitled, at any time
on or before February 1, 2001, to redeem in cash up to 35% of the aggregate
principal amount of the Notes with the net proceeds of one or more Public Equity
Offerings (as defined herein) at a redemption price equal to 111% of the
principal amount thereof, plus accrued interest to the date of redemption;
provided, however, that at least 65% of the aggregate principal amount of Notes
initially issued remains outstanding after giving effect to such redemption.
Upon the occurrence of a Change of Control (as defined herein), the Company
will be required to make an offer to repurchase all of the outstanding Notes at
a price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase.
Upon consummation of the Offering, the Company will be required to use a
portion of the proceeds from the sale of the Notes (currently estimated to be
approximately $9.9 million) to purchase a portfolio of U.S. government
securities (the "Pledged Securities") which will provide funds sufficient to pay
in full when due the first two scheduled interest payments on the Notes. The
Pledged Securities will be pledged as security for the repayment of principal of
and interest on the Notes and all other obligations under the Indenture (as
defined herein) pursuant to which the Notes will be issued. The Company is a
holding company and substantially all of its operations are conducted through
subsidiaries. The obligations of the Company under the Notes will be fully and
unconditionally guaranteed (the "Subsidiary Guarantees") on a senior unsecured
basis jointly and severally by all of the Company's current subsidiaries and
certain future subsidiaries of the Company (collectively, the "Restricted
Subsidiaries").
The Notes and the Subsidiary Guarantees will be senior obligations of the
Company and the Restricted Subsidiaries, respectively, and will rank pari passu
in right of payment with all other senior indebtedness of the Company and the
Restricted Subsidiaries, and will rank senior in right of payment to any future
subordinated indebtedness of the Company and the Restricted Subsidiaries. As of
December 31, 1997, after giving effect to the sale of the Notes and the
application of net proceeds therefrom, the Company on a consolidated basis would
have had $9.5 million of secured senior indebtedness outstanding and $0.2
million of pari passu indebtedness other than the Notes and trade payables. The
Indenture permits the Company and its subsidiaries to incur additional secured
and unsecured senior indebtedness pursuant to a debt incurrence test and
pursuant to certain allowances, including $20 million of indebtedness, which may
be secured indebtedness, pursuant to a bank credit agreement. See "Description
of Notes -- Certain Covenants -- Incurrence of Indebtedness."
The Company does not intend to list the Notes on any national securities
exchange.
THE NOTES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.............................................. 100.00% 3.50% 96.50%
- ---------------------------------------------------------------------------------------------------------------------------
Total(3).............................................. $90,000,000 $3,150,000 $86,850,000
===========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) See "Underwriting" for the indemnification arrangements.
(3) Before deducting expenses payable by the Company estimated to be $725,000.
The Notes offered hereby are offered by the Underwriter, subject to prior
sale and acceptance by the Underwriter, and subject to its right to reject any
order in whole or in part. It is expected that delivery of the Notes will be
made through the facilities of the Depository Trust Company, against payment
therefor, on or about February 2, 1998.
SCHRODER & CO. INC.
January 27, 1998
<PAGE> 2
[photograph of bow of ship]
Integrity
Experience
Fast Turnaround
Innovativeness
Responsiveness
Safety Excellence
[First Wave Marine, Inc. logo]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND
MAY BID FOR, AND PURCHASE, NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context indicates otherwise,
references herein to the "Company" or "First Wave" shall mean First Wave Marine,
Inc. and its predecessors and subsidiaries and assumes the consummation of the
Exchange (as defined herein), and all financial data is given for such combined
entity unless specified otherwise. All references to shares of Common Stock of
the Company, $.01 par value (the "Common Stock") give effect to the
10.65-for-one stock split effected November 20, 1997.
THE COMPANY
First Wave is a leading provider of shipyard and related environmental
services to the offshore support vessel, offshore barge and inland marine
industries. The Company offers a full range of repair, conversion, new
construction and related environmental services, including cleaning,
degassing and wastewater treatment. Following the consummation of a pending
acquisition, the Company will significantly expand its operations and capacity,
particularly into the offshore drilling industry. The Company will be the
largest shipyard operator in the Houston-Galveston area with five of the eight
major shipyard facilities in this strategic location. First Wave believes that,
following the pending acquisition, it will be the only "one-stop" source of all
shipyard services for all segments of the offshore support vessel, offshore
barge and inland marine markets in Texas.
Since it acquired its first facility in December 1993, First Wave has
significantly improved revenues and profitability. The Company's success has
been the product of a focused strategy to build a high quality, dedicated
workforce, provide a high level of customer service and optimize the mix of its
services to maximize capacity utilization. As a result, revenues grew to $28.0
million in 1996 from $15.3 million in 1994 while EBITDA improved to $4.4 million
from a loss of $23,000 over the same period. In the first nine months of 1997,
the Company generated revenues of $24.5 million and EBITDA of $7.2 million,
compared to revenues and EBITDA of $19.9 million and $1.8 million, respectively,
in the first nine months of 1996.
The Company believes that as a result of its strategy and planned
expansion, it is well positioned to meet the growing demand for its services.
First Wave is experiencing strong demand growth for all of its services
primarily as a result of: (i) higher repair activity due to the aging offshore
support vessel and barge fleets; (ii) greater customer requirements for repair
and related environmental services due to increased utilization and
consolidation of the offshore support vessel and barge fleets; (iii) increasing
customer demand to convert and upgrade vessels in response to changing market
conditions; and (iv) increased levels of new vessel construction. To meet this
demand, First Wave plans to utilize capacity available at its newly acquired
facilities, as well as expand into new markets, in particular the offshore
drilling industry. The Company believes that this will enable it to perform a
greater number of projects and increase its revenues, while leveraging the
economies of scale available to a geographically concentrated multi-shipyard
operator.
BUSINESS STRATEGY
The Company's strategy is to leverage its reputation as an efficient,
reliable, customer driven shipyard operator providing a diversified range of
shipyard services to the offshore support vessel, offshore drilling, offshore
barge and inland marine industries. The Company intends to utilize its proven
strengths in order to expand into the Gulf of Mexico offshore drilling market.
Key elements of this strategy are:
3
<PAGE> 4
- Maintaining a High Quality Dedicated Workforce. The Company invests
in its employees through training, superior benefits and the fostering of a
close-knit, supportive culture. As a result, the Company has not
experienced the significant labor shortages and attrition suffered by many
Gulf Coast shipyards and has consistently posted an award-winning safety
record. Management believes the Company has been able to maintain stable
manpower levels and has flattened the labor force highs and lows typical in
the shipyard industry through a superb relationship with its labor force,
sophisticated forecasting of labor needs, the implementation of its
strategic alliances and optimization of its mix of new construction and
repair services.
- Development of Strategic Alliances with Key Customers. The Company
has developed a "contract rate" system which it uses to form strategic
alliances with its key customers. The contract rate system enables the
Company to baseload its facilities with pre-booked work, improve planning
and execution of jobs through a cooperative process with the customer and
more effectively project its revenues and labor needs for the year. In
return, the alliance partner receives volume based pricing, assures itself
of needed drydock capacity, gains the ability to accurately budget its
work, benefits from improved turnaround on jobs and receives other services
on a preferred basis.
- Continuous Optimization of the Mix of Shipyard Services. The
Company generally negotiates flexible delivery dates for new construction
which greatly contributes to the efficiency of its shipyards. During
periods when demand for repair services is lower, the Company shifts
workers to new construction as a means of absorbing excess labor. By
continuously optimizing its mix of activities, the Company ensures that its
quality work force remains intact and motivated, and costs associated with
attrition are reduced. As a result of this strategy, the Company believes
that it can maximize its margins by allocating labor to higher margin
repair work or can absorb excess labor by shifting it to new construction,
as demand dictates.
- One-Stop Source for Shipyard Services. In addition to its core
shipyard repair and construction services, the Company offers a range of
related environmental services at its facilities, including tank cleaning,
degassing and wastewater treatment. Following the pending acquisitions,
complementary services such as these will enable the Company to become the
only one-stop source of all shipyard services for all segments of the
offshore support vessel, offshore barge and inland marine markets in Texas.
- Focus on Core Geographic Areas: Houston and Galveston. The
Houston-Galveston area is a very strategic location for its shipyards,
since three of the largest U.S. fleets of inland tank barges are based in
the Houston Ship Channel area. Additionally, the growing offshore support
vessel and barge fleets in the Gulf of Mexico can be efficiently served
from the Company's Houston and Galveston locations. Management believes the
expansion of the East Pelican Island and West Pelican Island facilities in
Galveston to service the offshore drilling industry is especially strategic
since Galveston is in close proximity to offshore Gulf of Mexico drilling
activity, thereby minimizing rig transit costs and downtime.
- Leveraging Economies of Scale. With all of its shipyards within a
50-mile corridor, management can more effectively operate the facilities
and consolidate overhead. Additionally, the proximity of the shipyards
allows for centralizing many administrative functions. Management believes
the uniformity of state regulations and the volume leverage gained from
using single suppliers among all its facilities, as well as the potential
interchangeability of the labor force, provides economic benefits for the
Company.
- Expansion into the Offshore Gulf of Mexico Market. Upon
consummation of the Bludworth Acquisition and the completion of the
improvements to the East Pelican Island shipyard, the Company will have two
adjacent shipyard facilities in Galveston, Texas, which will enable it to
take advantage of the rising demand for shipyard services to the oil and
gas industry in the Gulf of Mexico. Management has planned its expansion to
diversify the Company's business
4
<PAGE> 5
lines into services for offshore drilling rigs, larger offshore support
vessels and oil and gas related ship conversions.
RECENT DEVELOPMENTS
Greens Bayou Acquisition. The Company acquired the Greens Bayou Facility on
August 11, 1997. This facility is specifically designed to service the barge
industry with seven haul-up facilities, including a major six-position rail
transfer system. The Company believes it can efficiently operate this Houston
area shipyard by consolidating overhead with its nearby Brady Island shipyard.
These two shipyards will share accounting, training, sales, estimating, risk
management and general administrative functions. The potential
interchangeability of the labor force with the Brady Island facility, as well as
the ability of Greens Bayou barge customers to use Brady Island's environmental
services, should also result in economic benefits for the Company. The facility
provides necessary capacity for the Company to meet excess demand for its inland
barge services, especially due to the increasing utilization of its Brady Island
drydocks for the offshore support vessel market.
East Pelican Island Acquisition. After acquiring PMB Engineering Inc.'s
lease of the 110-acre East Pelican Island facility in Galveston, Texas, the
Company signed an amendment to such lease with Galveston Wharves providing for a
term of up to 99 years. For 1998, the Company has budgeted $24.4 million in
capital improvements to this facility. Upon completion of these planned capital
improvements, First Wave will be able to expand its business lines into
providing shipyard services for offshore drilling rigs, larger offshore support
vessels and oil and gas related ship conversions.
The Bludworth Acquisition. On October 15, 1997, the Company entered into a
purchase agreement to acquire (the "Bludworth Acquisition") all of the
outstanding capital stock of John Bludworth Marine, Inc. ("Bludworth"). The
purchase price consists of $15.0 million in cash and the issuance of a $4.0
million promissory note.
Bludworth is an established regional shipbuilder focusing on offshore
support vessel repair, as well as inland barge repair and inland boat
construction and repair. The Bludworth Acquisition expands the Company's
Houston-Galveston base of operations in a cost efficient manner, adding
significant new drydock capacity within its area of operation and diversifying
its current mix of services to include expanded capabilities in the offshore and
the inland boat segment of the marine industry. The Bludworth Acquisition
provides the Company with two additional shipyards: (i) the JBM Pasadena
facility in Pasadena, Texas, which is near the Company's other Houston shipyards
and (ii) the West Pelican Island facility which is adjacent to the East Pelican
Island facility in Galveston, Texas. The Bludworth Acquisition will close
simultaneously with the Offering.
Additional Galveston Shipyard. The Company has entered into a non-binding
letter of intent to purchase certain shipyard assets, including real property
and improvements, in Galveston, Texas ("Other Galveston Assets") for $4.5
million. There can be no assurance that such transaction will be consummated or
consummated on the terms described herein.
5
<PAGE> 6
SUMMARY SHIPYARD INFORMATION
The Company's shipyards are presented below, indicating the markets served
at each location. All shipyards offer or will offer repair, conversion and new
construction services. In addition, the Brady Island facility offers
environmental services.
<TABLE>
<CAPTION>
OFFSHORE OFFSHORE
NO. OF SUPPORT INLAND INLAND OFFSHORE DRILLING
ACRES VESSELS BARGES BOATS BARGES RIGS SHIPS
------ -------- ------ ------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
HOUSTON AREA SHIPYARDS:
Brady Island......................... 23 X X X X
Greens Bayou......................... 20 X X
JBM Pasadena(a)...................... 63 X X X X
GALVESTON SHIPYARDS:
East Pelican Island.................. 110 X X X X
West Pelican Island(a)............... 23 X X X X
</TABLE>
- ---------------
(a) To be acquired in the Bludworth Acquisition.
SUMMARY
The Company believes that the additional financial resources and increased
financial flexibility afforded by the Offering will position the Company to fund
its strategic expansion plan and to participate in the ongoing consolidation of
the shipbuilding industry. Management believes that the expansion of the
Company's capacity and capabilities as a result of recent and pending
acquisitions have positioned First Wave to benefit from the improved demand for
shipyard services in the offshore oil and gas and inland marine industries.
6
<PAGE> 7
THE OFFERING
NOTES OFFERED.............. $90,000,000 aggregate principal amount of 11%
Senior Notes due 2008.
MATURITY................... February 1, 2008.
INTEREST................... The Notes will bear interest at a rate of 11% per
annum, payable semi-annually in arrears on February
1 and August 1 of each year, commencing August 1,
1998.
RANKING.................... The Notes will be senior obligations of the
Company, will rank pari passu in right of payment
with all existing and future unsecured senior
Indebtedness (as defined herein) of the Company and
will rank senior in right of payment to any future
Subordinated Indebtedness (as defined herein) of
the Company. As of December 31, 1997, after giving
pro forma effect to the sale of the Notes and the
application of the net proceeds therefrom, on a
consolidated basis the Company would have had
approximately $90.2 million of unsecured senior
Indebtedness outstanding and no Subordinated
Indebtedness outstanding. The Notes will be
effectively subordinated to all secured
Indebtedness of the Company to the extent of the
assets securing such Indebtedness. As of December
31, 1997, after giving pro forma effect to the sale
of the Notes and the application of the net
proceeds therefrom, on a consolidated basis the
Company would have had approximately $9.5 million
of secured senior Indebtedness outstanding. The
Company is a holding company and substantially all
of its operations are conducted through its
operating subsidiaries. Accordingly, except in the
case of Restricted Subsidiaries (which will
guarantee the obligations of the Company under the
Notes), the Notes will be effectively subordinated
to all Indebtedness and other obligations of the
Company's subsidiaries. The Indenture pursuant to
which the Notes will be issued permits the Company
and its subsidiaries to incur additional
Indebtedness, including senior Indebtedness and
secured Indebtedness, subject to certain
limitations. See "Capitalization" and "Description
of Notes -- Ranking" and "-- Certain
Covenants -- Incurrence of Indebtedness."
SECURITY................... Upon the consummation of the Offering, the Company
will purchase and pledge to the Trustee (as defined
herein), for the benefit of the holders of the
Notes, the Pledged Securities, which will be in
such amount as will be sufficient, upon receipt of
scheduled interest and principal payments, to
provide for payment in full when due of the first
two scheduled semi-annual interest payments on the
Notes. The Company expects to use approximately
$9.9 million of the net proceeds from the sale of
the Notes to purchase the Pledged Securities,
although the actual purchase price for such
securities will vary depending on the interest
rates of Government Securities (as defined herein)
prevailing at the time of the purchase of the
Pledged Securities. The Pledged Securities will be
pledged as security for the repayment of the
principal of and interest on the Notes and all
other obligations under the Indenture. When an
interest payment is due, the Company may either
deposit sufficient funds to pay the interest sched-
7
<PAGE> 8
uled to be paid or direct the Trustee to release
from the Pledge Account (as defined herein) funds
sufficient to pay the interest scheduled. In the
event the Company exercises the former option, the
Pledge Agreement provides the Company may direct
the Trustee to release proceeds or the Pledged
Securities from the Pledge Account in a like
amount. If the Company makes the first two
scheduled interest payments on the Notes in a
timely manner and no Default (as defined herein) or
Event of Default (as defined herein) is then
continuing, the remaining Pledged Securities, if
any, will be released from the Pledge Account and
the Notes will thereafter be unsecured obligations
of the Company. See "Description of
Notes -- Security."
SUBSIDIARY GUARANTEES...... The obligations of the Company under the Notes will
be fully and unconditionally guaranteed on a senior
unsecured basis jointly and severally by all
Restricted Subsidiaries. All of the Company's
existing Subsidiaries will initially be Restricted
Subsidiaries (the "Initial Restricted
Subsidiaries"), and future Restricted Subsidiaries
of the Company will be required to issue Subsidiary
Guarantees. All future subsidiaries of the Company
will not necessarily be Restricted Subsidiaries.
Each Subsidiary Guarantee will be a senior
unsecured obligation of the applicable Restricted
Subsidiary, will rank pari passu in right of
payment with all existing and future unsecured
senior Indebtedness of such Restricted Subsidiary
and will rank senior in right of payment to any
Subordinated Indebtedness of such Restricted
Subsidiary. As of December 31, 1997, after giving
effect to the sale of the Notes and the application
of the estimated net proceeds therefrom, the
aggregate amount of outstanding senior Indebtedness
of the Initial Restricted Subsidiaries would,
without regard to the Subsidiary Guarantees, have
been approximately $9.8 million. Furthermore, the
holders of the Notes will not share in the proceeds
from the sale of or other realization upon any
assets of such Restricted Subsidiary in which the
Restricted Subsidiary has granted security
interests until the repayment of the indebtedness
secured thereby. Under certain circumstances, a
Restricted Subsidiary may be designated an
Unrestricted Subsidiary (as defined herein) and its
Subsidiary Guarantee released. See "Description of
Notes -- Subsidiary Guarantees."
OPTIONAL REDEMPTION........ The Notes will be redeemable, at the option of the
Company, in whole or in part, at any time on or
after February 1, 2003, at the redemption prices
set forth herein, plus accrued and unpaid interest
thereon to the applicable redemption date.
Notwithstanding the foregoing, on or prior to
February 1, 2001, the Company may redeem at any
time or from time to time up to 35% of the
aggregate principal amount of the Notes at a
redemption price equal to 111% of the principal
amount thereof, plus accrued and unpaid interest
thereon to the applicable redemption date, with the
net proceeds of a Public Equity Offering; provided,
that at least 65% of the aggregate principal amount
of the Notes initially issued remains outstanding
after giving effect to the redemption thereof. See
"Description of Notes -- Optional Redemption."
8
<PAGE> 9
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase all of the outstanding Notes at a price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the
repurchase date. See "Description of
Notes -- Repurchase at the Option of
Holders -- Change of Control."
CERTAIN COVENANTS.......... The Indenture will contain certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries to incur
additional Indebtedness, pay dividends or make
other distributions, repurchase any capital stock
or Subordinated Indebtedness, make certain
investments, create certain liens, enter into
certain transactions with affiliates, sell assets,
enter into certain mergers and consolidations,
allow Restricted Subsidiaries to create certain
dividend and other payment restrictions, enter into
sale and leaseback transactions, and issue or sell
capital stock of Restricted Subsidiaries. See
"Description of Notes -- Certain Covenants."
EVENTS OF DEFAULT.......... The Indenture will contain certain events of
default, including a default in the payment when
due of interest, principal or premium, if any, on
the Notes, the failure by the Company to comply
with certain provisions of the Indenture, certain
defaults under other Indebtedness, the failure by
the Company to pay certain judgments rendered
against the Company, certain events of bankruptcy
or insolvency, certain events of breach, default,
repudiation or unenforceability of the Pledge
Agreement, and the failure of the Subsidiary
Guarantees to be in full force and effect. The
Company is required to deliver to the Trustee
annually a statement regarding compliance with the
Indenture, and the Company is required, upon
becoming aware of any default to deliver to the
Trustee a statement specifying such default. See
"Description of Notes -- Events of Default and
Remedies."
USE OF PROCEEDS............ To fund the Bludworth Acquisition, to fund the
Company's anticipated capital requirements over the
next 12 months, including capital expenditures to
upgrade the East Pelican Island and West Pelican
Island shipyard facilities in Galveston, to repay a
portion of the Company's indebtedness, to fund the
purchase of the Pledged Securities and for general
corporate purposes. See "Use of Proceeds."
9
<PAGE> 10
SUMMARY OF CONSOLIDATED FINANCIAL DATA
The following summary of consolidated financial data is qualified in its
entirety by the more detailed information appearing in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ------------------------------
1994 1995 1996 1996(a) 1996 1997 1997(a)(b)
------- ------- ------- --------- ------- ------- ----------
PRO FORMA PRO FORMA
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Repair and conversions.............. $11,693 $15,392 $20,997 $35,787 $14,965 $19,801 $40,504
New construction.................... 1,391 3,321 2,841 5,044 1,898 881 1,891
Environmental services.............. 2,263 3,287 4,119 4,119 3,062 3,784 3,784
------- ------- ------- ------- ------- ------- -------
Total revenues...................... 15,347 22,000 27,957 44,950 19,925 24,466 46,179
Gross profit.......................... 2,756 4,957 9,334 12,229 6,039 10,136 14,855
Operating earnings (loss)............. (71) 1,334 3,705 4,765 1,491 6,193 8,678
Earnings (loss) before taxes.......... (257) 1,011 2,657 (5,184) 1,045 4,377 1,090
Net earnings (loss)................... (259) 728 1,559 (3,134) 516 2,540 724
Weighted average number of shares
outstanding......................... 10,650 10,650 10,650 10,650 10,650
Earnings (loss) per share............. (.02) .07 .15 .05 .24
CASH FLOW AND OPERATING DATA:
Net Cash provided by (used in):
Operating activities................ ($2,962) $ 36 $ 1,184 $ -- $ (498) $ 4,436 $ --
Investing activities................ (569) (934) (1,425) -- (857) (2,008) --
Financing activities................ 3,610 884 175 -- 1,289 (1,349) --
EBITDA(c)............................. (23) 1,593 4,385 8,075 1,815 7,230 11,730
Ratio of EBITDA to interest
expense(c).......................... NM 6.4x 5.3x .8x 4.8x 5.6x 1.5x
Ratio of earnings to fixed
charges(d).......................... .7x 2.3x 3.2x .5x 2.3x 4.4x 1.1x
Depreciation and amortization......... 48 259 680 2,617 324 1,037 2,638
Capital expenditures(e)............... 569 934 16,322 -- 15,754 6,577 --
Labor hours worked.................... 340 509 582 953 435 466 1,003
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL PRO FORMA(a)
------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,079 $ 34,030
Total assets................................................ 32,558 117,729
Long-term debt.............................................. 23,229 99,537
Stockholders' equity........................................ 4,435 6,543
</TABLE>
- ---------------
NM -- Not meaningful
(a) Such data give effect to (i) the completion of the Bludworth Acquisition,
(ii) the completion of the Exchange and (iii) the completion of the Offering
and the application of estimated net proceeds as described in "Use of
Proceeds," as if they had occurred on January 1, 1996 as to the Pro Forma
Income Statement Data and on September 30, 1997 as to the Pro Forma Balance
Sheet Data. The Pro Forma financial data do not purport to be indicative of
the Company's financial condition or results of operations had the
transactions to which such data give effect been completed on the dates
assumed, nor do such data purport to project the Company's financial
condition or results of operations at any future date or for any future
period. See Unaudited Pro Forma Consolidated Combined Financial Information.
(b) To reflect the historical consolidated operations of Bludworth for the nine
months ended September 30, 1997, certain additions and deductions to
revenues and expenses have been made to convert such operations from a March
31 fiscal year to a calendar year.
(c) EBITDA (earnings before interest, minority interest, taxes, depreciation and
amortization expense) is presented here not as a measure of operating
results, but rather as a measure of the Company's operating performance.
Management of the Company believes that EBITDA, the Ratio of EBITDA to
interest expense and operating cash flow may provide additional information
about the Company's ability to meet its future requirements for debt
service, capital expenditures and working capital. EBITDA and the Ratio of
EBITDA to interest expense are widely used by financial analysts as a
measure of financial performance. Management further believes that the
Company's trends in increased EBITDA enhance the Company's ability to meet
capital expenditure requirements, and give the Company a more substantial
working capital base. EBITDA should not be construed as an alternative to
operating income (determined in accordance with generally accepted
accounting principles ("GAAP")) as an indicator of the Company's operating
performance or as an alternative to cash flows from operating activities
(determined in accordance with GAAP) as a measure of liquidity. EBITDA
measures presented herein may not be comparable to similarly titled measures
of other companies.
(d) For the purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of earnings before income taxes and fixed charges.
"Fixed charges" consist of interest expense, amortization of deferred
financing costs and that portion of rental expense deemed representative of
the interest factor. Earnings were inadequate to cover fixed charges for the
year ended December 31, 1994 by $0.3 million and on a pro forma basis for
the year ended December 31, 1996 by $5.2 million.
(e) Includes property and equipment acquired through the incurrence of debt.
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<PAGE> 11
RISK FACTORS
An investment in the Notes offered hereby involves a high degree of risk.
The following factors should be carefully considered together with the
information provided elsewhere in this Prospectus in evaluating an investment in
the Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
After giving effect to the sale of the Notes, the Company will have
indebtedness that is substantial in relation to its stockholders' equity. As of
December 31, 1997, after giving effect to the sale of the Notes and the
application of the estimated net proceeds therefrom, the Company on a
consolidated basis would have had outstanding indebtedness with a principal
amount of $99.8 million and stockholders' equity of $6.5 million. In addition,
as of December 31, 1997, after giving effect to the sale of the Notes and the
application of the estimated net proceeds therefrom, the Company would have had
a debt-to-equity ratio of 15.4 to 1.0 (based on the principal amount). The
Indenture permits the Company to incur additional indebtedness under certain
conditions.
Following the consummation of the Offering, the Company will be required to
make semi-annual interest payments in respect of the Notes of approximately $5.0
million. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control.
The Indenture will impose significant operating and financial limitations
on the Company. Such limitations will affect, and in many respects significantly
restrict or prohibit, among other things, the ability of the Company to pay
dividends, make investments and incur additional indebtedness. These
restrictions, in combination with the Company's substantial leverage, could
limit the ability of the Company to effect future financings or otherwise
restrict the nature and scope of its activities. The degree to which the Company
is leveraged could have important consequences to holders of Notes, including:
(i) the impairment of the Company's ability to obtain additional financing in
the future, (ii) the reduction of funds available to the Company for its
operations or for capital expenditures as a result of the dedication of a
substantial portion of the Company's net cash flow from operations to the
payment of principal of and interest on the Notes, (iii) the possibility of an
event of default under covenants contained in the Indenture, which could have a
material adverse effect on the Company, (iv) the placement of the Company at a
relative competitive disadvantage as compared to competitors who are not as
highly leveraged as the Company, and (v) the inability to adjust to rapidly
changing market conditions and consequent vulnerability in the event of a
downturn in general economic conditions or its business because of the Company's
reduced financial flexibility. In addition, to the extent that the Company
enters into a Bank Credit Agreement (as defined herein) in the future as
permitted by the Indenture, such agreement may impose additional operating and
financial restrictions on the Company, which may be more restrictive than those
provided for in the Indenture. See "Capitalization," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Description of Notes."
RANKING OF THE NOTES
The Notes will be general unsecured obligations of the Company. The Notes
will rank pari passu in right of payment of principal, premium, if any, and
interest on, and any other amounts owing in respect of, the Notes with other
unsecured senior Indebtedness and will be effectively subordinated to all
secured Indebtedness of the Company and the Restricted Subsidiaries to the
extent of the assets securing such indebtedness. As of December 31, 1997, after
giving effect to the sale of the Notes and the application of the estimated net
proceeds therefrom, on a consolidated basis the Company would have had
approximately $90.2 million of unsecured senior Indebtedness, no Subordinated
Indebtedness and approximately $9.5 million of secured indebtedness
collateralized
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<PAGE> 12
by certain properties and assets of the Company. Additionally, the Indenture
governing the Notes will permit the Company to incur up to $20 million of
Indebtedness pursuant to a Bank Credit Agreement which may be collateralized by
certain of the assets and properties of the Company. In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of the
Company, the assets of the Company which collateralize secured Indebtedness will
be available to pay obligations on the Notes only after the respective secured
Indebtedness of the Company has been paid in full. See "Description of Notes."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The obligations of the Company under the Notes are guaranteed by the
Initial Restricted Subsidiaries and will be guaranteed by all future Restricted
Subsidiaries of the Company. It is possible that creditors of a Restricted
Subsidiary may challenge the Subsidiary Guarantee issued by it as a fraudulent
conveyance under applicable provisions of the United States Bankruptcy Code or
comparable provisions of federal and state statutes. The requirements for
establishing a fraudulent conveyance vary depending on the laws of the
applicable jurisdiction. If a court found, under relevant federal and state
fraudulent conveyance statutes in a bankruptcy, reorganization or rehabilitation
case or similar proceeding or lawsuit by or on behalf of unpaid creditors of the
Company or the Restricted Subsidiaries, that at the time a Subsidiary Guarantee
was issued that (i) the applicable Restricted Subsidiary issued its Subsidiary
Guarantee with the intent of hindering, delaying or defrauding current or future
creditors or (ii) the applicable Restricted Subsidiary received less than
reasonably equivalent value or fair consideration for issuing its Subsidiary
Guarantee and (A) was insolvent or was rendered insolvent by reason of the sale
of the Notes or issuance of the Subsidiary Guarantee, (B) was engaged, or about
to engage, in a business or transaction for which its assets constituted
unreasonably small capital or (C) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured (as all of the
foregoing terms are defined in or interpreted under such fraudulent conveyance
statutes), such court could void or rescind or reduce such Subsidiary Guarantee
or take other action detrimental to the rights of the holders of the Notes,
including invalidating such Subsidiary Guarantee and requiring the holders of
the Notes to return amounts previously paid in respect of the Notes to the
extent such payments were made by, or derived from the assets of, the Restricted
Subsidiary whose Subsidiary Guarantee was voided, rescinded or reduced. Among
other things, a legal challenge of a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by such
Restricted Subsidiary as a result of the issuance by the Company of the Notes.
To the extent a Subsidiary Guarantee is voided as a fraudulent conveyance or
held unenforceable for any other reason, the holders of the Notes would cease to
have any claim in respect of the assets of such Restricted Subsidiary. The
measure of insolvency under applicable law will vary depending upon the law
applied in such case. Generally, however, a Restricted Subsidiary would be
considered insolvent if at the time it issued its Subsidiary Guarantee or made
any payments in respect thereof, either (i) the fair market value (or fair
salable value) of its assets was less than the amount required to pay its total
existing debts and liabilities (including the probable liability on contingent
liabilities) as they become absolute and matured or (ii) it was incurring debts
beyond its ability to pay as such debts matured. See "Description of Notes."
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all of the outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the repurchase
date. There can be no assurance that the Company would have sufficient resources
to repurchase the Notes upon the occurrence of a Change of Control. The failure
to repurchase all of the Notes tendered to the Company would constitute an Event
of Default under the Indenture. Furthermore, the repurchase of the Notes by the
Company upon a Change of Control might result in a default on the part of the
Company in respect of other future indebtedness of the Company as a result of
the financial effect of such repurchase on
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<PAGE> 13
the Company or otherwise. The change of control repurchase feature of the Notes
may have anti-takeover effects and may delay, defer or prevent a merger, tender
offer or other takeover attempt. See "Description of Notes."
SHORTAGE OF TRAINED SHIPYARD WORKERS
Shipyards located in certain portions of the U.S. Gulf Coast are
experiencing severe shortages of skilled shipyard labor as a result of recent
labor demands brought about by increases in demand for shipyard services,
offshore drilling activities, the construction of offshore facilities and
offshore field service personnel. This labor shortage has resulted in increased
costs of labor, and limitations on production capacity, for certain shipyards.
The labor shortage has not materially impacted the Company at the present time,
although no assurances can be given regarding whether shortages will be
experienced at the Company's shipyards in the future. Any labor shortages
experienced by the Company in the future could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" and "Business -- Services" and "-- Shipyard
Properties."
ACQUISITION RISKS
The Company's rapid growth in recent years has been attributable in
significant part to acquisitions. The Company expects to continue to evaluate
and, where appropriate, pursue acquisition opportunities on terms management
considers favorable to the Company. There can be no assurance that suitable
acquisition candidates will be identified in the future, that the Company will
be able to finance such acquisitions on favorable terms or that competition for
such assets will not render such acquisitions economically infeasible. In
addition, there can be no assurances that any acquisition made by the Company,
including the Bludworth Acquisition, will be integrated successfully into the
Company's operations or will achieve desired profitability objectives. While the
Company's current operations are focused in the Houston-Galveston area, there is
no assurance that the Company will not pursue acquisitions located in other
geographic areas. In connection with certain acquisitions, the Company may also
be required to assume certain liabilities, including environmental liabilities,
known or unknown. See "-Impact of Environmental Laws" and
"Business -- Background."
DEPENDENCE OF OFFSHORE SUPPORT VESSEL AND OFFSHORE DRILLING MARKETS ON OIL AND
GAS INDUSTRY
Repair of offshore support vessels accounted for over 30% of the Company's
repair and conversion revenues in 1996, and volumes are expected to increase in
the future with the consummation of the Bludworth Acquisition and implementation
of the Company's expansion strategy. Additionally, after the capital
improvements to the East Pelican Island shipyard in Galveston have been
completed, the Company will be actively seeking customers from the offshore
drilling industry. Customer demand for offshore support vessels and offshore
drilling rigs is dependent on, among other things, the levels of activity in
offshore oil and gas exploration, development and production, particularly in
the Gulf of Mexico where many of the offshore support vessels repaired by the
Company have been put into service. The level of activity in offshore oil and
gas exploration, development and production is affected by such factors as
prevailing oil and gas prices, expectations about future prices, the cost of
exploring for, producing and delivering oil and gas, the sale and expiration
dates of available offshore leases, the discovery rate of new oil and gas
reserves in offshore areas, local and international political and economic
conditions, technological advances and the ability of oil and gas companies to
generate or otherwise obtain funds for capital expenditures, the availability of
which may be lower in the fourth quarter. Although the Company believes there
will be an increase in demand for offshore support vessels and offshore drilling
rigs, and the repair and maintenance of such vessels, the Company cannot predict
future levels of activity in offshore oil and gas exploration, development and
production. See "Business -- Industry Overview."
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<PAGE> 14
RISKS RELATED TO MANAGING GROWTH
Any significant increase in the current levels of repair, conversion, and
construction activity, as well as the Company's planned expansion into the
offshore drilling rig conversion, repair and new 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 and plans to hire
management personnel who have experience in the business of converting and
repairing offshore 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 business, financial condition and results of operations.
See "Business -- Shipyard Properties."
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 1996, the Company derived more than 10% of its revenues from each of SEACOR
Smit Inc. (22%) and Kirby Corporation (15%) and more than 50% from its largest
five customers. Based on its current backlog of projects, the Company expects
that it will derive more than 10% of its revenues in 1997 from each of SEACOR
Smit Inc. and Kirby Corporation. Because the level of services that the Company
may provide to any particular customer depends on that customer's needs for
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. Further,
as a result of continuing consolidations in the inland marine, offshore support
vessel and offshore drilling industries, the Company may face more significant
pricing and margin pressure when dealing with volume commitments from such
customers. See "Business -- Principal Customers."
COMPETITIVE INDUSTRY
The shipbuilding industry is highly competitive. In general, during the
1990s, the U.S. shipbuilding industry has been characterized by substantial
excess capacity because of the significant decline in U.S. Navy shipbuilding
spending and the difficulties experienced by U.S. shipbuilders in competing
successfully for international commercial projects against foreign shipyards,
many of which are heavily subsidized by their governments. As a result of these
factors, competition by U.S. shipbuilders for domestic commercial projects has
increased significantly. Such increased competition has resulted in substantial
pressure on pricing and profit margins.
Contracts for the construction and conversion of vessels are often awarded
on a competitive bid basis. More than 30% of the Company's repair work is
awarded on a competitive bid basis. Although the Company believes customers
consider, among other things, the availability and technical capabilities of
equipment and personnel, efficiency, condition of equipment, safety record and
reputation, price is a primary factor in determining which qualified shipbuilder
is awarded a job.
The Company currently competes for a range of domestic commercial shipyard
projects principally with approximately 10 to 20 U.S. shipyards. The number and
identity of competitors on particular projects vary greatly, depending on the
type of service performed, the type of vessel and the size of project.
Additional competition, competitive bidding and downward pressures on profits
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<PAGE> 15
and pricing margins could have a material adverse effect on the Company's
business, financial condition and the results of operations. See
"Business -- Competition."
BIDDING RISKS ASSOCIATED WITH CONTRACTUAL PRICING IN THE SHIPBUILDING INDUSTRY
Over 50% of the Company's commercial contracts are currently performed on a
fixed-priced basis. The Company attempts to cover anticipated increased costs of
labor and materials through an estimation of such costs, which is reflected in
the original price. Despite these attempts, however, the revenue, cost and gross
profit realized on a fixed-price contract will often vary from the estimated
amounts because of changes in job conditions and variations in labor and
material costs over the term of the contract. These variations and the risks
generally inherent in the shipbuilding industry may result in gross profits
realized by the Company being different from those originally estimated and may
result in the Company experiencing reduced profitability or losses on projects.
Depending on the size of the project, these variations from estimated contract
performance could have a significant effect on the Company's operating results
for any particular fiscal quarter or year.
In addition, the Company's contract revenues are recognized on a percentage
of completion basis. Accordingly, contract price and cost estimates are reviewed
periodically as the work progresses, and adjustments proportionate to the
percentage of completion are reflected in income in the period when such
estimates are revised. To the extent that these adjustments result in a loss or
a reduction or elimination of previously reported profits with respect to a
project, the Company would recognize a charge against current earnings, which
could be material and have a material adverse effect on the financial condition
and the results of operations. See "Business -- Contract Procedure, Structure
and Pricing" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General."
RISK OF SHIPYARD EXPANSION
The Company has entered into an agreement with the Board of Trustees of
Galveston Wharves to lease the East Pelican Island shipyard on approximately 110
acres in Galveston, Texas for a term of up to 99 years. The Company intends to
improve the facility so that it would be capable of converting and repairing
existing offshore drilling rigs and the construction of new offshore drilling
rigs. The Company intends to complete the first phase of the shipyard expansion
by the third quarter 1998. During the expansion the Company will incur
expenditures, some of which cannot be capitalized, without realizing any
significant revenues at this facility. The Company historically has not
conducted any operations in this segment of the shipbuilding industry. There can
be no assurance that the Company will be successful. Further, there can be no
assurance that market conditions, including dayrates realized by offshore
drilling contractors, will permit the Company to obtain sufficient orders for
the conversion and repair of offshore drilling rigs on a profitable basis, or
that the Company will realize orders of a sufficient quantity to justify the
costs and expenses of improving, equipping and operating the shipyard. There can
be no assurance that the shipyard capital improvements will be completed or, if
completed, that the shipyard improvements will be completed on the schedule or
at the total cost to complete currently estimated by the Company. See
"Business -- Shipyard Properties."
OPERATING RISKS
The Company's activities relating to the repair, conversion and
construction of large steel structures, the operation of cranes and other heavy
machinery and other operating hazards, can cause personal injury or loss of
life, severe damage to and destruction of property and equipment and suspension
of operations. The operation of the marine rails and the drydock vessels owned
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. Litigation arising from any
such
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<PAGE> 16
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 electrical
outages, as well as physical damage caused by heavy winds, hurricanes or
flooding. See "Business -- Insurance", "-- Other Regulation" and "-- Legal
Proceedings."
DEPENDENCE ON KEY MANAGEMENT
The Company believes that its success to date is attributable to, and its
future performance will depend to a significant extent upon, the efforts and
abilities of Messrs. Samuel F. Eakin, Chief Executive Officer, Frank W. Eakin,
President and Chief Operating Officer, David B. Ammons, Executive Vice
President-Finance and Joe O'Toole, Executive Vice President-Operations. The loss
of the services of one or more of the Company's executive officers could have a
material adverse effect on the Company. See "Management."
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. The
loss of a significant customer could have a material adverse effect on the
Company's revenue. See "Business -- Principal Customers" and "-- Contract
Procedure, Structure and Pricing."
IMPACT OF ENVIRONMENTAL LAWS
The Company is subject to extensive and changing federal, state and local
laws (including common law) and regulations designed to protect the environment
("Environmental Laws"). The Company from time to time is involved in
administrative, enforcement and other proceedings under Environmental Laws
involving its operations and facilities. Environmental Laws could impose
liability for remediation costs or result in civil or criminal penalties in
cases of non-compliance. Compliance with Environmental Laws increases the
Company's costs of doing business. Additionally, Environmental Laws have been
subject to frequent change; therefore, the Company is unable to predict the
future costs or other future impact of Environmental Laws on its operations.
There can be no assurance that the Company will not incur material liability
related to the Company's operations and properties under Environmental Laws. See
"Business -- Environmental Regulation."
LEGISLATIVE PROPOSALS TO RESCIND PROVISIONS OF JONES ACT
Pursuant to the requirements of the Merchant Marine Act of 1920 (the "Jones
Act"), all vessels transporting products between U.S. ports ("Coastwise Trade")
must be constructed and repaired in U.S. shipyards, owned and crewed by U.S.
citizens and registered under U.S. law. Many customers elect to have vessels
constructed and repaired at U.S. shipyards, even if such vessels are eventually
intended for international use, in order to maintain flexibility to use such
vessels in the U.S. Coastwise Trade in the future. The Company believes that a
substantial portion of its revenues will result from the sale and repair of
vessels capable of being used for U.S. Coastwise Trade. In 1996, proposed
legislation was introduced in Congress to substantially modify the provisions of
the Jones Act mandating the use of vessels constructed in the United States for
U.S. Coastwise Trade. Similar bills seeking to rescind or substantially modify
the Jones Act and eliminate or adversely affect the competitive advantages it
affords to U.S. shipbuilders have been introduced in Congress from time to time
and are expected to be introduced in the future. Although management believes it
is unlikely that the Jones Act requirements will be rescinded or materially
modified in the foreseeable
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<PAGE> 17
future, there can be no assurance that this will not occur. Many foreign
shipyards are heavily subsidized by their governments and, as a result, there
can be no assurance that the Company would be able to effectively compete with
such shipyards if they were permitted to construct vessels for use in the U.S.
coastwise trade. The repeal of the Jones Act or any amendment of the Jones Act
that would eliminate or adversely affect the competitive advantages provided to
U.S. shipbuilders could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Other
Regulation -- Jones Act."
ABSENCE OF PUBLIC MARKET
There is no existing public market for the Notes and the Company does not
intend to list the Notes on any national securities exchange. Although the
Underwriter has advised the Company that it currently intends to make a market
in the Notes, the Underwriter is not obligated to do so and may discontinue such
market making at any time. Accordingly, there can be no assurance that an active
market will develop upon completion of this Offering or, if developed, that such
market will be sustained. The initial offering price of the Notes will be
determined through negotiations between the Company and the Underwriter, and may
bear no relationship to the market price of the Notes after the Offering.
Factors such as quarterly or cyclical variations in the Company's financial
condition and results of operations, variations in interest rates, future
announcements concerning the Company or its competitors, government regulation,
general economic and other conditions could cause the market price of the Notes
to fluctuate substantially.
17
<PAGE> 18
THE COMPANY
First Wave Marine, Inc. is a leading provider of shipyard and related
environmental services to the offshore support vessel, offshore barge and inland
marine industries. The Company offers a full range of repair, conversion, new
construction and related environmental services, including cleaning, degassing
and wastewater treatment. Following the consummation of two pending
acquisitions, the Company will significantly expand its operations and capacity
particularly into the offshore drilling industry. The Company will be the
largest shipyard operator in the Houston-Galveston area with five of the eight
major shipyard facilities in this strategic location. First Wave believes that
following the pending acquisitions, it will be the only one-stop source of all
shipyard services for all segments of the offshore support vessel, offshore
barge and inland marine markets in Texas.
In December 1993, the Company's Brady Island shipyard was acquired by a
holding company formed by the partners of Eakin & Company, Ltd. ("Eakin & Co.")
through a lease of the facilities and equipment from Newpark Resources, Inc., an
unrelated corporation ("Newpark Resources"). Eakin & Co. specializes in
turnaround companies and complex transactions. In August 1996, the Company
purchased the Brady Island leased assets from Newpark Resources. In August 1997,
the Company acquired certain repair and new construction assets of the Greens
Bayou facility from Platzer Shipyard, Inc., a subsidiary of Trinity Industries,
Inc. After acquiring PMB Engineering, Inc.'s lease of the 110-acre East Pelican
Island facility in Galveston, Texas with Galveston Wharves, the Company has
signed an amendment to such lease providing, among other things, for a term of
up to 99 years at an annual rental rate of $700,000, subject to adjustment.
The Company was incorporated in Delaware on September 26, 1997. The
Company's predecessor, a Texas corporation, merged into the Company on September
30, 1997 (the "Reincorporation"). On October 16, 1997, the Company entered into
a definitive agreement with the minority shareholders of Newpark Shipbuilding
and Repair, Inc. (Newpark Shipbuilding") to acquire the 17% of the outstanding
shares of Newpark Shipbuilding held by them in exchange for 999,390 shares of
Common Stock of the Company (the "Exchange"). The Exchange closed on December
31, 1997. As a result, the Company owns 100% of the outstanding shares of
Newpark Shipbuilding.
The principal executive offices of the Company are located at 4000 South
Sherwood Forest Boulevard, Suite 603, Baton Rouge, Louisiana 70816, and its
telephone number at such offices is (504) 292-8800.
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<PAGE> 19
USE OF PROCEEDS
The estimated net proceeds to be received by the Company from the Offering,
after deducting underwriting discounts and commissions and other estimated
expenses payable by the Company, are approximately $86.1 million.
Approximately $15.0 million of the proceeds will be used to fund the cash
portion of the purchase price for the Bludworth Acquisition. It is anticipated
that in mid-1998 $4.0 million of the Offering proceeds will be used to pay the
promissory note issued as the remaining portion of the purchase price for the
Bludworth Acquisition. Approximately $12.1 million of the proceeds of the
Offering will be used to prepay indebtedness outstanding under all of
Bludworth's credit facilities, including $5.1 million relating to indebtedness
of Bludworth expected to be incurred in connection with its approximately
9,000-ton drydock currently under construction. Substantially all of the
remaining $7.0 million of Bludworth's indebtedness was incurred in connection
with Bludworth's start up of the West Pelican Island facility. See Consolidated
Financial Statements of Bludworth, including the notes thereto, contained
herein.
The Company intends to use $14.1 million of the net proceeds of the
Offering to prepay indebtedness outstanding under four of its credit facilities.
The borrowings under the first facility bear interest at 10.4% and 9.9% per year
and mature on September 2003. The borrowings under the second facility bear
interest at 8.0% and mature September 2003. The borrowings under the third
facility bear interest at 9.25% and mature February 2002. The borrowings under
the fourth facility bear interest at prime plus 1.0% and mature August 2000.
Approximately $1.7 million of the indebtedness proposed to be prepaid with
proceeds of the Offering was incurred in the last year to acquire certain assets
of Greens Bayou, $12.0 million was incurred in prior years to partially finance
the acquisition of the Brady Island facility and the balance was used for
general corporate purposes. All of the Company's credit facilities being prepaid
(excluding the Bludworth credit facilities) have been guaranteed by Samuel F.
Eakin.
Excluding the Bludworth Acquisition, the Company intends to use
approximately $27.6 million of the proceeds for its anticipated capital
requirements over the next 12 months, including capital expenditures to upgrade
the facilities at the East Pelican Island shipyard.
The Company intends to use approximately $9.9 million of the proceeds to
purchase the Pledged Securities.
The balance of the net proceeds of the Offering, if any, will be used by
the Company for general corporate purposes, including satisfaction of working
capital needs, and other purposes. Pending such uses, the net proceeds will be
invested in short-term, interest-bearing, investment-grade securities.
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<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on a historical basis, (ii) pro forma after giving effect
to the Exchange, and (iii) pro forma as adjusted to reflect the Offering and the
application of the net proceeds therefrom as described under "Use of Proceeds."
This table should be read in conjunction with the Consolidated Financial
Statements of the Company, including the notes thereto, contained herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------
PRO FORMA PRO FORMA
FOR THE AS ADJUSTED
HISTORICAL EXCHANGE FOR THE OFFERING
---------- --------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 1,079 $ 1,079 $ 34,030
======= ======= ========
Short-term borrowings and current portion of
long-term debt..................................... $ 1,552 $ 1,552 $ 219
Long-term debt....................................... 21,966 21,966 99,537
------- ------- --------
Total debt................................. 23,518 23,518 99,756
------- ------- --------
Stockholders' equity:
Common Stock, $0.01 par value, 21,000,000 shares
authorized; 10,757,565 shares issued and
outstanding and 11,756,955 shares outstanding
pro forma for the Exchange...................... 10 20 20
Preferred stock, $0.01 par value, 2,000,000 shares
authorized; no shares issued and outstanding.... -- -- --
Additional paid-in capital......................... 2 3,490 3,490
Retained earnings.................................. 4,423 4,423 3,033
------- ------- --------
Total stockholders' equity................. 4,435 7,933 6,543
------- ------- --------
Total capitalization....................... $27,953 $31,451 $106,299
======= ======= ========
</TABLE>
20
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The historical financial data presented in the table below for and at the
end of each of the years in the three-year period ended December 31, 1996 and as
of and for the nine-month period ending September 30, 1997 are derived from the
Consolidated Financial Statements of the Company audited by Grant Thornton LLP,
independent certified public accountants. The results for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be achieved
for the full year. The consolidated statements of operations data set forth
below for the years ending December 31, 1992 and 1993 and the consolidated
balance sheet data at December 31, 1992 and 1993 have been derived from
unaudited accounting records of a predecessor to the Company. The historical
financial data presented in the table below as of the end of the nine-month
period ended September 30, 1996 are derived from the unaudited Consolidated
Financial Statements of the Company. In the opinion of management of the
Company, all of such unaudited Consolidated Financial Statements include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial data for such periods. The data presented below
should be read in conjunction with the Company's Consolidated Financial
Statements and the notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT RATIOS, MARGINS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Repair and conversions.................... $12,560 $14,075 $11,693 $15,392 $20,997 $14,965 $19,801
New construction.......................... -- -- 1,391 3,321 2,841 1,898 881
Environmental services.................... 2,118 2,176 2,263 3,287 4,119 3,062 3,784
------- ------- ------- ------- ------- ------- -------
Total revenue....................... 14,678 16,251 15,347 22,000 27,957 19,925 24,466
Cost of revenues............................ 10,695 14,994 12,591 17,043 18,623 13,886 14,330
------- ------- ------- ------- ------- ------- -------
Gross profit................................ 3,983 1,257 2,756 4,957 9,334 6,039 10,136
General and administrative expenses(a)...... 3,728 3,241 2,827 3,623 5,629 4,548 3,943
------- ------- ------- ------- ------- ------- -------
Operating income (loss)..................... 255 (1,984) (71) 1,334 3,705 1,491 6,193
Interest expense, net....................... 101 359 186 247 829 380 1,280
Minority interest........................... -- -- -- 76 219 66 536
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before taxes................ 154 (2,343) (257) 1,011 2,657 1,045 4,377
Income tax provision(b)..................... -- -- 2 283 1,098 529 1,837
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)................. $ 154 $(2,343) $ (259) $ 728 $ 1,559 $ 516 $ 2,540
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share(b)................ -- -- (.02) .07 .15 .05 .24
Weighted average number of shares
outstanding(b)............................ -- -- 10,650 10,650 10,650 10,650 10,650
CASH FLOW AND OPERATING DATA:
Net cash provided by (used in):
Operating activities...................... 1,064 (1,284) (2,962) 36 1,184 (498) 4,436
Investing activities...................... (5,560) (317) (569) (934) (1,425) (857) (2,008)
Financing activities...................... 4,204 1,441 3,610 884 175 1,289 (1,349)
EBITDA(c)................................... 859 (1,287) (23) 1,593 4,385 1,815 7,230
Ratio of earnings to fixed charges(d)....... 1.3x (4.1)x .7x 2.3x 3.2x 2.3x 4.4x
Depreciation and amortization............... 604 697 48 259 680 324 1,037
Capital expenditures(e)..................... 13,293 317 569 934 16,322 15,754 6,577
Labor hours worked.......................... NA NA 340 509 582 435 466
Gross Margin................................ 27.1% 7.7% 18.0% 22.5% 33.4% 30.3% 41.4%
Operating Income Margin..................... 1.7% NM NM 6.1% 13.3% 7.5% 25.3%
Net Income Margin........................... NM NM NM 3.3% 5.6% 2.6% 10.4%
EBITDA Margin............................... 5.9% NM NM 7.2% 15.7% 9.1% 29.6%
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
------- ------- ------ ------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 974 $ 814 $ 79 $ 66 $ -- $ 1,079
Total assets...................................... 18,854 18,144 5,017 6,794 24,932 32,558
Long-term debt.................................... 4,520 4,161 1,434 1,128 18,663 23,299
Stockholders' equity (deficit).................... (4,796) (7,139) (258) 334 1,893 4,435
</TABLE>
- ---------------
NA -- Not available
NM -- Not meaningful
(a) Included in general and administrative expenses for 1992 and 1993 are $1.3
million and $2.2 million in administrative allocations charged by the
predecessor's parent company.
(b) In 1992 and 1993, the results of operations of the predecessor to the
Company were included in the consolidated financial statements and tax
returns of the predecessor's parent company. Therefore, earnings per share,
weighted average number of shares outstanding and income tax provisions were
reported by the predecessor's parent company and are not applicable.
(c) EBITDA (earnings before interest, minority interest, taxes, depreciation and
amortization expense) is presented here not as a measure of operating
results, but rather as a measure of the Company's operating performance.
Management of the Company believes that EBITDA and operating cash flow may
provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA is widely used by financial analysts as a measure of
financial performance. Management further believes that the Company's trends
in increased EBITDA enhance the Company's ability to meet capital
expenditure requirements, and give the Company a more substantial working
capital base. EBITDA should not be construed as an alternative to operating
income (determined in accordance with GAAP) as an indicator of the Company's
operating performance or as an alternative to cash flows from operating
activities (determined in accordance with GAAP) as a measure of liquidity.
EBITDA measures presented herein may not be comparable to similarly titled
measures of other companies.
(d) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes and fixed charges. "Fixed
charges" consist of interest expense, amortization of deferred financing
costs and that portion of rental expense deemed representative of the
interest factor. Earnings were inadequate to cover fixed charges for the
years ended December 31, 1993 and 1994 by $2.3 million and $0.3 million.
(e) Includes property and equipment acquired through the incurrence of debt.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This information should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto, contained in
this Prospectus. See also "Selected Consolidated Financial Data."
GENERAL
The Company currently engages in the repair and conversion of offshore
support vessels and barges, as well as the construction of new barges at two
shipyards in the Houston area (Brady Island and Greens Bayou). Additionally, the
Company has entered into agreements to add three new shipyards through the
purchase of JBM Pasadena, West Pelican Island and the long-term lease of the
East Pelican Island shipyard. The JBM Pasadena and West Pelican Island
shipyards, located in Houston and Galveston, respectively, are dedicated
primarily to the offshore support vessel, inland barge and inland tow boat
markets. Management believes that the two Pelican Island facilities, which will
move the Company into offshore drilling rig repair, conversion and new
construction and expand its capacities in the offshore vessel market, offer
significant location and labor advantages. The Company has assembled a proven
management team with decades of experience in the offshore segment to operate
the Pelican Island facilities.
The Company's results of operations are primarily dependent upon: (i) the
conditions affecting the oil and gas and petrochemical industries in the Gulf of
Mexico; (ii) the Company's ability to obtain contracts; and (iii) the Company's
ability to manage contracts to successful completion. The Company's primary
source of revenue is derived from labor hours. The Company currently employs
approximately 400 people at the Brady Island and Greens Bayou facilities. The
shipyards to be acquired currently employ approximately 300 production workers.
Since the acquisition of the Brady Island shipyard in December 1993, the
Company has served the offshore support vessel and offshore and inland barge
markets. Historically, the Company's services have included repair, conversion,
construction and related environmental services. The Company's strategy has been
to achieve a balanced diversification and provide one-stop servicing for both
inland and offshore marine markets.
With the acquisition of the JBM Pasadena shipyard, the Company will enjoy a
significant market share in the highly competitive inland marine repair business
in the strategically important Houston market. This concentration of assets
allows for efficiencies and economies of scale which the Company believes will
provide it with a competitive advantage. With the consummation of the Bludworth
Acquisition, the Company's operations will be conducted at five shipyards along
a 50-mile corridor around the Houston-Galveston ports. Management believes that
growth generated by the offshore rig repair and construction segments will
result in larger unit contracts, and will enhance revenues and earnings. When
combined with the relative stability and consistent volumes of the inland marine
business, management believes its approach produces higher net income, less
cyclicality, and more consistent growth than is possible for companies servicing
a single segment of the industry.
Revenues derived from the repair and conversion segment of the shipyard
industry generally produce higher gross profit margins than new construction.
The repair and conversion market is currently experiencing growth due to several
factors, including the increased utilization of aging fleets, consolidation of
these fleets by well-capitalized vessel operators, and replenishment and
upgrading of fleets. The Company has also developed a specialization in the
conversion of offshore support vessels into longer and wider vessels in response
to increased demand for offshore vessels with deepwater capabilities.
Historically, the Company has used new construction of inland barges to
stabilize the labor force highs and lows typical in the shipyard industry by
shifting workers to new construction as a
23
<PAGE> 24
means of absorbing excess labor. Management views the lower-margin inland barge
new construction segment as an incremental contributor to the business. New
construction efforts to date at the Company have primarily been focused on the
construction of customized marine equipment such as power barges, offshore deck
barges with special lift capacities, and a new generation of tank barges.
Management believes that it has positioned the Company to undertake major new
construction projects in the offshore rig segment, while preserving the
advantages of high margins and lower volatility in the repair and related
environmental services business.
The Company also provides related environmental services, including
cleaning, degassing and wastewater treatment. Although this business comprises a
small percentage of the Company's total revenues, it generates high margins and
enhances the Company's strategy to be the only one-stop source of all shipyard
services for all segments of the offshore support vessel, offshore barge and
inland marine markets in Texas.
All statements other than statements of historical fact contained in this
Prospectus, including statements in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" concerning results of
operations, results from proposed shipyard acquisitions, future expansion plans
and other matters are forward-looking statements. Forward-looking statements in
this Prospectus generally are accompanied by words such as "anticipate,"
"believe," "estimate" or "expect" or similar statements. Although the Company
believes that the expectations reflected in such forward looking statements are
reasonable, no assurance can be given that such expectations will prove correct.
Factors that could cause the Company's results to differ materially from the
results discussed in such forward-looking statements include the risks described
under "Risk Factors," such as the dependence on the oil and gas industry,
difficulties related to managing growth in operations, dependence on significant
customers, competition, the risks associated with contractual pricing, the
success of proposed expansion into the offshore drilling rig segment, and labor,
operating, regulatory and other risks in the shipbuilding industry and risks
relating to the offshore support vessel, offshore barge and inland marine
markets. All forward-looking statements in this Prospectus are expressly
qualified in their entirety by the cautionary statements in this paragraph.
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 to Nine Months Ended
September 30, 1996
Revenues increased 22.8% to $24.5 million in the nine-month period ended
September 30, 1997 compared with $19.9 million in the same period in 1996
primarily due to growth in offshore support vessel repair and conversion
activity. Overall growth in repair and conversion activity, which accounted for
approximately 80.9% of total revenues in the nine-month period ended September
30, 1997, rose 18.5% over the same period in 1996, based on labor hours.
Cost of revenues rose 3.2% to $14.3 million in the nine-month period ended
September 30, 1997 from $13.9 million in the same period in 1996 as a result of
the overall growth in labor hours.
Gross profits increased by 67.8% to $10.1 million in the nine-month period
ended September 30, 1997 from $6.0 million in the same period in 1996 primarily
due to higher billing and bid rates. This is reflected in an increase in gross
profit margin for the first nine-months of 1997 to 41.4% from 30.3% for the same
period in 1996.
General and administrative expenses decreased 13.3% to $3.9 million in the
nine-month period ended September 30, 1997 from $4.5 million in the same period
in 1996 primarily due to a $700,000 non-recurring pre-tax fee, related to a
reduction in costs resulting from consolidation of the Company's insurance plan,
and management fees paid in 1996, which were offset by an increase in costs
necessary to support the continued growth of the Company. General and
administrative expenses as a percentage of revenues for the first nine months of
1997 represented 16.1% of total revenues, as compared to 22.8% for the same
period in 1996.
24
<PAGE> 25
Depreciation and amortization expense increased to $1.0 million in the
nine-month period ended September 30, 1997 from $324,000 in the same period in
1996 primarily due to the effect of a full nine months of depreciation in the
1997 period of the assets acquired at the Brady Island facility in August 1996.
Interest expense rose to $1.3 million in the nine-month period ended
September 30, 1997 from $380,000 in the same period in 1996 due to additional
financing costs associated with the debt incurred to finance the acquisition of
the Brady Island assets from Newpark Resources.
As a result of the foregoing, income tax expense increased to $1.8 million
in the nine-month period ended September 30, 1997 from $529,000 in the same
period in 1996.
Net earnings rose 392.2% to $2.5 million in the nine-month period ended
September 30, 1997 from $516,000 in the same period in 1996.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Revenues increased 27.1% to $28.0 million in 1996 compared with $22.0
million in 1995 primarily due to increased activity in the offshore support
vessel and inland tank barge markets. The growth in revenues was primarily
driven by higher levels of activity in repair and conversion services which rose
23.4% and related environmental services which increased 10.7% in 1996 over
1995, respectively, based on labor hours.
Cost of revenues rose 9.3% to $18.6 million in 1996 from $17.0 million in
1995 primarily due to increased activity.
Gross profits increased by 88.3% to $9.3 million in 1996 from $5.0 million
in 1995 primarily due to a shift in the business mix including higher levels of
activity generated from repair and conversions of offshore support vessels. As a
result, gross profit margin increased to 33.4% in 1996 from 22.5% in 1995.
General and administrative expenses rose 55.4% to $5.6 million in 1996 from
$3.6 million in 1995 and increased as a percentage of revenues to 20.1% from
16.5% as a result of the aforementioned $700,000 final, non-recurring fee. Also
included in general and administrative expenses was an aggregate $680,000 paid
in discretionary bonuses during 1996 compared with $62,000 in 1995.
Depreciation and amortization expense increased to $680,000 in 1996 from
$259,000 in 1995 due to additional depreciation associated with fixed assets
purchased at the Brady Island facility in the third quarter of 1996 from Newpark
Resources which had previously been under lease.
Interest expense rose to $829,000 in 1996 from $247,000 in 1995 due to the
additional financing costs associated with debt incurred to finance operations
and the fixed assets purchased at the Brady Island shipyard.
As a result of the foregoing, income tax expense increased to $1.1 million
in 1996 from $283,000 in 1995. The 1995 period included the utilization of a
$300,000 net operating loss carryover.
Net earnings rose 114.1% to $1.6 million in 1996 from $728,000 in 1995
including the aforementioned final, non-recurring pre-tax fee of $700,000
($441,000 after-tax).
25
<PAGE> 26
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
The Company's revenues increased 43.4% to $22.0 million in 1995, compared
to $15.3 million in 1994. This increase was attributable to higher levels of
activity across all segments of the service mix, based on labor hours.
Cost of revenues increased 35.4% to $17.0 million in 1995 from $12.6
million in 1994 primarily because of increased activity.
Gross profits increased 79.9% to $5.0 million in 1995 from $2.8 million in
1994 due to higher levels of activity in repair and conversion and related
environmental services, based on labor hours. Gross profit margin percentage of
revenues increased to 22.5% in 1995 from 18.0% in 1994.
General and administrative expenses rose 28.2% to $3.6 million in 1995 from
$2.8 million in 1994 but declined as a percentage of revenues from 18.4% to
16.5%. The decline in general and administrative expenses as a percentage of
revenues was attributable primarily to operating leverage realized from the
general and administrative cost structure.
Depreciation and amortization expense increased to $259,000 in 1995 from
$48,000 in 1994 due to additional depreciation associated with capital
improvements at the Brady Island shipyard during 1995.
Interest expense rose to $247,000 in 1995 from $186,000 in 1994 due to
additional financing costs associated with investment in capital improvements at
the Brady Island shipyard during 1995.
As a result of the foregoing, income tax expense increased to $283,000 in
1995 from $2,000 in 1994.
Net earnings improved to $728,000 in 1995 from a loss of ($259,000) in
1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been to fund acquisitions and
capital expenditures and to service and repay debt.
Net cash provided by (used in) operating activities was $1.2 million,
$36,000 and ($3.0 million) in fiscal 1996, 1995 and 1994, respectively, and $4.4
million and ($498,000) in the nine months ended September 30, 1997 and 1996,
respectively. The increase in the Company's cash generated from operations
primarily reflect an increase in net earnings.
Net cash used in investing activities was $1.4 million, $934,000 and
$569,000 in fiscal 1996, 1995 and 1994, respectively, and $2.0 million and
$857,000 in the nine months ended September 30, 1997 and 1996, respectively.
During the 45-month period ended September 30, 1997, net cash used in investing
activities consisted largely of capital improvements.
Net cash provided by (used in) financing activities was $175,000, $884,000
and $3.6 million, in fiscal 1996, 1995 and 1994, respectively, and ($1.4
million) and $1.3 million in the nine months ended September 30, 1997 and 1996,
respectively. Net cash provided by financing activities represented debt
incurred to finance growth and expansion of the Company's operations, whereas
cash used in financing activities reflected repayment of the Company's
outstanding debt.
The Company has budgeted approximately $2.3 million for planned capital
projects at its current shipyard facilities for fiscal 1997, including $1.8
million and $524,000 in capital improvements for Brady Island and Greens Bayou,
respectively. Upon consummation of the Bludworth Acquisition in 1998, the
Company will spend $15.0 million in cash and issue a $4.0 million promissory
note, which note will be repaid in mid-1998 with the net proceeds of the
Offering. Excluding the Bludworth Acquisition, the Company has budgeted $27.6
million in capital expenditures for 1998, including $1.4 million, $1.8 million
and $24.4 million in capital improvements for the Brady Island, Greens Bayou and
East Pelican Island shipyard facilities, respectively. The Company is required
pursuant to the terms of the East Pelican Island lease to make $20 million in
capital improvements and equipment over the next three years, all of which the
Company has budgeted for 1998. If the Company consummates the purchase of the
Other Galveston Assets, it will spend $4.5 million for such purchase in 1998. At
the present time the Company has only entered into a non-binding letter of
intent with respect to the Other Galveston Assets, and there can be no assurance
that such transaction will be consummated or consummated on the terms described
herein.
26
<PAGE> 27
In August 1996, the Company entered into a Credit Agreement with a
financial institution providing up to $12.4 million in amortizing term debt
bearing an interest rate of approximately 10.4% to finance the acquisition of
shipyard assets from Newpark Resources which had previously been leased. The
Credit Agreement is collateralized by certain of the Company's assets and
requires the Company to maintain certain financial ratios. In connection with
the Company's acquisition of the Brady Island shipyard assets in August 1996,
the Company borrowed $11.8 million under the Credit Agreement and issued $6.3
million in subordinated debt to Newpark Resources to fund the purchase price.
The subordinated debt bears interest at 5.0% and matures 2003. In August 1997,
the Company borrowed the remaining $600,000 available under the Credit Agreement
to partially fund the acquisition of Greens Bayou. The Company, intends to use a
portion of the net proceeds from this Offering to repay the amount outstanding
under the Credit Agreement and approximately $2.2 million in other debt.
Currently, the Company has an aggregate $4.8 million in borrowing capacity
under two revolving lines of credit, both of which bear interest at prime plus
1.0%. The Company currently has $2.7 million outstanding under these facilities.
The Company, however, is negotiating to replace these facilities with a new
revolving line of credit to increase its borrowing capacity.
Management believes that with the net proceeds from this Offering, the
Company will have sufficient financial resources available to meet its
anticipated requirements for acquisitions, capital expenditures, working capital
and debt amortization for the next 12 months.
INFLATION AND CHANGING PRICES
The Company does not believe that general price inflation has had a
significant impact on the Company's results of operations during the periods
presented. To the extent that the effects of inflation are not offset by
improvements in manufacturing and purchasing efficiency and labor productivity,
the Company generally has been able to take such effects into account in pricing
its contracts with customers. There can be no assurance, however, that inflation
will not have a material effect on the Company's business in the future. For
information regarding the effects of increases in labor costs on the Company's
results of operations in recent periods, see "-- General" and "-- Results of
Operations."
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Financial
Accounting Standards No. 128, Earnings per Share, which is effective for
financial statements issued after December 15, 1997. The new standard eliminates
primary and fully diluted earnings per share and requires the presentation of
basic and diluted earnings per share together with disclosure of how the per
share amounts were computed.
Effective December 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 129, Disclosure of Information about Capital
Structure ("SFAS 129"). SFAS 129 requires that all entities disclose in summary
form within the financial statement the pertinent rights and privileges of the
various securities outstanding. An entity is to disclose within the financial
statement the number of shares issued upon conversion, exercise, or satisfaction
of required conditions during at least the most recent annual fiscal period and
any subsequent interim period presented. Other special provisions apply to
preferred and redeemable stock. The Company will adopt SFAS 129 in the fourth
quarter of 1997.
The FASB has issued Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which is effective for financial statements issued after
December 15, 1997. The new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income will include net
income plus net unrealized gains or loss on securities.
27
<PAGE> 28
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
UNAUDITED PRO FORMA CONSOLIDATED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma consolidated combined financial
information gives pro forma effect to: (i) the completion of the acquisition of
Bludworth by First Wave; (ii) the completion of the Exchange; and (iii) the
completion of the Offering and the application of estimated net proceeds
therefrom as described in "Use of Proceeds," as if they had occurred at January
1, 1996 with respect to the unaudited pro forma consolidated combined statements
of operations and as if they had occurred September 30, 1997 with respect to the
unaudited pro forma consolidated combined balance sheet. This pro forma
information should be read in conjunction with the respective consolidated
historical financial statements (including notes thereto) of First Wave and
Bludworth appearing elsewhere herein.
The pro forma adjustments reflecting the consummation of the Bludworth
Acquisition on the purchase method of accounting are based on available
financial information and certain estimates and assumptions set forth in the
notes to the Unaudited Pro Forma Consolidated Combined Financial Information.
The assumptions include the acquisition of all of the outstanding shares of
capital stock of Bludworth for $15.0 million in cash and the issuance of a $4.0
million promissory note which will be prepaid in mid-1998 with net proceeds of
the Offering. See "Use of Proceeds." The pro forma adjustments do not reflect
any operating efficiencies and cost savings that may be achievable with respect
to the combined businesses.
The following information is not necessarily indicative of the future
financial position or operating results of the combined businesses or the
financial position or operating results of the combined businesses had the
Bludworth Acquisition, the Exchange and the Offering occurred on the dates
discussed above. For purposes of preparing its Consolidated Financial
Statements, First Wave will establish a new basis for Bludworth's assets and
liabilities based upon the fair values thereof and First Wave's purchase price
thereof, including the costs of the Bludworth Acquisition. The Unaudited Pro
Forma Consolidated Combined Financial Information reflects First Wave's best
estimates; however, the actual financial position and results of operations may
differ from the pro forma amounts reflected herein because of various factors,
including, without limitation, access to additional information, changes in
value and changes in operating results between the date of preparation of the
Unaudited Pro Forma Consolidated Combined Financial Information and the date on
which the Bludworth Acquisition closed.
The pro forma adjustments reflecting the consummation of the Exchange are
based upon available financial information and estimates and assumptions
concerning the valuation of the Exchange. Upon completion of the Exchange, the
Company will record the purchase accounting allocation of the value of the
Company's shares exchanged to the assets acquired represented by the minority
shares of Newpark Shipbuilding. The Company will undertake a study to determine
the fair values of the exchanged shares and the net assets of Newpark
Shipbuilding for such purposes. A final determination of these values has not
been made. Therefore, the purchase accounting adjustments made for the purposes
of the Unaudited Pro Forma Consolidated Combined Financial Information reflects
First Wave's best estimates. The actual determination may result in differences
from those estimates.
28
<PAGE> 29
FIRST WAVE MARINE, INC.
PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JOHN
FIRST WAVE BLUDWORTH PRO FORMA PRO FORMA
MARINE, INC. MARINE, INC. ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ 1,079 $ 316 $ 86,125(a) $ 34,030
(19,000)(b)
(24,590)(c)
(9,900)(k)
Securities.................................. 9,900(k) 9,900
Accounts receivable......................... 7,228 5,838 13,066
Inventories................................. 652 101 753
Other....................................... 323 829 1,152
------- ------- -------- --------
Total current assets................... 9,282 7,084 42,535 58,901
Property and equipment, net................. 22,372 10,524 12,611(b) 45,507
Organization and loan costs, net............ 704 -- 3,875(a) 4,089
(490)(c)
Deposits.................................... 200 146 -- 346
Intangible assets........................... -- -- 2,570(d)
6,316(b) 8,886
------- ------- -------- --------
Total assets........................... $32,558 $17,754 $ 67,417 $117,729
======= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable............................... $ 219 $ 945 $ (945)(c) $ 219
Current portion of long-term obligations.... 1,333 624 (1,957)(c) --
Trade accounts payable...................... 812 1,033 -- 1,845
Accrued liabilities......................... 1,861 1,606 -- 3,467
------- ------- -------- --------
Total current liabilities.............. 4,225 4,208 (2,902) 5,531
Long-term obligations, net of current
portion................................... 15,082 8,359 (20,232)(c) 3,209
Senior Notes................................ 90,000(a) 90,000
Subordinated debt........................... 6,884 -- (556)(c) 6,328
Deferred income taxes....................... 563 448 4,666(b) 5,677
Other liabilities........................... 441 -- -- 441
Minority interest in subsidiary............. 928 -- (928)(d) --
------- ------- -------- --------
Total liabilities...................... 28,123 13,015 70,048 111,186
------- ------- -------- --------
STOCKHOLDERS' EQUITY
Common stock and additional paid-in
capital................................ 12 1 3,498(d) 3,510
(1)(b)
Retained earnings......................... 4,423 4,738 (4,738)(b) 3,033
--
(1,390)(c)
------- ------- -------- --------
4,435 4,739 (2,631) 6,543
------- ------- -------- --------
Total liabilities and stockholders'
equity............................... $32,558 $17,754 $ 67,417 $117,729
======= ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated combined financial
statements.
29
<PAGE> 30
FIRST WAVE MARINE, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JOHN
FIRST WAVE BLUDWORTH PRO FORMA PRO FORMA
MARINE, INC. MARINE, INC. ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES..................................... $24,466 $21,713 $ -- $46,179
COST OF REVENUES............................. 14,330 16,160 834(e) 31,324
------- ------- ------- -------
Gross margin....................... 10,136 5,553 (834) 14,855
GENERAL AND ADMINISTRATIVE EXPENSES.......... 3,943 2,002 232(f) 6,177
------- ------- ------- -------
Earnings from operations........... 6,193 3,551 (1,066) 8,678
OTHER INCOME (EXPENSE)
Other income............................... -- 7 408(k) 415
Interest expense........................... (1,280) (606) 1,599(g) (8,003)
(7,716)(j)
Minority interest.......................... (536) -- 536(d) --
------- ------- ------- -------
(1,816) (599) (5,173) (7,588)
------- ------- ------- -------
Earnings before income taxes....... 4,377 2,952 (6,239) 1,090
INCOME TAXES................................. 1,837 1,082 (2,553)(h) 366
------- ------- ------- -------
NET EARNINGS....................... $ 2,540 $ 1,870 $(3,686) $ 724
======= ======= ======= =======
Earnings per share:
Net earnings per share..................... $ 0.24 $ 0.06
Weighted average shares outstanding........ 10,650 11,649
</TABLE>
See accompanying notes to unaudited pro forma consolidated combined financial
statements.
30
<PAGE> 31
FIRST WAVE MARINE, INC.
PRO FORMA CONSOLIDATED COMBINED STATEMENT OF EARNINGS (LOSS)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1997
1996 ----------
------------ JOHN
FIRST WAVE BLUDWORTH PRO FORMA PRO FORMA
MARINE, INC. MARINE, INC. ADJUSTMENTS COMBINED
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES................................... $27,957 $16,993 $ -- $44,950
COST OF REVENUES........................... 18,623 12,987 1,111(e) 32,721
------- ------- ------- -------
Gross margin..................... 9,334 4,006 (1,111) 12,229
GENERAL AND ADMINISTRATIVE
EXPENSES................................. 5,629 1,526 309(f) 7,464
------- ------- ------- -------
Earnings from operations......... 3,705 2,480 (1,420) 4,765
OTHER INCOME (EXPENSE)
Other income............................. -- 148 545(k) 693
Interest expense......................... (829) (443) 918(g) (10,642)
(10,288)(j)
Minority interest........................ (219) -- 219(d) --
------- ------- ------- -------
(1,048) (295) (8,606) (9,949)
------- ------- ------- -------
Earnings (loss) before income
taxes.......................... 2,657 2,185 (10,026) (5,184)
INCOME TAXES............................... 1,098 909 (4,057)(h) (2,050)
------- ------- ------- -------
NET EARNINGS (LOSS).............. $ 1,559 $ 1,276 $(5,969) $(3,134)
======= ======= ======= =======
Earnings (loss) per share:
Net earnings (loss) per share............ $ 0.15 $ (0.27)
Weighted average shares outstanding...... 10,650 11,649
</TABLE>
See accompanying notes to unaudited pro forma consolidated combined financial
statements.
31
<PAGE> 32
FIRST WAVE MARINE, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(a) To record the net proceeds of the Offering after deducting underwriting
discounts and commissions and estimated expenses of the offering which are
recorded as debt issuance costs.
(b) To record the acquisition of Bludworth, the allocation of the purchase
premium to property and equipment, deferred tax liability, non-compete
agreement and goodwill.
(c) To record the retirement of debt with the proceeds of the Offering,
including prepayment penalties of $900 and the write-off of loan costs of
$490.
(d) To record the acquisition by First Wave of the minority interest in Newpark
Shipbuilding through an exchange of 999,390 shares valued at $3.50 per
share. These shares of Common Stock have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and accordingly
are not tradeable except in transactions exempt from the registration
requirements of the Securities Act. Additionally, the holders of such
shares have agreed that they will not, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of such shares without the prior consent of the
Company; provided that such contractual restrictions lapse as to an
aggregate of 27% of such shares on the first anniversary of the closing of
the Exchange and an additional 20% on the second, third and fourth
anniversaries, with any remaining restrictions expiring as to all such
shares on the fifth anniversary. The per share value of $3.50 was derived
from the Company's Enterprise Value (market capitalization plus net debt)
per share discounted for the aforementioned restrictions. The computation
assumes a public market earnings multiple of nine based on comparable
publicly traded companies and a discount of 20% related to the restrictions
placed on the shares in the Exchange and the absence of a public market for
the shares.
(e) To record additional depreciation related to the increase in value of
property and equipment recorded in the Bludworth Acquisition.
(f) To record amortization based on 40-year lives of goodwill acquired in the
Bludworth Acquisition and the acquisition of minority interest in Newpark,
and to record amortization based on a five-year life of $500 allocated to a
non-compete agreement related to the Bludworth Acquisition.
(g) To record the decrease in interest expense related to the reduction of
long-term debt with the proceeds of the Offering.
(h) To record the income taxes based on the application of SFAS 109.
(i) Pro forma combined weighted average shares outstanding includes 999,390
shares issued in the Exchange.
(j) To record interest expense at 11.0% and amortization of debt issuance costs
of the Offering.
(k) To record the purchase of the Pledged Securities, as required by the
Indenture, assuming non-liquidation of the Pledged Securities, and to
record the related interest income at an assumed rate of 5.5%.
32
<PAGE> 33
BUSINESS
THE COMPANY
First Wave is a leading provider of shipyard and related environmental
services to the offshore support vessel, offshore barge and inland marine
industries. The Company offers a full range of repair, conversion, new
construction and related environmental services, including cleaning, degassing
and wastewater treatment. Following the consummation of two pending
acquisitions, the Company will significantly expand its operations and capacity,
particularly into the offshore drilling industry. The Company will be the
largest shipyard operator in the Houston-Galveston area with five of the eight
major shipyard facilities in this strategic location. First Wave believes that
following the pending acquisitions, it will be the only one-stop source of all
shipyard services for all segments of the offshore support vessel, offshore
barge and inland marine markets in Texas.
Since it acquired its first facility in January 1994, First Wave has
significantly improved revenues and profitability. The Company's success has
been the product of a focused strategy to build a high quality, dedicated
workforce, provide a high level of customer service and optimize the mix of its
services to maximize capacity utilization.
The Company believes that as a result of its strategy and planned
expansion, it is well positioned to meet the growing demand for its services.
First Wave is experiencing strong demand growth for all of its services
primarily as a result of: (i) higher repair activity due to the aging offshore
support vessel and barge fleets; (ii) greater customer requirements for repair
and related environmental services due to increased utilization and
consolidation of the offshore support vessel and barge fleets; (iii) increasing
customer demand to convert and upgrade vessels in response to changing market
conditions; and (iv) increased levels of new vessel construction. To meet this
demand, First Wave plans to utilize capacity available at its newly acquired
facilities, as well as expand into new markets, in particular the offshore
drilling industry. The Company believes that this will enable it to perform a
greater number of projects and increase its revenues, while leveraging the
economies of scale available to a geographically concentrated multi-shipyard
operator.
BACKGROUND
The Company's Brady Island facility was acquired through a lease of the
facilities and equipment from Newpark Resources, an unrelated corporation. In
August 1996, the Company purchased the Brady Island leased assets from Newpark
Resources. The Brady Island shipyard provides conversions and repairs for the
offshore support vessel industry, as well as repair, new construction and
related environmental services for the offshore and inland barge markets. In
1996, the Brady Island shipyard added a service line to its environmental
services division, by providing non-hazardous wastewater treatment on a fee
basis. The Company is currently constructing a 2 million gallon wastewater tank
to expand its environmental services division.
In August 1997, the Company acquired certain repair and new construction
assets of Platzer Shipyard, Inc. (the Greens Bayou facility), a subsidiary of
Trinity Industries, Inc. This facility is specifically designed to service the
barge industry with seven haul-up facilities, including a major six position
rail transfer system. The Company believes it can efficiently operate this
Houston area shipyard by consolidating overhead with its nearby Brady Island
shipyard. These two shipyards will share accounting, training, sales,
estimating, risk management and general administrative functions. The potential
interchangeability of the labor force with the Brady Island facility, as well as
the ability of the Greens Bayou barge customers to use Brady Island's
environmental services, should also result in economic benefits for the Company.
After acquiring PMB Engineering Inc.'s lease of the 110-acre East Pelican
Island facility in Galveston, Texas the Company signed an amendment to such
lease with Galveston Wharves, providing for, among other things, a term of 15
years with 28 three-year options (for up to 99 years) at an annual rate of
$700,000, subject to adjustment. Pursuant to the terms of the amended lease, the
Company has committed to make $20 million in capital improvements and equipment
at the East
33
<PAGE> 34
Pelican Island shipyard over the next three years, all of which have been
budgeted for 1998. Upon completion of the planned capital improvements to the
East Pelican Island shipyard, First Wave will be able to expand its business
lines into providing shipyard services for offshore drilling rigs, larger
offshore support vessels and oil and gas related ship conversions.
The Bludworth Acquisition. On October 15, 1997, the Company entered into a
purchase agreement to acquire all of the outstanding capital stock of Bludworth.
The purchase price consists of $15 million in cash and the issuance of a $4.0
million promissory note.
Bludworth is an established regional shipbuilder focusing on offshore
support vessel repair, as well as inland barge repair and inland boat
construction and repair. The Bludworth Acquisition expands the Company's
Houston-Galveston base of operations in a cost efficient manner, adding
significant new drydock capacity within its area of operation and diversifying
its current mix of services to include expanded capabilities in the offshore and
the inland boat segment of the marine industry. The Bludworth Acquisition
provides the Company with two additional shipyards: (i) the JBM Pasadena
facility in Pasadena, Texas, which is near the Company's other Houston shipyards
and (ii) the West Pelican Island facility which is adjacent to the East Pelican
Island facility in Galveston, Texas. It is anticipated that the Bludworth
Acquisition will close shortly after consummation of the Offering.
See "-- Services" and "-- Shipyard Properties" for additional information
about the Company's shipyards and its repair, conversion, new construction and
environmental services.
INDUSTRY OVERVIEW
The Company's current repair and conversion activities for the offshore
support vessel market as well as its planned strategy to provide shipyard
services for the offshore drilling rig market are primarily dependent upon the
demand for offshore drilling and related services in the Gulf of Mexico. In
addition, the Company's business is impacted by fundamentals and trends specific
to the offshore support vessel and offshore and inland tank barge markets. The
industry fundamentals and trends influencing these markets are summarized below.
Offshore Drilling Industry
The Company believes that the current supply of offshore drilling rigs is
inadequate to satisfy increasing demand. The level of worldwide offshore
drilling activity has increased substantially over the last two years, resulting
in current worldwide and Gulf of Mexico offshore drilling rig utilization of 95%
and 97%, respectively, in September 1997. Dayrates worldwide for jackups capable
of drilling in water depths of over 300 feet have increased from an average of
$38,000 in October 1995 to an average of $75,600 in October 1997. Similarly,
dayrates worldwide for third and fourth generation semisubmersibles have
increased from an average of $101,000 in October 1995 to an average of $162,500
in October 1997. 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 order to guarantee timely
access to drilling equipment.
In particular, the demand for deep water (deeper than 1,000 feet) drilling
services worldwide and in the Gulf of Mexico has increased substantially in
recent years as a result of reserve discoveries and technological advances which
have made development and production of reserves in deep water economically
viable. Deep water drilling requires larger and more technically advanced
drilling rigs. However, because of the limited number of offshore drilling rigs
with deep water capabilities, a number of offshore drilling contractors have
entered into long-term agreements to upgrade or convert existing or build new
offshore drilling rigs to meet the deep water drilling demand.
The Company believes that these positive trends will continue because of:
(i) the increasing percentage of worldwide oil supply being produced from
offshore areas, (ii) the large increases in
34
<PAGE> 35
cash flow experienced by 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, 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 deep water exploration and production projects, particularly
in the Gulf of Mexico, as evidenced by significant increases in the number of
deep water blocks under lease and the prices paid for deep water leases during
each of the last five years and the record $1.4 billion committed in the two
offshore lease sales in 1997.
The Company believes that the offshore drilling industry fundamentals will
remain strong for some time. Also, the majority of the offshore drilling rigs
operating in the Gulf of Mexico are ten years old or older and these rigs are
operating at almost full capacity. The Company believes that these rigs will
require repairs and that offshore drilling contractors will continue to evaluate
their existing fleets, and will undertake conversion and new construction
projects to meet demand for deep water rigs. The Company believes that the
proximity and capacity of its East Pelican Island facility will enable it to
execute its planned expansion strategy to perform offshore drilling rig repair,
conversion and new construction services.
Offshore Support Vessels
The primary role of offshore support vessels is to deliver the necessary
equipment, personnel and supplies to offshore drilling rigs and production
facilities. However, the number of such vessels in service in the Gulf of Mexico
decreased from a peak of approximately 700 in 1985 to approximately 317 in
October 1997 while the ratio of active support vessels to active offshore
drilling rigs has decreased from approximately 4:1 to roughly 2:1 over the same
period. As a result of the increase in offshore drilling and the reduced supply
of active vessels, dayrates have increased substantially over the last five
years. At the same time, a few offshore support vessel operators have
significantly consolidated this market. Currently, the top five offshore support
vessel operators now control approximately 80% of the Gulf of Mexico fleet.
Although construction of new offshore support vessels has commenced, a
majority of the support vessels currently in service in the Gulf of Mexico are
16 or more years old and a majority of the remainder are between 11 and 16 years
old. As these vessels age, maintenance, repair and vessel certification costs
increase significantly and eventually require replacement. New offshore support
vessels incorporating advances in engineering, technology and outfitting are
expected to cost between $6 million and $15 million each depending on the
vessel's size and capabilities. Offshore support vessels constructed to serve
deep water drilling operations will be larger and more powerful and will
generally require an investment in the upper end of this range.
The Company believes that given the current industry conditions and
improved dayrates, the opportunity cost of having an idle offshore support
vessel generally outweighs the expense associated with the rapid completion of
vessel repairs. Given the improved financial condition of the reduced number of
fleet operators, the Company believes that these operators will make additional
repairs, modifications and conversions at federally mandated inspection dates
which require vessels to be drydocked. Additionally, because of the estimated 18
months to two-year lead-time required to construct new offshore support vessels
capable of serving the deep water, the Company believes that fleet operators
will continue to convert and "stretch" existing support vessels for deep water
service. Because of its extensive experience in the repair and conversion of
offshore support vessels and its ability to expand its production at its
existing shipyards and shipyards that it is acquiring, the Company believes it
is well positioned to take advantage of the current upturn in the offshore
support vessel business.
35
<PAGE> 36
Tank Barges
The Company focuses its repair, new construction and related environmental
services on the tank barge market which predominantly transports petrochemicals
through the inland waterways and offshore. Domestic production of petrochemicals
has continued to increase annually, attributable to growth in the economy,
continued growth of the United States population and the continued substitution
of plastics and synthetics in a wide variety of products. Texas and Louisiana
currently account for approximately 80% of the total United States production of
petrochemicals.
The Company believes that the total number of tank barges that operate in
the inland waters of the United States has declined from an estimate of
approximately 4,200 in 1981 (1,600 of which were double skinned barges) to
approximately 2,800 in 1996 (2,200 of which were double skinned barges). The
Company believes this decrease primarily resulted from: (i) increasing age of
the domestic tank barge fleet resulting in scrapping; (ii) rates inadequate to
justify new construction; (iii) a reduction in financial and tax incentives
which previously encouraged speculative construction of new equipment; (iv) more
stringent operating standards to adequately cope with safety and environmental
risks; and (v) an increase in environmental regulations that mandate expensive
equipment modification which some owners are unwilling or unable to undertake
given current rate levels and the age of their fleet.
Although well-maintained tank barges can be efficiently operated for more
than 30 years, the cost of hull work for required annual U.S. Coast Guard
certifications, as well as general safety and environmental concerns, force
operators to periodically reassess their ability to recover maintenance costs.
The tax and financing incentives which were previously available to operators
and investors to construct tank barges led to growth in the supply of domestic
tank barges to a peak of approximately 4,200 in 1981 have been largely
eliminated. The supply of tank barges resulting from the earlier programs has
slowly aligned with demand for tank barge services, primarily through attrition,
as discussed above. The average age of the nation's tank barge fleet is
approximately 20 years, only 17% of which were built in the last 10 years.
Single skin barges, which comprise approximately 20% of the nation's tank barge
fleet, are being driven from the national fleet by market forces, environmental
concerns and rising maintenance costs.
In addition to the reduction in the aggregate tank barge fleet, the
existing active fleet of tank barges has been consolidated by a few large
operators. Over the last two years, given the strength of the United States
economy, these operators have experienced improved utilization of their fleets
and increased profitability. With their improved financial condition, dominant
market positions and heightened concern for potential environment liabilities,
tank barge fleet operators demand better service and higher quality from the
shipyards that provide repair, new construction and other services. The Company
believes that it has the personnel, management systems and infrastructure to
meet the demands of these tank barge fleet operators.
BUSINESS STRATEGY
The Company's strategy is to leverage its reputation as an efficient,
reliable, customer driven shipyard operator in order to provide a diversified
range of shipyard services to the offshore support vessel, offshore drilling,
offshore barge and inland marine industries. The Company intends to utilize its
proven strengths in order to expand into the Gulf of Mexico offshore drilling
market. Key elements of this strategy are:
- Maintaining a High Quality Dedicated Workforce. The Company invests
in its employees through training, superior benefits and the fostering of a
close-knit, supportive culture. As a result, the Company has not
experienced the significant labor shortages and attrition suffered by many
Gulf Coast shipyards and has consistently posted an award-winning safety
record. Management believes the Company has been able to maintain stable
manpower levels and has flattened the labor force highs and lows typical in
the shipyard industry through a superb
36
<PAGE> 37
relationship with its labor force, sophisticated forecasting of labor
needs, the implementation of its strategic alliances and optimization of
its mix of new construction and repair services.
- Development of Strategic Alliances with Key Customers. The Company
has developed a "contract rate" system which it uses to form strategic
alliances with its key customers. The contract rate system enables the
Company to baseload its facilities with pre-booked work, improve planning
and execution of jobs through a cooperative process with the customer and
more effectively project its revenues and labor needs for the year. In
return, the alliance partner receives volume based pricing, assures itself
of needed drydock capacity, gains the ability to accurately budget its
work, benefits from improved turnaround on jobs and receives other services
on a preferred basis.
- Continuous Optimization of the Mix of Shipyard Services. The Company
generally negotiates flexible delivery dates for new construction which
produces cost savings to the customer and greatly contributes to the
efficiency of its shipyards. During periods when demand for repair services
is lower, the Company shifts workers to new construction as a means of
absorbing excess labor. By continuously optimizing its mix of activities,
the Company ensures that its quality work force remains intact and
motivated, and costs associated with attrition are reduced. As a result of
this strategy, the Company believes that it can maximize its margins by
allocating labor to higher margin repair work or can absorb excess labor by
shifting it to new construction.
- One-Stop Source for Shipyard Services. In addition to its core
shipyard repair and construction services, the Company offers a range of
related environmental services at its facilities, including tank cleaning,
degassing and wastewater treatment. Following the pending acquisitions,
complementary services such as these will enable the Company to become the
only one-stop source of all shipyard services for all segments of the
offshore support vessel, offshore barge and inland marine markets in Texas.
- Focus on Core Geographic Areas: Houston and Galveston. The
Houston-Galveston area is a very strategic location for its shipyards,
since three of the largest U.S. fleets of inland tank barges are based in
the Houston Ship Channel area. Additionally, the growing offshore support
vessel and barge fleets in the Gulf of Mexico can be efficiently served
from the Company's Houston and Galveston locations. Management believes the
expansion of the East Pelican Island and West Pelican Island facilities in
Galveston to service the offshore drilling industry, is especially
strategic since Galveston is in close proximity to offshore Gulf of Mexico
drilling activity, thereby minimizing rig transit costs and downtime time.
- Leveraging Economies of Scale. With all of its shipyards within a
50-mile corridor, management can more effectively operate the facilities
and consolidate overhead. Additionally, the proximity of the shipyards
allows for centralizing many administrative functions. Management also
believes the uniformity of state regulations and the volume leverage gained
from using single suppliers among all its facilities, as well as the
potential interchangeability of the labor force, provides economic benefits
for the Company.
- Expansion into the Offshore Gulf of Mexico Market. Upon consummation
of the Bludworth Acquisition and the completion of the improvements to the
East Pelican Island shipyard, the Company will have two adjacent shipyard
facilities in Galveston, Texas, which will enable it to take advantage of
the rising demand for shipyard services to the oil and gas industry in the
Gulf of Mexico. Management has planned its expansion to diversify the
Company's business lines into services for offshore drilling rigs, larger
offshore support vessels and oil and gas related ship conversions.
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<PAGE> 38
SERVICES
The Company performs five primary types of services, three of which are
conventional shipyard fabrication services and two of which are related
environmental services, each described as follows:
Shipyard Services -- Repair.
Approximately 75% of the Company's revenues are attributable to repair,
conversion and maintenance services for offshore support vessels, ocean-going
offshore barges and inland barges. The Company's shipyard repairs involve tasks
as simple as plugging a hole in a barge to more complex services such as
re-skinning an entire barge with new bottom plate, side shell, knuckle and
topside, then sandblasting and painting it. These repair services generally
range in price from $1,000 to $1.0 million. The U.S. Maritime Administration
("MARAD") has estimated that by the year 2000, approximately 25% of the current
domestic tank barge fleet between 10,000 and 30,000 tons will be more than 25
years old and more than 8% will be at least 30 years old. The vessels in this
aging domestic coastwise fleet are in continual need of repairs as they reach
the end of their useful life. Further, U.S. Coast Guard regulations require that
double-skinned inland barges be drydocked for bottom gauging to detect thickness
and structural fatigue every 10 years. All other inland barges require an
inspection of both the internal structures and drydocking once every five years.
Normally at this time the customer will request removal and replacement of
pitted and deteriorated steel as well as sandblasting, coating and painting
services. Offshore support vessels and offshore barges are subject to U.S. Coast
Guard inspections twice in a five year period. During the course of these
mandated inspections, in addition to routine scheduled maintenance, the
Company's customers often discover the need for additional repairs. Management
believes that the Bludworth Acquisition will further its business strategy of
diversifying its capabilities and provide additional expertise and facilities to
repair offshore support vessels, barges and inland marine boats.
Shipyard Services -- Conversions.
With the oil and gas industry's increasing interest in deepwater regions,
there has been a growing demand for the larger class of offshore support
vessels. In response to the increased demand, owners of offshore support vessel
fleets are converting existing vessels in their fleet into vessels capable of
serving deepwater regions. This trend has resulted in an increase in conversion
projects for the Company which consists of lengthening offshore support vessels
(generally from 185(#) to 225(#)) and installing liquid mud tanks, dynamic
positioning and other specialized features. The Company has also widened
offshore support vessels to significantly increase their deck and cargo
capacity. The Company's conversion jobs have ranged in price from approximately
$1.7 million to $4.2 million. Upon completion of the improvements to the
Company's East Pelican Island shipyard, the Company also intends to perform
repairs and conversions for offshore drilling rigs. For example, this work can
involve the conversion of a slot jack-up rig to a cantilevered jack-up rig,
strengthening and extending the rig legs, reinforcing the spud cans on the
existing legs and modifying older designs to incorporate newer technology. The
Company expects an average conversion for an offshore drilling rig to range in
price from $1.0 million to $20.0 million.
Shipyard Services -- New Construction.
Approximately 15% of the Company's current revenues are attributable to new
barge construction. The Company builds three to four new barges per year at its
Brady Island facility. Historically, the Company's new construction activities
have been for: (i) ocean-going deck barges with special lift capacities; (ii)
inland deck and tank barges; and (iii) specialized barges such as power
generation barges. The Company's price for construction of a new barge generally
ranges from $400,000 to $2.0 million. New construction is performed under
fixed-price contracts and averages three to four months per barge. The
acquisition of the Greens Bayou shipyard in August 1997 provides the Company the
shipyard capacity to build between seven to ten barges per year depending on the
type of barge.
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<PAGE> 39
Historically, the Company has not been in the new construction sector for
offshore support vessels and inland towboats. Management believes the Bludworth
Acquisition adds the expertise, experience and capacity necessary to provide the
Company the ability to compete for new construction of inland towboats and
offshore support vessels.
Environmental Services -- Degassing/Cleaning Operations.
These services are provided at the Company's Brady Island facility. In
order for a barge to change the type of cargo it holds, the barge generally
requires cleaning. The Company provides cleaning services for change of cargo as
well as in preparation for repairs and maintenance at the shipyard. The cleaning
process begins with vapor recovery of gasses, if necessary. The barge is then
cleansed with water using special industrial cleaning equipment. The water is
vacuumed into the Company's wastewater treatment facility for proper treatment
and disposal. If the barge requires "hot work" (cutting or welding) while in the
shipyard, safety regulations require that it be "gas free" (non-explosive) as
certified by a marine chemist. The Company employs its own certified marine
chemist as well as a marine chemist trainee. In 1996, the Company provided
environmental services for over 800 barges.
Environmental Services -- Wastewater Treatment Services.
The Company provides non-hazardous wastewater treatment services on a fee
basis. The Company's new 2 million gallon tank, which should be completed in
January 1998, will allow the Company to increase, under its existing permit, its
current handling of approximately 300,000 gallons of wastewater per month to 1
million gallons per month. With minimal additional improvements to the facility
at Brady Island, the Company should be able to handle up to 2 million gallons of
third party non-hazardous wastewater per month under its existing permit. The
non-hazardous wastewater streams include tank truck wash water, industrial
process "oily" water, storm water, rail car, barge, or sea container wash water,
spill remediation water, landfill leachate and others. In an average job, a tank
truck arriving at the facility pumps out approximately 5,000 gallons of
wastewater into the Company's tanks after being tested. The non-hazardous
wastewater is then treated at the Company's bio-treatment plant and discharged.
SHIPYARD PROPERTIES
Upon the consummation of the Bludworth Acquisition, the Company will
operate the following five shipyard facilities.
Brady Island.
The Brady Island shipyard was originally acquired in December 1993 and is
located on the Houston Ship Channel on approximately 23 acres. The shipyard has
the capability to handle the repair, construction and related environmental
services for both offshore and inland barges. It provides repair and conversion
services for offshore support vessels and offers repair, conversion and
construction services for offshore and inland barges. In addition to the
traditional shipyard assets described below, the Brady Island facility has a
high capacity bio-treatment plant, state-of-the-art vapor control equipment and
a 2 million gallon wastewater storage tank currently under construction. The
shipyard has six haul-up facilities which includes three dry docks, two marine
rails and one transfer system from drydock to rail. The facility's equipment
consists of three crawler cranes, two tower cranes and two 20-ton overhead
cranes. The shipyard employed more than 320 production employees at September
30, 1997.
Greens Bayou.
The Greens Bayou shipyard was acquired on August 11, 1997. The shipyard is
located near Houston, Texas on approximately 20 acres, near the Houston Ship
Channel and Brady Island. The
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shipyard performs repair, conversion and new construction services for barges.
It has seven haul-up facilities including a major six position rail transfer
system and one marine rail. The equipment at this facility includes two crawler
cranes, two tower cranes, two cherry pickers and multiple jib cranes. Maximum
lift capacity is 1,200 tons. Currently in the start-up phase, Greens Bayou
employed approximately 20 production workers at September 30, 1997. Management
believes that up to an additional 100 employees will be added in 1998. The
Company plans to make certain capital improvements to the Greens Bayou facility
including the construction of an all-weather, 24-hour paint and sandblast
facility. The covered facility will meet all required environmental regulations.
The Company believes the addition of the facility will significantly improve the
turnaround time to its customers for painting and sandblasting projects.
East Pelican Island.
The Company recently acquired this shipyard through an assignment of the
PMB Engineering, Inc. lease with Galveston Wharves. Galveston Wharves has
amended the PMB Engineering, Inc. lease, extending the possible eight years
remaining on such term of the lease to a lease with a potential 99-year term,
among other things. The shipyard is located in Galveston, Texas on approximately
110 acres. The equipment at this facility includes one 10-ton crane, one 15-ton
crane, one 20-ton crane and one 30-ton crane. There are no current employees at
the East Pelican Island facility. Management has a three phase program for the
capital improvements to this shipyard. In Phase I, the Company plans to improve
the facilities and make modifications to provide repair and conversion capacity
for offshore drilling rigs, offshore support vessels, offshore barges and ships.
Fabrication capacity will also be enhanced for support of repair operations and
for production of offshore drilling rig components such as blisters and
sponsons. Phase II will add drydocks for repair of vessels up to 20,000 tons and
Phase III will encompass various yard improvements for the construction of new
offshore drilling rigs. Management believes that by the third quarter of 1998,
East Pelican Island will commence providing conversion and repair services to
the offshore drilling industry. The shipyard can serve most classes of offshore
drilling rigs, offshore support vessels, offshore barges and large ships.
JBM Pasadena.
The JBM Pasadena facility will be acquired as part of the Bludworth
Acquisition. It is located in Pasadena, Texas on approximately 63 acres. It
currently has five drydocks, extensive topside bulkhead footage and is a builder
of inland tow boats. The shipyard performs repair services for offshore support
vessels, offshore barges and inland barges. At September 30, 1997, the shipyard
employed over 200 production employees.
West Pelican Island.
This shipyard will also be acquired in connection with the Bludworth
Acquisition. It is located at Pelican Island in Galveston, Texas on
approximately 23 acres. The newly renovated fabrication facility has over two
acres under roof, which will enable the Company to provide all-weather, 24-hour
service. The Company intends to use the shipyard primarily for conversion,
repair and new construction of offshore support vessels. An approximately
9,000-ton dry dock is expected to be completed in the first half of 1998.
Additionally, the facility has two 200-ton cranes. At September 30, 1997, the
shipyard employed approximately 80 production workers. The Company expects to
expand the labor force at this facility in the future.
PRINCIPAL CUSTOMERS
Following the consolidation of the inland barge industry, a large portion
of the Company's revenue has been generated by a relatively small number of
customers, although not necessarily the same customers from year to year. For
1996, the Company derived more than 10% of its revenue from each of SEACOR Smit
Inc. (22%) and Kirby Corporation (15%), and more than 50% from its five largest
customers. Based on its current backlog of projects, the Company expects that it
will
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derive more than 10% of its revenues in 1997 from each of SEACOR Smit Inc. and
Kirby Corporation. Because the level of services that the Company may provide to
any particular customer depends on that customer's needs for 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.
CONTRACT PROCEDURE, STRUCTURE AND PRICING
In performing its repair and conversion services, the Company seeks to
achieve a balance between fixed-price projects and time and materials work in
order to optimize the risk and reward of its project portfolio. More than 50% of
the Company's commercial projects are currently performed on a fixed-priced
basis. The Company attempts to cover anticipated increased costs of labor and
material through an estimation of such costs, which is reflected in the original
price. Despite these attempts, however, the revenue, cost and gross profit
realized on a fixed-price arrangement will often vary from the estimated amounts
because of changes in job conditions and variations in labor and material costs
over the term of the project. These variations and the risks generally inherent
in the shipbuilding and repair industry may result in gross profits realized by
the Company being different from those originally estimated and may result in
the Company experiencing reduced profitability or losses on projects. Revenues
from repair and conversion services performed under time and material and
fixed-price arrangements are recognized as the services are provided.
Adjustments to such revenues and costs recognized on fixed-price arrangements
are made in the period in which the adjustments are determined. Depending on the
size of the project, variations from estimated fixed-price arrangements could
have a significant effect on the Company's operating results for any particular
fiscal quarter or year.
The Company has developed a "contract rate" system it has used to form
strategic alliances with its key customers for repair and conversion services.
Under this system, the Company and the customer discuss the customer's planned
shipyard projects for the ensuing year and then develop a schedule of labor
rates and other charges applicable to the customer's projects for the year. When
the actual project date nears, the Company submits to its alliance partner the
estimated manhour budget for the particular job. The Company then agrees with
the customer on the budget and the delivery requirements. Most contract rate
arrangements are on a fixed-price basis with most change orders to such
arrangements performed on a time and material basis. Under the contract rate
system, the Company is responsible for all cost overruns; in some instances the
Company shares a portion of the cost savings with its contract rate alliance
partners. The contract rate system is a departure from the traditional shipyard
competitive bid process which requires that for each job a customer submit
specifications which the shipyard then uses to bid against other shipyards to
obtain the work. Under a competitive bid process, a customer's effective labor
and material mark-up rates may vary from job to job depending on fluctuating
market conditions. In contrast, under the contract rate system a customer is
charged the same hourly rates and material mark-ups for a period of time,
typically a year. In a competitively bid contract, the customer does not share
in any cost savings achieved by the Company as they might under the contract
rate system. The contract rate system enables the Company to baseload its
facilities with pre-booked work, improve planning and execution of jobs through
a cooperative process with the customer and more effectively project its
revenues and labor needs for the year. The alliance partner receives volume
based pricing, assures itself of needed drydock capacity, gains the ability to
accurately budget its work, benefits from improved turnaround on jobs and
receives other services on a preferred basis.
The Company's new construction (lump-sum) contract revenues are recognized
on a percentage of completion basis. Accordingly, contract price and cost
estimates are reviewed periodically as the work progresses, and adjustments
proportionate to the percentage of completion are reflected in income in the
period when such estimates are revised. To the extent that these adjustments
result
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in a loss or a reduction or elimination of previously reported profits with
respect to a project, the Company would recognize a charge against current
earnings, which could be material.
MATERIALS AND SUPPLIES
The principal materials used by the Company in its construction, conversion
and repair businesses are standard steel shapes, steel plate and paint. Other
materials used in large quantities include steel pipe, electrical cable and
fittings. All these materials and parts are currently available in adequate
supply from numerous domestic and foreign sources. The Company's shipyards are
located in the Ports of Houston and Galveston, but typically obtain materials
and supplies by truck. Occasionally, the Company receives materials by barge.
The Company seeks to obtain favorable pricing and payment terms for its
purchases by coordinating purchases among all of its shipyards and buying in
large quantities. The Company has not engaged, and does not presently intend to
engage, in hedging transactions with respect to its purchase requirements for
materials. In the past, the Company believes it has been able to purchase steel
at favorable prices relative to those available to smaller shipyards in general.
While management believes that the Company will continue to be able to obtain
its materials, including steel, at relatively favorable prices, there can be no
assurance that this will be the case in the future.
SALES AND MARKETING
The Company's marketing efforts are geographically centralized at the Brady
Island facility in Houston, Texas. Marketing efforts are currently focused in
three areas: (i) traditional shipyard services, including repair and conversion;
(ii) new construction opportunities; and (iii) environmental services including
barge cleaning and wastewater treatment. Management intends to add a fourth
marketing focus with the Company's entry into services for the offshore drilling
industry.
COMPETITION
The Company principally competes in each of its service lines with
approximately 10 to 20 companies, based on the scope of work to be performed and
the type of projects. Some of these competitors have significantly greater
financial resources than the Company. Although the Company believes customers
consider, among other things, the availability and technical capabilities of
equipment and personnel, efficiency, condition of equipment, safety record and
reputation, price competition is a primary factor in determining which qualified
shipbuilder is awarded a job.
INSURANCE
The Company maintains insurance against property damage caused by fire,
explosion and similar catastrophic events that may result in physical damage or
destruction to the Company's premises or properties. The Company also maintains
general liability and umbrella liability insurance in amounts it deems
appropriate for the Company's business.
EMPLOYEES
At September 30, 1997, the Company had 342 employees, of which 41 were
salaried and 301 were employed on an hourly basis. None of the Company's
employees are represented by any collective bargaining unit. Management believes
that the Company's relationship with its employees is excellent. The Company has
not experienced any significant labor problems. Management also believes the
Company should invest in its people and has implemented improvements in the work
environment which benefit the workers. These improvements, as well as active
communication with employees, have helped to foster a closely-knit, supportive
culture at the Company.
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HEALTH AND SAFETY
The Company has one of the best safety records in its industry. For the
last three consecutive years, Newpark Shipbuilding, the primary operating
subsidiary of the Company, was recognized with the national safety award given
annually by the National Shipyard Association (formerly American Waterways
Shipyard Conference) designating it as one of the safest shipyards in the
country. Management is concerned with the safety and health of the Company's
employees and maintains a safety assurance program to reduce the possibility of
costly accidents. The Company's safety department establishes guidelines for
compliance with all applicable state and federal safety regulations. Such laws
and regulations are complex, stringent and are often changed. The Company
provides training and safety education through orientations for new employees
and regular employee safety meetings. The Company also has a comprehensive drug
testing program. The Company's commitment to the safety of its employees
supports its labor management strategy and translates into reduced costs for
workers' compensation benefits.
ENVIRONMENTAL REGULATION
Company Philosophy. The Company has taken a highly visible leadership
position in a shipyard industry group which has cooperated with regulators to
develop innovative, economically achievable solutions to meet water quality
standards. This industry group was formed in response to federal, state and
local regulators demanding that (i) drydocks must be broom-swept after each job
and (ii) over-water sandblasting be eliminated in order to comply with the Clean
Water Act. Frank W. Eakin, President of the Company, developed a proprietary
sediment control system for drydocks and other containment solutions for
over-water sandblasting. The Company does not charge its competitors a licensing
fee for its patent-pending drydock sediment control system if they are
environmentally responsible.
General. The Company's operations are subject to a variety of federal,
state and local laws and regulations governing the discharge of materials into
the environment or otherwise relating to environmental protection
("Environmental Laws"). Stringent fines and penalties may be imposed for
non-compliance with these Environmental Laws. Like other members of the
industry, the Company is periodically subject to governmental compliance
inspections in the ordinary course of business. The Company is committed to full
compliance with applicable environmental laws and has instituted an
environmental compliance program to ensure such compliance on an ongoing basis.
The Company is presently integrating this compliance program with the practices
associated with recently acquired operational assets. Although no assurance can
be given, Management believes that the Company and its operations are in
compliance with all material respects with all Environmental Laws. However,
stricter interpretation and enforcement of Environmental Laws and compliance
with potentially more stringent future Environmental Laws could materially and
adversely affect the Company's operations. To the extent laws are enacted or
other governmental action is taken that imposes environmental protection
requirements that result in increased costs to the shipbuilding and repair
business in general, the business and prospects of the Company could be
adversely affected. With respect to air emissions, the Company anticipates that
additional expenditures may be required if federal or state air emissions
requirements were to be more strictly interpreted or strengthened. The TNRCC has
invited members of the shipyard industry to consult with the agency in its
current consideration of what, if any, new air emission control requirements are
appropriate for the industry. The Company is participating in these discussions
with the TNRCC. The Company cannot with certainty predict whether current
requirements will be interpreted more strictly, new requirements will be
proposed in the future, or the extent of an effect upon the Company.
Permits. Under federal and state environmental laws, the Company's
operations are subject to a variety of requirements for permits or other
governmental authorizations governing emissions to air; discharges to water;
dredging of waterways (for example, to maintain or improve access by vessels);
generation, storage, and shipment of wastes; and other operational aspects of
the business. The Company is in the process of notifying relevant agencies of
its recent acquisitions and
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has sought or expects shortly to seek transfers of permits as necessary. The
Company does not anticipate unreasonable delay or difficulty in acquiring the
necessary approvals, but it cannot rule out such a possibility.
Certain operational assets of the Company are subject to the terms of
agreed orders negotiated with governmental agencies with enforcement authority
under environmental laws. The state of Texas has allowed Bludworth to operate
under an agreed order on an interim basis pending issuance of a final permit
that addresses Bludworth's change in blast medium. Newpark Shipbuilding has
negotiated a separate agreed order with the state governing the designation of
certain waste streams, the operation and inspection of certain tanks, and
related record keeping. Finally, the Board of Trustees of Galveston Wharves is
also operating under an agreed order with the TNRCC with respect to the
discharge of solids from its sewage collection system and septic tank wastewater
treatment plant at the East Pelican Island facility. The Company believes its
operations are in material compliance with the agreed orders.
RCRA. The federal Resource Conservation and Recovery Act ("RCRA") and
similar state laws regulate the generation, treatment, storage, disposal and
other handling of hazardous and nonhazardous solid wastes, with the most
stringent regulations applying to solid wastes that are considered hazardous.
The Company generates both hazardous and nonhazardous wastes in connection with
routine operations. Management believes that the wastes it generates are handled
in substantial compliance with RCRA and analogous state statutes. The Greens
Bayou property contains a solid waste landfill which was closed in compliance
with applicable federal and state laws as a non-hazardous industrial solid waste
site. Management believes that any environmental liability arising from this
landfill will be the primary responsibility of the previous owners; however,
there can be no assurances that the Company will not be subject to liability for
this matter in the future.
CERCLA. The federal Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or the "Superfund Law") and
analogous state laws, impose liability without regard to fault or the legality
of the original conduct, on certain classes of persons with respect to the
release or imminent threat of release of a "hazardous substance" into the
environment. The classes of persons potentially held responsible include all
owners and operators of a site where a hazardous substance was released since
the time of disposal and any party that disposed of, or arranged for the
disposal of, or transported the hazardous substance found at the site. CERCLA
has been interpreted to create strict, joint and several liability for the cost
of removal and remediation, other necessary response costs and damages for
injury to natural resources unless there is a reasonable basis for divisibility
of the harm done by the potentially responsible party. The Company has never
been named as a potentially responsible party in any CERCLA action, and the
Company does not believe that there is any basis for such a claim. However,
because industrial operations have been conducted at some of the Company's
properties by the Company and previous owners and operators for years, various
materials from these operations might have been disposed of at such properties
or at other locations. The identification of one or more sites at which cleanup
action is required or has been completed could subject the Company to
liabilities that could have a material adverse effect on the Company's business,
financial condition and results of operation.
OPA '90. The Oil Pollution Act of 1990 ("OPA '90") and similar state laws,
and regulations promulgated thereunder impose a variety of regulations on
"responsible parties" related to the prevention of oil spills and liability for
damages resulting from such spills in the waters of the U.S. A "responsible
party" includes the owner or operator of a facility or vessel from which the
spill occurs. OPA '90 assigns liability, which can be joint and several, to each
responsible party for oil spill removal costs and for a variety of public and
private damages from oil spills. While OPA '90 defines "oil" to include
petroleum, fuel oil, sludge, oil refuse and oil mixed with other water wastes,
it specifically excludes any material defined as a hazardous substance under
CERCLA. While liability limits apply in some circumstances, a party cannot take
advantage of liability limits if the spill is caused by gross negligence or
wilful misconduct, if the spill resulted from violation of a federal
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safety, construction or operation regulation, or if a party fails to report a
spill or to cooperate fully in the cleanup. Few defenses exist to the liability
imposed under OPA '90 for oil spills. Management is currently unaware of any oil
spills for which the Company has been designated as a responsible party under
OPA '90 which would have a material adverse impact on the Company.
CWA. The federal Clean Water Act ("CWA") and similar state laws regulate
the discharge of pollutants into all navigable waters of the U.S. They also
establish a system of standards, permits and enforcement procedures for the
discharge of pollutants from industrial and municipal wastewater sources. The
Company has federal and Texas state permits that allow it to discharge the non-
hazardous wastewater collected by its environmental services division.
Management believes that the non-hazardous wastewater it collects is handled in
substantial compliance with the CWA and analogous state statutes and its
discharge permits. The CWA also requires persons who dredge or fill wetlands in
navigable waters of the U.S. to obtain a permit or meet management practice
standards to qualify for an exemption from permitting requirements. The Company
must obtain such a permit or qualify for an exemption if it needs to dredge or
place fill material in wetlands in order to continue or modify operations at any
of its facilities in the future.
CAA. The federal Clean Air Act and its 1990 Amendments ("CAA") and similar
state laws govern the control of emissions from sources of air pollution.
Amendments to the CAA were adopted in 1990 and contain provisions that may
result in the gradual imposition of certain pollution control requirements with
respect to air emissions from the operations of the Company. These amendments
could increase the Company's capital and operational expenses after the U.S.
Environmental Protection Agency and similar state agencies fully implement
regulations authorized by the Amendments. Although the Company does not expect
these CAA amendments to result in material expenses at its properties, the
amount of increased expenses, if any, resulting from such amendments is not
presently determinable. There can be no assurance that the Company will not
incur material expenses in connection with these amendments in the future.
Additionally, the Company has a tank cleaning and degassing operation at its
Brady Island facility that involves removal of residue fumes from vapor spaces
in barges. Federal law requires the Company to identify, prepare for and respond
to risks associated with this operation, including possible explosion and
emission of hazardous substances to the environment.
OTHER REGULATION
Health and Safety Regulations. 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.
Jones Act. The Jones Act requires that all vessels transporting products
between U.S. ports must be constructed and repaired in U.S. shipyards, owned and
crewed by U.S. citizens and registered under U.S. law, thereby eliminating
competition from foreign shipbuilders with respect to vessels to be constructed
for the U.S. coastwise trade. Many customers elect to have vessels constructed
at U.S. shipyards, even if such vessels are intended for international use, in
order to maintain flexibility to use such vessel in the U.S. coastwise trade in
the future. A legislative bill seeking to substantially modify the provisions of
the Jones Act mandating the use of ships constructed in the United States for
U.S. coastwise trade has been introduced in Congress. Similar bills seeking to
rescind or substantially modify the Jones Act and eliminate or adversely affect
the competitive advantages it affords to U.S. shipbuilders have been introduced
in Congress from time to time and are expected to be introduced in the future.
Although management believes it is unlikely that the Jones Act requirements will
be rescinded or materially modified in the foreseeable future, there can be no
assurance that such will not occur. Many foreign shipyards are heavily
subsidized
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by their governments and, as a result, there can be no assurance that the
Company would be able to effectively compete with such shipyards if they were
permitted to construct and repair vessels for use in the U.S. coastwise trade.
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 lawsuits, legal proceedings and claims 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. Also, the Company has entered into certain
agreed orders with which it believes it is in material compliance. See
"-- Environmental Regulation -- Permits."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors currently has five directors. In
accordance with the Certificate of Incorporation of the Company (the "Charter"),
the members of the Board of Directors are divided into three classes and are
elected for a term of three years, or until a successor is duly elected and
qualified. 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.
The following table sets forth certain information with respect to the
Company's executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Samuel F. Eakin...................... 42 Chairman of the Board, Chief Executive Officer(a)
Frank W. Eakin....................... 36 President and Chief Operating Officer, Director(b)
David B. Ammons...................... 47 Executive Vice President, Chief Financial Officer,
Secretary, Director(b)
James D. Cole........................ 56 Director(c)
Paul E. O'Neill, II.................. 48 Director(c)
Joseph O'Toole....................... 64 Executive Vice President -- Operations
Hugh G. Walker, III.................. 37 Vice President -- Environmental Services
Francis J. Fair...................... 58 Executive Vice President -- Operations, Newpark Marine
Fabricators, Inc.
Dale Payne, III...................... 48 Vice President -- Shipyard Operations, Newpark Marine
Fabricators, Inc.
Ben Ramirez.......................... 45 Vice President -- Shipyard Operations, Greens Bayou
Fabricators
</TABLE>
- ---------------
(a) Class III Director
(b) Class II Director
(c) Class I Director
Set forth below is a description of the backgrounds of each of the
executive officers and directors of the Company:
Samuel F. Eakin has served as Chairman of the Board and Chief Executive
Officer of the Company since December 1993 and has been an investor and energy
sector advisor since the 1970s. From 1976 to 1980, Eakin advised E.F. Hutton,
the U.S. Department of Energy and other governmental agencies and major
corporations on energy issues. From 1980 to 1986, he negotiated mergers and
acquisitions of offshore service businesses and other Gulf Coast companies on
behalf of private investors and corporations. In 1987, he founded Eakin & Co.
for the purpose of acquiring distressed energy industry companies and
restructuring complex credits and continues to be a principal in that company.
Mr. Eakin is the brother of Frank W. Eakin, President of the Company.
Frank W. Eakin has served as President, Chief Operating Officer and
Director of the Company since October 1997. Prior to that he served as President
of Newpark Shipbuilding and has been in charge of daily operations since
December 1993. In 1989 Mr. Eakin became a principal in Eakin & Co., with merger
and acquisition responsibilities. Mr. Eakin left that company in 1994 to
dedicate his full energies and focus to managing the Brady Island shipyard
operations. From 1983 to 1989, he founded and operated a successful
international food processing and distribution company.
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Mr. Eakin received his undergraduate degree (B.S.) from Louisiana State
University in 1984. Mr. Eakin is the brother of Samuel F. Eakin, Chairman of the
Company.
David B. Ammons has served as Executive Vice President, Chief Financial
Officer, Secretary and Director of the Company since December 1993. Mr. Ammons
is a Certified Public Accountant and has a background in public accounting and
has owned and operated several businesses. In 1987, Mr. Ammons became a
principal in Eakin & Co. and continues to serve in that capacity. Mr. Ammons
received his undergraduate degree (B.S.) from Southeastern Louisiana University
in 1972.
James D. Cole has served as a Director of Newpark Shipbuilding, a
subsidiary of the Company since late 1993. Mr. Cole is the Chairman of the
Board, President and a Director of Newpark Resources, Inc., an unaffiliated
public company listed on the New York Stock Exchange. He has served in various
positions in that company since 1976.
Paul E. O'Neill, II has served as a Director of the Company since October
1997. Mr. O'Neill is President, Director and Chief Operating Officer of Acadian
Group, Ltd., a holding company formed in 1996 to oversee various construction
and service companies. Prior to joining Acadian Group, Ltd., Mr. O'Neill served
for two years as President and for four years as a Director of C-K Associates,
Inc., a regional Gulf Coast environmental engineering and consulting firm. Mr.
O'Neill spent 17 years in various positions, including as Vice President and
General Manager with TEAM, Inc., a public company listed on the American Stock
Exchange, which provides various industrial and environmental services in the
U.S. and 13 foreign countries.
Joseph O'Toole has served as Executive Vice President -- Operations of the
Company since October 1997. Mr. O'Toole joined the Company as Repair Manager in
1990 and has served as Executive Vice President -- Operations of Newpark
Shipbuilding since 1994. Mr. O'Toole's career in marine fabrication spans over
forty years, punctuated with long periods at large blue water shipyards
including General Dynamics' Quincy, Massachusetts shipyard and Electric Boat
Division. He has held senior positions with Marathon LeTourneau's Gulf Marine
Division shipyard in Brownsville, Texas and Pyramid Manufacturing in Houston,
Texas. Mr. O'Toole has been responsible for managing large shipyard operations
and has supervised major projects such as construction of semisubmersible rigs,
commercial and naval ships and nuclear submarines. Mr. O'Toole received a B.S.
in Civil Engineering in 1964 from Northeastern University in Boston.
Hugh G. Walker, III, Vice President -- Environmental Services, joined the
Company in 1996 to spearhead the development of a newly formed division, First
Wave Environmental Services. Mr. Walker was employed fourteen years with
Chevron, beginning his career in design and waste management, and from 1992 to
1996 serving as manager of a polyethylene plant at Chevron's Cedar Bayou, Texas
complex. Mr. Walker obtained a B.S. in Chemical Engineering from North Carolina
State University in 1982.
Francis J. Fair, Executive Vice President -- Operations, Newpark Marine
Fabricators, Inc. joined the Company in November 1997. Mr. Fair has nearly 40
years of experience in the offshore marine fabrication industry. Mr. Fair has
been responsible for large-scale project and shipyard operations management of
new construction, conversions and repair of deepwater offshore drilling rigs,
including semisubmersibles, jackups and marine components. From 1980 to 1992,
Mr. Fair served as Vice President for Marathon LeTourneau's Gulf Marine Division
at the Brownsville shipyard, supervising deepwater marine projects in excess of
$100 million per year. From 1993 to 1996, he was employed by Texas Drydock
where, among other things, he was the Operations Manager responsible for the
start-up of a 64,000-ton drydock and facility which serviced deepwater drilling
rigs. Immediately before joining the Company, Mr. Fair was Manager of Sales for
LeTourneau, Inc.
Dale Payne, III has served as Vice President -- Shipyard Operations of
Newpark Marine Fabricators, Inc., a subsidiary of the Company since November
1997. Prior to that he served as Vice President -- Shipyard Operations at Brady
Island since 1994. Mr. Payne joined the Company in 1990 as Assistant Repair
Manager. Mr. Payne began his marine fabrication career in 1972 with
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<PAGE> 49
Marathon LeTourneau's Gulf Marine Division shipyard in Brownsville, Texas,
starting as a leadman and finishing as Production Manager in 1989. During his
tenure, Mr. Payne supervised the new construction, conversion and repair of
jack-up, submersible and semi-submersible rigs. From 1981 to 1985, Mr. Payne
worked as Assistant to the Vice President of Operations at Marathon LeTourneau's
Singapore location, supervising the new construction of six Marathon LeTourneau
jack-ups. He also worked for Marathon LeTourneau in Indonesia and the Middle
East supervising various installation projects.
Ben Ramirez, Vice President -- Shipyard Operations, Greens Bayou
Fabricators, joined the Company in September 1997. From 1972 to 1989, Mr.
Ramirez was employed by Marathon LeTourneau's Gulf Marine Division shipyard in
Brownsville, Texas, beginning his career as a welder, and going on to supervise
new construction, conversions, and repair of jack-up, submersible and
semi-submersible rigs, as well as major ship repairs. The Marathon LeTourneau
facility was acquired by AMFELS, Inc., in 1989, where Mr. Ramirez was assistant
yard manager. Mr. Ramirez was serving as General Manager of a new shipyard he
started for AMFELS in Mexico at the time he left AMFELS in 1997.
COMMITTEES AND MEETINGS OF DIRECTORS
The standing committees of the Board of Directors of the Company includes
an Executive Committee and an Audit Committee. The function of each of these
three committees is described and the members of each are listed below.
Messrs. O'Neill, Cole and Ammons are the current members of the Company's
Audit Committee. The Audit Committee makes recommendations to the Board
concerning the selection and discharge of the Company's independent auditors,
reviews professional services performed by the auditors, the results of their
audit engagement and the fees charged for services performed by the auditors and
evaluates the Company's system of internal accounting controls.
Messrs. S. Eakin, F. Eakin and Ammons are the current members of the
Executive Committee, which acts on behalf of the Board of Directors between
regularly scheduled meetings of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Paul E. O'Neill, President and Director of Acadian Group, Ltd., serves on
the Board of Directors of the Company which Board determines the compensation
for the executive officers of the Company, including David B. Ammons and Samuel
F. Eakin. Messrs. S. Eakin and Ammons serve on the Board of Directors of Acadian
Group, Ltd. which Board determines the compensation of Mr. O'Neill.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
Retainer Arrangements. Directors who are employees of the Company are not
entitled to receive additional compensation for serving as directors. Each
non-employee director of the Company will be paid $1,000 for each meeting of the
Board of Directors and $500 for each committee meeting he attends which does not
fall on the same day as a Board of Directors meeting. In addition, a $1,250
retainer is paid to each non-employee director of the Company for each quarter
of the year in which such director serves as a director, plus such director's
direct out-of-pocket expenses for attendance at meetings.
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<PAGE> 50
The following table sets forth the aggregate compensation for 1996 of (i)
the Company's chief executive officer and (ii) for the four most highly
compensated executive officers of the Company whose total annual salary during
1996 exceeded $100,000.
1996 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION SALARY BONUS COMPENSATION(A) OPTIONS COMPENSATION(B)(C)
------------------ -------- -------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Samuel F. Eakin.............. $ 96,000 $200,000 $-- $ -- $ 1,095
Chief Executive Officer
Frank W. Eakin............... 134,375 125,000 -- -- 7,500
President and Chief
Operating Officer
David B. Ammons.............. 88,000 125,000 -- -- 660
Executive Vice President,
Chief Financial Officer,
Secretary
Joseph O'Toole............... 90,000 33,296 -- -- 21,438(d)
Executive Vice President --
Operations
Dale Payne, III.............. 62,208 26,697 -- -- 13,088(d)
Vice President -- Shipyard
Operations, Newpark Marine
Fabricators, Inc.
</TABLE>
- ---------------
(a) Other annual compensation excludes perquisites and other benefits because
the aggregate amount of such compensation was less than 10% of the combined
total for salary and bonus.
(b) Includes matching contributions made by the Company pursuant to its 401(k)
savings plan of $1,095, $660 and $1,042 for Messrs. S. Eakin, Ammons and
O'Toole, respectively, and premiums associated with a term life insurance
policy of $1,852 for Mr. O'Toole.
(c) Includes $7,500 and $1,200 for a car allowance for Messrs. F. Eakin and
O'Toole, respectively.
(d) Includes $17,344 and $11,562 for compensation associated with the August
1996 issuance of shares of stock in Newpark Shipbuilding to Messrs. O'Toole
and Payne, respectively.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with Messrs. S. Eakin, F.
Eakin and Ammons that provide for annual base salaries of $250,000, $200,000 and
$180,000, respectively. The employment agreements will provide for semi-annual
incentive bonuses equal to 1.19%, 0.95% and 0.86% of semi-annual EBITDA for
Messrs. S. Eakin, F. Eakin and Ammons, respectively. The employment agreements
will also provide for payment of premiums of $12,965, $1,839 and $3,691 annually
for term life insurance policies for Messrs. S. Eakin, F. Eakin and Ammons,
respectively. The contracts will provide for a term of three years, with three
months severance upon termination by the Company without cause. The terms of the
employment agreements between Messrs. S. Eakin, F. Eakin and Ammons,
respectively, cannot be considered to have been determined through arms-length
negotiations.
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<PAGE> 51
CASH BONUS PLANS
The Company's Board of Directors has approved the payment of bonuses to key
employees of the Company for 1997 under several different bonus plans and
formulas. Generally, bonuses paid to vice presidents of the Company and its
subsidiaries are at the discretion of the Board of Directors with the exception
of the Vice President of Marketing and the Vice President of Environmental
Services who each earn a formula based bonus. Repair services superintendents,
gas free services superintendents and managers are also paid cash bonus
compensation based on a formula. The Director of Safety and his assistant earn
bonuses based on the Company's safety and claims performance. The Company also
pays discretionary bonuses to its nonexecutive employees based upon project
performance.
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 and are at least
21 years of age. Under the plan, eligible employees are permitted to contribute
up to 15% of compensation. The plan provides that the Company will match an
amount equal to a percentage set by the Company of up to 6% of an employee's
contribution 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 10% beginning one year after the anniversary date
of employment, an additional 10% after year two and 20% each additional year
thereafter. Upon attaining age 65, participants are automatically 100% vested,
even with respect to Company contributions. Subject to certain limitations
imposed under the Internal Revenue Code, 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.
AMENDED AND RESTATED 1997 INCENTIVE EQUITY PLAN
The Board of Directors of the Company has adopted an Incentive Equity Plan
for employees. The Amended and Restated 1997 Incentive Equity Plan (the "1997
Incentive Equity Plan") permits the granting of any or all of the following
types of awards ("Awards"): stock appreciation rights, stock options and
restricted stock. Under the plan, all officers and employees of the Company, or
any affiliate of the Company, will be eligible for participation in all Awards
under the 1997 Incentive Equity Plan.
An aggregate of 1,800,000 shares of Common Stock have been authorized and
reserved for issuance pursuant to the 1997 Incentive Equity Plan. Options to
purchase an aggregate of 1,482,201 shares of Common Stock have been granted
under the 1997 Incentive Equity Plan, which options will have an exercise price
equal to $3.50 per share. The 1997 Incentive Equity Plan will be administered by
the entire Board of Directors. The 1997 Incentive Equity Plan contains
appropriate provisions to assure that it complies with the provisions of Section
16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules
promulgated thereunder. The Board of Directors,
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<PAGE> 52
as a whole, will have sole authority to select employees who are to be granted
awards, as well as the amount, type and terms of the awards to be granted. The
Board of Directors, as a whole, will be authorized to interpret the 1997
Incentive Equity Plan and may adopt such rules and regulations as it may deem
advisable to carry out the 1997 Incentive Equity Plan. All decisions made by the
Board of Directors, as a whole, in selecting employees for awards are final.
STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS UNDER THE 1997 INCENTIVE EQUITY PLAN
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES EXERCISE OR
UNDERLYING OPTIONS BASE PRICE EXPIRATION
NAME GRANTED(#) ($/SH) DATE
---- --------------------- ----------- ----------
<S> <C> <C> <C>
Samuel F. Eakin.................................. 180,000(a) $3.50 11/20/07
Frank W. Eakin................................... 180,000(a) $3.50 11/20/07
David B. Ammons.................................. 180,000(a) $3.50 11/20/07
Joseph O'Toole................................... 176,364(b) $3.50 11/20/07
Hugh G. Walker, III.............................. 70,546(b) $3.50 11/20/07
Francis J. Fair.................................. 17,636(b) $3.50 11/20/07
Dale Payne, III.................................. 117,576(b) $3.50 11/20/07
Ben Ramirez...................................... 17,636(b) $3.50 11/20/07
</TABLE>
- ---------------
(a) 33 1/3% of the options granted will become exercisable at each of the first,
second, and third years, respectively, from the date of grant.
(b) 20% of the options granted will become exercisable at each of the first
through fifth years, respectively from the date of grant.
CERTAIN TRANSACTIONS
The Company paid management fees to Eakin & Co., an affiliated company
owned 80% by Samuel F. Eakin and 20% by David B. Ammons, in 1994, 1995 and 1996
of $240,000, $240,000 and $177,000. These fees were paid pursuant to an
understanding between the Company and Eakin & Co. under which Eakin & Co.
provided financial advisory services to the Company for a monthly fee of $20,000
in 1994 and 1995. The fee was reduced to $15,000 per month in mid-1996. Upon
consummation of the Offering, the Company will cease payment of monthly
management fees to Eakin & Co.
The Company paid management fees to SFA Industries, Inc. ("SFA"), an
affiliated company the Common Stock of which is owned 60% by Samuel F. Eakin,
20% by Frank W. Eakin and 20% by David B. Ammons, in 1994, 1995 and 1996 of
$93,000, $240,000 and $218,000, respectively. The fees paid to SFA were also
paid pursuant to an understanding between the Company and SFA under which SFA
provided insurance benefits from a consolidation of the Companies' insurance
plans which fees were billed to the Company on a monthly basis.
In 1996 the Company paid SFA the final nonrecurring fee of $700,000 related
to a reduction in costs resulting from a consolidation of the Company's
insurance plan.
The Company paid management fees of $251,000 in 1996 to NLCH Consultants,
Ltd. ("NLCH"), an affiliated company owned 48% by Samuel F. Eakin, 16% by Frank
W. Eakin and 16% by David B. Ammons. These fees were paid pursuant to an
understanding between the Company and NLCH under which NLCH provided certain
financial advisory services to the Company in 1996.
In August 1996 in Company paid Eakin & Co. a fee of $110,000 for arranging
a senior credit facility in connection with Newpark Shipbuilding's purchase of
the Brady Island assets.
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<PAGE> 53
In August 1997, Samuel F. Eakin and David B. Ammons formed a limited
liability company which owns a Cessna 310 twin engine airplane. The Company
leases the airplane from such entity at a market lease rate of $5,000 per month.
In addition, under the lease agreement, the Company is required 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 lease agreement has a
term of five years. The Company believes that the terms of such agreement are no
less favorable than the Company could have received from an unrelated party. The
Company adopted a policy which requires an individual to reimburse the Company
for the Company's direct costs resulting from any trip on the airplane for
personal use.
The Company was the payee under two promissory notes from J. B. Talley &
Co., Inc., a company owned indirectly by Samuel F. Eakin and David B. Ammons,
each dated March 1997 in the original principal amounts of $100,000 and $85,000,
respectively, in the amount of $165,000. The Company also had pledged collateral
in the amount of $100,000 to secure a bank loan to such affiliated company. The
aggregate outstanding balances on the notes at October 1997 was $165,000. In
October 1997, Samuel F. Eakin and David B. Ammons purchased the promissory notes
and collateral from the Company in exchange for demand notes to the Company in
the aggregate amount of $265,000. The Company subsequently bonused the notes to
such shareholders as additional compensation.
At September 30, 1997, the Company had outstanding indebtedness owed to
Newpark Resources in the amount of $7.2 million. Newpark Resources has also
guaranteed the Company's indebtedness in favor of one of the Company's senior
secured lenders, which senior lender will be paid with a portion of the net
proceeds of the Offering. James D. Cole, a director of the Company is the Chief
Executive Officer and Chairman of the Board of Newpark Resources.
The Company intends to enter into employment agreements with Messrs. S.
Eakin, F. Eakin and David B. Ammons. See "-- Employment Agreements."
Samuel F. Eakin is the guarantor of each of the credit facilities of the
Company. Mr. S. Eakin is also the guarantor of the notes payable to Newpark
Resources. Some of these debt instruments are being repaid with the net proceeds
of the Offering. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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<PAGE> 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to each
person who as of December 31, 1997 was known by the Company to be (i) the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
director and executive officer of the Company and (iii) all executive officers
and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER OF COMMON STOCK(A) OF CLASS
---------------- ------------------ --------
<S> <C> <C>
Samuel F. Eakin............................................. 6,454,539 54.9%
Frank W. Eakin.............................................. 2,151,513 18.3%
David B. Ammons............................................. 2,151,513 18.3%
James Cole.................................................. -- --
Paul E. O'Neill II.......................................... -- --
Joseph O'Toole.............................................. 176,364 1.5%
Dale Payne, III............................................. 117,576 1.0%
All Directors and Executive Officers as a Group (9
persons).................................................. 11,122,050 94.6%
</TABLE>
- ---------------
(*) Less than 1%
(a) The persons or group listed have sole voting and investment power with
respect to their shares of Common Stock.
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<PAGE> 55
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to the Indenture (the "Indenture") among
the Company, the Initial Restricted Subsidiaries and Bank One, N.A., as trustee
(the "Trustee"). The terms of the Notes include those stated in the Indenture
and the Pledge Agreement and those made part of the Indenture and the Pledge
Agreement by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders
("Holders") of Notes are referred to the Indenture, the Pledge Agreement and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture and the Pledge Agreement does not purport to be
complete and is qualified in its entirety by reference to the Indenture and the
Pledge Agreement, including the definitions therein of certain terms used below.
A copy of the proposed form of Indenture and Pledge Agreement is available as
set forth under "-- Additional Information." The definitions of certain terms
used in the following summary are set forth below under "-- Certain
Definitions." For purposes of this Section, references to the "Company" shall
mean First Wave Marine, Inc., excluding its Subsidiaries.
The obligations of the Company under the Notes will be jointly and
severally guaranteed by the Company's Restricted Subsidiaries. See
"-- Subsidiary Guarantees." As of the closing date of this Offering (the
"Closing Date"), all of the Company's Subsidiaries (the "Initial Restricted
Subsidiaries") will be Restricted Subsidiaries.
Under certain circumstances, the Company will be able to designate current
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not guarantee the Notes and will not be subject to any of the restrictive
covenants set forth in the Indenture.
RANKING
The Notes will be senior obligations of the Company, will rank pari passu
in right of payment with all existing and future unsecured senior Indebtedness
of the Company and will rank senior in right of payment to any Subordinated
Indebtedness of the Company. The Subsidiary Guarantee of each Restricted
Subsidiary will be an unsecured, senior obligation of such Restricted
Subsidiary, will rank pari passu in right of payment with all existing and
future unsecured senior Indebtedness of such Restricted Subsidiary and will rank
senior in right of payment to any Subordinated Indebtedness of such Restricted
Subsidiary. As of December 31, 1997, after giving pro forma effect to the
Offering, the aggregate principal amount of outstanding senior Indebtedness of
the Company would have been $99.8 million. As of December 31, 1997, after giving
pro forma effect to the Offering, the aggregate principal amount of outstanding
senior Indebtedness of the Initial Restricted Subsidiaries, but excluding the
Subsidiary Guarantees, would have been approximately $9.8 million.
SECURITY
The Indenture will provide that on the date of the closing of the Offering,
the Company shall purchase and pledge to the Trustee, for the benefit of the
Holders of the Notes, the Pledged Securities in such amount as will be
sufficient upon receipt of scheduled interest and principal payments of such
securities, in the opinion of a nationally recognized firm of independent public
accountants selected by the Company, to provide for payment in full when due of
the first two scheduled interest payments on the Notes. The Company expects to
use approximately $9.9 million of the net proceeds of the Offering to acquire
the Pledged Securities; however, the actual amount of the net proceeds used to
purchase the Pledged Securities will vary depending on the interest rates on
Government Securities prevailing at the time of the purchase of the Pledged
Securities. The Pledged Securities will be pledged by the Company to the Trustee
for the benefit of the Holders of the Notes pursuant to the Pledge Agreement and
will secure the payment of the principal of and
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<PAGE> 56
interest on the Notes, and all other obligations under the Indenture, to the
extent of such security. The Pledged Securities and any proceeds thereof will be
held by the Trustee in the Pledge Account. Pursuant to the Pledge Agreement,
immediately prior to an interest payment date on the Notes, the Company may
either deposit with the Trustee from funds otherwise available to the Company
cash sufficient to pay the interest scheduled to be paid on such date or the
Company may direct the Trustee to release from the Pledge Account proceeds
sufficient to pay the interest scheduled to be paid on such date. In the event
that the Company exercises the former option, the Pledge Agreement provides that
the Company may thereafter direct the Trustee to release to the Company proceeds
or Pledged Securities from the Pledge Account in a like amount.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first two scheduled interest payments due on the Notes
(or, in the event an interest payment or interest payments have been made in an
amount sufficient to provide for payment in full of any interest payments
remaining, up to and including the second scheduled interest payment), if no
Default or Event of Default is then continuing, the Trustee will be permitted to
release to the Company at its request any such excess amount.
Under the Pledge Agreement, if the Company makes the first two scheduled
interest payments on the Notes in a timely manner and no Default or Event of
Default is then continuing, the remaining Pledged Securities, if any, will be
released from the Pledge Account and thereafter the Notes will be unsecured.
SUBSIDIARY GUARANTEES
The obligations of the Company under the Notes will be fully and
unconditionally guaranteed jointly and severally by the Restricted Subsidiaries.
The Subsidiary Guarantee of each Restricted Subsidiary will be an unsecured,
senior obligation of such Restricted Subsidiary, will rank pari passu in right
of payment with all existing and future unsecured senior Indebtedness of such
Restricted Subsidiary and will rank senior in right of payment to any
Subordinated Indebtedness of such Restricted Subsidiary. As of the Closing Date,
all of the Company's Subsidiaries will be Restricted Subsidiaries.
The Indenture contains provisions the intent of which is to provide that
the obligations of each Restricted Subsidiary will be limited to the maximum
amount that will, after giving effect to all other contingent and fixed
liabilities of such Restricted Subsidiary and after giving effect to any
collections from, rights to receive contribution from, or payments made by or on
behalf of any other Restricted Subsidiary in respect of the obligations of such
other Restricted Subsidiary under its Subsidiary Guarantee or pursuant to its
contribution obligations under the Indenture, result in the obligations of such
Restricted Subsidiary under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under any applicable law. Each
Restricted Subsidiary that makes a payment or distribution under a Subsidiary
Guarantee shall be entitled to contribution from each other Restricted
Subsidiary so long as the exercise of such right does not impair the rights of
the Holders under the Subsidiary Guarantees. See "Risk Factors -- Fraudulent
Conveyance Considerations."
The Indenture will require the Company to cause any Person that becomes a
Restricted Subsidiary (including any Subsidiary that was previously an
Unrestricted Subsidiary and which becomes a Restricted Subsidiary) after the
Closing Date to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee the Notes. So long
as no Default or Event of Default exists or would be caused thereby, any Person
that is no longer a Restricted Subsidiary may, by execution and delivery to the
Trustee of a supplemental indenture satisfactory to the Trustee, be released
from its Subsidiary Guarantee and cease to Guarantee the Notes.
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<PAGE> 57
Each Subsidiary Guarantee will be a continuing Guarantee and shall (i)
remain in full force and effect until released pursuant to the Indenture or
pursuant to payment in full of all the obligations under the Indenture and the
Notes, (ii) be binding upon such Restricted Subsidiary and (iii) inure to the
benefit of and be enforceable by the Holders and their successors, transferees
and assigns.
The Indenture will provide that, subject to the provisions described in the
next succeeding paragraph, no Restricted Subsidiary may consolidate or merge
with or into (whether or not such Restricted Subsidiary is the surviving
Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person unless (i) the Person formed by or surviving any
such consolidation or merger (if other than such Restricted Subsidiary) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of such Restricted
Subsidiary under the Subsidiary Guarantee, in form satisfactory to the Trustee;
(ii) immediately after such transaction, no Default or Event of Default exists;
(iii) the Company and its Restricted Subsidiaries would, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable fiscal quarter, be permitted to
Incur at least $1.00 of additional Indebtedness pursuant to the Consolidated
Interest Coverage Ratio test set forth in the first paragraph of the covenant
described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness"; (iv) the Company shall have delivered to the Trustee an Officers'
Certificate, and an Opinion of Counsel, each stating that such consolidation,
merger or transfer complies with the Indenture; and (v) such Restricted
Subsidiary (if such Restricted Subsidiary is the surviving Person) shall have
delivered a written instrument in form satisfactory to the Trustee confirming
its Subsidiary Guarantee after giving effect to such consolidation, merger or
transfer. Notwithstanding the foregoing, any Restricted Subsidiary may merge
into, consolidate with or transfer all or part of its properties or assets to
the Company or one or more Restricted Subsidiaries.
The Indenture will provide that in the event of a sale, assignment,
transfer, lease, conveyance or other disposition of all of the Equity Interests
in, or all or substantially all of the assets of, a Restricted Subsidiary to any
Person that is not the Company or any of its Restricted Subsidiaries, whether by
way of merger, consolidation or otherwise, if (i) the Net Proceeds of such sale
or other disposition are applied in accordance with provisions of the Indenture
described under "-- Repurchase at the Option of Holders -- Asset Sales," (ii) no
Default or Event of Default exists or would exist under the Indenture after
giving effect to such transaction, (iii) all obligations of such Restricted
Subsidiary under any other Indebtedness of the Company or any of its Restricted
Subsidiaries shall have been terminated (including, without limitation, all
Guarantees of any such Indebtedness), (iv) all Liens on assets of such
Restricted Subsidiary that secure any other Indebtedness of the Company or any
of its Restricted Subsidiaries shall have been terminated, and (v) all
obligations of the Company and its Restricted Subsidiaries under other
Indebtedness of such Restricted Subsidiary shall have been terminated
(including, without limitation, all Guarantees of such Indebtedness), then (A)
in the case of such a sale or other disposition, whether by way of merger,
consolidation or otherwise, of all of the Equity Interests in such former
Restricted Subsidiary, such former Restricted Subsidiary will be released and
relieved of any obligations under its Subsidiary Guarantee, or (B) in the case
of a sale or other disposition of all or substantially all of the assets of such
Restricted Subsidiary, the Person acquiring such assets will not be required to
assume the obligations of such Restricted Subsidiary under its Subsidiary
Guarantee.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $90 million and
will mature on February 1, 2008. Interest on the Notes will accrue at the rate
of 11% per annum and will be payable semiannually in arrears on February 1 and
August 1 of each year, commencing on August 1, 1998, to Holders of record on the
immediately preceding January 15 and July 15. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no
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<PAGE> 58
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable by wire
transfer of immediately available funds to the holder of the Global Note (as
defined herein) and with respect to holders of Certificated Notes (as defined
herein), at the office or agency of the Company maintained for such purpose or,
at the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at their respective addresses set forth in the register
of Holders of the Notes; provided that all payments with respect to Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to February
1, 2003. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 105.5000%
2004........................................................ 103.6667%
2005........................................................ 101.8333%
2006 and thereafter......................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, on or prior to February 1, 2001, the Company
may, at its option, redeem, from time to time, up to 35% in aggregate principal
amount of the Notes at a redemption price of 111% of the principal amount
thereof, plus accrued and unpaid interest, thereon to the redemption date with
the net proceeds of a Public Equity Offering; provided that no less than 65% of
the aggregate principal amount of Notes initially issued remains outstanding
immediately after giving effect to such redemption; and provided, further, that
notice of such redemption shall have been given not later than 30 days, and such
redemption shall occur not later than 90 days, after the date of the closing of
the transaction giving rise to such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions thereof called for redemption.
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<PAGE> 59
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to repurchase the Notes or make mandatory redemption
or sinking fund payments with respect thereto.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, the Company
will be required to make an offer (a "Change of Control Offer") to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of each
Holder's Notes, at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, to the date
of repurchase (the "Change of Control Payment"). Within 20 days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction that constitutes the Change of Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rules 13e-4 and 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On a date that is at least 30 but no more than 60 days from the date on
which the Company mails notice of the Change of Control (the "Change of Control
Payment Date"), the Company will, to the extent lawful, (i) accept for payment
all Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Trustee an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Notes or portions thereof being purchased by the Company. The Trustee will
promptly mail to each Holder of Notes so tendered the Change of Control Payment
for such Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date. Unless the Company defaults in the payment for any Notes properly
tendered pursuant to the Change of Control Offer, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable, and neither the
board of directors of the Company nor the Trustee (without the consent of a
majority of the Holders of the Notes) may waive compliance with these
provisions.
Subject to the limitations discussed below, the Company could in the future
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit rating.
The occurrence of a Change of Control, or the exercise by the Holders of Notes
of their right to require the Company to repurchase the Notes upon a Change of
Control, could cause a default under other senior Indebtedness of the Company.
The Company's ability to pay cash to the Holders of Notes upon a Change of
Control may be limited by the Company's then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. The failure of the Company to purchase any Notes
tendered in a Change of Control Offer will constitute an Event of Default under
the Indenture. See "-- Events of Default and Remedies."
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<PAGE> 60
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Restricted Subsidiary; (ii) the adoption of a
plan relating to the liquidation or dissolution of the Company; (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than a Permitted Holder, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of a greater percentage of the voting stock of the Company than the
percentage of the voting stock of the Company held by the Permitted Holders;
(iv) the first day on which the Permitted Holders in the aggregate hold less
than 35% of the voting stock of the Company; or (v) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to another Person or group may
be uncertain.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination of election.
Asset Sales. The Indenture will provide that the Company will not, and will
not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless
(i) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value (which, if it exceeds $1 million, shall be determined by, and set forth
in, a resolution of the Board of Directors of the Company and described in an
Officers' Certificate of the Company delivered to the Trustee) of the assets
(including, if appropriate, Equity Interests) disposed of or issued, as
appropriate, and (ii) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this covenant (and not for purposes of any other
provision of the Indenture), the term "cash" shall be deemed to include (i) any
notes or other obligations received by the Company or such Restricted Subsidiary
as consideration as part of such Asset Sale that are immediately converted by
the Company or such Restricted Subsidiary into actual cash (to the extent of the
actual cash so received), and (ii) any liabilities of the Company or such
Restricted Subsidiary (as shown on the most recent balance sheet of the Company
or such Restricted Subsidiary) that (A) are assumed by the transferee of the
assets which are the subject of such Asset Sale as consideration therefor in a
transaction the result of which is that the Company and all of its Subsidiaries
are released from all liability for such assumed liability, (B) are not by their
terms subordinated in right of payment to the Notes, (C) are not owed to the
Company or any Subsidiary of the Company, and (D) constitute short-term
liabilities (as determined in accordance with GAAP).
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<PAGE> 61
Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply, directly or indirectly, such Net Proceeds (a) to
permanently reduce Indebtedness under the Bank Credit Agreement (and to
correspondingly reduce commitments with respect thereto) or (b) to invest in
properties and assets that will be used in the Shipyard Business of the Company
and its Restricted Subsidiaries. Pending the final application of any such Net
Proceeds, the Company may temporarily invest such Net Proceeds in any manner
that is not prohibited by the Indenture (including, without limitation, to the
reduction of Indebtedness under the Bank Credit Agreement). Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $5 million, the Company will be
required to make an offer to all Holders of Notes and, if the Company is
required to do so under the terms of any other senior Indebtedness, to the
holders of such other senior Indebtedness (an "Asset Sale Offer") to purchase
Notes and principal of such other senior Indebtedness, on a pro rata basis,
having an aggregate principal amount equal to the Excess Proceeds, at an offer
price in cash equal to, in the case of the Notes, 100% of the principal amount
thereof, plus accrued and unpaid interest thereon to the date of purchase, and,
in the case of all other senior Indebtedness, 100% of the principal amount
thereof, plus accrued and unpaid interest, or premium, if any, thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate principal amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes and such other senior Indebtedness surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not so listed, on a pro rata basis with such other senior Indebtedness
based on the outstanding principal amounts thereof (with such adjustments as may
be deemed appropriate by the Company so that only Notes with denominations of
$1,000 or integral multiples thereof shall be purchased). Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Restricted Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), unless (i) such transfer, conveyance, sale, lease or
other disposition is of all of the Capital Stock of such Restricted Subsidiary
owned by the Company and its Restricted Subsidiaries or is otherwise permitted
under the covenant described under the caption "-- Certain
Covenants -- Limitation on Issuance, Sale and Ownership of Capital Stock of
Restricted Subsidiaries" and (ii) such transaction is conducted in accordance
with the covenant described in the preceding two paragraphs.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes using Excess Proceeds.
CERTAIN COVENANTS
Restricted Payments. The Indenture will provide that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, (i) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any Restricted Subsidiary's Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation) other than dividends or distributions (a) paid or
payable in Equity Interests (other than Disqualified Stock) of the Company or
(b) paid or payable to the Company or any Wholly Owned Restricted Subsidiary of
the Company; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Affiliate of the Company (other than any
such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the
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Company); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value prior to the scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Indebtedness
(except, if no Default or Event of Default is continuing or would result
therefrom, any such payment, purchase, redemption, defeasance or other
acquisition or retirement for value made out of Excess Proceeds available for
general corporate purposes if (a) such payment or other action is required by
the indenture or other agreement or instrument pursuant to which such
Subordinated Indebtedness was issued and (b) the Company has purchased all Notes
and other senior Indebtedness properly tendered pursuant to an Asset Sale Offer
required under "-- Repurchase at the Option of Holders -- Asset Sales"; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable fiscal quarter, have been
permitted to Incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "-- Incurrence of
Indebtedness;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Company and its
Restricted Subsidiaries after the Closing Date shall not exceed, at the
date of determination, the sum of (1) 50% of aggregate Consolidated Net
Income of the Company from the beginning of the first fiscal quarter
commencing after the Closing Date to the end of the Company's most recently
ended fiscal quarter for which financial statements are available at the
time of such Restricted Payment (or, if such aggregate Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (2)
100% of the aggregate net cash proceeds received by the Company from the
issue or sale after the Closing Date of Equity Interests of the Company or
of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (3) the aggregate net cash
proceeds received by the Company as capital contributions to the Company
(other than from a Subsidiary of the Company) after the Closing Date, plus
(4) if any Restricted Investment that was made after the Closing Date is
sold for cash, to the extent such amount is not included in the
Consolidated Net Income of the Company, the lesser of (A) the Net Proceeds
from such sale to the extent received by the Company or any Restricted
Subsidiary, and (B) the initial amount of such Restricted Investment, plus
(5) in the event an Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary, an amount equal to the lesser of (A) the book value of such
Unrestricted Subsidiary, and (B) the Fair Market Value of such Unrestricted
Subsidiary.
The foregoing provisions will not prohibit the following Restricted
Payments: (i) the payment of any dividend or other distribution within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Company (other than Disqualified Stock) in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary of
the Company) of other Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c) of the preceding paragraph (both for purposes of
determining the aggregate amount of Restricted Payments made and for purposes of
determining the aggregate
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amount of Restricted Payments permitted); (iii) the payment, purchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Indebtedness with the net cash proceeds from a substantially
concurrent Incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such payment, purchase,
redemption, defeasance or other acquisition or retirement shall be excluded from
clause (c) of the preceding paragraph (both for purposes of determining the
aggregate amount of Restricted Payments made and for purposes of determining the
aggregate amount of Restricted Payments permitted); (iv) any Restricted
Investment made with the net cash proceeds from a substantially concurrent sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock); and (v) so long as no Default or Event of
Default is continuing, any Restricted Investment which, together with all other
Restricted Investments outstanding made pursuant to this clause (v) does not
exceed $3 million. Except to the extent specifically noted above, Restricted
Payments made pursuant to this paragraph shall be included in calculating the
amount of Restricted Payments made after the Closing Date.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if (i) such designation would not
cause a Default or Event of Default, (ii) at the time of and after giving effect
to such designation, the Company could incur $1.00 of additional Indebtedness
pursuant to the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant entitled "-- Incurrence of Indebtedness," and (iii)
each of the other requirements of the definition of the term "Unrestricted
Subsidiary" are satisfied. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Restricted Payments in an amount equal to the greater of (i) the net book value
of such Investments at the time of such designation and (ii) the Fair Market
Value of such Investments at the time of such designation. Such designation will
only be permitted if such Restricted Payment would be permitted at such time and
if such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Upon being so designated as an Unrestricted Subsidiary, any
Subsidiary Guarantee that was previously executed by such Unrestricted
Subsidiary shall be deemed terminated.
The amount of all Restricted Payments not made in cash shall be the Fair
Market Value (which, if it exceeds $1 million, shall be determined by, and set
forth in, a resolution of the Board of Directors of the Company and described in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or any
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payments during such quarter were permitted and setting forth the basis upon
which the calculations required by the covenant described under "-- Restricted
Payments" were computed, which calculations may be based upon the Company's
latest available financial statements.
Incurrence of Indebtedness. The Indenture will provide that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness (including Acquired Indebtedness), except for
Permitted Indebtedness, unless (i) at the time of such event and after giving
effect thereto on a pro forma basis the Company's Consolidated Interest Coverage
Ratio for the four full fiscal quarters immediately preceding such event, taken
as one period, would have been at least equal to (A) 2.0 to 1.0 for the first
two years after the Closing Date and (B) 2.25 to 1.0 thereafter and (ii) no
Default or Event of Default shall have occurred and be continuing at the
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time such additional Indebtedness is Incurred or would occur as a consequence of
the Incurrence of such additional Indebtedness.
"Permitted Indebtedness" means any and all of the following:
(i) Indebtedness of the Company and its Restricted Subsidiaries
pursuant to the Bank Credit Agreement (including all Guarantees thereof) in
an aggregate amount not to exceed the greater of (A) $20 million or (B) 85%
of Eligible Receivables, less the aggregate amount of all payments thereon
which are applied to permanently reduce the outstanding amount of or the
commitments with respect to such Indebtedness;
(ii) Indebtedness represented by the Notes, the Indenture, the
Subsidiary Guarantees and the Pledge Agreement;
(iii) intercompany Indebtedness between or among the Company and any
of its Restricted Subsidiaries; provided that (A) if the Company is an
obligor on such Indebtedness, such Indebtedness is expressly subordinate to
the payment in full of all Obligations with respect to the Notes and (B)
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Restricted Subsidiary of the Company, or any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary of the Company, shall be deemed to constitute a new
Incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(iv) Permitted Refinancing Indebtedness Incurred in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, (A) Indebtedness (other than Permitted Indebtedness)
that was Incurred in compliance with the Indenture, (B) Indebtedness
referred to in clause (ii) of the definition of the term "Permitted
Indebtedness," or (C) Existing Indebtedness;
(v) Indebtedness of a Restricted Subsidiary of the Company
constituting a Guarantee of Indebtedness of the Company or a Restricted
Subsidiary which Indebtedness was Incurred pursuant to this definition or
the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "-- Incurrence of
Indebtedness;"
(vi) Hedging Obligations of the following types: (A) Interest Rate
Hedges the notional principal amount of which does not exceed the principal
amount of the Indebtedness to which such Interest Rate Hedge relates, and
(B) Currency Hedges that do not increase the outstanding loss potential or
liabilities other than as a result of fluctuations in foreign currency
exchange rates;
(vii) Indebtedness (in addition to Indebtedness permitted by any other
clause of this paragraph) in an aggregate principal amount at any time
outstanding not to exceed $5 million; and
(viii) Existing Indebtedness.
For purposes of determining compliance with the covenant entitled
"Incurrence of Indebtedness," (i) in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described
herein, the Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be
divided and classified in more than one of the types of Indebtedness described
herein.
Liens. The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, affirm, assume or suffer to exist any Lien of any kind on any property
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, unless (i) in the case of Liens
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securing obligations subordinate to the Notes, the Notes are secured by a valid,
perfected Lien on such property that is senior in priority to such Liens, (ii)
in the case of Liens securing obligations subordinate to a Subsidiary Guarantee,
such Subsidiary Guarantee is secured by a valid, perfected Lien on such property
that is senior in priority to such Liens, and (iii) in all other cases, the
Notes (and, if such Lien secures obligations of a Restricted Subsidiary, a
Subsidiary Guarantee of such Restricted Subsidiary) are equally and ratably
secured; provided, however, that the foregoing shall not prohibit or restrict
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture will provide that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits or (b) pay any Indebtedness owed to the Company or any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries, (iii) transfer any of its properties to the
Company or any of its Restricted Subsidiaries, (iv) grant any Liens in favor of
the Holders of the Notes and the Trustee or (v) guarantee the Notes or any
renewals or refinancings thereof, except for such encumbrances or restrictions
existing under or by reason of (A) Existing Indebtedness, (B) the Bank Credit
Agreement, (C) applicable law, (D) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was Incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties of any Person, other than the Person, or the property of the
Person, so acquired, provided that in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be Incurred, (E)
customary non-assignment provisions in leases, licenses, sales agreements or
other contracts (but excluding contracts related to the extension of credit)
entered into in the ordinary course of business and consistent with past
practices, (F) restrictions imposed pursuant to a binding agreement for the sale
or disposition of all or substantially all of the Equity Interests or assets of
any Restricted Subsidiary, provided such restrictions apply solely to the Equity
Interests or assets being sold, (G) restrictions imposed by Permitted Liens on
the transfer of the assets that are subject to such Liens, and (H) Permitted
Refinancing Indebtedness Incurred to refinance Existing Indebtedness or
Indebtedness of the type described in clause (D) above, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, as a whole, than those contained in the
agreements governing the Indebtedness being refinanced.
Limitation on Issuance, Sale and Ownership of Capital Stock of Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to (i) sell, assign, transfer, convey or
otherwise dispose of, any Equity Interests of any Restricted Subsidiary, other
than to the Company or a Wholly Owned Restricted Subsidiary, (ii) permit any
Restricted Subsidiary to issue any Equity Interests (including, without
limitation, pursuant to any merger, consolidation, recapitalization or similar
transaction) other than to the Company or a Wholly Owned Restricted Subsidiary
or (iii) permit any Person other than the Company or a Wholly Owned Restricted
Subsidiary to own any Equity Interests of any Restricted Subsidiary, except for
(A) a sale to a Person of all of the Equity Interests of a Restricted
Subsidiary, which sale was made by the Company or a Restricted Subsidiary
subject to, and in compliance with, the "Asset Sales" covenant, (B) the issuance
and subsequent ownership of directors' qualifying shares and (C) the Equity
Interests of a Restricted Subsidiary owned by a Person at the time such
Restricted Subsidiary became a Restricted Subsidiary or acquired by such Person
in connection with the formation of the Restricted Subsidiary, provided that the
Equity Interests owned by such Person do not exceed 20% of the total Equity
Interests of such Restricted Subsidiary.
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Merger, Consolidation, or Sale of Assets. The Indenture will provide that
the Company may not consolidate or merge with or into (whether or not the
Company is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another Person, unless (i) the Company is the
surviving entity, or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after giving effect to such transaction, no
Default or Event of Default exists or would exist; (iv) except in the case of a
merger of the Company with or into a Wholly Owned Restricted Subsidiary of the
Company, the Company or the Person formed by or surviving any such consolidation
or merger (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A) will
(treating any Indebtedness not previously an obligation of the Company or any of
its Restricted Subsidiaries as a result of such transaction as having been
Incurred at the time of such transaction) have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable fiscal quarter, be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Interest Coverage Ratio test set forth in the first paragraph of
the covenant described under the caption "-- Incurrence of Indebtedness;" and
(v) the Company shall have delivered to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture. For purposes
of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of transactions) of all or substantially all of the
properties or assets of one or more of the Restricted Subsidiaries of the
Company, the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company. For
restrictions on mergers, consolidations and disposition of assets involving
Restricted Subsidiaries, see "-- Subsidiary Guarantees."
Transactions with Affiliates. The Indenture will provide that the Company
will not, and will not permit any of its Restricted Subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate of the Company (other than
the Company or a Restricted Subsidiary), in one transaction or a series of
transactions (each of the foregoing an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions after the Closing Date involving aggregate consideration
in excess of $500,000, an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above, (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions after the Closing Date
involving aggregate consideration in excess of $2 million, a resolution
described in an Officers' Certificate, certifying that such Affiliate
Transaction complies with clause (i) above and such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board of
Directors of the Company and (c) with respect to any Affiliate Transaction or
series of related Affiliate Transactions after the Closing Date involving
aggregate consideration in excess of $5 million, an opinion as to the fairness
to the Company of such Affiliate Transaction from a financial point of view
issued by an
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accounting, appraisal or investment banking firm of recognized national
standing; provided that the following types of transactions shall not constitute
Affiliate Transactions: (1) any transaction with an officer or director of the
Company or any Restricted Subsidiary in connection with such individual's
compensation (including directors' fees), employee benefits, severance
arrangements or indemnification (to the extent consistent with applicable law
and the charter and bylaws of the Company or such Restricted Subsidiary), in
each case entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business; (2) transactions between or among the Company
and its Restricted Subsidiaries; (3) Restricted Payments that are permitted by
the provisions of the covenant described under "-- Restricted Payments;" (4)
sales of Capital Stock of the Company made at prevailing market rates; and (5)
loans to officers, directors and employees of the Company and its Restricted
Subsidiaries in an aggregate amount not to exceed $1 million at any one time
outstanding.
Sale and Leaseback Transactions. The Indenture will provide that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that the Company or any
Restricted Subsidiary may enter into a sale and leaseback transaction if (a) the
Company could have (i) Incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
either (1) the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant described under "-- Incurrence of Indebtedness" or (2)
clause (vii) of the definition of the term "Permitted Indebtedness" and (ii)
incurred a Lien to secure such Indebtedness pursuant to the covenant described
under "-- Liens," and (b) the sale portion of such sale and leaseback
transaction complies with the covenant described in "-- Repurchase at the Option
of Holders -- Asset Sales," and the net proceeds from such sale are applied in
accordance with such covenant.
Business Activities. The Indenture will provide that the Company will not,
and will not permit any of its Restricted Subsidiaries to, engage in any
business other than the Shipyard Business.
Payments for Consent. The Indenture will provide that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture, the Notes, the Pledge Agreement or the Subsidiary Guarantees unless
such consideration is offered to be paid or is paid to all Holders of the Notes
that so consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports. The Indenture will provide that, whether or not required by the
rules and regulations of the Commission, so long as any Notes are outstanding,
the Company will furnish to the Holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an "Event
of Default": (i) default for 30 days in the payment when due of any interest
payable with respect to the Notes at any time (provided that such 30-day grace
period shall be inapplicable for the first two scheduled
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interest payments due on the Notes); (ii) default in payment when due (whether
at maturity, upon redemption or repurchase, or otherwise) of the principal of or
premium, if any, on the Notes; (iii) failure by the Company or a Restricted
Subsidiary to comply with the provisions described under "-- Security,"
"-- Subsidiary Guarantees," "-- Repurchase at the Option of Holders -- Change of
Control," "-- Repurchase at the Option of Holders -- Asset Sales" or "Certain
Covenants -- Merger, Consolidation, or Sale of Assets;" (iv) failure by the
Company or any Restricted Subsidiary for 30 days after notice from the Trustee
or Holders of at least 25% in aggregate principal amount of the Notes to the
Company and the Trustee to comply with any of its other agreements in the
Indenture or the Notes; (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is Guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
following the expiration of the grace period provided in such Indebtedness on
the date of such default (a "Payment Default") or (b) results in the
acceleration of such Indebtedness (including any obligation to redeem or
repurchase such Indebtedness) prior to its express maturity and, in each case,
the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $1 million
or more; (vi) failure by the Company or any of its Restricted Subsidiaries to
pay final non-appealable judgments rendered against the Company or any of its
Restricted Subsidiaries aggregating in excess of $1 million, which judgments are
not paid, discharged or stayed for a period of 60 days after such judgments
become final and non-appealable; (vii) certain events of bankruptcy or
insolvency with respect to the Company or any Restricted Subsidiary; (viii)
certain events of breach, default, repudiation or unenforceability of the Pledge
Agreement; and (ix) any Guarantee of the Notes shall be held in a judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect, or any Restricted Subsidiary, or any Person acting on
behalf of any Restricted Subsidiary, shall deny or disaffirm its obligations
under its Guarantee of any Notes.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary of the Company, all outstanding Notes will become due and payable
without further action or notice by the Trustee or any Holder. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or a
Restricted Subsidiary with the intention of avoiding payment of the premium that
the Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to the optional redemption provisions of the Indenture, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes. If an Event of
Default occurs prior to February 1, 2003 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company or a Restricted
Subsidiary with the intention of avoiding the prohibition on redemption of the
Notes prior to such date, then the premium specified in the Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
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The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
the principal of, premium or interest on the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to discharge all of
its obligations with respect to the outstanding Notes and all obligations of the
Restricted Subsidiaries under the Subsidiary Guarantees ("Legal Defeasance")
except for (i) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of and premium, if any, and interest on the Notes when
such payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of transfers or exchanges of Notes, replacement of mutilated,
destroyed, lost or stolen Notes as required by the Indenture and the maintenance
of an office or agency for payment and money for security payments held in
trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith and (iv) the Legal
Defeasance and optional redemption provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have its obligations
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including nonpayment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars or non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
without reinvestment (and without other assets held pursuant to the Pledge
Agreement), in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (a) the Company has received from, or
there has been published by, the IRS a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the
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Company or any of its Subsidiaries is bound; (vi) the Company shall have
delivered to the Trustee an Officer's Certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of Notes over
the other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (vii) the Company
shall have delivered to the Trustee an Officer's Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of such Note
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Pledge Agreement, the Notes or the Subsidiary Guarantees may be amended or
supplemented by the Company, each Restricted Subsidiary, and the Trustee with
the consent of the Holders of at least a majority in principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or non-compliance with any provision of the Indenture,
the Pledge Agreement, the Notes or the Subsidiary Guarantees may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver; (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described under " -- Repurchase at the
Option of Holders"); (iii) reduce the rate of or change the time for payment of
interest on any Note; (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration); (v) make any Note payable in money other than that
stated in the Notes; (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on the Notes;
(vii) waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described under " -- Repurchase at the Option
of Holders"); (viii) release any Collateral from the Lien created by the Pledge
Agreement, except in accordance with the terms thereof, or amend the terms
thereof relating to release of Collateral; (ix) release any Restricted
Subsidiary from its Subsidiary Guarantee except as permitted hereunder; (x) make
any change in the provisions of the Indenture requiring any Guarantees thereof
or in the provisions of any such Guarantees; or (xi) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Restricted Subsidiaries and the Trustee may amend or supplement
the Indenture, the Pledge Agreement, the Notes or the Subsidiary Guarantees to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the assumption
of the Company's obligations to Holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the
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Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, to add Guarantees of Restricted Subsidiaries with
respect to the Notes or to comply with requirements of the Commission in order
to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of Notes)
as to all outstanding Notes when (i) either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust with the Trustee and thereafter repaid to the Company or
discharged from such trust) have been delivered to the Trustee for cancellation;
or (b) all such Notes not theretofore delivered to the Trustee for cancellation
have become due and payable, will become due and payable by their terms within
one year, or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and in each
case the Company has irrevocably deposited or caused to be deposited with the
Trustee funds in an amount of money in U.S. dollars sufficient to pay and
discharge the entire indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, for the principal amount, premium, if any, and accrued
and unpaid interest to the date of such deposit together with irrevocable
instructions from the Company directing the Trustee to apply such funds to the
payment thereof; (ii) the Company has paid all other sums payable by it under
the Indenture; and (iii) the Company has delivered irrevocable instructions to
the Trustee to apply the deposited money toward the payment of the Notes at
maturity, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an opinion of counsel stating that all conditions precedent
under the Indenture to satisfaction and discharge have been complied with.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS AND
STOCKHOLDERS
No past, present or future director, officer, employee, incorporator,
partner or stockholder of either of the Company or any of its Subsidiaries, as
such, shall have any liability for any obligations of the Company or its
Subsidiaries under the Notes, the Subsidiary Guarantees or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes and the Subsidiary Guarantees. Such waiver will not be effective to
waive liabilities under the federal Securities laws. It is the view of the
Commission that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to
continue, or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the Indenture and
the Pledge Agreement without charge by writing to the Company, 4000 S. Sherwood
Forest Blvd., Suite 603, Baton Rouge, Louisiana, 70816, Attention: Chief
Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The Notes to be sold as set forth herein will initially be issued in the
form of one Global Note (the "Global Note"). The Global Note will be deposited
on the date of the closing of the sale of the Notes offered hereby (the "Closing
Date") with the Trustee as custodian for The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the
Underwriters), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depositary's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of the
principal amount of the Global Note and (ii) beneficial ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form ("Certificated Notes")
of securities that they own. Consequently, the ability to transfer Notes
evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of the Global
Note, the Global Note Holder will be considered the sole owner or Holder under
the Indenture of any Notes evidenced by the Global Note. Beneficial owners of
Notes evidenced by the Global Note will not be considered the owners or Holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
Except as provided below, owners of beneficial interests in the Global Note will
not be entitled to have Notes registered in their names and will not receive or
be entitled to receive physical delivery of Notes in definitive form. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Company to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their
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respective holdings of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
As long as the Notes are represented by a Global Note, the Depositary's
nominee will be the holder of the Notes and therefore will be the only entity
that can exercise a right to repayment or repurchase of the Notes. See
"-- Repurchase at the Option of Holders -- Change of Control" and "-- Asset
Sales." Notice by the Depositary's Participants or the Depositary's Indirect
Participants or by owners of beneficial interests in a Global Note held through
such Participants or Indirect Participants of the exercise of the option to
elect repayment of beneficial interests in Notes represented by a Global Note
must be transmitted to the Depositary in accordance with its procedures on a
form required by the Depositary and provided to Participants. In order to ensure
that the Depositary's nominee will timely exercise a right to repayment with
respect to a particular Note, the beneficial owner of such Note must instruct
the broker or other Participant or Indirect Participant through which it holds
an interest in such Note to notify the Depositary of its desire to exercise a
right to repayment. Different firms have cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other Participant or Indirect Participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to the
Depositary. The Company will not be liable for any delay in delivery of notices
of the exercise of the option to elect repayment.
The Company will issue Notes in definitive form in exchange for the Global
Note if, and only if, either (1) the Depositary is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, or (2) an Event of Default has occurred and is
continuing and the Notes registrar has received a request from the Depositary to
issue Notes in definitive form in lieu of all or a portion of the Global Note.
In either instance, an owner of a beneficial interest in the Global Note will be
entitled to have Notes equal in principal amount to such beneficial interest
registered in its name and will be entitled to physical delivery of such Notes
in definitive form. Notes so issued in definitive form will be issued in
denominations of $1,000 and integral multiples thereof and will be issued in
registered form only, without coupons.
Certified Notes
If the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days then, upon surrender by the Global
Note Holder of its Global Note, Notes in the form of registered definitive Notes
will be issued to each person that the Global Note Holder and the Depositary
identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture will require that payments in respect of the Notes
represented by the Global Note (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any, and
interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. The Company expects that
secondary trading in the Certificated Notes will be settled in immediately
available funds.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full description of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness Incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (a) the direct or indirect sale, lease, license,
conveyance or other disposition of any assets or rights (including, without
limitation, by way of a sale and leaseback or similar arrangement, by merger or
consolidation) by the Company or a Restricted Subsidiary (a "disposition"), in
one transaction or a series of transactions; provided that the disposition of
all or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described under "-- Repurchase at the Option of Holders -- Change of
Control" and/or the provisions described under "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets" and not by the provisions of the covenant
described under "-- Repurchase at the Option of Holders -- Asset Sales," and (b)
the issuance or disposition by the Company or any of its Restricted Subsidiaries
of Equity Interests of the Company's Restricted Subsidiaries. Notwithstanding
the foregoing, none of the following will be deemed an Asset Sale: (i) a
disposition of assets by the Company to a Restricted Subsidiary or by a
Restricted Subsidiary to the Company or to a Restricted Subsidiary; (ii) an
issuance of Equity Interests by a Restricted Subsidiary to the Company or to a
Restricted Subsidiary; (iii) a Restricted Payment that is permitted by the
covenant described under "-- Certain Covenants -- Restricted Payments;" (iv)
dispositions in any fiscal year with Net Proceeds in the aggregate of $1 million
or less; (v) any liquidation of any Cash Equivalent; (vi) any disposition of
defaulted receivables for collection; and (vii) the grant of any Lien securing
Indebtedness (or any foreclosure thereon) to the extent that such Lien is
granted in compliance with the covenant set forth under "-- Certain
Covenants -- Liens."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bank Credit Agreement" means any senior revolving credit facility
governing Indebtedness for borrowed money owed by the Company or a Restricted
Subsidiary to banks, trust companies or other institutions that are principally
engaged in the business of lending money to businesses.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
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"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) Government Securities having maturities of not
more than twelve months from the date of acquisition, (ii) certificates of
deposit and Eurodollar time deposits with maturities of twelve months or less
from the date of acquisition, bankers' acceptances with maturities not exceeding
six months and overnight bank deposits, in each case with any member bank of the
U.S. Federal Reserve System having capital and surplus in excess of $500
million, (iii) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any financial institution meeting the qualifications specified in
clause (ii) above, and (iv) commercial paper having the rating of at least P-1
from Moody's Investors Service, Inc., or any successor to its rating business,
or at least A-1 from Standard & Poor's Ratings Group, or any successor to its
rating business, and in each case maturing within 180 days after the date of
acquisition.
"Collateral" means the Pledged Securities and the proceeds thereof.
"Consolidated EBITDA" means, with respect to the Company for any period,
the sum of, without duplication, (i) the Consolidated Net Income of the Company
and its Restricted Subsidiaries for such period, plus (ii) to the extent
deducted in the computation of such Consolidated Net Income, the Consolidated
Interest Expense for such period, plus (iii) to the extent deducted in the
computation of such Consolidated Net Income, amortization or write-off of
deferred financing charges for such period, plus (iv) provision for taxes based
on income or profits for such period (to the extent such income or profits were
included in computing Consolidated Net Income for such period), plus (v) to the
extent deducted in the computation of such Consolidated Net Income, consolidated
depreciation, depletion, amortization and other noncash charges of the Company
and its Restricted Subsidiaries required to be reflected as expenses on the
books and records of the Company, minus (vii) cash payments with respect to any
nonrecurring, noncash charges previously added back pursuant to clause (v), and
excluding (viii) the impact of foreign currency translations. Notwithstanding
the foregoing, the provision for taxes based on the income or profits of, and
the depreciation and amortization and other noncash charges of a Restricted
Subsidiary shall be added to Consolidated Net Income to compute Consolidated
EBITDA only to the extent (and in the same proportion) that the Net Income of
such Subsidiary was included in calculating the Consolidated Net Income of the
Company and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (unless such approval has been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the
aggregate liquidation value of all Disqualified Stock (and in the case of a
Restricted Subsidiary of the Company, preferred stock other than preferred stock
held by the Company or any of its Restricted Subsidiaries) of such Person, in
each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Coverage Ratio" means with respect to the Company
and its Restricted Subsidiaries for any period, the ratio of (i) Consolidated
EBITDA of the Company and its Restricted Subsidiaries for such period to (ii)
Consolidated Interest Expense of the Company and its Restricted Subsidiaries for
such period. In the event that the Company or any of its Restricted Subsidiaries
Incurs any Indebtedness (other than revolving credit borrowings pursuant to
Indebted-
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ness already Incurred in accordance herewith) or issues or redeems preferred
stock subsequent to the commencement of the four-quarter reference period for
which the Consolidated Interest Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the
Consolidated Interest Coverage Ratio is being made (the "Calculation Date") ,
then the Consolidated Interest Coverage Ratio shall be calculated giving pro
forma effect to such Incurrence of Indebtedness, or such issuance or redemption
of preferred stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. For purposes of making the computation
referred to above, (i) acquisitions that have been made by the Company or any of
its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period, and (ii) the Consolidated EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of during the four quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date, shall be excluded as
of the first day of the four quarter reference period, and (iii) the
Consolidated Interest Expense attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
during the four quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Consolidated Interest Expense
will not be obligations of the Company or any of its Restricted Subsidiaries
following the Calculation Date.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, interest payments in respect of Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), (ii) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such period, in each case, on a consolidated basis and in accordance with
GAAP, and (iii) the product of (A) the aggregate amount of dividends paid (to
the extent not accrued in a prior period) or accrued on Disqualified Stock of
the Company and its Restricted Subsidiaries or preferred stock of the Company's
Restricted Subsidiaries, to the extent such Disqualified Stock or preferred
stock is owned by Persons other than the Company and its Restricted Subsidiaries
and (B) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state, local and foreign
statutory tax rate of such Person, expressed as a decimal.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the specified Person as to which Consolidated Net Income is being
calculated, (ii) the Net Income of any Restricted Subsidiary shall be excluded
to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such Net Income would not be
permitted at the date of determination directly or indirectly, pursuant to the
terms of its charter and by-laws and all agreements, instruments, judgments,
decrees, orders, statutes, rules or governmental regulations applicable to such
Restricted Subsidiary or its stockholders, (iii) the Net Income (if positive) of
any Person acquired in a pooling of interests transaction for any period prior
to the date
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of such acquisition shall be excluded, and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred equity (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends or other
distributions, unless such dividends or other distributions may be declared and
paid only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person upon
issuance of such preferred equity, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets of
a going concern business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value of any asset
owned by such Person or a consolidated Restricted Subsidiary of such Person, (y)
all investments as of such date in Persons that are not Restricted Subsidiaries
(except, in each case, Permitted Investments), and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all of
the foregoing determined in accordance with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Eligible Receivables" means the trade receivables of the Company and its
Restricted Subsidiaries less the allowance for doubtful accounts, each of the
foregoing determined in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the date of the Indenture pro forma
after giving effect to the Offering and the use of proceeds therefrom.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy; provided that if such value exceeds $1 million, such
determination shall be made in good faith by the Board of Directors of the
Company.
"GAAP" means generally accepted accounting principles in the United States
of America set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
date of the Indenture.
"Government Securities" means direct obligations of, or obligations fully
guaranteed by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged.
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"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest or currency exchange rate swap agreements,
interest or currency exchange rate cap agreements and interest or currency
exchange rate collar agreements and (ii) other agreements or arrangements, in
any case, designed to protect such Person against fluctuations in interest or
currency exchange rates (as appropriate, "Interest Rate Hedges" and "Currency
Hedges").
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness.
"Indebtedness" means, with respect to any Person, (a) any liability of such
Person, whether or not contingent (i) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance or
note purchase facility; (ii) evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation); (iii) for the payment of
money relating to a Capital Lease Obligation; (iv) for or pursuant to
Disqualified Stock; (v) for or pursuant to preferred stock of any Restricted
Subsidiary of the Company (other than preferred stock held by the Company or any
of its Restricted Subsidiaries); (vi) representing the balance deferred and
unpaid of the purchase price of any property or services (except any such
balance that constitutes a trade payable or accrued liability in the ordinary
course of business that is not overdue by more than 90 days or is being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted); or (vii) under or in respect of Hedging Obligations; (b)
any liability of others described in the preceding clause (a) that such Person
has guaranteed, that is recourse to such Person or that is otherwise its legal
liability, or the payment of which is secured by (or for which the holder of
such liability has an existing right to be secured by) any Lien upon property
owned by such Person, even though such Person has not assumed or become liable
for the payment of such liability; and (c) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) and (b) above. The amount of any non-interest
bearing or other discount Indebtedness shall be deemed to be the principal
amount thereof that would be shown on the balance sheet of the issuer dated such
date prepared in accordance with GAAP, but such Indebtedness shall be deemed to
have been Incurred only on the date of the original issuance thereof.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations (but
excluding endorsements of negotiable instruments for collection in the ordinary
course of business)), advances or capital contributions (excluding commission,
travel and similar advances to directors, officers and employees made in the
ordinary course of business), purchases or other acquisitions (for
consideration) of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of Equity
Interests or other securities by the Company or any of its Restricted
Subsidiaries for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise
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perfected under applicable law (including any conditional sale or other title
retention agreement, and any lease in the nature thereof).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however, (i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any sales of
assets (including, without limitation, dispositions pursuant to sale and
leaseback transactions) other than in the ordinary course of business or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, (ii) any extraordinary or non-recurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or non-recurring gain (but not loss), and (iii) unrealized foreign exchange
gains (but not losses).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, (i) Cash Equivalents received as consideration in such Asset
Sale, (ii) any cash received upon the disposition of any non-cash consideration
received in such Asset Sale, and (iii) any assumption of liabilities deemed to
constitute "cash" for purposes of the covenant described in "-- Asset Sales"),
net of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions), any relocation expenses incurred as a result thereof, any taxes
paid or payable by the Company or any of its Restricted Subsidiaries as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), amounts required to be paid to any Person (other
than the Company and its Restricted Subsidiaries) having a Lien on the assets
subject to the Asset Sale, amounts required to be paid to any Person (other than
the Company or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale, and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP
(provided that the amount of any such reserve shall be deemed to constitute Net
Proceeds at the time such reserve shall have been released or is not otherwise
required to be retained for such purpose).
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender, (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity
and (iii) as to which the lenders have expressly waived any recourse which they
may have, in law, equity or otherwise, whether based on misrepresentation,
control, ownership or otherwise, to the Company or any of its Restricted
Subsidiaries, including, without limitation, a waiver of the benefits of the
provisions of Section 1111(b) of the U.S. Bankruptcy Code (Title 11, United
States Code), as amended.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the chief executive officer,
the president, the chief operating officer, the chief financial officer, the
chief accounting officer, the treasurer, any assistant treasurer, the
controller, the secretary, any assistant secretary or any vice-president of such
Person.
"Officers' Certificate" means a certificate signed on behalf of a Person by
two Officers of such Person, one of whom must be the principal executive
officer, the principal financial officer or the principal accounting officer of
such Person, that meets the requirements set forth in the Indenture.
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"Permitted Holders" means (i) Samuel F. Eakin, Frank W. Eakin and David B.
Ammons; (ii) each of their beneficiaries, estates, spouse and lineal
descendants, legal representatives of any of the foregoing and the trustee of
any bona fide trust of which any of the foregoing are the sole beneficiaries or
grantors and (iii) all Affiliates controlled by the individuals named in clause
(i) (provided that, for purposes of this clause (iii) only, the proviso set
forth in the definition of the term "Affiliate" shall be deemed modified to
provide that beneficial ownership of 50% or more of the voting securities of a
Person shall constitute, and shall be necessary to constitute, control).
"Permitted Investments" means (i) any Investment in the Company (other than
the purchase of any Equity Interests of the Company) or in a Restricted
Subsidiary of the Company; (ii) any Investment in Cash Equivalents; (iii) any
Investment by the Company or any of its Restricted Subsidiaries in a Person
engaged in the Shipyard Business if, as a result of such Investment, (A) such
Person becomes a Restricted Subsidiary of the Company or (B) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (iv) any Investment in Government
Securities in accordance with the provisions of the Pledge Agreement; (v)
Investments the payment for which consists exclusively of Equity Interests
(excluding Disqualified Stock) of the Company; (vi) Investments in shares of
money market mutual or similar funds having assets in excess of $500 million;
and (vii) Investments in negotiable instruments held for collection in the
ordinary course of business and lease, utility and similar deposits.
"Permitted Liens" means (i) Liens on receivables securing Permitted
Indebtedness Incurred pursuant to clause (i) of the definition of such term;
(ii) Liens in favor of the Company and/or its Restricted Subsidiaries; (iii)
Liens on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any of its Restricted Subsidiaries, provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company or any such Restricted Subsidiary;
(iv) Liens securing any Acquired Indebtedness and which exist at the time of
acquisition thereof by the Company or any of its Restricted Subsidiaries,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens arising under the Indenture in favor of the Trustee; (vi)
Liens existing on the date of the Indenture; (vii) Liens arising by reason of
(1) any judgment, decree or order of any court not constituting an Event of
Default; (2) taxes not yet delinquent or which are being contested in good faith
by appropriate proceedings which suspend the collection thereof, promptly
instituted and diligently conducted, and for which adequate reserves have been
established to the extent required by GAAP; (3) security for payment of workers'
compensation or other insurance; (4) good faith deposits in connection with
tenders, leases and contracts (other than contracts for the payment of money),
bids, licenses, performance or similar bonds and other obligations of a like
nature, in the ordinary course of business; (5) zoning restrictions, easements,
licenses, reservations, provisions, covenants, conditions, waivers, restrictions
on the use of property or minor irregularities of title (and with respect to
leasehold interests, mortgages, obligations, Liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without consent of the
lessees), none of which materially impairs the use of any parcel of property
material to the operation of the business of the Company or any Restricted
Subsidiary or the value of such property for the purpose of such business; (6)
deposits to secure public or statutory obligations or in lieu of surety or
appeal bonds; (7) surveys, exceptions, title defects, encumbrances, easements,
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph or telephone lines and other similar purposes or zoning or other
restrictions as to the use of real property not interfering with the ordinary
conduct of the business of the Company or any of its Restricted Subsidiaries; or
(8) operation of law or statute and incurred in the ordinary course of business,
including without limitation, those in favor of mechanics, materialmen,
suppliers, laborers or employees, and, if securing sums of money, for sums which
are not yet delinquent or are being contested in good faith by appropriate
proceedings which suspend the collection thereof, promptly instituted and
diligently conducted, and for which adequate reserves
80
<PAGE> 81
have been established to the extent required by GAAP; (viii) Liens created by
the Pledge Agreement; (ix) Liens resulting from the deposit of funds or
Government Securities in trust for the purpose of decreasing or defeasing
Indebtedness of the Company and its Restricted Subsidiaries so long as such
deposit of funds or Government Securities and such decreasing or defeasing of
Indebtedness are permitted under the "Restricted Payments" covenant; (x) Liens
securing obligations in a maximum aggregate amount not to exceed $5 million; and
(xi) any extension, renewal or replacement (or successive extensions, renewals
or replacements), in whole or in part, of any Lien referred to in the foregoing
clauses (iii), (iv) and (vi) above; provided that the principal amount of the
Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness secured thereby immediately prior to the time of such extension,
renewal or replacement, and that such extension, renewal or replacement Lien
shall be limited to all or a part of the property that secured the Lien so
extended, renewed or replaced (plus improvements on such property).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used by such Person to extend, refinance, renew, replace,
defease or refund other Indebtedness of such Person ("Old Indebtedness");
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Old Indebtedness; (ii) such Permitted
Refinancing Indebtedness has a final maturity date equal to or later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Old Indebtedness;
(iii) if the Old Indebtedness is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness is subordinated in right of payment to
the Notes on terms at least as favorable to the Holders as those contained in
the documentation governing the Old Indebtedness; (iv) such Permitted
Refinancing Indebtedness is on terms that are no more restrictive, as a whole,
than those governing such Old Indebtedness; and (v) such Permitted Refinancing
Indebtedness is Incurred only by the Company or the Restricted Subsidiary that
is the obligor on the Old Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, limited partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Pledge Account" means an account established with the Trustee pursuant to
the terms of the Pledge Agreement for the deposit of the Pledged Securities
purchased by the Company with a portion of the proceeds from the sale of the
Notes.
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the date of the Indenture, by and between the Company and the
Trustee governing the disbursement of funds from the Pledge Account, as such may
be amended from time to time pursuant to the terms thereof.
"Pledged Securities" means the securities purchased with a portion of the
proceeds from the sale of the Notes, which shall consist of Government
Securities, to be deposited in the Pledge Account.
"Public Equity Offering" means an underwritten public offering for cash by
the Company of its Capital Stock (other than Disqualified Stock) to any Person
other than a Subsidiary of the Company pursuant to a registration statement that
has been declared effective by the Commission (other than a registration
statement on Form S-8 or any successor form or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
81
<PAGE> 82
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Shipyard Business" means the business of the provision of construction,
repair, fabrication, labor and environmental services to the maritime,
transportation and oilfield industries, together with all activities ancillary
thereto.
"Subordinated Indebtedness" means Indebtedness of the Company (or a
Restricted Subsidiary) that is expressly subordinated in right of payment to the
Notes (or a Subsidiary Guarantee, as appropriate).
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof). Unless indicated to
the contrary, "Subsidiary" refers to a Subsidiary of the Company.
"Subsidiary Guarantee" means an unconditional guaranty of the Notes and the
Indenture given by any Restricted Subsidiary or other Person pursuant to the
terms of the Indenture or any supplement thereto.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors of the Company, but only to the extent that
such Subsidiary (i) has no Indebtedness other than Non-Recourse Debt, (ii) does
not own any Equity Interests of, or own or hold any Lien on, any property of the
Company or any Restricted Subsidiary of the Company (other than any Subsidiary
of the Subsidiary to be so designated), (iii) has not, and the Subsidiaries of
such Subsidiary have not at the time of designation, and does not thereafter,
Incur any Indebtedness pursuant to which the lender has recourse to any of the
assets of the Company or any of its Restricted Subsidiaries, (iv) is not party
to any material agreement, contract, arrangement or understanding with the
Company or any of its Restricted Subsidiaries unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company, (v) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (a) to subscribe for additional Equity
Interests or (b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results, (vi) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries and (vii)
has at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors of the Company shall be evidenced to the Trustee by filing
with the Trustee a certified copy of the resolution of the Board of Directors of
the Company giving effect to such designation and an Officers' Certificate
certifying that (i) such designation complied with the foregoing conditions,
(ii) such designation was permitted by the covenant described under "-- Certain
Covenants -- Restricted Payments," (iii) immediately after giving effect to such
designation, the Company could Incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption
82
<PAGE> 83
"-- Certain Covenants -- Incurrence of Indebtedness" and (iv) no Default or
Event of Default would be in existence immediately following such designation.
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness,
Liens or agreements of such Subsidiary shall be deemed to be Incurred or created
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness, Liens or agreements are not permitted to be Incurred or created as
of such date under the covenants described under "-- Certain Covenants," the
Company shall be in default of such covenants). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary, provided that such designation shall be deemed to be an Incurrence
of Indebtedness and a creation of Liens and agreements by a Restricted
Subsidiary of the Company of any outstanding Indebtedness, Liens or agreements
of such Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness, Liens and agreements are permitted under the covenants
described under "-- Certain Covenants," and (ii) no Default or Event of Default
would be in existence immediately following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
83
<PAGE> 84
UNDERWRITING
The Company and Schroder & Co. Inc. (the "Underwriter") have entered into
an agreement (the "Underwriting Agreement"), pursuant to which, subject to the
terms and conditions of the Underwriting Agreement, the Company has agreed to
sell to the Underwriter, and the Underwriter has agreed to purchase from the
Company, $90.0 million aggregate principal amount of the Notes.
The Underwriting Agreement provides that the Underwriter's obligation to
pay for and accept delivery of the Notes is subject to certain conditions
precedent and that the Underwriter will be obligated to purchase all such Notes
if any are purchased. The Underwriter has informed the Company that no sales of
Notes will be confirmed to discretionary accounts.
The Company has been advised by the Underwriter that it proposes initially
to offer the Notes to the public 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 0.5% of the principal amount of the Notes. The
Underwriter may allow and such dealers may reallow a concession not in excess of
0.5% of the principal amount of the Notes to certain other brokers and dealers.
After the Offering, the public offering price, the concession and reallowances
to dealers and other selling terms may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities that it may incur in connection with the sale of the Notes,
including liabilities arising under the Securities Act, and to contribute to
payments that the Underwriter may be required to make with respect thereto.
There is currently no trading market for the Notes, and the Company does
not intend to apply for listing of the Notes on a national securities exchange.
The Company has been advised by the Underwriter that the Underwriter currently
intends to make a market in the Notes; however, the Underwriter is not obligated
to do so and may discontinue any such market-making at any time without notice.
No assurance can be given as to the development or liquidity of any trading
market for the Notes.
In connection with this Offering, the Underwriter and its affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Notes. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
persons may bid for or purchase Notes for the purpose of stabilizing their
market price. The Underwriter also may create a short position for its account
by selling more Notes in connection with the Offering than it is committed to
purchase from the Company, and in such case may purchase Notes in the open
market following completion of the Offering to cover all or a portion of such
short position. In addition, the Underwriter may impose "penalty bids" under
contractual arrangements with the Underwriter whereby it may reclaim from a
dealer participating in the Offering, for the account of the Underwriter, the
selling concession with respect to Notes that are distributed in the Offering
but subsequently purchased for the account of the Underwriter in the open
market. Any of the transactions described in this paragraph may result in the
maintenance of the price of the Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph are required, and, if they are undertaken, they may be discontinued at
any time.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon by Griggs &
Harrison, P.C., Houston, Texas. Certain legal matters in connection with the
Offering will be passed upon for the Underwriter by Baker & Botts, L.L.P., New
York, New York.
84
<PAGE> 85
EXPERTS
The Company's Consolidated Financial Statements as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996, and
as of and for the nine-month period ended September 30, 1997, included in this
Prospectus and the Company's Registration Statement on Form S-1 (the
"Registration Statement"), have been audited by Grant Thornton LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing in giving said report.
Bludworth's Consolidated Financial Statements as of March 31, 1997 and 1996
and for each of the two years in the period ended March 31, 1997, and as of and
for the six-month period ended September 30, 1997, included in this Prospectus
and the Company's Registration Statement, have been audited by Grant Thornton
LLP, independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act, with respect to the Notes offered by this Prospectus. This
Prospectus, which constitutes a part of such Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to such Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Notes offered hereby, reference
is made to the Registration Statement, including the exhibits thereto. The
Registration Statement may be inspected without charge at the public reference
facilities maintained by the Commission and at the Regional Offices of the
Commission, and copies may be obtained from the Commission at prescribed rates.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission 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.
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Exchange Act, and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7
World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its security holders with annual reports
containing audited Consolidated Financial Statements certified by an independent
public accounting firm and quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
85
<PAGE> 86
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
First Wave Marine, Inc. and Subsidiaries
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996 and as of September 30, 1997...................... F-3
Consolidated Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1996 (Unaudited) and 1997... F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1994, 1995 and 1996 and for
the nine months ended September 30, 1997............... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1996 (Unaudited) and 1997... F-6
Notes to Consolidated Financial Statements................ F-7
John Bludworth Marine, Inc. and Subsidiary
Report of Independent Certified Public Accountants........ F-17
Consolidated Balance Sheets as of March 31, 1996 and 1997
and as of September 30, 1997........................... F-18
Consolidated Statements of Earnings for the years ended
March 31, 1996 and 1997 and for the six months ended
September 30, 1996 (Unaudited) and 1997................ F-19
Consolidated Statement of Stockholder's Equity for the
years ended March 31, 1996 and 1997 and for the six
months ended September 30, 1997........................ F-20
Consolidated Statements of Cash Flows for the years ended
March 31, 1996 and 1997 and for the six months ended
September 30, 1996 (Unaudited) and 1997................ F-21
Notes to Consolidated Financial Statements................ F-22
</TABLE>
F-1
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
First Wave Marine, Inc.
We have audited the accompanying consolidated balance sheets of First Wave
Marine, Inc. and Subsidiaries as of September 30, 1997 and December 31, 1996 and
1995, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the nine months ended September 30, 1997 and for each of the
years in the three year period ended December 31, 1996. 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 First Wave Marine, Inc. and
Subsidiaries as of September 30, 1997 and December 31, 1996 and 1995, and the
results of its operations and its cash flows for the nine months ended September
30, 1997 and for each of the years in the three year period ended December 31,
1996, in conformity with generally accepted accounting principles.
Grant Thornton LLP
Houston, Texas
November 8, 1997
(except for the
third paragraph of
Note A11, as to which
the date is November 20, 1997, and the second,
fifth and sixth paragraphs of Note O, as to
which the date is January 26, 1998).
F-2
<PAGE> 88
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................... $ 66 $ -- $ 1,079
Accounts receivable, including unbilled receivables of
$734, $1,973 and $3,528.............................. 3,884 6,182 7,228
Inventories............................................. 309 566 652
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ 874 90 --
Other................................................... 133 283 243
Income tax receivable................................... -- 139 --
Deferred income taxes................................... 43 23 80
------ ------- -------
Total current assets............................ 5,309 7,283 9,282
PROPERTY AND EQUIPMENT, NET............................... 1,028 16,755 22,372
ORGANIZATION AND LOAN COSTS, net of accumulated
amortization of $51, $136 and $219...................... 167 662 704
DEPOSITS.................................................. 290 232 200
------ ------- -------
$6,794 $24,932 $32,558
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Due to bank............................................. $ -- $ 88 $ --
Notes payable........................................... 3,488 1,519 219
Current portion of long-term obligations................ 1,031 877 1,333
Trade accounts payable.................................. 853 897 812
Accrued liabilities..................................... 871 1,188 1,861
------ ------- -------
Total current liabilities....................... 6,243 4,569 4,225
LONG-TERM OBLIGATIONS, net of current portion............. 97 10,872 15,082
SUBORDINATED DEBT......................................... -- 6,914 6,884
DEFERRED INCOME TAXES..................................... 14 236 563
OTHER LIABILITIES......................................... 21 57 441
MINORITY INTEREST IN SUBSIDIARY........................... 85 391 928
COMMITMENTS AND CONTINGENCIES............................. -- -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 2,000 shares
authorized, no shares issued......................... -- -- --
Common stock, no par value in 1995 and 1996, $.01 par
value in 1997, 21,000 shares authorized, 10,650
shares issued and outstanding at December 31, 1995
and 1996 and 10,758 shares issued and outstanding at
September 30, 1997................................... 1 1 10
Additional paid-in capital.............................. -- -- 2
Retained earnings....................................... 333 1,892 4,423
------ ------- -------
334 1,893 4,435
------ ------- -------
$6,794 $24,932 $32,558
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 89
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Repair and conversions................ $11,693 $15,392 $20,997 $14,965 $19,801
New construction...................... 1,391 3,321 2,841 1,898 881
Environmental services................ 2,263 3,287 4,119 3,062 3,784
------- ------- ------- ------- -------
15,347 22,000 27,957 19,925 24,466
COST OF REVENUES........................ 12,591 17,043 18,623 13,886 14,330
------- ------- ------- ------- -------
Gross profit.......................... 2,756 4,957 9,334 6,039 10,136
GENERAL AND ADMINISTRATIVE EXPENSES..... 2,827 3,623 5,629 4,548 3,943
------- ------- ------- ------- -------
Earnings (loss) from operations....... (71) 1,334 3,705 1,491 6,193
INTEREST EXPENSE........................ 186 247 829 380 1,280
MINORITY INTEREST IN NET EARNINGS OF
SUBSIDIARY............................ -- 76 219 66 536
------- ------- ------- ------- -------
Earnings (loss) before income taxes... (257) 1,011 2,657 1,045 4,377
INCOME TAX EXPENSE (BENEFIT)
Current............................... 2 312 856 424 1,567
Deferred.............................. -- (29) 242 105 270
------- ------- ------- ------- -------
2 283 1,098 529 1,837
------- ------- ------- ------- -------
NET EARNINGS (LOSS)................ $ (259) $ 728 $ 1,559 $ 516 $ 2,540
======= ======= ======= ======= =======
Earnings (loss) per common share........ $ (.02) $ .07 $ .15 $ .05 $ .24
Weighted average shares................. 10,650 10,650 10,650 10,650 10,650
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 90
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.......... 10,650 $ 1 $-- $ -- $ 1
Net loss.......................... -- -- -- (259) (259)
------ ---- --- ------ ------
Balance at December 31, 1994........ 10,650 1 -- (259) (258)
Distribution to stockholders...... -- -- -- (136) (136)
Net earnings...................... -- -- -- 728 728
------ ---- --- ------ ------
Balance at December 31, 1995........ 10,650 1 -- 333 334
Net earnings...................... -- -- -- 1,559 1,559
------ ---- --- ------ ------
Balance at December 31, 1996........ 10,650 1 -- 1,892 1,893
Change in par value............... -- 9 -- (9) --
Issuance of common stock.......... 108 -- 2 -- 2
Net earnings...................... -- -- -- 2,540 2,540
------ ---- --- ------ ------
Balance at September 30, 1997....... 10,758 $ 10 $ 2 $4,423 $4,435
====== ==== === ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 91
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net (loss) earnings................................... $ (259) $ 728 $ 1,559 $ 516 $ 2,540
Adjustments to reconcile net (loss) earnings to net
cash (used) provided by operating activities
Depreciation and amortization...................... 48 259 680 324 1,037
Minority interest on earnings...................... -- 76 219 66 536
Deferred income tax provision...................... -- (29) 242 105 270
Change in assets and liabilities
Increase in accounts receivable.................. (2,526) (1,357) (2,298) (2,330) (1,046)
(Increase) decrease in inventories............... (623) 314 (256) (61) (86)
(Increase) decrease in costs and estimated
earnings in excess of billings on uncompleted
contracts..................................... (1,156) 281 784 575 90
(Increase) decrease in other assets.............. (48) (89) (150) 70 40
(Increase) decrease in income tax receivable..... -- -- (139) (86) 139
(Increase) decrease in deposits.................. -- (290) 58 (32) 32
Increase (decrease) in due to bank............... -- -- 88 72 (88)
Increase (decrease) in trade accounts payable.... 1,051 (198) 44 135 (85)
Increase in accrued liabilities.................. 433 376 317 93 673
Increase (decrease) in billings in excess of
costs and estimated earnings on uncompleted
contracts..................................... 56 (56) -- -- --
Increase in other liabilities.................... 62 21 36 55 384
------- ------- ------- ------- -------
Net cash (used) provided by operating
activities.................................. (2,962) 36 1,184 (498) 4,436
Cash flows from investing activities
Acquisition of property and equipment................. (569) (934) (1,425) (857) (1,890)
Asset acquisition costs............................... -- -- -- -- (118)
------- ------- ------- ------- -------
Net cash used by investing activities......... (569) (934) (1,425) (857) (2,008)
Cash flows from financing activities
Proceeds from issuance of long-term obligations....... 41 105 3,260 3,260 900
Payments on long-term obligations..................... -- (18) (208) (208) (951)
Proceeds from issuance of notes payable............... 3,151 3,288 175 -- 230
Payments on notes payable............................. (661) (3,377) (1,905) (1,625) --
Net (payments) proceeds on revolving line of credit... 1,196 886 (567) (138) (1,530)
Loan costs............................................ -- -- (580)
Investment in Affiliate............................... (117) -- -- -- --
Issuance of common stock.............................. -- -- -- -- 2
------- ------- ------- ------- -------
Net cash provided (used) by financing
activities.................................. 3,610 884 175 1,289 (1,349)
------- ------- ------- ------- -------
Net increase (decrease) in cash............... 79 (14) (66) (66) 1,079
Cash and cash equivalents at beginning of period........ 1 80 66 66 --
------- ------- ------- ------- -------
Cash and cash equivalents at end of period.............. $ 80 $ 66 $ -- $ -- $ 1,079
======= ======= ======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest........................................... $ 99 $ 335 $ 619 $ 276 $ 1,023
Income taxes....................................... -- 240 952 489 1,155
Supplemental disclosure of non-cash transactions
During 1997 and 1996, the Company financed the
purchase of assets with term debt and notes payable
in the amount of $4,687 and $14,897, respectively
During 1995, assets of $136 were distributed to the
stockholders.
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 92
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.
1. PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
First Wave Marine, Inc. (the Company) and its majority-owned subsidiaries,
Newpark Shipbuilding and Repair, Inc. (Newpark), EAE Industries, Inc., Newpark
Marine Fabricators, Inc. and Louisiana Ship, Inc. The minority interest
stockholders of Newpark are current and former employees of Newpark. All
material intercompany balances and transactions have been eliminated in
consolidation.
The Company's business is concentrated in providing shipyard and related
environmental services to the offshore support vessel, offshore barge and inland
marine industries, and the Company customarily extends credit to such customers.
The Company provides a full range of repair and construction services as well as
environmental services including cleaning, degassing and wastewater disposal
from its location along the Houston Ship Channel in Houston, Texas.
2. ACCOUNTS RECEIVABLE
Management considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is recorded. If collection of
amounts become uncertain, an allowance will be established.
3. REVENUE RECOGNITION
Revenues from new construction performed under lump-sum contracts are
recognized on the percentage-of-completion method, measured by the percentage of
labor hours incurred to date to estimated total labor hours for each contract.
This method is used because management considers expended labor hours to be the
best available measure of progress on these contracts.
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. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Profit
incentives are included in revenues when their realization is reasonably
assured. An amount equal to contract costs attributable to claims is included in
revenues when realization is probable and the amount can be reliably estimated.
The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed.
Revenues from repairs, conversions and environmental services performed
under time-and-materials and fixed-fee arrangements are recognized as the
services are provided. Revisions to revenues and costs recognized on fixed-fee
arrangements are made in the period in which the revisions are determined.
F-7
<PAGE> 93
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of raw materials and repair parts. Inventories are
valued at the lower of cost or market using the first-in, first-out method.
5. INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is the result of changes in deferred tax
assets and liabilities.
6. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided principally on the straight-line method over the estimated useful
lives of the assets.
7. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
8. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased
with an original maturity of three months or less to be cash equivalents.
9. ORGANIZATION AND LOAN COSTS
Organization costs are amortized using the straight-line method over five
years. Loan costs are amortized over the life of the related loan.
10. INTERIM FINANCIAL INFORMATION
Financial information for the nine months ended September 30, 1996,
included herein, is unaudited. Such information includes all adjustments
(consisting only of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair presentation of the financial information in
the interim periods. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results for the full
fiscal year.
11. EARNINGS PER SHARE
Earnings per common share is calculated by dividing net earnings available
for common stockholders by the weighted average number of common stock shares
outstanding during the period.
On September 30, 1997, the Company merged into and became a Delaware
corporation which effectively resulted in a stock split of 1,000 for 1. All
share and per share data have been restated to give effect to the stock split.
F-8
<PAGE> 94
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 20, 1997, the Company's common stock was split 10.65 for 1 to
stockholders of record on November 20, 1997, and was effected as a stock
dividend. All share and per share data have been restated to give effect to the
stock split.
NOTE B -- CONTRACTS IN PROGRESS
Information regarding new construction under lump-sum contracts in progress
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997
----------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Expenditures on uncompleted contracts...... $1,389 $712 $1,487 $--
Estimated earnings......................... 1 162 531 --
------ ---- ------ ------
1,390 874 2,018 --
Less billings applicable thereto........... 290 -- 1,928 --
------ ---- ------ ------
Costs and estimated earnings in excess of
billings on uncompleted contracts........ $1,100 $874 $ 90 $--
====== ==== ====== ======
Included in the accompanying balance sheet
under the following caption:
Costs and estimated earnings in excess of
billings on uncompleted contracts..... $1,156 $874 $ 90 $--
Billings in excess of costs and estimated
earnings on uncompleted contracts..... (56) -- -- --
------ ---- ------ ------
$1,100 $874 $ 90 $--
====== ==== ====== ======
</TABLE>
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES IN --------------------------- SEPTEMBER 30,
YEARS 1995 1996 1997
--------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Land....................................... -- $-- $ 3,355 $ 4,831
Buildings.................................. 31-40 345 4,584 7,568
Automobiles................................ 5-7 33 59 160
Office furniture, fixtures and equipment... 3-5 134 211 2,546
Equipment.................................. 5-16 772 9,397 9,078
------ ------- -------
1,284 17,606 24,183
Less accumulated depreciation......... 256 851 1,811
------ ------- -------
$1,028 $16,755 $22,372
====== ======= =======
</TABLE>
F-9
<PAGE> 95
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Revolving line of credit of $4,000 at a bank;
interest at prime plus 1% (9.25% at December 31,
1996) due monthly; maturing September 4, 1997 or on
demand; collateralized by receivables, inventory
and guaranteed by the chairman of the Company...... $ -- $1,519 $ --
Revolving line of credit of $3,000 at a bank;
interest at prime plus 2.5% (11% at December 31,
1995) due monthly; paid in 1996.................... 2,086 -- --
Note payable to a bank; interest at prime plus 2%
(10.5% at December 31, 1995) due upon completion of
a certain construction contract; paid in 1996...... 850 -- --
Notes payable to corporations; interest ranging from
7% to 10% due monthly; paid in 1996................ 552 -- --
Note payable to a corporation; unsecured; due on
demand; interest at 7%............................. -- -- 219
------ ------ -------
$3,488 $1,519 $ 219
====== ====== =======
</TABLE>
NOTE E -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
Note payable to a financial institution; due in
monthly installments of $159 including interest at
10.42% through September 2003; collateralized by
all assets, stock issued, and guaranteed by the
chairman of the Company........................... $ -- $11,630 $11,092
Subordinated note payable to a corporation; interest
at 5%; principal and interest due September 2003;
collateralized by all assets, stock issued, and
guaranteed by the chairman of the Company......... -- 6,328 6,328
Notes payable to a bank; interest ranging from 8% to
10.75%; due in monthly installments of $5 through
March 2000, collateralized by certain assets and
guaranteed by the chairman of the Company......... 128 119 --
Note payable to a corporation; interest at 7% due
monthly; principal and accrued but unpaid interest
due June 30, 1996, paid in 1996................... 1,000 -- --
</TABLE>
F-10
<PAGE> 96
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
Subordinated note payable to a corporation; due in
monthly installments of $7 including interest of
8% through September 2003. Additional payments of
principal of $40 are due on each of the third,
fourth, fifth and sixth anniversary dates of the
note, and guaranteed by the chairman of the
Company........................................... -- 586 556
Note payable to a financial institution; due in
monthly installments of $10, including interest at
9.25% through February 2002; collateralized by
equipment, and guaranteed by the chairman of the
Company........................................... -- -- 512
Note payable to a financial institution; due in
monthly installments of $8, including interest at
9.90% through August 2003; collateralized by all
assets, stock issued, and guaranteed by the
chairman of the Company........................... -- -- 596
Note payable to a bank; due in monthly installments
of $21, including interest at prime plus 1%
through August 2000; collateralized by accounts
receivable, inventories and property and
equipment, and guaranteed by the chairman of the
Company........................................... -- -- 616
Capital lease obligation............................ -- -- 3,209
Other long-term obligations......................... -- -- 390
------ ------- -------
1,128 18,663 23,299
Less current portion.............................. 1,031 877 1,333
------ ------- -------
$ 97 $17,786 $21,966
====== ======= =======
</TABLE>
Maturities of long-term obligations at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------------------------------------------------------ ------
<S> <C>
1997..................................................... $ 877
1998..................................................... 894
1999..................................................... 1,010
2000..................................................... 1,091
2001..................................................... 1,205
</TABLE>
Certain notes payable are subject to loan agreements which contain, among
other things, provisions restricting other borrowings, acquisitions, capital
expenditures, redemption of the Company's stock and dividends, and require the
Company to maintain certain financial ratios.
The $6,328 subordinated note payable contains a default penalty of $2,206
if the note is not fully paid by the maturity date. It is management's intention
to pay this note in full prior to the maturity date, September 30, 2003.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term debt is
$1,118 and $17,643 at December 31, 1995 and 1996.
F-11
<PAGE> 97
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Percentage of completion allowance..................... $ 50 $ 43 $ 23
Depreciation........................................... 4 24 --
Net operating loss..................................... 74 -- --
Other.................................................. 1 -- --
Valuation allowance.................................... (129) -- --
----- ---- -----
$ -- $ 67 $ 23
===== ==== =====
Deferred tax liabilities:
Capitalized small tools................................ $ (33) $(38) $ (39)
Depreciation........................................... -- -- (197)
Other.................................................. (9) -- --
Valuation allowance.................................... 42 -- --
----- ---- -----
$ -- $(38) $(236)
===== ==== =====
</TABLE>
The reconciliation between the Company's effective income tax rate and the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate.................... 34.00% 34.00% 34.00%
Change in valuation allowance........................ (33.05) (11.09) --
Minority interest.................................... -- 2.56 2.80
State taxes.......................................... -- 2.16 3.61
Other................................................ (0.95) 0.36 0.91
------ ------ ------
Effective income tax rate.......................... --% 27.99% 41.32%
====== ====== ======
</TABLE>
The Company utilized its remaining net operating loss carryforward of $300
during 1995.
NOTE G -- LEASING ARRANGEMENTS
Prior to the acquisition of facilities and equipment in 1996, the Company
conducted its operations in leased facilities and leased certain equipment under
operating leases. Rental expense for operating leases was $1,709, $1,631 and
$1,202 for 1994, 1995 and 1996, and $1,198 and $29 for the nine months ended
September 30, 1996 and 1997.
In August 1997, the Company began a portion of its operations in leased
facilities. For financial reporting purposes, minimum lease rentals relating to
the building and land have been capitalized. The related assets and obligations
have been recorded using the Company's incremental borrowing rate at the
inception of the lease. The lease, which is noncancelable, expires in August
2002, at
F-12
<PAGE> 98
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which time ownership of the assets will transfer to the Company. The following
is a schedule of leased property under capital leases at September 30, 1997:
<TABLE>
<S> <C>
Land....................................................... $1,417
Buildings and equipment.................................... 1,792
------
$3,209
======
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases together with present value of the net minimum lease payments as
of September 30, 1997:
<TABLE>
<S> <C>
Year ended December 31:
1997.................................................. $ --
1998.................................................. --
1999.................................................. 200
2000.................................................. 595
2001.................................................. 655
Succeeding years...................................... 3,323
------
Total minimum lease payments............................... 4,773
Less amount representing interest.......................... 1,564
------
3,209
Current portion............................................ --
------
Noncurrent portion......................................... $3,209
======
</TABLE>
NOTE H -- CONTINGENCIES
The Company is involved in certain claims and lawsuits occurring in the
normal course of business. Management, after consultation with outside legal
counsel, does not believe the outcome of these actions will have a material
impact on the financial statements of the Company.
The Company is subject to extensive and changing federal, state and local
laws and regulations designed to protect the environment. The Company from time
to time is involved in administrative and other proceedings under environmental
laws involving its operations and facilities. Environmental laws could impose
liability for remediation costs or result in civil or criminal penalties in
cases of noncompliance. Environmental laws have been subject to frequent change;
therefore, the Company is unable to predict the future costs or other future
impact of environmental laws on its operations.
NOTE I -- HEALTH INSURANCE PLAN
The Company has a self-insured health plan. The aggregate annual amount of
self-insurance that must be paid before stop-loss insurance applies varies based
on enrollment and approximated $710 at December 31, 1996. The individual amount
of insurance that must be paid before stop-loss insurance applies is $50 per
individual claim. Expense under this self-insured plan was approximately $452,
$469 and $694 for the years ended December 31, 1994, 1995 and 1996 and $620 for
the nine months ended September 30, 1996.
As of January 1, 1997 the Company terminated the self-insured health plan
and accrued $181 in estimated claims payable at December 31, 1996.
F-13
<PAGE> 99
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- BENEFIT PLAN
Eligible employees of Newpark participate in a 401(k) deferred savings plan
(the Plan). Under the Plan, a participating employee may allocate up to 15% of
their salary and Newpark, at its discretion, may make contributions to the Plan.
Newpark contributed approximately $18, $26 and $42 for the years ended December
31, 1994, 1995 and 1996 and $24 and $22 for the nine months ended September 30,
1996 and 1997 to the Plan.
NOTE K -- NEW PRONOUNCEMENTS
The FASB has issued Financial Accounting Standards No. 128, Earnings per
Share, which is effective for financial statements issued after December 15,
1997. The new standard eliminates primary and fully diluted earnings per share
and requires the presentation of basic and diluted earnings per share together
with disclosure of how the per share amounts were computed.
Effective December 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 129, Disclosure of Information about Capital
Structure (SFAS 129). SFAS 129 requires that all entities disclose in summary
form within the financial statement the pertinent rights and privileges of the
various securities outstanding. An entity is to disclose within the financial
statement the number of shares issued upon conversion, exercise, or satisfaction
of required conditions during at least the most recent annual fiscal period and
any subsequent interim period presented. Other special provisions apply to
preferred and redeemable stock. The Company will adopt SFAS 129 in the fourth
quarter of 1997.
The FASB has issued Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which is effective for financial statements issued after
December 15, 1997. The new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income will include net
income plus net unrealized gains or loss on securities.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131). SFAS 131 establishes standards for the way public enterprises are to
report information about operating segments in annual financial statements and
requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic area, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
NOTE L -- RELATED PARTY TRANSACTIONS
The Company paid management fees to stockholders and entities related by
common ownership for the years ended December 31, 1994, 1995 and 1996 totaling
$333, $480 and $1,346 and for the nine months ended September 30, 1996 and 1997
totaling $1,311 and $285. Included in management fees in 1996 are $700 in
non-recurring fees paid.
The Company paid loan costs of $110 in 1996 to a related entity for
services rendered in connection with obtaining certain long-term debt.
Accounts receivable at September 30, 1997 include advances of $165 to a
company related by common ownership. Such advances bear interest at 12% and are
due on demand. The Company has pledged $100 cash to secure a bank loan of this
related company.
F-14
<PAGE> 100
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- STOCKHOLDER AGREEMENT AND STOCK PURCHASE AGREEMENT
In January 1995, Newpark entered into a Stockholder Agreement and Stock
Purchase Agreement (the Agreement) with the employee stockholders. In accordance
with the Agreement, in August 1996, Newpark granted to the employee stockholders
7.4 additional shares of common stock and recorded compensation expense of $88.
Newpark paid an additional bonus to these stockholders to provide for the taxes
incurred from the stock compensation. Under the terms of the Agreement, in the
event of death, termination of employment or proposed sale of the stock, Newpark
has the right or obligation to purchase the shares at a price and subject to
certain conditions as prescribed in the Agreement.
NOTE N -- MAJOR CUSTOMERS
The Company had the following customers to which it had sales exceeding 10%
of total Company sales:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1994 1995 1996 1996 1997
---- ------ ------ ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SEACOR Smit Inc....................... (a) (a) 22.1% 16.1% 14.9%
Kirby Corporation..................... (a) 28.0% 15.3% 15.3% 23.7%
Seariver Maritime..................... (a) 12.2% (a) (a) (a)
</TABLE>
- ---------------
(a) less than 10%
NOTE O -- SUBSEQUENT EVENTS
In October 1997, the Company entered into an agreement to acquire 100% of
the outstanding capital stock of a company that owns and operates shipyard
facilities in Pasadena, Texas and Galveston, Texas. The agreement provides for a
cash payment of $15,000 and issuance of a subordinated promissory note of
$4,000, subject to certain adjustments.
In October 1997, the Company entered into an agreement with the Newpark
minority interest shareholders to exchange the minority interest shares in
Newpark with approximately 1,000 shares of the Company representing 8.5% of
ownership. The exchange was consummated on December 31, 1997.
In October 1997, the Company entered into a lease agreement for a shipyard
facility in Galveston, Texas. The lease agreement provides for an initial term
of 15 years with options to renew up to a total term of 99 years, and monthly
lease payments of $58. The Company is further obligated to spend at least
$20,000 on improvements and equipment for the facility prior to January 31,
2001.
In November 1997, the Company entered into a non-binding letter of intent
to purchase certain shipyard assets, including real property and improvements,
in Galveston, Texas for $4,500.
On January 26, 1998, the Company filed a registration statement to sell
approximately $90 million in Senior Notes to mature in 2008. Upon consummation
of the Offering, the debt will be fully and unconditionally guaranteed, jointly
and severally, by all of the Company's direct and indirect subsidiaries. All
subsidiary guarantors were wholly-owned as of the date of the filing of the
registration statement. Newpark became a wholly-owned subsidiary on December 31,
1997, following the aforementioned exchange. The Company will be subject to
certain restrictive covenants under the related trust indenture. The indenture
will contain certain covenants that, among
F-15
<PAGE> 101
FIRST WAVE MARINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other things, limit the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends or make other distributions, repurchase
any capital stock or subordinated indebtedness, make certain investments, create
certain liens, enter into certain transactions with affiliates, sell assets,
enter into certain mergers and consolidations, allow subsidiaries to create
certain dividend and other payment restrictions, enter into sale and leaseback
transactions, and issue or sell capital stock of subsidiaries.
Management has determined that presentation of separate financial
statements of the Company's subsidiaries who will guarantee the debt would not
be material to an investment decision. The Company has minimal operations and
assets other than its investment in subsidiaries. The condensed combined
financial information for the Company's subsidiaries who will guarantee the debt
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
Current Assets
Cash and Cash Equivalents............................... $ 66 $ -- $ 966
Accounts Receivable..................................... 4,759 6,182 7,063
Other................................................... 485 1,109 913
------ ------- -------
5,310 7,291 8,942
Other..................................................... 1,317 16,987 22,570
Intangible Assets......................................... 167 662 704
------ ------- -------
Total Assets.................................... $6,794 $24,940 $32,216
====== ======= =======
Current Liabilities....................................... $5,182 $ 4,191 $ 4,143
Noncurrent Liabilities.................................... 132 18,079 22,423
Stockholders' Equity...................................... 1,480 2,670 5,650
------ ------- -------
$6,794 $24,940 $32,216
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $15,347 $22,000 $27,772 $19,690 $24,353
Gross Profit.................................. $ 2,756 $ 4,957 $18,623 $ 5,804 $10,023
Earnings from Operations...................... $ (204) $ 1,334 $ 3,736 $ 1,548 $ 6,129
Net Earnings.................................. $ (334) $ 804 $ 1,824 $ 643 $ 3,047
</TABLE>
F-16
<PAGE> 102
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
John Bludworth Marine, Inc.
We have audited the accompanying consolidated balance sheets of John
Bludworth Marine, Inc. and Subsidiary as of September 30, 1997 and March 31,
1997 and 1996, and the related consolidated statements of earnings,
stockholder's equity, and cash flows for the six months ended September 30, 1997
and the years ended March 31, 1997 and 1996. 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 consolidated financial position of John Bludworth
Marine, Inc. and Subsidiary as of September 30, 1997 and March 31, 1997 and
1996, and the consolidated results of their operations and their consolidated
cash flows for the six months ended September 30, 1997 and for the years ended
March 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Houston, Texas
November 8, 1997
F-17
<PAGE> 103
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------- SEPTEMBER 30,
1996 1997 1997
----------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.............................. $ 272 $ 183 $ 316
Accounts receivable, including unbilled receivables of
$44, $1,011 and $793................................ 1,872 4,811 5,838
Inventories............................................ 172 900 101
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 16 -- --
Prepaid expenses and other............................. 280 29 829
------ ------- -------
Total current assets........................... 2,612 5,923 7,084
PROPERTY AND EQUIPMENT, NET.............................. 3,934 7,411 10,524
DEPOSITS AND OTHER....................................... 56 66 146
------ ------- -------
$6,602 $13,400 $17,754
====== ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable.......................................... $ 723 $ 1,538 $ 945
Current portion of long-term debt...................... 25 443 624
Trade accounts payable................................. 444 865 1,033
Accrued liabilities.................................... 237 283 411
Income taxes payable................................... 111 758 1,195
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 96 -- --
------ ------- -------
Total current liabilities...................... 1,636 3,887 4,208
LONG-TERM DEBT, net of current portion................... 2,512 5,743 8,359
DEFERRED INCOME TAXES.................................... 340 380 448
COMMITMENTS AND CONTINGENCIES............................ -- -- --
STOCKHOLDER'S EQUITY
Common stock, no par value, 300,000 shares authorized,
100 shares issued and outstanding................... 1 1 1
Retained earnings...................................... 2,113 3,389 4,738
------ ------- -------
2,114 3,390 4,739
------ ------- -------
$6,602 $13,400 $17,754
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 104
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
---------------------------- ----------------------------
1996 1997 1996 1997
----------- ------------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Repair and conversions......................... $9,174 $14,790 $5,717 $15,030
New construction............................... -- 2,203 2,203 1,010
------ ------- ------ -------
9,174 16,993 7,920 16,040
COST OF REVENUES................................. 7,012 12,987 5,810 11,770
------ ------- ------ -------
Gross profit................................ 2,162 4,006 2,110 4,270
GENERAL AND ADMINISTRATIVE EXPENSES.............. 1,329 1,526 566 1,552
------ ------- ------ -------
Earnings from operations.................... 833 2,480 1,544 2,718
OTHER INCOME (EXPENSE)
Other income................................... 7 148 26 5
Interest expense............................... (326) (443) (154) (451)
------ ------- ------ -------
(319) (295) (128) (446)
------ ------- ------ -------
Earnings before income taxes................ 514 2,185 1,416 2,272
INCOME TAX EXPENSE
Current........................................ 111 774 513 848
Deferred....................................... 105 135 89 75
------ ------- ------ -------
216 909 602 923
------ ------- ------ -------
NET EARNINGS................................ $ 298 $ 1,276 $ 814 $ 1,349
====== ======= ====== =======
Earnings per common share........................ $2,980 $12,760 $8,140 $13,490
====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 105
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
YEARS ENDED MARCH 31, 1996 AND 1997 AND SIX MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ -------- -------------
<S> <C> <C> <C>
Balance at April 1, 1995................................. $ 1 $1,815 $1,816
Net earnings........................................... -- 298 298
--- ------ ------
Balance at March 31, 1996................................ 1 2,113 2,114
Net earnings........................................... -- 1,276 1,276
--- ------ ------
Balance at March 31, 1997................................ 1 3,389 3,390
Net earnings........................................... -- 1,349 1,349
--- ------ ------
Balance at September 30, 1997............................ $ 1 $4,738 $4,739
=== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE> 106
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
--------------- ---------------------
1996 1997 1996 1997
----- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings.............................................. $ 298 $ 1,276 $ 814 $ 1,349
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities
Depreciation and amortization............................. 456 517 201 371
Deferred income taxes..................................... 105 135 89 75
Gain on sale of property and equipment.................... (2) -- -- --
Change in assets and liabilities
Increase in accounts receivable........................ (173) (2,939) (562) (1,027)
(Increase) decrease in inventories..................... (63) (728) (253) 799
Decrease (increase) in costs and estimated earnings in
excess of billings on uncompleted contracts.......... 28 16 (63) --
(Increase) decrease in prepaid expenses and other...... (43) 156 92 (807)
Increase in deposits and other......................... (7) (10) (23) (80)
(Decrease) increase in trade accounts payable.......... (605) 421 (31) 168
Increase (decrease) in accrued liabilities............. 169 46 (16) 128
Decrease in billings in excess of costs and estimated
earnings on uncompleted contracts.................... (9) (96) (96) --
Increase in income taxes payable....................... 108 647 399 437
----- ------- ------ -------
Net cash provided (used) by operating
activities...................................... 262 (559) 551 1,413
Cash flows from investing activities
Acquisition of property and equipment..................... (283) (3,994) (152) (3,484)
Proceeds from sale of property and equipment.............. 29 -- -- --
----- ------- ------ -------
Net cash used by investing activities............. (254) (3,994) (152) (3,484)
Cash flows from financing activities
Proceeds from issuance of long-term debt.................. 38 6,248 1,980 2,996
Payments on long-term debt................................ (308) (2,599) (827) (199)
Proceeds from issuance of notes payable................... 185 13 -- 927
Payments on notes payable................................. -- (199) (80) (212)
Net proceeds (payments) on revolving line of credit....... 82 1,001 105 (1,308)
----- ------- ------ -------
Net cash (used) provided by financing
activities...................................... (3) 4,464 1,178 2,204
----- ------- ------ -------
Net increase (decrease) in cash................... 5 (89) 1,577 133
Cash and cash equivalents at beginning of period............ 267 272 272 183
----- ------- ------ -------
Cash and cash equivalents at end of period.................. $ 272 $ 183 $1,849 $ 316
===== ======= ====== =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest.................................................. $ 326 $ 443 $ 154 $ 451
Income taxes.............................................. -- 108 108 406
Noncash transaction
Equipment acquired in exchange for debt................... $ 520 -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 107
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
John Bludworth Marine, Inc. and Subsidiary's (the Company) business is
concentrated in providing shipyard services to the offshore support vessel,
offshore barge and inland marine industries, and the Company customarily extends
credit to such customers. The Company provides a full range of repair and
construction services from its locations along the Houston Ship Channel in
Pasadena, Texas and on Pelican Island in Galveston, Texas.
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of John
Bludworth Marine, Inc. and its wholly-owned subsidiary, Bludworth Shipyard and
Fabrication, Inc. All significant intercompany balances and transactions have
been eliminated.
2. ACCOUNTS RECEIVABLE
Management considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is recorded. If collection of
amounts becomes uncertain, an allowance will be established.
3. REVENUE RECOGNITION
Revenues from new construction performed under lump-sum contracts are
recognized on the percentage-of-completion method, measured by the cost-to-cost
method. This method is used because management considers this method to be the
best available measure of progress on these contracts.
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. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Profit
incentives are included in revenues when their realization is reasonably
assured. An amount equal to contract costs attributable to claims is included in
revenues when realization is probable and the amount can be reliably estimated.
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.
Revenues from repair and conversion services performed under
time-and-materials and fixed-fee arrangements are recognized as the services are
provided. Revisions to revenues and costs recognized on fixed-fee arrangements
are made in the period in which the revisions are determined.
F-22
<PAGE> 108
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of raw materials, repair parts and assets under
construction but not under contract. Inventories are valued at the lower of
average cost or market using the first-in, first-out method.
5. INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred income tax expense is the result of changes in deferred tax
assets and liabilities.
6. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided principally on the straightline method over the estimated useful
lives of the assets.
7. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
8. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased
with an original maturity of three months or less to be cash equivalents.
Included in cash and cash equivalents at March 31, 1996 and 1997 and September
30, 1997 is $135 held on deposit by the Company's insurance carrier.
9. INTERIM FINANCIAL INFORMATION
Financial information for the six months ended September 30, 1996, included
herein, is unaudited. Such information includes all adjustments (consisting only
of normal recurring adjustments), which are, in the opinion of management,
necessary for a fair presentation of the financial information in the interim
periods. The results of operations for the six months ended September 30, 1997
are not necessarily indicative of the results of the full fiscal year.
10. EARNINGS PER SHARE
Earnings per common share is calculated by dividing net earnings available
for common stockholders by the weighted average number of common stock shares
outstanding during the period.
F-23
<PAGE> 109
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- COSTS AND ESTIMATED EARNINGS ON LUMP-SUM CONTRACTS IN PROGRESS
Costs and estimated earnings on new construction under lump-sum contracts
in progress are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------- SEPTEMBER 30,
1996 1997 1997
------- ------ -------------
<S> <C> <C> <C>
Cost incurred on uncompleted contracts......... $ 1,614 $ -- $ --
Estimated earnings............................. -- -- --
------- ------ ------
1,614 -- --
Less billings applicable thereto............... (1,694) -- --
------- ------ ------
$ (80) $ -- $ --
======= ====== ======
Included in the accompanying balance sheets
under the following captions:
Cost and estimated earnings in excess of
billings on uncompleted contracts............ $ 16 $ -- $ --
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (96) -- --
------- ------ ------
$ (80) $ -- $ --
======= ====== ======
</TABLE>
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL MARCH 31,
LIVES IN ---------------- SEPTEMBER 30,
YEARS 1996 1997 1997
--------- ------ ------ -------------
<S> <C> <C> <C> <C>
Land.................................... -- $ 819 $1,318 $ 1,318
Buildings and improvements.............. 5-20 1,128 3,887 4,555
Automobiles............................. 3-5 101 135 135
Office furniture, fixtures and
equipment............................. 5-10 69 93 164
Machinery and equipment................. 5-20 6,048 6,726 9,472
------ ------ -------
8,165 12,159 15,644
Less accumulated depreciation........... 4,231 4,748 5,120
------ ------ -------
$3,934 $7,411 $10,524
====== ====== =======
</TABLE>
F-24
<PAGE> 110
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- SEPTEMBER 30,
1996 1997 1997
-------- ----------- -------------
<S> <C> <C> <C>
Revolving line of credit of $450 at a bank; interest
at 11.25%; due monthly; paid in 1997.............. $240 $ -- $ --
Revolving line of credit of $400 at a bank; interest
at prime plus 2.25% due monthly; paid in 1997..... 291 -- --
Revolving line of credit of $2,500 at a bank;
interest at the bank's base rate plus 1.25% (10.5%
at March 31, 1997) due monthly; maturing July 31,
1998; collateralized by accounts receivable,
inventory and equipment........................... -- 1,532 224
Other notes payable................................. 192 6 721
---- ------ ----
$723 $1,538 $945
==== ====== ====
</TABLE>
NOTE E -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------- SEPTEMBER 30,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
Note payable to a bank; principal and interest of
$19 due monthly; paid in 1997................... $1,603 $ -- $ --
Note payable to a bank; principal and interest of
$18 due monthly; paid in 1997................... 780 -- --
Notes payable to a financial institution;
principal and interest at the short-term
government rate plus 3.25% (8.75% at March 31,
1997) of $45 due monthly; maturing at various
dates through July 2004; collateralized by
certain equipment............................... -- 1,883 2,770
Note payable to a bank; principal of $22 including
interest at prime plus 0.5% (9.75% at March 31,
1997) due monthly; maturing October 2008;
collateralized by real estate................... -- 1,791 2,437
Note payable to a financial institution; principal
and interest ranging from 10% to 13% of $19 due
monthly; collateralized by real estate.......... -- 1,733 1,705
Note payable to a bank; interest at prime plus
0.75% due monthly (9.75% at March 31, 1997)
until withdrawal of maximum commitment ($4,120),
then principal of $57 plus interest of prime
plus 1.75% due monthly; collateralized by real
estate.......................................... -- 656 1,969
Other notes payable............................... 154 123 102
------ ------ ------
2,537 6,186 8,983
Less current portion.............................. 25 443 624
------ ------ ------
$2,512 $5,743 $8,359
====== ====== ======
</TABLE>
F-25
<PAGE> 111
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt at March 31, 1997 are:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31, AMOUNT
--------- ------
<S> <C>
1998................................................. $443
1999................................................. 549
2000................................................. 665
2001................................................. 717
2002................................................. 675
</TABLE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term debt
approximates recorded value.
NOTE F -- INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
MARCH 31,
--------------
1996 1997
----- -----
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit............................ $ 104 $ --
Other..................................................... 4 5
----- -----
$ 108 $ 5
===== =====
Deferred tax liabilities:
Depreciation.............................................. $(340) $(380)
===== =====
</TABLE>
Deferred tax assets are included in "Prepaid expenses and other" current
assets on the accompanying balance sheets.
The reconciliation between the Company's effective income tax rate and the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED,
MARCH 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Statutory federal income tax rate........................... 34.00% 34.00%
Officers life insurance..................................... 5.74% 2.19%
State taxes................................................. -- 4.49%
Other....................................................... 2.28% 0.92%
------ ------
Effective income tax rate 42.02% 41.60%
====== ======
</TABLE>
F-26
<PAGE> 112
JOHN BLUDWORTH MARINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company leases vehicles under noncancelable operating leases expiring
at various dates through June 2001. Future minimum lease payments under
operating leases by years at March 31, 1997 are:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
1998..................................................... $ 49
1999..................................................... 49
2000..................................................... 42
2001..................................................... 22
2002..................................................... 2
----
$164
====
</TABLE>
Rent expense for the years ended March 31, 1996 and 1997 was $49 and $124,
and for the six months ended September 30, 1996 and 1997 was $27 and $117.
The Company is involved in certain claims and lawsuits occurring in the
normal course of business. Management, after consultation with outside legal
counsel, does not believe the outcome of these actions will have a material
impact on the financial statements of the Company.
Based on the results of a sales tax audit, the Company was assessed
additional taxes, penalties and interest totaling approximately $240 for prior
years by the Comptroller of Public Accounts of the State of Texas. The Company
believes the assessment is without merit and intends to vigorously defend its
position. The Company filed a motion contesting the assessment which is
currently being reviewed by an administrative law judge.
The Company is subject to extensive and changing federal, state and local
laws and regulations designed to protect the environment. The Company from time
to time is involved in administrative and other proceedings under environmental
laws involving its operations and facilities. Environmental laws could impose
liability for remediation costs or result in civil or criminal penalties in
cases of noncompliance. Environmental laws have been subject to frequent change;
therefore, the Company is unable to predict the future costs or other future
impact of environmental laws on its operations.
NOTE H -- BENEFIT PLAN
Eligible employees of the Company participate in a 401(k) deferred savings
plan (the Plan). Under the Plan, a participating employee may allocate a
percentage of their salary and the Company, at its discretion, may make
contributions to the Plan. The Company contributed approximately $37 for the six
months ended September 30, 1997. The Company made no contributions to the Plan
for the years ended March 31, 1996 and 1997.
NOTE I -- NEW PRONOUNCEMENTS
The FASB has issued Financial Accounting Standards No. 128, Earnings per
Share, which is effective for financial statements issued after December 15,
1997. The new standard eliminates primary and fully diluted earnings per share
and requires the presentation of basic and diluted earnings per share together
with disclosure of how the per share amounts were computed. The adoption of the
new standard would not have a significant effect on the Company's earnings per
share.
Effective December 1997, the Company will be required to adopt Statement of
Financial Accounting Standards No. 129, Disclosure of Information about Capital
Structure (SFAS 129). SFAS 129 requires that all entities disclose in summary
form within the financial statement the pertinent rights and privileges of the
various securities outstanding. An entity is to disclose within the
F-27
<PAGE> 113
======================================================
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MAKE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 11
The Company............................ 18
Use of Proceeds........................ 19
Capitalization......................... 20
Selected Consolidated Financial Data... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 23
Unaudited Pro Forma Consolidated
Combined Financial Information....... 28
Business............................... 33
Management............................. 47
Security Ownership of Certain
Beneficial Owners and Management..... 54
Description of Notes................... 55
Underwriting........................... 84
Legal Matters.......................... 84
Experts................................ 85
Additional Information................. 85
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
-------------------------
UNTIL FEBRUARY 23, 1998, (25 DAYS AFTER THE DATE COMMENCEMENT OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
$90,000,000
FIRST WAVE LOGO
FIRST WAVE MARINE, INC.
11% SENIOR NOTES DUE 2008
SCHRODER & CO. INC.
JANUARY 27, 1998
======================================================
