<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1999
REGISTRATION NO. 333-64687
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GREAT LAKES DREDGE & DOCK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1600 13-3634726
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION
(OF INCORPORATION OR NO.)
ORGANIZATION)
----------------
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW
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2122 YORK ROAD
OAK BROOK, ILLINOIS 60521
(630) 574-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
MR. DOUGLAS B. MACKIE
PRESIDENT & CHIEF EXECUTIVE OFFICER
GREAT LAKES DREDGE & DOCK CORPORATION
2122 YORK ROAD
OAK BROOK, ILLINOIS 60521
(630) 574-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT OR SERVICE)
----------------
WITH COPIES TO:
G. DANIEL O'DONNELL, ESQ.
DECHERT PRICE & RHOADS
4000 BELL ATLANTIC TOWER
1717 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 994-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER; JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
ADDRESS, INCLUDING ZIP CODE; AND TELEPHONE NUMBER, INCORPORATION CLASSIFICATION IDENTIFICATION
INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES OR ORGANIZATION CODE NUMBER NUMBER
- ----------------------------------------------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
Great Lakes Dredge & Dock
Company New Jersey 1600 36-1163930
2122 York Road
Oak Brook, IL 60521
(630) 574-3000
Dawson Dredging Company Delaware 1600 36-3503893
2122 York Road
Oak Brook, IL 60521
(630) 574-3000
Gates Construction Corp. New Jersey 1600 22-1539854
2122 York Road
Oak Brook, IL 60521
(630) 574-3000
Fifty-Three Dredging
Corporation New Jersey 1600 36-3177787
2122 York Road
Oak Brook, IL 60521
(630) 574-3000
</TABLE>
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE
SERIES B 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
FOR ALL OUTSTANDING
SERIES A 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
OF GREAT LAKES DREDGE & DOCK CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON MARCH 18, 1999, UNLESS EXTENDED
Great Lakes Dredge & Dock Corporation, a Delaware corporation ("Great Lakes"
or the "Company"), hereby offers to exchange an aggregate principal amount of
up to $115,000,000 of its Series B 11 1/4% Senior Subordinated Notes due 2008
(the "Exchange Notes") for a like principal amount of its Series A 11 1/4%
Senior Subordinated Notes due 2008 (the "Existing Notes") outstanding on the
date hereof (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying letter of
transmittal (the "Letter of Transmittal"). The Exchange Notes and the Existing
Notes are hereinafter collectively referred to as the "Notes."
The terms of the Exchange Notes are identical in all material respects to
those of the Existing Notes, except that (i) interest on the Exchange Notes
shall accrue from the most recent date to which interest has been paid on the
Existing Notes surrendered in exchange therefor or, if no interest has been
paid on the Existing Notes, from August 19, 1998 and (ii) the Exchange Notes
are being registered under the Securities Act of 1933, as amended (the
"Securities Act"), and will not bear any legends restricting their transfer.
The Exchange Notes will evidence the same debt as the Existing Notes and will
be issued pursuant to, and entitled to the benefits of, the indenture
governing the Existing Notes. The Exchange Offer is being made in order to
satisfy certain contractual obligations of the Company.
Interest on the Exchange Notes will be payable semi-annually on February 15
and August 15 of each year, commencing August 15, 1999 at a rate of 11 1/4%
per annum.
The Exchange Notes will mature on August 15, 2008. The Exchange Notes will
be redeemable at the option of the Company, in whole or in part, on or after
August 15, 2003, at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the date of redemption. At any time or from time
to time prior to August 15, 2003, the Company may redeem up to 35% of the
aggregate principal amount of the Notes originally issued at the redemption
price of 111.25% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption, with the net cash proceeds of one
or more Public Equity Offerings (as defined); provided, that at least 65% of
the aggregate principal amount of Notes originally issued remain outstanding
immediately thereafter. See "Description of Notes--Optional Redemption."
Upon a Change of Control (as defined), each holder of Exchange Notes will
have the right to require the Company to repurchase all of such holder's
Exchange Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. See "Description of Notes--
Repurchase at the Option of Holders--Change of Control."
Holders whose Existing Notes are accepted for exchange will be deemed to
have waived the right to receive any interest or dividends accrued on the
Existing Notes.
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 5, 1999
<PAGE>
The Exchange Notes will be general unsecured obligations of the Company,
will rank subordinate in right of payment to all Senior Debt (as defined) and
will be senior or pari passu in right of payment to any future subordinated
indebtedness of the Company. The Company's obligations under the Exchange
Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees")
by each of the Company's wholly owned domestic subsidiaries (the "Subsidiary
Guarantors"). The Subsidiary Guarantees will rank subordinate in right of
payment to all Senior Debt of each Subsidiary Guarantor, including each
Subsidiary Guarantor's guarantee of indebtedness under the New Credit Facility
(as defined). The Exchange Notes and the Subsidiary Guarantees will be
effectively subordinated to all liabilities, including trade payables, of the
Company's subsidiaries that are not Subsidiary Guarantors. As of September 30,
1998, including the effects of the Transaction (as defined), the Exchange
Notes would have been subordinated to $69.1 million of Senior Debt, excluding
contingent obligations, and effectively subordinated to $8.0 million of
liabilities (excluding $26.1 million of intercompany liabilities) of the
Company's subsidiaries that are not Subsidiary Guarantors.
The Company is offering the Exchange Notes in reliance on certain
interpretive letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties in unrelated transactions.
Based on such interpretive letters, the Company is of the view that holders of
Existing Notes (other than any holder who is an "affiliate" of the Company or
any Guarantor (as defined) within the meaning of Rule 405 under the Securities
Act) who exchange their Existing Notes for Exchange Notes pursuant to the
Exchange Offer generally may offer such Exchange Notes for resale, resell such
Exchange Notes and otherwise transfer such Exchange Notes without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided such Exchange Notes are acquired in the ordinary course of the
holders' business and such holders have no arrangement with any person to
participate in a distribution of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivery of a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, at it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Existing Notes where such Existing
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date (as defined), it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Prior to the Exchange Offer there has been no public market for the Existing
Notes. If a market for the Exchange Notes should develop, such Exchange Notes
could trade at a discount from their principal amount. The Company currently
does not intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system, and no
active public market for the Exchange Notes is currently anticipated. There
can be no assurance that an active public market for the Exchange Notes will
develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING SECURITIES IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT
BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement. For further information with respect to
the Company and the Exchange Offer, reference is made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference.
Upon the effectiveness of the Registration Statement of which this
Prospectus is a part, the Company will be subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will file periodic reports and
other information with the Commission. Such periodic reports and other
information filed with the Commission, including the Registration Statement,
may be inspected without charge at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of such
material may be obtained from the Public Reference Section of the Commission
upon payment of certain prescribed fees. In addition, the Commission maintains
a website that contains periodic reports and other information filed by
registrants such as the Company. This address of the website is
http://www.sec.gov. Copies of such material can also be obtained from the
Company upon request.
While any Exchange Notes remain outstanding, the Company will make
available, on request, to any holder and any prospective purchaser of Exchange
Notes the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act.
FORWARD-LOOKING STATEMENTS
This Prospectus, including the "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Private Securities
Litigation Reform Act of 1995 does not apply by its terms to this Prospectus
or the Exchange Offer. Forward-looking statements can be identified by the use
of forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "plan," "the Company believes," "estimate," "continue," or
"position" or the negative thereof or other variations thereon or comparable
terminology. In particular, any statements, express or implied, concerning
future operating results or the ability to generate revenues, income or cash
flow to service the Exchange Notes are forward-looking statements. Investors
in the Exchange Notes offered hereby are cautioned that reliance on any
forward-looking statements involves risks and uncertainties and that, although
the Company believes that the assumptions on which the forward-looking
statements contained herein are based are reasonable, any of those assumptions
could be incorrect, and actual results may differ materially from any results
indicated or suggested thereby. The uncertainties in this regard include, but
are not limited to, those identified herein under "Risk Factors." In light of
these and other uncertainties, the inclusion of a forward-looking statement
herein should not be regarded as a representation by the Company that the
Company's plans and objectives will be achieved. All forward-looking
statements are expressly qualified by such cautionary statements, and the
Company expressly disclaims any duty to update such forward-looking
statements.
i
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements of the Company, including the notes thereto (the "Financial
Statements"), included elsewhere in this Prospectus. Unless otherwise noted,
the term "AcquisitionCo" means Great Lakes Dredge & Dock Acquisition, Inc. and
the "Company" or "Great Lakes" refers to Great Lakes Dredge & Dock Corporation
and its subsidiaries. As used herein (i)"Recapitalization" refers to the
recapitalization of the Company pursuant to the terms of the Merger Agreement
(as defined) by and among AcquisitionCo, the Company, the stockholders of the
Company and Vectura Holding Company LLC ("Vectura") and (ii) "Transaction"
refers to the Recapitalization, the financing of the Recapitalization and the
application of the proceeds of such financing. See "The Transaction."
References herein to "bid market share" mean the percentage represented by the
value of contracts bid upon and won by the Company divided by the value of all
contracts upon which the Company bid, including those the Company did not win
(valued at the price at which the contracts were awarded). As such, bid market
share data does not reflect market share data for all dredging activities.
THE COMPANY
Great Lakes is the largest provider of dredging services in the United
States. Dredging generally involves the enhancement or preservation of
navigability of waterways or the protection of shorelines through the removal
or replenishment of soil, sand or rock. The U.S. dredging market consists of
three primary types of work: Capital, Maintenance (including controlled
disposal dredging) and Beach Nourishment, in which activities the Company
achieved a combined bid market share in the U.S. of 54% in 1997. In addition,
the Company is the only U.S. dredging contractor with significant international
operations, which represented approximately 22% of its contract revenues in
1997. The Company's fleet of 25 dredges, 29 material transportation barges, two
drillboats, and 128 other specialized support vessels is the largest and most
diverse fleet in the U.S. The Company believes its fleet would cost in excess
of $600 million to build. For the twelve months ended September 30, 1998, the
Company's contract revenues and Adjusted EBITDA (as defined), were $278.7
million and $40.6 million, respectively. In addition, as of September 30, 1998,
the Company's contract backlog totaled approximately $247.0 million.
Over its 108-year life, the Company has grown to be the leader in each of its
business activities in the U.S. The Company's three principal business
activities are:
. CAPITAL (approximately 43% of 1997 contract revenues). Capital dredging
projects are primarily port expansion projects, which involve the
deepening of channels to allow larger, deeper draft ships and providing
land fill for building additional port facilities, thereby enhancing
port profitability and competitiveness. Approximately 31% of the
Company's Capital project contract revenues in 1997 derive from port
projects sponsored by the U.S. Government ("Deep Port" projects). The
Company's cumulative bid market share of Deep Port projects was 76% from
1991 to 1997. Capital projects also include land reclamations, trench
digging, and other construction-related dredging. The Company's bid
market share of total U.S. Capital projects (including Deep Port
projects) was 67% in 1997. Approximately 22% of the Company's contract
revenues were attributable to non-U.S. Capital projects.
. MAINTENANCE (approximately 29% of 1997 contract revenues). Maintenance
dredging consists of the redredging of waterways and harbors to remove
silt, sand and other accumulated sediments. Due to natural
sedimentation, active channels generally require Maintenance dredging
every one to three years, thus creating a continuous source of dredging
work that is typically non-deferrable if optimal navigability is to be
maintained. The Company's bid market share of U.S. Maintenance projects
was 28% in 1997.
1
<PAGE>
. BEACH NOURISHMENT (approximately 23% of 1997 contract revenues). Beach
Nourishment dredging projects generally involve moving sand from the
ocean floor to shoreline locations when erosion has progressed to a
stage that threatens substantial shoreline assets. The Company's bid
market share of U.S. Beach Nourishment projects was 86% in 1997.
The Company believes that it benefits from a number of favorable trends in
the U.S. dredging market. The average controlling depth of the top ten largest
U.S. ports, as measured by annual container volume, is 40.4 feet compared to
52.7 feet for the top ten non-U.S. ports worldwide. Without significant
deepening efforts, most major U.S. ports risk being unable to accommodate
larger cargo vessels, which renders them less competitive with deeper ports.
The Army Corps of Engineers (the "Corps"), which has the primary responsibility
for maintaining and improving the nation's waterways, ports and shorelines, has
recently announced 18 new Deep Port projects to be completed over the next
seven years, which the Corps estimates will have an aggregate dollar value in
excess of $2.2 billion. Funding for announced projects has also increased
significantly during the past 12 months due to increased federal funding and
increased cost sharing of Capital projects by local governments. In addition,
the Corps, which historically has performed a significant amount of domestic
Maintenance dredging projects, has substantially reduced its fleet from its
height of 42 dredges in 1976 to 12 dredges in 1998, and has recently idled the
largest of its four remaining hopper dredges, which are the only Corps dredges
that compete with the Company.
COMPETITIVE STRENGTHS
The Company possesses a number of competitive strengths that have allowed it
to develop and maintain its leading position within the dredging industry,
including the following:
FLEXIBLE PORTFOLIO OF ASSETS. The Company operates the largest and most
diverse dredging fleet in the U.S., which the Company believes would cost in
excess of $600 million to build. Great Lakes owns over 180 vessels including
approximately 40% of the vessels certified by the U.S. Coast Guard and American
Bureau of Shipping to perform offshore dredging operations, 47% of available
hopper dredge capacity, 33% of large capacity clamshell dredges operating in
the U.S., 100% of the drill boats in the U.S. and certain specialized
equipment, such as the only two large electric dredges in the U.S. The size and
breadth of the fleet improves the Company's competitiveness as it generally
permits the Company to select the most efficient equipment for a particular
job. To maintain the value and effectiveness of its fleet, the Company
emphasizes proactive maintenance that results in lower downtime, increased
profitability, enhanced vessel life and relatively low capital expenditure
requirements. To this end, the Company incurred $17.3 million of maintenance
expense in 1997 in addition to capital expenditures of $11.5 million.
FAVORABLE COMPETITIVE DYNAMIC. Great Lakes is the largest U.S. provider of
dredging services and has consistently maintained a cumulative bid market share
of 38% since 1991, which is substantially greater than its nearest competitor's
share for those projects. In addition to operating and owning the industry's
largest and most diverse fleet, the Company believes that it benefits from a
number of significant advantages relative to both existing and potential
competitors, including: (i) the requirements of the Dredging Act of 1906 and
the Jones Act of 1920, which effectively prohibit foreign dredges and foreign-
owned dredging companies from competing in the U.S.; (ii) its being one of
three competitors that it believes are independently able to obtain performance
bonds in an amount greater than $50 million; (iii) the relatively high capital
costs associated with the construction of a new dredge, which the Company
estimates at between $10 to $50 million; and (iv) the Company's reputation for
quality and customer service built up over its 108 year operating history,
during which time it has never failed to complete a project. In addition, the
Company's long history as a leader in the industry has enabled it to develop a
proprietary database that contains detailed bidding and technical information
on most domestic dredging projects since 1970, which management believes allows
the Company, among other things, to be more accurate than its competitors in
predicting contract costs prior to bidding.
2
<PAGE>
SPECIALIZED CAPABILITY IN CAPITAL PROJECTS. Great Lakes believes it is the
leader in Capital dredging projects which generally require specialized
engineering expertise, specific combinations of equipment and experience in
performing complex projects. From 1991 to 1997, Great Lakes achieved a 38% U.S.
bid market share of the Capital projects. The Corps has recently announced 18
new Deep Port projects to be completed through 2005. The Corps has estimated
the aggregate dollar value of these projects to exceed $2.2 billion (of which
bidding for approximately $1.0 billion of such projects is scheduled to
commence in 1998) compared to $849 million of projects bid between 1986 and
1997. The Company's cumulative bid market share of Deep Port projects was 76%
from 1991 to 1997. The Company believes its extensive experience on complex
projects significantly enhances its ability to profitably bid and complete
these contracts.
PROVEN, EXPERIENCED MANAGEMENT TEAM. The Company's senior managers include:
Douglas B. Mackie, President and Chief Executive Officer; Richard M. Lowry,
Executive Vice President and Chief Operating Officer; and Bruce J. Biemeck,
Senior Vice President and Chief Financial Officer, who have an average of 17
years of experience in the dredging industry. The Company believes that its
experienced management team provides it with a significant advantage over its
competitors, many of whom are family owned and managed. As a result of the
Transaction, the management of the Company owns approximately 16% of the issued
and outstanding common stock of Great Lakes.
BUSINESS STRATEGY
The Company's strategy is to continue to grow contract revenues and cash flow
and strengthen its competitive position worldwide. The principal elements of
this strategy include:
CONTINUE TO GROW IN DOMESTIC MARKETS. The Company expects to strengthen its
domestic leadership position by leveraging (i) the size and breadth of its
fleet, (ii) its industry-leading operating experience, (iii) its engineering
expertise, and (iv) its efficient project management practices. For example,
the Company has contracted to build a new backhoe at a cost of approximately
$18 million, which will enhance its ability to compete for and execute new Deep
Port projects. To further enhance the Company's operating capabilities, on
August 25, 1998, the Company acquired from T.L. James & Company, Inc., a
significant competitor, at a cost of approximately $13.8 million, a large
hydraulic dredge and a midsize hydraulic dredge together with support
equipment, inventory and spare parts. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
GROW ESTABLISHED FOREIGN MARKET BASE. Since the early 1990s, a consolidation
among certain foreign competitors, together with an increase in foreign
governments' port infrastructure investments, have resulted in new overseas
dredging opportunities for Great Lakes. In 1997, the Company recorded
approximately $55.9 million in revenue from non-U.S. dredging projects. The
Company intends to continue to selectively pursue international opportunities
that offer it the potential to increase the utilization of its asset base, to
leverage its project management capabilities and to expand its non-U.S.
dredging market share.
EXPLOIT GROWTH IN CONTROLLED DISPOSAL DREDGING. In recent years, in response
to more stringent regulations governing the disposal of dredged materials,
certain of the Company's projects have required dredged materials to be
disposed of in a more controlled manner. The Company believes it is well
positioned to exploit this trend due to its equipment mix, its operating
expertise and its joint venture with the owner and operator of two fully
permitted upland disposal sites in New Jersey, which represent a substantial
percentage of the upland disposal capacity in the greater New York City area.
During 1997, Great Lakes completed $12.0 million of controlled disposal
dredging projects. The Company has estimated that over $100 million of dredging
revenue related to projects requiring upland disposal is expected to be
completed through 2005 in New York and New Jersey.
3
<PAGE>
THE TRANSACTION
On July 20, 1998, AcquisitionCo, the Company, the stockholders of the
Company, Vectura and certain other entities entered into the Merger Agreement
providing for the recapitalization of the Company. Pursuant to the Merger
Agreement, AcquisitionCo, a wholly owned subsidiary of Vectura, merged with and
into the Company with the Company as the surviving corporation.
The recapitalization occurred on August 19, 1998, as follows: (i) certain
members of management exercised vested options representing 7% of the Company's
then outstanding common stock for an aggregate exercise price of $4.5 million,
receiving as a result of such exercise common stock valued at an aggregate of
$12.0 million, (ii) Vectura purchased some of those shares for approximately
$8.2 million in cash from the management investors and additionally contributed
approximately $37.8 million in cash to the capital of AcquisitionCo, reflecting
a total investment by Vectura of $46.0 million and (iii) the common stock
formerly held by Blackstone was converted into $156.1 million in cash in the
merger. The merger was financed using a portion of the proceeds from $115.0
million of senior subordinated debt, a $110.0 million new bank credit facility
and the issuance of preferred and common stock to Vectura and certain members
of management. As a result of the recapitalization, Vectura owns in the
aggregate approximately 84% of outstanding common stock of the Company and
certain members of the management of the Company own in the aggregate
approximately 16% of outstanding common stock of the Company. See "The
Transaction."
The principal executive offices of the Company are located at 2122 York Road,
Oak Brook, Illinois 60521 and the telephone number is (630) 574-3000.
THE EXCHANGE OFFER
SECURITIES OFFERED.......... Up to $115,000,000 aggregate principal amount of
Series B 11 1/4% Senior Subordinated Notes Due
2008. The terms of the Exchange Notes and
Existing Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights relating to
the Existing Notes.
THE EXCHANGE OFFER.......... The Exchange Notes are being offered in exchange
for a like principal amount of Existing Notes.
Existing Notes may be exchanged only in integral
multiples of $1,000. The issuance of the Exchange
Notes is intended to satisfy obligations of the
Company contained in the Registration Rights
Agreement (as defined).
EXPIRATION DATE; WITHDRAWAL
OF TENDER................
The Exchange Offer will expire at 5:00 p.m., New
York City time, on March 18, 1999, or such later
date and time to which it may be extended by the
Company. The tender of Existing Notes pursuant to
the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Existing Notes
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
CERTAIN CONDITIONS TO THE
EXCHANGE OFFER...........
The Company's obligation to accept for exchange,
or to issue Exchange Notes in exchange for, any
Existing Notes is subject to certain customary
conditions relating to compliance with any
applicable law or any applicable interpretation
by the staff of the Commission, the receipt of
any applicable governmental approvals and the
absence of any actions or proceedings of any
governmental agency or court which could
materially impair the Company's ability to
consummate the Exchange Offer. The Company
currently expects
4
<PAGE>
that each of the conditions will be satisfied and
that no waivers will be necessary. See "The
Exchange Offer--Certain Conditions to the
Exchange Offer."
PROCEDURES FOR TENDERING
EXISTING NOTES...........
Each holder of Existing Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Existing Notes
and any other required documentation, to the
Exchange Agent (as defined) at the address set
forth herein. See "The Exchange Offer--Procedures
for Tendering Existing Notes."
USE OF PROCEEDS............. The Company will not receive any proceeds from
the Exchange Offer.
EXCHANGE AGENT.............. The Bank of New York (the "Exchange Agent") is
serving as the Exchange Agent in connection with
the Exchange Offer.
FEDERAL INCOME TAX The exchange of Notes pursuant to the Exchange
CONSEQUENCES............. Offer should not be a taxable event for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
CONSEQUENCES OF EXCHANGING EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
holders of Existing Notes (other than any holder who is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who exchange
their Existing Notes for Exchange Notes pursuant to the Exchange Offer
generally may offer such Exchange Notes for resale, resell such Exchange Notes
and otherwise transfer such Exchange Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
such Exchange Notes are acquired in the ordinary course of the holders'
business and such holders have no arrangement or understanding with any person
to participate in a distribution of such Exchange Notes. If any holder of
Existing Notes is an affiliate of the Company, is engaged in or intends to
engage in or has any arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be acquired in the
Exchange Offer, such holder (i) could not relay on the applicable
interpretations of the Commission and (ii) must comply with the registration
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Existing Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or in compliance with an
available exemption from registration or qualification. The Company has agreed,
pursuant to the Registration Rights Agreement and subject to certain specified
limitations therein, or register to qualify the Exchange Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing. If a holder of Existing Notes does
not exchange such Existing Notes for Exchange Notes pursuant to the Exchange
Offer, such Existing Notes will continue to be subject to the restrictions on
transfer contained in the legend thereon. In general, the Existing Notes may
not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Holders of Existing Notes
do not have any appraisal or dissenters' rights under the Delaware General
Corporation Law in connection with the Exchange Offer. See "The Exchange
Offer--Consequences of Failure to Exchange; Resales of Exchange Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the Exchange Notes will not be eligible for
PORTAL trading.
5
<PAGE>
THE EXCHANGE NOTES
SECURITIES OFFERED.......... $115 million in aggregate principal amount of
Series B 11 1/4% Senior Subordinated Notes due
2008.
MATURITY DATE............... August 15, 2008.
INTEREST RATE ..............
The Exchange Notes will bear interest at the rate
of 11 1/4% per annum, payable semi-annually on
February 15 and August 15 of each year,
commencing August 15, 1999.
SUBSIDIARY GUARANTEES....... The Exchange Notes will be jointly and severally
guaranteed on a senior subordinated basis by all
of the existing wholly owned domestic
subsidiaries of the Company.
SUBORDINATION............... The Exchange Notes will be general unsecured
obligations of the Company, will rank subordinate
in right of payment to all Senior Debt and will
rank senior or pari passu in right of payment to
any future subordinated indebtedness of the
Company. The Subsidiary Guarantees will rank
subordinate in right of payment to all Senior
Debt of each Subsidiary Guarantor, including each
Subsidiary Guarantor's guarantee of indebtedness
under the New Credit Facility. The Exchange Notes
and the Subsidiary Guarantees will be effectively
subordinated to all liabilities, including trade
payables, of the Company's subsidiaries that are
not Subsidiary Guarantors. As of September 30,
1998, including the effects of the Transaction,
the Exchange Notes would have been subordinated
to $69.1 million of Senior Debt, exclusive of
contingent obligations, and effectively
subordinated to $8.0 million of liabilities
(excluding $26.1 million of intercompany
liabilities) of the Company's subsidiaries that
are not Subsidiary Guarantors. See "Risk
Factors--Subordination."
OPTIONAL REDEMPTION......... The Exchange Notes will be redeemable at the
option of the Company, in whole or in part, at
any time on or after August 15, 2003 in cash at
the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
redemption. In addition, at any time prior to
August 15, 2001, the Company may on any one or
more occasions redeem up to 35% of the aggregate
principal amount of Notes originally issued at a
redemption price equal to 111.25% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings;
provided that at least 65% of the aggregate
principal amount of Notes originally issued
remain outstanding immediately after the
occurrence of such redemption. See "Description
of Notes--Optional Redemption."
CHANGE OF CONTROL........... Upon the occurrence of a Change of Control, each
holder of Exchange Notes will have the right to
require the Company to repurchase all or any part
of such holder's Exchange Notes at an offer price
in cash equal to 101% of the aggregate principal
amount
6
<PAGE>
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date
of purchase. See "Description of Notes--
Repurchase at the Option of Holders--Change of
Control." There can be no assurance that, in the
event of a Change of Control, the Company would
have sufficient funds to purchase all Exchange
Notes tendered. See "Risk Factors--Potential
Inability to Fund a Change of Control Offer."
CERTAIN COVENANTS........... The Indenture contains certain covenants that
limit, among other things, the ability of the
Company to: (i) pay dividends, redeem capital
stock or make certain other restricted payments
or investments, (ii) incur additional
indebtedness or issue certain preferred equity
interests, (iii) merge, consolidate or sell all
or substantially all of its assets, (iv) create
certain liens on assets and (v) enter into
certain transactions with affiliates or related
persons. See "Description of Notes--Certain
Covenants."
REGISTRATION RIGHTS The Existing Notes were sold by the Company on
AGREEMENT................... August 19, 1998 in a private placement. In
connection with the sale, the Company and the
Subsidiary Guarantors entered into a Registration
Rights Agreement (the "Registration Rights
Agreement") providing for, among other things,
the Exchange Offer. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer."
RISK FACTORS
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES, SEE "RISK FACTORS."
7
<PAGE>
SUMMARY CONDENSED FINANCIAL AND OTHER DATA
The following table sets forth summary condensed financial and other data of
the Company. The historical financial data (except for EBITDA and Adjusted
EBITDA) for each of the three years ended December 31, 1997, have been derived
from, and should be read in conjunction with, the audited consolidated
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus. The historical financial data (except for EBITDA
and Adjusted EBITDA) for each of the two years ended December 31, 1994, have
been derived from the audited financial statements of the Company which are not
contained herein. The historical financial data (except for EBITDA and Adjusted
EBITDA) for the nine-month periods ended September 30, 1997 and 1998, have been
derived from, and should be read in conjunction with, the unaudited condensed
consolidated financial statements of the Company and the notes related thereto
included elsewhere herein. The historical financial data for the twelve months
ended September 30, 1998, have been derived from unaudited consolidated
financial statements prepared by the Company which are not contained herein. In
the opinion of management, interim financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the information presented for such periods. Results of operations for the
nine-month period ended September 30, 1998, are not necessarily indicative of
results of operations for a full year or for future periods. The pro forma
financial data have been derived from the Unaudited Pro Forma Condensed
Consolidated Financial Statements and notes thereto included elsewhere herein.
The pro forma statement of income data for the periods presented were prepared
to give effect to the Transaction as if it occurred on January 1, 1997 and does
not purport to represent what the Company's operating results or financial
position would have been or to project its operating results or financial
position for any future date. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements," "Selected Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and the related notes thereto (the
"Historical Financial Statements") included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED
-------------------------------------- -------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Contract revenues...... $251.3 $269.6 $226.9 $235.9 $258.3 $179.9 $200.2 $278.6
Gross profit........... 36.8 37.0 9.8 27.2 29.9 17.7 32.9 45.1
Operating income
(loss)................ 16.1 17.1 (6.1) 10.8 11.0 4.2 0.0 6.8
Interest expense, net.. (6.3) (7.3) (7.9) (6.0) (6.0) (4.5) (4.8) (6.3)
Net income (loss)...... 6.5 4.7 (10.0) 2.0 3.8 0.1 (6.7) (3.0)
OTHER DATA:
Adjusted EBITDA(1)..... $ 31.0 $ 35.0 $ 16.0 $ 26.2 $ 28.8 $ 18.3 $ 30.1 $ 40.6
Depreciation and
amortization.......... 13.4 14.1 14.7 13.9 13.6 10.4 11.0 14.2
Maintenance expense(2). 12.3 11.1 15.4 14.7 17.3 12.7 14.1 18.7
Capital expenditures... 12.8 7.4 11.5 5.4 11.5 7.9 26.4 30.0
Ratio of total debt to Adjusted EBITDA.................................. 4.5x
PRO FORMA DATA:
Cash interest expense(3)................................................ $ 19.6
Ratio of Adjusted EBITDA to cash interest expense....................... 2.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1998
-------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents. $ 0.5
Working capital........... 23.0
Total assets.............. 240.5
Total debt(4)............. 184.1
Total stockholders'
deficit.................. (50.8)
</TABLE>
Footnotes appear on following page
8
<PAGE>
(1) "EBITDA," as provided for herein, represents earnings from continuing
operations before interest expense, net, income taxes and depreciation and
amortization expense and excludes equity in earnings of joint ventures and
minority interests. EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles. The
Company's EBITDA is included in the Prospectus as it is a basis upon which
the Company assesses its financial performance, and certain covenants in
the Company's borrowing arrangements will be tied to similar measures.
"Adjusted EBITDA" excludes the effects of certain items on the Company's
historical EBITDA that are not expected to recur in the ongoing activities
of the Company. Adjusted EBITDA is presented to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements, but is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA and Adjusted EBITDA should not be considered in isolation or as an
alternative to net income, cash flows from continuing operations, or other
consolidated income or cash flow data prepared in accordance with generally
accepted accounting principals as measures of the Company's profitability
or liquidity. EBITDA and Adjusted EBITDA as defined in this Prospectus may
differ from similarly titled measures presented by other companies.
The components of EBITDA and Adjusted EBITDA are set forth below for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED
------------------------------- ------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income (loss). $16.1 $17.1 $(6.1) $10.8 $11.0 $ 4.2 $ 0.0 $ 6.8
Depreciation and
amortization........... 13.4 14.1 14.7 13.9 13.6 10.4 11.0 14.2
----- ----- ----- ----- ----- ------ ------ -----
EBITDA.................. 29.5 31.2 8.6 24.7 24.6 14.6 11.0 21.0
Management fees paid to
former stockholder..... 0.5 0.5 0.5 0.5 0.4 0.3 0.4
Legal and other expenses
related to the Chicago
Flood Litigation....... 0.8 1.1 1.4 0.6 1.8 1.7 0.1
Letter of credit fees
associated with the
Chicago Flood
Litigation............. 0.2 0.6 0.2
Disposed operations..... 0.3 0.2 1.5 1.9 1.6 1.1 1.4
Settlement and other
costs related to
subcontract dispute.... 5.6
Other corporate charges. 1.3 (1.1)
Equity incentive plan
and other compensation
expenses............... 8.2 8.2
Recapitalization related
expenses............... 9.5 9.5
----- ----- ----- ----- ----- ------ ------ -----
Adjusted EBITDA......... $31.0 $35.0 $16.0 $26.2 $28.8 $18.3 $30.1 $40.6
===== ===== ===== ===== ===== ====== ====== =====
</TABLE>
For descriptions of each of the above components of Adjusted EBITDA, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Items Affecting Results of Operations."
(2) Represents amount expended for maintenance included in costs of contract
revenues.
(3) Pro forma cash interest is defined as interest expense exclusive of
amortization of deferred financing fees.
(4) Total debt includes long-term debt and the current maturities of long-term
debt and excludes contingent obligations.
9
<PAGE>
RISK FACTORS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
provisions of the Securities Act and Exchange Act do not apply by their terms
to this Prospectus or the Exchange Offer. Although the Company believes that
its plans, intentions and expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such plans,
intentions or expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's forward looking
statements are set forth below and elsewhere in this Prospectus. All forward-
looking statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by the cautionary statement set
forth below.
SUBSTANTIAL LEVERAGE
The Company is, and will continue after the Exchange Offer to be, highly
leveraged. On September 30, 1998, the Company had total indebtedness of $184.1
million (excluding letters of credit, outstanding guarantees and bond
obligations), outstanding letters of credit with a face amount of
approximately $13.6 million and a stockholders' deficit of $50.8 million. The
Company has guaranteed up to $8.5 million of the outstanding indebtedness of
Amboy Aggregates Joint Venture ("Amboy"). The Company and its subsidiaries
will be permitted to incur additional indebtedness in the future. See
"Capitalization" and "Description of Notes--Certain Covenants."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of
operations, management believes that cash flow from operations, together with
available borrowings under the New Credit Facility, will be adequate to meet
the Company's future liquidity needs for at least the next several years. The
Company may, however, need to refinance all or a portion of the principal of
the Notes on or prior to maturity. There can be no assurance that the
Company's business will generate sufficient cash flow from operations, or that
future borrowings will be available under the New Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, including the
Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The degree to which the Company will be leveraged following the Offering
could have important consequences to holders of the Notes, including, but not
limited to: (i) making it more difficult for the Company to satisfy its
obligations with respect to the Notes, (ii) increasing the Company's
vulnerability to general adverse economic and industry conditions, (iii)
limiting the Company's ability to obtain additional financing to fund future
working capital, capital expenditures and other general corporate
requirements, (iv) requiring the dedication of a substantial portion of the
Company's cash flow from operations to the payment of principal of, and
interest on, its indebtedness, thereby reducing the availability of such cash
flow to fund working capital, capital expenditures or other general corporate
purposes, (v) limiting the Company's flexibility in planning for, or reacting
to, changes in its business and the industry, and (vi) placing the Company at
a competitive disadvantage vis-a-vis less leveraged competitors. In addition,
the Indenture, the New Credit Facility and the New Bonding Agreement will
contain financial and other restrictive covenants that will limit the ability
of the Company to, among other things, borrow additional funds. Failure by the
Company to comply with such covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company. In addition, the degree to which the Company is leveraged could
prevent it from repurchasing all of the Notes tendered to it upon the
occurrence of a Change of Control. See "Description of Notes--Repurchase at
the Option of Holders--Change of Control" and "Description of the New Credit
Facility."
In the ordinary course of its business the Company is often required to
obtain bid, payment and performance bonds (in the United States) and bank
guarantees (outside the United States) in order to qualify for, and be
10
<PAGE>
awarded projects. In the event the Company were to default on a contract, the
bonding company would be required either to complete the contract or to
reimburse the project sponsor for the cost of completion. In such event, the
Company will be obligated to reimburse the bonding company for the amount it
expended plus, in the event the bonding company completed the project itself,
a reasonable profit thereon. Pursuant to the bonding agreement to be entered
into by the Company and the Subsidiary Guarantors upon consummation of the
Transaction, the Company's and the Subsidiary Guarantors' obligations are
secured by a security interest in certain of the Company's fixed assets. In
the event the Company or any of the Subsidiary Guarantors fails or is unable
to complete the work under a bonded contract or breaches the New Bonding
Agreement, the bonding company may proceed against their collateral, cause the
performance of such bonded contract by subletting it in the name of the
Company or its wholly owned subsidiary and seek reimbursement from the Company
and its wholly owned subsidiary for costs incurred on the subletting or
performance of such bonded contract. The total amount of bonds outstanding
varies with the dollar value of contracts in process; however, the face amount
of outstanding bonds typically overstates the associated contingent liability
to the extent of the portion of the related projects which have been completed
by the Company. The Company estimates that as of September 30, 1998,
approximately $395.0 million of bonds were outstanding. See "Description of
New Bonding Agreement."
SUBORDINATION
The Notes are subordinated in right of payment of all current and future
Senior Debt of the Company and the Subsidiary Guarantors. Upon any
distribution to creditors of the Company or any Subsidiary Guarantor in a
liquidation or dissolution of the Company or any Subsidiary Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or any Subsidiary Guarantor or their respective
properties, an assignment for the benefit of creditors or any marshalling of
the Company's or any Subsidiary Guarantor's assets and liabilities, the
holders of Senior Debt will be entitled to be paid in full before any payment
may be made with respect to the Notes. In addition, the subordination
provisions of the Indenture provide that payments with respect to the Notes
will be blocked in the event of a payment default on Senior Debt and may be
blocked for up to 179 days each year in the event of certain non-payment
defaults on Senior Debt. In the event of a bankruptcy, liquidation or
reorganization of the Company or any Subsidiary Guarantor, holders of the
Notes will participate ratably with all holders of subordinated indebtedness
of the Company or any such Subsidiary Guarantor that is deemed to be of the
same class as the Notes, and potentially with all other general creditors of
the Company or any such Subsidiary Guarantor, based upon the respective
amounts owed to each holder or creditor, in the remaining assets of the
Company or any such Subsidiary Guarantor. In any of the foregoing events,
there can be no assurance that there would be sufficient assets to pay amounts
due on the Notes. As a result, holders of Notes may receive less, ratably,
than the holders of Senior Debt.
As of September 30, 1998, the aggregate amount of Senior Debt of the Company
and its Restricted Subsidiaries (including borrowings under the New Credit
Facility but excluding letters of credit, guarantees and outstanding bond
obligations) was $69.1 million, and $29.2 million was available for additional
borrowing under the New Credit Facility. Senior Debt also includes the
Company's letters of credit, guarantees and bonding obligations in effect from
time to time. The Indenture permits the incurrence of substantial additional
indebtedness, including Senior Debt, by the Company and its Restricted
Subsidiaries in the future. See "Description of the New Credit Facility."
While the Company's obligations under the Notes are guaranteed by all of the
Company's wholly-owned domestic Restricted Subsidiaries, non-wholly owned and
foreign subsidiaries, representing 22.0% of the Company's total assets as of
September 30, 1998, and 20.7% of the Company's 1997 contract revenues, do not
provide guarantees of the Notes or the New Credit Facility. Consequently, the
Company's obligations under the Notes are effectively subordinated to the
indebtedness and other liabilities of such Subsidiaries. Any right of the
Company to receive assets of any of such Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the Holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of that Subsidiary's creditors, except to the extent that the Company
is itself recognized as a creditor of
11
<PAGE>
such Subsidiary, in which case the claims of the Company would still be
subordinate to any security in the assets of such Subsidiary and any
indebtedness of such Subsidiary senior to that held by the Company. As of
September 30, 1998, such Subsidiaries would have had approximately $8.0
million of liabilities (including trade payables and excluding intercompany
liabilities) and other liabilities outstanding. In addition, after payment to
creditors the Company's rights against non-Guarantor Subsidiaries will
effectively rank pari passu with minority interests in the Company's
subsidiaries which are not Subsidiary Guarantors. As a general partner of
Amboy, the Company is liable for the liabilities of Amboy (other than non-
recourse liabilities), which aggregated approximately $13.9 million as of
December 31, 1997.
BACKLOG; RISKS ASSOCIATED WITH FIXED PRICE CONTRACTS
The Company's contracts backlog represents management's estimate of the
revenues which will be realized under the Company's contracts remaining to be
performed based upon estimates relating to, among other things, the time
required to mobilize the necessary assets at the project site, the amount of
material necessary to be dredged and the time necessary to demobilize the
project assets. However, such estimates are necessarily subject to
fluctuations based upon the amount of material which actually must be dredged,
as well as factors affecting the time required to complete the job.
Consequently, backlog is not necessarily indicative of future sales. In
addition, because all of the Company's backlog relates to government
contracts, the Company's order backlog can be canceled at any time without
penalty, except, in some cases, the recovery of the Company's actual committed
costs and profit on work performed up to the date of cancellation. See "--
Dependence on Government Contracts and Funding."
Further, the estimated size of a contract is not necessarily indicative of
the profitability of that contract. Substantially all of the Company's
contracts with its customers are fixed-price contracts. Under a fixed-price
contract, the customer agrees to pay a specified price for the Company's
performance of the entire contract. Fixed-price contracts carry inherent
risks, including risks of losses from underestimating costs, operational
difficulties and other changes that may occur over the contract period. One of
the most significant factors which can affect the profitability of a project
is the weather at the project site. Inclement or hazardous weather conditions
can result in substantial delays in dredging and contract losses. For example,
in 1995, the east coast of the United States was struck by the most severe
hurricane and tropical storms experienced in over 60 years. These storms
caused certain of the Company's 1995 Beach Nourishment projects to be delayed
until 1996, which significantly affected the Company's Beach Nourishment
contract revenues and profits in 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." There can be no
assurance that the Company will be able to perform its obligations under such
fixed-price contracts without incurring such losses. If the Company were to
significantly underestimate the cost of one or more significant contracts, the
resulting losses could have a material adverse effect on the Company.
DEPENDENCE ON GOVERNMENT CONTRACTS AND FUNDING
Substantially all of the Company's revenues have been, and are expected to
continue to be, attributable to contracts with federal, state and other
government agencies or with companies operating under contracts with such
government agencies. Government contracts are typically subject to termination
at any time, on relatively short notice, at the election of the applicable
government agency involved even if the Company is performing its obligation
thereunder. Cancellation of significant contracts or the failure of the
Company to win significant contracts could have a material adverse effect on
the Company. In addition, the Company's operations depend on project funding
by various government agencies and may be adversely affected by the level and
timing of such funding. Lack of funding has, in the past, substantially
delayed scheduled projects, including projects that have been put up for bid.
Many of the projects authorized by WORDA (as defined) in 1986 were
substantially delayed due to lack of funding. Recently the Corps has scheduled
in excess of $2.2 billion of projects to be bid on and completed by 2005.
There can be no assurance that these projects will be bid or executed on the
published schedules or at all.
Substantially all of the Company's contracts are, and will continue to be,
awarded based on competitive bidding. In the United States, such contracts are
awarded to the lowest adequately bonded bidder, regardless of a
12
<PAGE>
bidder's relationship with the project sponsor, work on past projects,
reputation or similar factors. There can be
no assurance that the Company's competitors will not bid more aggressively
than the Company for contracts or that the Company will continue to achieve
bid market shares at the levels that it has achieved historically.
Some dredging government contracts are awarded through a negotiated
procurement process in which the contractor submits a proposal and cost and
pricing data to the government, and the contractor and the government
negotiate the contract price. Under such contracts, the government has the
right, after award and/or completion of the contract, to audit the
contractor's books and records, including the proposal and data available to
the contractor during negotiations to ensure compliance with the contract and
applicable federal legislation, rules and regulations. The government may seek
a price adjustment based on the results of such audit.
DEPENDENCE ON BONDING
The Company, like all dredging service providers, generally is required to
post bonds in connection with its dredging contracts to insure job completion
if the Company should fail to finish a project. Upon consummation of the
transaction, the Company entered into the New Bonding Agreement with Reliance
Insurance Company, United Pacific Insurance Company, Reliance Insurance
Company of New York and United Pacific Insurance Company of New York
(collectively, the "Sureties") pursuant to which the Sureties act as surety,
issue bid bonds, performance bonds and payment bonds and obligate themselves
upon other contracts of guaranty required by the Company in the day-to-day
operations of its dredging and marine construction business. However, the
Sureties are not obligated under the New Bonding Agreement to issue bonds on
behalf of the Company. No bond issued on behalf of the Company has ever been
drawn upon in the Company's 108-year history. However, the Company's business
would be materially and adversely affected if the Company were unable to
obtain bonding for future projects.
The New Bonding Agreement contains financial and operating covenants that
limit the ability of the Company to incur indebtedness, create liens, pay
dividends and to take certain other corporate actions. A default by the
Company under the New Bonding Agreement permits the Sureties to proceed
against collateral that includes most of the Company's operating equipment.
See "Business--Bidding and Foreign Projects Guarantees" and "Description of
New Bonding Agreement."
OPERATING RISKS
The business of dredging is generally subject to a number of risks and
hazards, including environmental hazards, industrial accidents, labor
disputes, encountering unusual or unexpected geological formations, cave-ins
of below water tunnels, collisions with fixed objects, disruption of
transportation services and flooding. The foregoing risks could result in
damage to or destruction of dredges and transportation vessels as well as
personal injury, environmental damage, delays in dredging, monetary losses and
possible legal liability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." For example, in 1992, an
underwater utility tunnel located beneath the Chicago Loop failed adjacent to
a construction tunnel and building basements serviced by the tunnel. Numerous
suits were filed against the Company for claims of flood damage and losses due
to business interruption (the "Chicago Flood Litigation"). See "Business--
Legal and Environmental Matters." Although all remaining claims relating to
the Chicago Flood Litigation were settled in 1997, there can be no assurance
that the Company's operations will not be adversely affected in the future by
similar or other conditions attributable to the foregoing risks. Although the
Company maintains insurance within ranges of coverage consistent with industry
practice, no assurance can be given that such insurance will be available at
economically feasible premiums.
POTENTIAL LIABILITY AND INSURANCE COVERAGE
The Company insures the Company's risks up to certain policy limits and
subject to certain deductibles. Management makes estimates and assumptions
that affect the reported amount of liability and the disclosure of contingent
liabilities. As claims develop, it is possible that the ultimate results of
these claims may differ from
13
<PAGE>
management's estimates. There can be no assurance that the dollar amount of
the Company's liabilities will not materially exceed the insurance policy
limits.
In addition, premiums and deductibles for liability insurance could increase
to the point that such insurance becomes prohibitively expensive, or
unavailable. The failure to obtain adequate insurance could effect the
Company's ability to bid on, or execute, significant projects, or obtain
adequate bonding or financing.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A significant portion of the Company's current operations are conducted
abroad. International operations are subject to numerous additional risks,
including the impact of foreign government regulations, currency fluctuations,
political uncertainties and differences in business practices. There can be no
assurance that foreign governments will not adopt regulations or take other
actions that would have a direct or indirect adverse impact on the business or
market opportunities of the Company within such governments' countries.
Furthermore, there can be no assurance that the political, cultural and
economic climate outside the United States will be favorable to the Company's
operations and growth strategy.
In addition, the Company has benefited in recent years from the substantial
investment in foreign port infrastructure, particularly in the Pacific Rim.
Because many international dredging contractors have concentrated significant
assets in the Pacific Rim projects, the Company has enjoyed less competition
in areas such as the Middle East, Africa and South America. However, if the
recent economic recession in South East Asia were to adversely affect the
investment in South East Asian port facilities, the Company could be faced
with substantial increased competition in the foreign markets that it has
competed in, which could have a material adverse effect on the Company.
FLUCTUATIONS IN OPERATIONS
A substantial portion of the Company's revenues and earnings are
attributable to a limited number of significant multiyear contracts. Quarterly
results can fluctuate significantly based upon the number and size of
contracts undertaken and the timing of the initiation of projects under such
contracts. Revenues and earnings can vary from year to year based on the
number and size of such contracts and the timing of project performance. As a
result of the foregoing, results of operations may fluctuate from year to
year. The Company typically realizes lower revenues and earnings in the first
and fourth calendar quarters of each year. During any quarter, projects can be
delayed and revenues and earnings may be adversely affected by severe weather
conditions at job sites. As a result of the foregoing, results of operations
for any one quarter may not be indicative of results for any other quarters or
for the year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Substantial fluctuations in the Company's results
in operations may adversely affect the Company's ability to service its debt
or satisfy its other liquidity needs in a particular period, which could have
a material adverse effect on the Company.
GOVERNMENT REGULATION
The Company is subject to government regulation pursuant to the dredging
statute (46 U.S.C. Section 292) which protects the United States dredging
industry from competition from foreign-built dredges. The law prohibits
foreign-built vessels (absent special legislative action) from competing in
the United States dredging market. Dredges operating in the navigable waters
of the United States must also meet the coastwise trade requirements of the
Jones Act (Section 27 of the Merchant Marine Act, 1920) and Section 2 of the
Shipping Act, 1916, as amended, and must have a coastwise endorsement pursuant
to the Vessel Documentation Act (46 U.S.C. Section 12101 et seq.). These acts
prohibit vessels owned or controlled by entities which are less than 75% owned
and controlled by United States citizens from transporting dredged material
between points in the United States.
14
<PAGE>
In addition, in 1995, a government agency commenced an investigation into
purported bid-rigging in the U.S. dredging industry. To date, the Company is
not aware of any action against any participant in the U.S dredging industry
related to such investigation. The Company does not engage in collusive
bidding practices, and knows of no such practices in the U.S. dredging
industry. However, there can be no assurance that additional investigations
into purported bid-rigging will not occur or that the Company will not be a
subject of such investigations. See "Business--Legal and Environmental
Matters."
ENVIRONMENTAL MATTERS
The Company's operations and facilities are subject to a variety of federal
and state environmental statutes and regulations, including those regulating
dredging operations, the disposal of dredged material, wetlands, storm and
waste water discharges, air emissions and the handling of certain substances.
The scope of such statutes and regulations and parties liable thereunder have
been afforded broad interpretations by state and federal regulators and
courts. In addition, the Company is required to comply with federal and state
statutes designed to protect certain species and habitats. Such compliance can
delay the authorization of, appropriation with respect to, and performance of,
particular projects and increase expenses in connection therewith.
The Company cannot predict what environmental laws will be enacted in the
future, how existing or future environmental laws will be administered or
interpreted or what environmental conditions may be found to exist on its
properties. Compliance with more stringent environmental laws, as well as more
vigorous enforcement policies of the regulatory agencies or stricter
interpretation of those laws, and discovery of new conditions may require
additional expenditure by the Company. There can be no assurance that one or
more of the foregoing will not have a material adverse effect on the Company.
See "Business--Legal and Environmental Matters."
ATTRACTION AND RETENTION OF QUALIFIED PROFESSIONALS; UNIONIZED LABOR FORCE
The Company's ability to retain and expand its staff of qualified
professionals is an important factor in determining the Company's future
success. The market for qualified professionals is competitive and there can
be no assurances that the Company will continue to be successful in its
efforts to attract and retain such professionals. In addition, the Company
relies heavily upon the experience and ability of its senior executive staff
and the loss of any or a significant portion of such individuals could have a
material adverse effect on the Company.
A significant portion of the Company's hourly work force is represented by
various unions. The Company has experienced strikes from time to time by
certain of those unions. See "Business--Employees." There can be no assurance
that future strikes, employee slowdowns or similar actions by one or more
unions will not have a material adverse effect on the Company.
CONTROL OF THE COMPANY
As a result of the Recapitalization, Vectura owns approximately 49.9% of the
outstanding voting capital stock and all of the non-voting capital stock of
the Company. Pursuant to the Stockholders Agreement among Vectura, the
Company, Management Investors and certain other stockholders of the Company,
Vectura will have the right to appoint up to two of the five directors of the
Company. The Stockholders' Agreement provides that Vectura may designate one
director at its sole discretion, and up to two additional independent
directors subject to the right of holders of a majority of the Company's
voting capital stock to veto the election of such additional directors.
Vectura has appointed Michael A. Delaney to the Board of Directors and has
designated David Wagstaff III as an independent director. As of the date
hereof, Vectura has not identified any other individuals whom it intends to
appoint to the Board of Directors of the Company.
As a result of the Recapitalization, Vectura and the Company's directors,
the Management Investors and their affiliates control all of the voting power
represented by the Company's outstanding shares of capital stock. Accordingly,
those stockholders have the ability, if acting in concert, to control the
outcome of elections of matters presented for approval by the stockholders of
the Company. Such concentration of ownership may have the effect of preventing
a change in control of the Company. There can be no assurance that the
interests of Vectura and its affiliates will not conflict with the interests
of the holders of the Notes. See "Management;" "Ownership of Capital Stock"
and "Description of Capital Stock."
15
<PAGE>
RESTRICTIVE DEBT COVENANTS
The New Credit Facility, the New Bonding Agreement and the Indenture contain
numerous restrictive financial and operating covenants that limit the
discretion of the Company's management with respect to certain business
matters. These covenants place significant restrictions on, among other
things, the ability of the Company and its subsidiaries to dispose of assets,
incur additional indebtedness, incur guarantee obligations, repay other
indebtedness or amend other debt instruments (including the Indenture), pay
dividends, create liens on assets, enter into sale and leaseback transactions,
make investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, or engage in certain transactions
with affiliates and otherwise restrict corporate activities. In addition,
under the New Credit Facility and the New Bonding Agreement, the Company is
required to comply with specified financial ratios and tests, including
minimum interest coverage ratios, maximum leverage ratios, annual capital
expenditure limitations and net worth tests, which, if not met, may trigger an
event of default under the New Credit Facility or the New Bonding Agreement,
which have a material adverse effect on the Company. See "Description of the
New Credit Facility;" "Description of New Bonding Agreement" and "Description
of Notes."
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. Prior to commencing such an offer to purchase, the Company may be
required to (i) repay in full all indebtedness of the Company that would
prohibit the repurchase of the Notes, including the New Credit Facility or
(ii) obtain any consent required to make the repurchase. If the Company is
unable to repay all of such indebtedness or is unable to obtain the necessary
consents, the Company will be unable to offer to purchase the Notes and that
failure will constitute an Event of Default under the Indenture. In addition,
there can be no assurance that sufficient funds will be available at the time
of any Change of Control to make any required repurchases of Notes tendered or
that restrictions in the New Credit Facility will allow the Company to make
such required repurchases. Notwithstanding these provisions, the Company could
enter into certain transactions, including certain recapitalizations, that
would not constitute a Change of Control but would increase the amount of debt
outstanding at such time. See "Description of Notes--Repurchase at the Option
of Holders--Change of Control."
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company or any Subsidiary Guarantor, at the time it incurred the indebtedness
evidences by the Notes or its Subsidiary Guarantee, (i) (a) was or is
insolvent or rendered insolvent by reason of such occurrence or (b) was or is
engaged in a business or transaction for which the assets remaining with the
Company or such Subsidiary Guarantor constituted unreasonably small capital or
(c) intended or intends to incur, or believed or believes that it would incur,
debts beyond its ability to pay such debts as they mature, and (ii) the
Company or such Subsidiary Guarantor received or receives less than reasonably
equivalent value or fair consideration for the incurrence of such
indebtedness, then the Notes and the Subsidiary Guarantees, and any pledge or
other security interest securing such indebtedness, could be avoided, or
claims in respect of the Notes or the Subsidiary Guarantees could be
subordinated to all other debts of the Company or such Subsidiary Guarantor,
as the case may be. In addition, the payment of interest and principal by the
Company pursuant to the Notes or the payment of amounts by a Subsidiary
Guarantor pursuant to a Subsidiary Guarantee could be avoided and required to
be returned to the person making such payment, or to a fund for the benefit of
the creditors of the Company or such Subsidiary Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Subsidiary Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at fair
valuation or if the present fair saleable value of its assets were
16
<PAGE>
less than the amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they become absolute
and mature or (ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Company believes that, after giving effect to the
indebtedness incurred in connection with the Transaction, neither it nor the
Subsidiary Guarantors were insolvent, had unreasonably small capital for the
business in which it is engaged or incurred debts beyond its ability to pay
such debts as they mature. There can be no assurance, however, as to what
standard a court would apply in making such determinations or that a court
would agree with the Company's conclusions in this regard.
YEAR 2000 ISSUE
Historically, many computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
program failing to recognize a year that begins with "20" instead of "19".
This, in turn, could result in major system failures or miscalculations, and
is generally referred to as the "Year 2000 issue".
In June 1996, the Company's MIS Department developed a plan to identify and
address issues related to Year 2000 compliance. The Company's internal systems
were the primary focus of the plan. At that time, the Company compiled an
inventory of its internally developed and third party software. The Company
also evaluated various solutions and techniques for making its internally
developed databases and programs Year 2000 ready. The Company prioritized the
tasks taking into account the likelihood of Year 2000 failure, the impact of
Year 2000 failure on its business, and the effort required to complete the
task. In March 1997, senior management of the Company reviewed the tasks and
approved the plan.
The Company's Year 2000 Plan contemplated four phases--assessment,
implementation, testing and release/installation--which overlap to a degree.
The Company has completed all phases for its most critical systems. The
Company is currently in the implementation, testing and installation phase for
its less critical systems and anticipates completing the final installation
phase during the fourth quarter of 1998. Some non-critical systems will be
addressed during calendar year 1999 and the Company believes such systems are
not material to its operations.
The Company has received information concerning the Year 2000 status of
certain critical suppliers, and anticipates initiating more extensive
inquiries with significant suppliers during the fourth quarter of 1998 to
determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 issues.
The Company currently estimates that the total cost of implementing its Year
2000 Plan, consisting primarily of increased staffing requirements and outside
consulting services, will not be material. This estimate is based on presently
available information and will be updated as the Company continues its
assessment and proceeds with implementation.
If the Company's computer systems fail with respect to the Year 2000 Issue,
or if any applications or embedded chips critical to the Company's reporting
process are overlooked there could be a material adverse effect on the
business, results of operations or financial condition of the Company.
Additionally, there can be no assurance that the systems of other companies on
which the Company's systems rely will be timely converted, or that a failure
to convert by another company would not have material adverse effect on the
business, results of operations or financial condition of the Company. The
Company has not yet established a contingency plan in this regard, but intends
to formulate one to address unavoided or unavoidable risks and expects to have
the contingency plan formulated by July 1999.
17
<PAGE>
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Existing Notes are eligible for trading in PORTAL. The Exchange Notes
are new securities for which there is no established market. There can be no
assurance as to the existence of any market for the Exchange Note, the
liquidity of any markets that may develop for the Notes, the ability of
holders of the Notes to sell their Notes, or the prices at which holders would
be able to sell their Notes. Future trading prices of the Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities. The Initial
Purchaser has advised the Company that it currently intends to make a market
in the Notes. However, it is not obligated to do so and any market making may
be discontinued at any time without notice. The Company does not intend to
apply for listing of the Notes on any securities exchange.
THE TRANSACTION
The Existing Notes were issued as part of the recapitalization of the
Company, which was accomplished through a transaction in which Vectura Holding
Company LLC ("Vectura") acquired in a merger the capital stock of the Company
owned by Blackstone Dredging Partners L.P. and Blackstone Family Investment
Partnership I L.P. (collectively, the "Sellers") and certain shares of capital
stock owned by certain members of the Company's management. The merger
occurred pursuant to an Agreement and Plan of Merger dated July 20, 1998 (as
thereafter amended, the "Merger Agreement") among the Company, the Sellers,
Vectura, a newly formed subsidiary of Vectura named Great Lakes Dredge & Dock
Acquisition, Inc. ("AcquisitionCo") and two other subsidiaries. As a result of
the recapitalization, Vectura owns approximately 84% of the outstanding common
stock of the Company, and certain members of Company management (the
"Management Investors") own approximately 16%. Vectura's membership interests
are owned by 399 Venture Partners, Inc., an affiliate of Citicorp Venture
Capital Ltd., and certain other investors.
Structure and Sequence. Prior to the recapitalization, certain Management
Investors held approximately 7% of the Company's previously issued common
stock, which they acquired upon the exercise of certain Company stock options
(the "Options"). Vectura purchased some of those shares for approximately $8.2
million in cash from certain Management Investors and additionally contributed
approximately $37.8 million in cash to the capital of AcquisitionCo,
reflecting a total investment by Vectura of $46 million. On August 19, 1998,
pursuant to the Merger Agreement, AcquisitionCo merged with the Company, with
the Company being the surviving corporation. As a result of the merger, the
Sellers received approximately $156.1 million in cash in exchange for their
common stock, which was funded through Vectura's capital contribution to
AcquisitionCo and the Company's borrowings in respect of the Existing Notes
and the New Credit Facility (defined below). A portion of the stock owned by
the Management Investors and Vectura was converted into approximately $3.1
million and $7.5 million, respectively, of preferred stock of the Company. In
connection with the recapitalization, all of the common stock of AcquisitionCo
owned by Vectura was converted into common and preferred stock of the Company.
As a result of the merger and recapitalization, $46 million of common and
preferred stock of the Company is held by Vectura. The balance of the common
stock retained by the Management Investors represents approximately 14.0% of
the outstanding common stock of the Company after recapitalization. In
addition, other Management Investors who had not previously owned shares
purchased approximately $0.2 million of common and preferred stock of the
Company.
The following table sets forth the equity ownership in the Company by the
Sellers, Vectura and the Management Investors at certain stages of the
Transaction:
<TABLE>
<CAPTION>
OWNERSHIP OF COMMON STOCK
(1)
--------------------------
MANAGEMENT
SELLERS INVESTORS VECTURA
------- ---------- -------
<S> <C> <C> <C>
Prior to August 1998............................. 100% 0% 0%
After Exercise of Options by Certain Management
Investors....................................... 93% 7% 0%
Upon Completion of the Merger (2)................ 0% 16% 84%
</TABLE>
- --------
(1) Reflects ownership before the merger of the Company's previously issued
common stock and following the merger of Class A Common stock, which is
voting, and Class B Common Stock, which is non-voting, See "Description of
Capital Stock."
(2) See "Ownership of Capital Stock."
18
<PAGE>
Merger Consideration. The consideration of approximately $156.1 million
received by the Sellers for their shares of the Company's common stock
reflects their pro rata share of the net purchase price, calculated as
follows: $221.0 million (reflecting the gross purchase price of the Company
under the Merger Agreement), less (i) approximately $49.1 million of Company
debt at the time of the merger, less (ii) approximately $5.7 million in
bonuses paid by the Company to employees upon the successful completion of the
Transaction, less (iii) approximately $2.9 million in Sellers' expenses paid
by the Company, plus (iv) approximately $4.5 million received by the Company
upon the exercise of the Options (in exchange for which certain Management
Investors received common stock valued at $12.0 million), plus (v) $4.1
million spent by the Company to acquire a certain backhoe dredge, less (vi)
$12.0 million attributable to the common stock held by Management Investors,
less (vii) $3.8 million, the Sellers' portion of the backhoe dredge payment,
which was deferred. The Company also agreed to pay the Sellers, upon receipt,
the amount due the Company as reimbursement from certain insurance companies
for amounts advanced by the Company in settlement of liability claims in
connection with the Chicago Flood Litigation, which amounts equaled
approximately $11.0 million.
Sources of Funds. Cash funding requirements to consummate the
recapitalization through the closing date were approximately $219.0 million.
These funds were provided by (i) $61.5 million of borrowings under a new
$110.0 million credit facility with a syndicate of banks led by the Bank of
America National Trust and Savings Association (the "New Credit Facility"), of
which $6.5 million consisted of revolving credit borrowings and $55.0 million
consisted of term loans, (ii) $115.0 million in gross proceeds from the sale
of the Existing Notes, (iii) the proceeds from issuance of common and
preferred stock of the Company, including approximately $37.8 million to
Vectura and approximately $0.2 million to new Management Investors and (iv)
approximately $4.5 million received upon the exercise of the Options.
Uses of Funds. Cash funds used to consummate the recapitalization through
the closing date were approximately $219.0 million. These uses included the
following payments: (i) $156.1 million paid to the Sellers as consideration in
the merger, (ii) $5.7 million in bonuses paid to employees upon the successful
completion of the Transaction, (iii) $2.9 million in Sellers' Transaction-
related expenses, (iv) $48.0 million of debt repaid at closing, having an
effective interest rate of 7.58% at the time of repayment, and (v) $6.3
million in fees and expenses.
The sources and uses of funds do not include the $8.2 million paid by
Vectura to acquire certain shares of the Company's previously issued common
stock from certain Management Investors.
The following table sets forth information on the sources and uses of funds
in the recapitalization:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Sources of Funds (1):
New Credit Facility:
Revolving Credit Facility........................................ $ 6.5
Term Loan Facility............................................... 55.0
11 1/4% Senior Subordinated Notes due 2008....................... 115.0
Equity Contribution.............................................. 38.0
Amount Received Upon Option Exercise............................. 4.5
------
Total sources.................................................... $219.0
======
Use of Funds (1):
Merger Consideration to Sellers.................................. $156.1
Transaction-Related Bonuses...................................... 5.7
Payment of Sellers' Expenses..................................... 2.9
Repayment of Indebtedness (with an effective rate of interest of
7.58%
at time of repayment)(2)........................................ 48.0
Fees and expenses................................................ 6.3
------
Total uses....................................................... $219.0
======
</TABLE>
- --------
(1) Not including $8.2 million paid by Vectura to acquire shares of the
Company's previously issued common stock from certain Management
Investors.
(2) Excludes $1.1 million in Company debt which was in existence at the time
of the merger (and reflected as a reduction in the purchase price paid to
Sellers) but was not repaid by the Company and therefore remained
outstanding at closing.
19
<PAGE>
As used in this prospectus, the term "Transaction" refers to the
recapitalization, the financing of the recapitalization and the application of
the proceeds from such financing.
The following diagram illustrates the ownership of the Company's common
stock before and after the Transaction.
* * * * *
The Company's principal executive offices are located at 2122 York Road, Oak
Brook, Illinois 60521. The telephone number of the Company's executive office
is (630) 574-3000.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The gross
proceeds of $115.0 million received by the Company from the sale of the
Existing Notes, together with borrowings totaling $62.1 million under the New
Credit Facility, and proceeds of $42.5 million from the equity contributions,
were used by the Company: (i) to fund the cash purchase price payable in
connection with the Recapitalization and (ii) to pay fees and expenses in
connection with the Transaction.
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1998, the actual cash
and capitalization of the Company, which includes the effects of the
Transaction. The following table should be read in conjunction with the
Historical Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents................................. $ 0.5
======
Total debt:
New Credit Facility(1):
Revolving Credit Facility(2)(3).......................... 13.5
Term Loan................................................ 55.0
11 1/4% Senior Subordinated Notes due 2008................ 115.0
Other..................................................... 0.6
------
Total debt(4)........................................... 184.1
Stockholders' deficit..................................... (50.8)
------
Total capitalization.................................... $133.3
======
</TABLE>
- --------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description
of the New Credit Facility."
(2) Approximately $12.3 million face amount of letters of credit were issued
and outstanding at September 30, 1998 under the $55.0 million Revolving
Credit Facility and approximately $29.2 million of borrowings are
available to the Company under the Revolving Credit Facility for working
capital and general corporate purposes.
(3) In August 1998, the Company acquired two hydraulic dredges, certain
support vessels and operating inventory from a competitor for
approximately $13.8 million. The Company initially financed the purchase
price for such assets with borrowings under the Revolving Credit Facility.
The Company expects to refinance the purchase of the equipment for
approximately $14.5 million before the end of the year with an operating
lease.
(4) Total debt includes long-term debt and the current maturities of long-term
debt and excludes contingent obligations.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements of the Company (the "Pro Forma Financial Statements") consist of
Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine
months ended September 30, 1997 and 1998, for the year ended December 31,
1997, and for the twelve months ended September 30, 1998. The Pro Forma
Financial Statements do not include a pro forma balance sheet as the September
30, 1998 Unaudited Condensed Consolidated Balance Sheet, included elsewhere
herein, includes the effects of the Transaction. The Pro Forma Financial
Statements were derived from the Company's historical consolidated financial
statements included elsewhere herein, as adjusted to illustrate the effects of
the Transaction. The unaudited pro forma adjustments were applied to the
respective historical consolidated financial statements to reflect and account
for the Transaction as a recapitalization. Accordingly, the historical basis
of the Company's assets and liabilities has not been impacted by the
Transaction.
The Unaudited Pro Forma Condensed Consolidated Statements of Income give
effect to the Transaction as if it had occurred on January 1, 1997. The
unaudited pro forma adjustments are based upon currently available information
and upon certain assumptions that the Company's management believes are
reasonable under the circumstances. The Unaudited Pro Forma Condensed
Consolidated Financial Statements do not purport to represent what the
Company's actual results of operations or net income would have been if the
Transaction had in fact occurred on such date or to project the Company's
results of operations for any future period or date. The Unaudited Pro Forma
Condensed Consolidated Financial Statements do not give effect to any
transactions other than the Recapitalization and related transactions (the
"Transaction" defined elsewhere herein) and those discussed in the notes to
the Unaudited Pro Forma Condensed Consolidated Financial Statements set forth
below.
The Unaudited Pro Forma Condensed Consolidated Financial Statements and
accompanying notes should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the historical
consolidated financial statements of the Company, including the notes thereto,
and other financial information included elsewhere in this Prospectus.
22
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C>
Contract revenues.......................... $258.3 -- $258.3
Costs of contract revenues................. 228.4 -- 228.4
------ ----- ------
Gross profit............................. 29.9 -- 29.9
General and administrative expenses........ 18.9 (0.5)(a) 18.4
------ ----- ------
Operating income......................... 11.0 0.5 11.5
Interest expense, net...................... (6.0) (12.9)(c) (18.9)
Equity in earnings of joint ventures....... 3.1 -- 3.1
------ ----- ------
Income (loss) before income taxes and
minority interests...................... 8.1 (12.4) (4.3)
Income taxes............................... (2.6) 5.2 (d) 2.6
Minority interests......................... (1.7) -- (1.7)
------ ----- ------
Net income (loss)........................ $ 3.8 $(7.2) $ (3.4)
====== ===== ======
Accrued dividends on Preferred Stock(e).... (5.4)
------
Net income available to Common Stock..... $ (8.8)
======
Ratio of earnings to fixed charges(f)...... 1.7x --
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS)
<CAPTION>
HISTORICAL ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C>
Contract revenues.......................... $278.6 -- $278.6
Costs of contract revenues................. 233.5 -- 233.5
------ ----- ------
Gross profit............................. 45.1 -- 45.1
General and administrative expenses........ 20.6 (0.4)(a) 20.2
Equity incentive plan and other
compensation expenses..................... 8.2 (8.2)(b) --
Recapitalization related expenses.......... 9.5 (9.5)(b) --
------ ----- ------
Operating income......................... 6.8 18.1 24.9
Interest expense, net...................... (6.3) (14.0)(c) (20.3)
Equity in earnings of joint ventures....... 1.8 -- 1.8
------ ----- ------
Income before income taxes, minority
interests and extraordinary item........ 2.3 4.1 6.4
Income taxes............................... (2.2) (1.7)(d) (3.9)
Minority interests......................... (2.2) -- (2.2)
------ ----- ------
Net income (loss) before extraordinary
item.................................... $ (2.1) $ 2.4 $ 0.3
====== ===== ======
Accrued dividends on Preferred Stock(e).... (5.4)
------
Net income available to Common Stock..... $ (5.1)
======
Ratio of earnings to fixed charges(f)...... -- 1.2x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
23
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C>
Contract revenues.......................... $200.2 -- $200.2
Costs of contract revenues................. 167.3 -- 167.3
------ ----- ------
Gross profit............................. 32.9 -- 32.9
General and administrative expenses........ 15.2 (0.3)(a) 14.9
Equity incentive plan and other
compensation expense...................... 8.2 (8.2)(b) --
Recapitalization related expenses.......... 9.5 (9.5)(b) --
------ ----- ------
Operating Income......................... 0.0 18.0 18.0
Interest expense, net...................... (4.8) (10.6)(c) (15.4)
Equity in earnings of joint ventures....... 0.4 -- 0.4
------ ----- ------
Income (loss) before income taxes,
minority interests and extraordinary
item.................................... (4.4) 7.4 3.0
Income taxes............................... 0.5 (3.1)(d) (2.6)
Minority interests......................... (1.9) -- (1.9)
------ ----- ------
Net income (loss) before extraordinary
item.................................... $ (5.8) $ 4.3 $ (1.5)
====== =====
Accrued dividends on Preferred Stock(e).... (4.1)
------
Net income available to Common Stock..... $ (5.6)
======
Ratio of earnings to fixed charges(f)...... -- 1.0x
</TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C>
Contract revenues.......................... $179.9 -- $179.9
Costs of contract revenues................. 162.2 -- 162.2
------ ----- ------
Gross profit............................. 17.7 -- 17.7
General and administrative expenses........ 13.5 (0.4)(a) 13.1
------ ----- ------
Operating income......................... 4.2 0.4 4.6
Interest expense, net...................... (4.5) (9.5)(c) (14.0)
Equity in earnings of joint ventures....... 1.7 1.7
------ ----- ------
Income (loss) before income taxes and
minority interests...................... 1.4 (9.1) (7.7)
Income taxes............................... 0.0 3.8 (d) 3.8
Minority interests......................... (1.3) -- (1.3)
------ ----- ------
Net income (loss)........................ $ 0.1 $(5.3) $ (5.2)
====== =====
Accrued dividends on Preferred Stock(d).... (4.1)
------
Net income available to Common Stock..... $ (9.3)
======
Ratio of earnings to fixed charges(e)...... 1.0x --
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
24
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
(a) To eliminate the management fee charged by the Seller as subsequent to
the Transaction, such fee will no longer be incurred.
(b) To eliminate nonrecurring costs incurred in connection with the
Transaction.
(c) The unaudited pro forma adjustments to interest expense reflect the
following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER TWELVE MONTHS
DECEMBER 31, 1997 30, ENDED
----------------- ------------ SEPTEMBER 30,
1997 1997 1998 1998
<S> <C> <C> <C> <C>
Interest expense on debt
repaid(1)...................... $(5.8) $(4.5) $(2.7) $(4.0)
Interest expense on Term Loan
(7.74% per annum)(2)........... 4.3 3.2 2.6 3.7
Interest expense on Revolving
Credit Facility (7.74% per
annum)(2)...................... 0.5 0.4 0.3 0.4
Interest expense on Notes
(11.25% per annum)............. 12.9 9.7 9.7 12.9
Amortization of deferred
financing costs................ 0.7 0.5 0.5 0.7
Other borrowing costs........... 0.3 0.2 0.2 0.3
----- ----- ----- -----
Net adjustments............... $12.9 $ 9.5 $10.6 $14.0
===== ===== ===== =====
</TABLE>
--------
(1) Interest expense includes amortization of deferred financing costs,
agents' fees, and unused facility fees.
(2) Interest rates with respect to borrowings under the Term Loan and
Revolving Credit Facility are variable. An increase of 0.125% in
interest rates on borrowings under the Term Loan and Revolving
Credit Facility would increase pro forma interest by $0.1 annually.
(d) To reflect the estimated tax effects of the unaudited pro forma
adjustments.
(e) Represents dividends on the Company's issuance of Preferred Stock as
part of the Recapitalization. The Preferred Stock will accrue dividends
at a rate of 12%, compounded annually. See "Description of Capital
Stock."
(f) Earnings used in computing the ratio of earnings to fixed charges
consists of earnings before provision for income taxes plus distributed
income of joint ventures and fixed charges. Fixed charges are defined as
interest expense including the amortization of deferred financing costs.
For the year ended December 31, 1997, pro forma earnings were
insufficient to cover fixed charges by $8.1 million. For the twelve
months ended September 30, 1998 earnings were insufficient to cover
fixed charges by $0.8 million. For the nine months ended September 30,
1998 earnings were insufficient to cover fixed charges by $6.4 million.
For the nine months ended September 30, 1997, pro forma earnings were
insufficient to cover fixed charges by $10.8 million.
25
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table presents selected historical financial and other data of
the Company for the periods indicated. The historical financial data (except
for EBITDA and Adjusted EBITDA) for each of the three years ended December 31,
1997, have been derived from, and should be read in conjunction with, the
audited consolidated financial statements of the Company and the related notes
thereto included elsewhere in this Prospectus. The historical financial data
(except for EBITDA and Adjusted EBITDA) for the two years ended December 31,
1994, have been derived from the audited consolidated financial statements of
the Company which are not contained herein. The historical financial data
(except for EBITDA and Adjusted EBITDA) for each of the two nine month periods
ended September 30, 1997 and 1998, have been derived from, and should be read
in conjunction with, the unaudited consolidated financial statements of the
Company and the notes related thereto included elsewhere herein. In the
opinion of management, information for interim periods includes all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the financial position and results of operations of
the Company for such periods. Results for interim periods are not indicative
of results for a full year or indicative of future periods. The selected
historical consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Contract revenues....... $251.3 $269.6 $226.9 $235.9 $258.3 $179.9 $200.2
Costs of contract
revenues(1)............ (214.5) (232.6) (217.1) (208.7) (228.4) (162.2) (167.3)
------ ------ ------ ------ ------ ------ ------
Gross profit........... 36.8 37.0 9.8 27.2 29.9 17.7 32.9
General and
administrative
expenses............... (20.7) (19.9) (15.9) (16.4) (18.9) (13.5) (32.9)
------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................ 16.1 17.1 (6.1) 10.8 11.0 4.2 0.0
Interest expenses, net.. (6.3) (7.3) (7.9) (6.0) (6.0) (4.5) (4.8)
Equity in earnings of
joint ventures......... 2.4 2.1 1.3 1.1 3.1 1.7 0.4
Other non-operating
expenses............... (0.4) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes, minority
interests,
discontinued
operations and
extraordinary item ... 11.8 11.9 (12.7) 5.9 8.1 1.4 (4.4)
Income tax (expense)
benefit................ (4.8) (4.6) 4.2 (2.4) (2.6) 0.0 0.5
Minority interests...... (0.7) (1.0) (1.2) (0.4) (1.7) (1.3) (1.9)
------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations. 6.3 6.3 (9.7) 3.1 3.8 0.1 (5.8)
Extraordinary item net
of tax effect.......... -- (1.9) -- -- -- -- (0.9)
Discontinued operations. 0.2 0.3 (0.3) (1.1) -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)...... $ 6.5 $ 4.7 $(10.0) $ 2.0 $ 3.8 $ 0.1 $ (6.7)
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges(2)....... 2.6 2.6 -- 1.8 1.7 1.0 --
OTHER DATA:
Adjusted EBITDA(3)...... $ 31.0 $ 35.0 $ 16.0 $ 26.2 $ 28.8 $ 18.3 $ 30.1
Net cash flows from
operating activities... 19.3 13.4 (3.7) 24.7 13.6 1.5 23.1
Depreciation and
amortization........... 13.4 14.1 14.7 13.9 13.6 10.4 11.0
Maintenance expenses(4). 12.3 11.1 15.4 14.7 17.3 12.7 14.1
Capital expenditures.... 12.8 7.4 11.5 5.4 11.5 7.9 26.4
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1.9 $ 3.5 $ 2.3 $ 1.9 $ 1.7 $ 20.1 $ 0.5
Working capital......... 12.5 20.6 26.9 22.0 41.6 46.2 23.0
Total assets............ 263.7 278.0 266.0 222.1 245.6 257.6 240.5
Total debt(5)........... 75.5 70.3 76.8 52.4 57.6 63.3 184.1
Total stockholders'
equity (deficit) ...... 77.6 82.3 72.3 74.4 78.2 74.4 (50.8)
</TABLE>
26
<PAGE>
- --------
(1) During interim periods the Company prepays or accrues fixed equipment
costs and amortizes the expenses in proportion to revenues recognized over
the year to better match revenues and expenses. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Earnings used in computing the ratio of earnings to fixed charges consists
of earnings before provision for income taxes plus distributed income of
joint ventures and fixed charges. Fixed charges are defined as interest
expense including the amortization of deferred financing costs. For the
year ended December 31, 1995, and the nine months ended September 30,
1998, earnings were insufficient to cover fixed charges by $9.6 million
and $6.4 million, respectively.
(3) "EBITDA," as provided herein, represents earnings from continuing
operations before interest expense, net, income taxes and depreciation and
amortization expense and excludes equity earnings of joint ventures and
minority interests. EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles. The
Company's EBITDA is included in the Prospectus as it is a basis upon which
the Company assesses its financial performance, and certain covenants in
the Company's borrowing arrangements will be tied to similar measures.
"Adjusted EBITDA" excludes the effects of certain items on the Company's
historical EBITDA that are not expected to recur in the ongoing activities
of the Company. Adjusted EBITDA is presented to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements, but is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA and Adjusted EBITDA should not be considered in isolation or as an
alternative to net income, cash flows from continuing operations, or other
consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles as measures of the Company's
profitability or liquidity. EBITDA and Adjusted EBITDA as defined in this
Prospectus may differ from similarly titled measures presented by other
companies.
The components of EBITDA and Adjusted EBITDA are set forth below for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------
1993 1994 1995 1996 1997 1997 1998
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income (loss). $16.1 $17.1 $(6.1) $10.8 $11.0 $ 4.2 $ 0.0
Depreciation and
amortization........... 13.4 14.1 14.7 13.9 13.6 10.4 11.0
----- ----- ----- ----- ----- ------ ------
EBITDA.................. 29.5 31.2 8.6 24.7 24.6 14.6 11.0
Management fees paid to
former stockholder..... 0.5 0.5 0.5 0.5 0.4 0.3
Legal and other expenses
related to the Chicago
Flood Litigation....... 0.8 1.1 1.4 0.6 1.8 1.7
Letter of credit fees
associated with the
Chicago Flood
Litigation............. 0.2 0.6 0.2
Disposed operations..... 0.3 0.2 1.5 1.9 1.6 1.1
Settlement and other
costs related to
subcontract dispute.... 5.6
Other corporate charges. 1.3 (1.1)
Equity incentive plan
and other compensation
expenses............... 8.2
Recapitalization related
expenses............... 9.5
----- ----- ----- ----- ----- ------ ------
Adjusted EBITDA......... $31.0 $35.0 $16.0 $26.2 $28.8 $18.3 $30.1
===== ===== ===== ===== ===== ====== ======
</TABLE>
For descriptions of each of the above components of Adjusted EBITDA, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Items Affecting Results of Operations."
(4) Represents amount expended for maintenance included in costs of contract
revenues.
(5) Total debt includes long-term debt and the current maturities of long-term
debt and excludes contingent obligations.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, "Selected Financial and Other Data" and the
Financial Statements included elsewhere herein.
GENERAL
Great Lakes is the largest provider of dredging services in the United
States. Dredging generally involves the enhancement or preservation of
navigability of waterways or the protection of shorelines through the removal
or replenishment of soil, sand or rock. The U.S. dredging market consists of
three primary types of work: Capital, Maintenance (including controlled
disposal dredging) and Beach Nourishment, in which areas the Company has
experienced a combined bid market share in the U.S. of 54% in 1997. In
addition, the Company has grown its role as the only U.S. dredging contractor
with significant international operations, which represented approximately 22%
of its contract revenues in 1997. The Company's fleet of 25 dredges, 29
material transportation barges, two drillboats, and 128 other specialized
support vessels is the largest and most diverse fleet in the U.S., which the
Company believes would cost in excess of $600 million to build.
Most dredging contracts are obtained through competitive bidding on terms
specified by the party inviting the bid. The nature of the specified services
dictates the types of equipment, material and labor involved, all of which
affect the cost of performing the contract and the price that dredging
contractors will bid.
For contracts under its jurisdiction, the Corps typically prepares a cost
estimate based on its understanding of the availability of contractors and
their equipment. To be successful, a bidder must be determined by the Corps to
be a responsible bidder (i.e., a bidder that generally has the necessary
equipment and experience to successfully complete the project) and submit the
lowest responsive bid that does not exceed 125.0% of an estimate determined by
the Corps to be fair and reasonable. With respect to projects that are not
administered by the Corps, contracts are generally awarded to the low
qualified bidder, provided such bid is no greater than the amount of funds
that are available for such project.
Substantially all of the Company's contracts are competitively bid. However,
some government contracts are awarded by a sole source procurement process
through negotiation between the contractor and the government. Prior to
negotiations, the contractor submits a proposal and cost and pricing data to
the government. Under such contracts, the government has the right, after
award and/or completion of the contract, to audit the contractor's books and
records, including the proposal and data available to the contractor during
negotiations, to ensure compliance with the contract and applicable federal
legislation, rules and regulations. The government may seek a price adjustment
based on the results of such audit.
The Company recognizes contract revenues under the percentage-of-completion
method, based on the Company's engineering estimates of the physical
percentage completed of each project. Billings on contracts are generally
submitted after verification with the customers of physical quantities
completed. Costs of contract revenues are adjusted to reflect the gross profit
percentage expected to be achieved upon ultimate completion of each project.
Significant expenditures incurred incidental to major contracts are deferred
and recognized as costs of contracts based on contract performance over the
duration of the related project. These expenditures are reported as prepaid
expenses. Provisions for estimated losses on contracts in progress are made in
the period in which such losses are determined. Claims for additional
compensation due the Company are not recognized in contract revenues until
such claims are settled.
The components of costs of contract revenues are labor, equipment,
subcontracts, rentals, lease expense, other assets employed (including
depreciation, insurance, fuel, maintenance and supplies) and project overhead.
The hourly labor generally is hired on a project basis and laid-off upon the
completion of the project. Costs of contract revenues vary significantly
depending on the type and location of work performed and assets utilized.
28
<PAGE>
Generally, Capital projects have the lowest costs of contract revenues as a
percent of contract revenues and Beach Nourishment projects have the highest.
The Company's cost structure includes significant fixed costs, averaging
approximately 18.0% of total costs of contracts. The Company can have
significant fluctuations in equipment utilization throughout the year.
Accordingly, for interim reporting, the Company prepays or accrues fixed
equipment costs and amortizes the expenses in proportion to revenues
recognized over the year to better match revenues and expenses. Costs of
contract revenues also includes the net gain or loss on dispositions of
property and equipment. The Company recorded net gains on dispositions of
property and equipment of $1.5 million, $0.5 million, $3.3 million and $0.4
million in 1995, 1996, 1997 and the first six months of 1998, respectively.
The Company's equity in earnings of joint ventures relates to the Company's
50% ownership interest in Amboy and the Company's 14% interest in Riovia S.A.
("Riovia"), the Company's Argentine Joint Venture. The Company's investment in
Riovia was made in 1996. The Company accounts for its investments in each of
Amboy and Riovia under the equity method. The Company conducts certain hopper
dredging activities, primarily Maintenance and Beach Nourishment projects
through the operation of NATCO Limited Partnership ("NATCO") and North
American Trailing Company ("North American"). Minority interests reflects
Ballast Nedam Group N.V.'s respective 25% and 20% interest in NATCO and North
American. See "Business--Joint Ventures."
CERTAIN ITEMS AFFECTING RESULTS OF OPERATIONS
The Company believes that its historical results of operations were impacted
by a number of items that are not expected to recur in the ongoing activities
of the Company. The following table sets forth the Company's historical
EBITDA, the impact of these items and Adjusted EBITDA to eliminate the impact
of these items.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED
------------------------------- ------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1998
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income (loss). $16.1 $17.1 $(6.1) $10.8 $11.0 $ 4.2 $ 0.0 $ 6.8
Depreciation and
amortization........... 13.4 14.1 14.7 13.9 13.6 10.4 11.0 14.2
----- ----- ------ ----- ----- ------ ------ -----
EBITDA.................. 29.5 31.2 8.6 24.7 24.6 14.6 11.0 21.0
Management fees paid to
former stockholder..... 0.5 0.5 0.5 0.5 0.4 0.3 0.4
Legal and other expenses
related to the Chicago
Flood Litigation....... 0.8 1.1 1.4 0.6 1.8 1.7 0.1
Letter of credit fees
associated with the
Chicago Flood
Litigation............. 0.2 0.6 0.2
Disposed operations..... 0.3 0.2 1.5 1.9 1.6 1.1 1.4
Settlement and other
costs related to
subcontract dispute ... 5.6
Other corporate charges. 1.3 (1.1)
Equity incentive plan
and other compensation
expenses............... 8.2 8.2
Recapitalization related
expenses............... 9.5 9.5
----- ----- ------ ----- ----- ------ ------ -----
Adjusted EBITDA......... $31.0 $35.0 $ 16.0 $26.2 $28.8 $ 18.3 $ 30.1 $40.6
===== ===== ====== ===== ===== ====== ====== =====
</TABLE>
Management Fees Paid to Former Stockholder. During the periods presented,
the Company paid a management fee to a former stockholder. The Company does
not intend to pay such a fee subsequent to the Recapitalization.
Legal and Other Expenses Related to the Chicago Flood Litigation. In 1992,
an underwater utility tunnel located beneath the Chicago Loop failed adjacent
to a construction site completed by the Company in the fall of 1991. The
failure resulted in a flooding of the tunnel, and building basements served by
the tunnel. Numerous
29
<PAGE>
suits were filed against the Company for claims of flood damage and losses due
to business interruption. The Company incurred substantial legal expenses
along with other expenses as a result of the Chicago Flood Litigation. During
1997, all remaining claims were settled relating to the Chicago Flood
Litigation.
Letter of Credit Fees Associated With The Chicago Flood Litigation. In
connection with the Chicago Flood Litigation, the Company incurred additional
expenses related to certain letters of credit as the Company was not able to
obtain such letters of credit under its existing credit facilities. Instead,
the Company obtained such letters of credit from third parties that charged a
higher fee than the Company would have paid for such letters of credit under
its credit facilities.
Disposed Operations. During the periods presented, the Company operated a
marine construction business that was sold in 1996. The adjustments reflect
the elimination of the historical negative EBITDA attributable to this
business.
Settlement and Other Costs related to Subcontract Dispute. The Company
subcontracted a portion of a marine construction project in New Orleans to a
subcontractor. The subcontractor failed to complete its portion of the project
and the Company incurred additional costs to complete the project. The Company
and the subcontractor were subsequently parties to legal proceedings, of which
the settlement in 1995 resulted in $5.6 million of expense recorded by the
Company.
Other Corporate Charges. In 1994, the Company undertook a corporate
reorganization, in which it closed certain of its regional U.S. offices and
incurred a charge of $1.3 million in connection therewith. In 1996, the
Company offered a voluntary early retirement program and incurred a charge of
$0.6 million relating thereto. In 1996, the Company also terminated its
defined benefit pension plan and recognized a net gain of $1.7 million.
"EBITDA," as provided for herein, represents earnings from continuing
operations before interest expense, net, income taxes and depreciation and
amortization expense and excludes equity in earnings of joint ventures and
minority interests. EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles. The
Company's EBITDA is included in the Prospectus as it is a basis upon which the
Company assesses its financial performance, and certain covenants in the
Company's borrowing arrangements will be tied to similar measures. "Adjusted
EBITDA" excludes the effects of certain items on the Company's historical
EBITDA that are not expected to recur in the ongoing activities of the
Company. Adjusted EBITDA is presented to provide additional information with
respect to the ability of the Company to meet future debt service, capital
expenditures and working capital requirements, but is not necessarily a
measure of the Company's ability to fund its cash needs. EBITDA and Adjusted
EBITDA should not be considered in isolation or as an alternative to net
income, cash flows from continuing operations, or other consolidated income or
cash flow data prepared in accordance with generally accepted accounting
principals as measures of the Company's profitability or liquidity. EBITDA and
Adjusted EBITDA as defined in this Prospectus may differ from similarly titled
measures presented by other companies.
COMPONENTS OF CONTRACT REVENUES
The following table sets forth the Company's contract revenues by type of
work performed for the periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, 1998
-------------------------- -------------------
1995 1996 1997 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Capital.......................... $ 58,663 $ 34,422 $ 55,563 $ 33,577 $ 58,854
Maintenance...................... 55,347 47,014 74,379 57,506 42,693
Beach............................ 29,520 65,838 59,036 41,059 51,665
Foreign.......................... 53,910 58,166 55,919 37,395 45,681
Other(1)......................... 29,425 30,431 13,399 10,339 1,351
-------- -------- -------- --------- ---------
Total.......................... $226,865 $235,871 $258,296 $ 179,876 $ 200,244
======== ======== ======== ========= =========
</TABLE>
- --------
(1) Consists of contract revenues primarily attributable to a marine
construction business that was sold in 1996.
30
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the components of net income and EBITDA as a
percentage of contract revenues for the periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
----------------------- --------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Contract revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of contract revenues........... (95.7) (88.5) (88.4) (90.2) (83.6)
------ ------ ------ ------ ------
Gross profit....................... 4.3 11.5 11.6 9.8 16.4
General and administrative expenses.. (7.0) (6.9) (7.3) (7.5) (7.6)
Equity incentive plan and other
compensation expenses............. -- -- -- -- (4.1)
Recapitalization related expenses.. -- -- -- -- (4.8)
------ ------ ------ ------ ------
Operating income (loss)............ (2.7) 4.6 4.3 2.3 (0.1)
Interest expense, net................ (3.5) (2.6) (2.3) (2.5) (2.4)
Equity in earnings of joint ventures. 0.6 0.5 1.2 1.0 0.2
------ ------ ------ ------ ------
Income (loss) before income taxes,
minority interests and
discontinued operations........... (5.6) 2.5 3.2 0.8 (2.3)
Income tax (expense) benefit......... 1.8 (1.0) (1.0) (0.0) 0.2
Minority interests................... (0.5) (0.2) (0.7) (0.7) (0.9)
------ ------ ------ ------ ------
Income (loss) from continuing
operations........................ (4.3) 1.3 1.5 0.1 (3.0)
Discontinued operations.............. (0.1) (0.5) -- -- --
Extraordinary item................... -- -- -- -- (0.4)
------ ------ ------ ------ ------
Net income (loss).................. (4.4)% 0.8% 1.5% 0.1% (3.4)%
====== ====== ====== ====== ======
EBITDA............................... 3.8% 10.5% 9.5% 8.1% 5.5%
====== ====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Contract Revenues. Contract revenues increased $20.4 million or 11.3% from
$179.9 million for the nine months ended September 30, 1997 to $200.2 million
for the nine months ended September 30, 1998. The increase was partially
attributable to a large new capital project in Los Angeles that began work in
the fourth quarter of 1997. Additionally, foreign revenues increased $8.3
million or 22.3% compared to last year due to projects in the Middle East,
Mexico and Denmark. Beach nourishment revenues increased $10.6 million or
25.8% compared to last year, partly related to additional market share due to
the exit of a major competitor. Maintenance revenues declined $14.8 million or
25.8% between the periods due to normal fluctuations in the number and the
size of projects awarded from year to year and a concentration of equipment
committed to capital and beach projects.
Costs of Contract Revenues. Costs of contract revenues increased $5.2 million
or 3.2% from $162.2 million for the nine months ended September 30, 1997 to
$167.4 million for the nine months ended September 30, 1998. The increase was
primarily attributable to increased utilization of equipment. As a percentage
of contract revenues, costs of contract revenues was 83.6% in the nine months
ended September 30, 1998 compared to 90.2% in the nine months ended September
30, 1997. The improvement in 1998 was attributable to higher margins on two
new large capital projects on the west coast of the United States, several
beach nourishment projects and one foreign capital project.
31
<PAGE>
Gross Profit. Gross profit increased $15.2 million or 85.7%, from $17.7
million for the nine months ended September 30, 1997 to $32.9 million for the
nine months ended September 30, 1998. The increase was primarily attributable
to the increased contract revenues as well as improved margins related to
favorable revenue mix.
General and Administrative Expenses. General and administrative expenses
increased $1.7 million or 12.2%, from $13.5 million for the nine months ended
September 30, 1997 to $15.2 million for the nine months ended September 30,
1998. The increase was primarily due to additional personnel associated with
increased contract revenues and higher incentive accruals connected with
increased earnings levels experienced during 1998.
Operating Income. Operating income decreased $4.2 million from $4.2 million
for the nine months ended September 30, 1997 to break even for the nine months
ended September 30, 1998. The decrease is a result of $9.5 million of non-
recurring expenses related to the Company's recapitalization in August of
1998, which were charged to operations. An additional $8.2 million of
compensation expense was charged to operations during the period related to
equity incentive plan transactions and other discretionary bonuses.
EBITDA. EBITDA decreased $3.6 million or 24.7%, from $14.6 million for the
nine months ended September 30, 1997 to $11.0 million for the nine months
ended September 30, 1998. The decrease was due to the combined $17.7 million
for equity incentive plan and other compensation expenses and recapitalization
related expenses charged to operations in 1998. The unfavorable effects of
these charges were partially offset by increased earnings related to improved
project margins in 1998.
Interest Expense, Net. Interest expense, net increased $0.3 million or 5.9%,
from $4.5 million for the nine months ended September 1997 to $4.8 million for
nine months ended September 30, 1998. The increase in interest expense is
primarily related to interest on the newly issued senior subordinated debt
associated with the Company's recapitalization.
Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures
declined $1.4 million or 76.3% from $1.8 million for the nine months ended
September 30, 1997 to $0.4 million for the nine months ended September 30,
1998. The decrease was primarily attributable to a temporary reduction in
demand for Amboy's products for the period.
Income Tax Expense (Benefit). Income taxes decreased $0.5 million from $0.1
million expense for the nine months ended September 30, 1997 to $0.4 million
benefit for the nine months ended September 30, 1998. The 1998 tax benefit is
a result of the loss generated by the equity incentive plan and other
compensation expenses and certain of the non-recurring expenses associated
with the Company's recapitalization.
Minority Interests. Minority interests increased $0.6 million or 44.0%, from
$1.3 million for the nine months ended September 30, 1997 to $1.9 million for
the nine months ended September 30, 1998. The increase is due to improved
earnings resulting from stronger margins in the NATCO hopper dredging
operations.
Extraordinary Item. In conjunction with the Recapitalization, the Company
entered into a new credit agreement. As a result, deferred financing fees
associated with the Company's prior credit agreement of $0.9 million, after
tax, were written off as an extraordinary item in the third quarter of 1998.
Net Income. Net income decreased $6.8 million from $0.1 million for the nine
months ended September 30, 1997 to a $6.7 million loss for the nine months
ended September 30, 1998. The decrease is a result of improved operating
earnings offset by the equity incentive plan and other compensation expenses
and non-recurring expenses related to the Company's Recapitalization in August
of 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Contract Revenues. Contract revenues increased $22.4 million or 9.5%, from
$235.9 million in 1996 to $258.3 million in 1997. The increase was primarily
due to contract revenues from a number of large Capital projects and
additional hopper Maintenance work arising from severe flooding in the
Mississippi river basin,
32
<PAGE>
partially offset by a decrease in Beach Nourishment contract revenues. A $92.0
million Capital project in Los Angeles was awarded to the Company in the
second quarter of 1997, which contributed $13.0 million to contract revenues
in 1997. Additionally, a new Capital project in Newark Bay contributed $15.9
million to contract revenues in 1997. The decrease in Beach Nourishment
contract revenues was due to normal fluctuations in the number and size of
projects awarded from year to year.
Costs of Contract Revenues. Costs of contract revenues increased $19.7
million or 9.4%, from $208.7 million in 1996 to $228.4 million in 1997. The
increase was primarily due to the increased utilization of fixed assets. The
percent of costs of contract revenues compared to contract revenues remained
constant between 1997 and 1996 at approximately 88.4%.
Gross Profit. Gross profit increased $2.7 million or 10.2%, from $27.2
million in 1996 to $29.9 million in 1997. The increase was due to increased
contract revenues earned in 1997.
General and Administrative Expenses. General and administrative expenses
increased $2.5 million or 15.4%, from $16.4 million in 1996 to $18.9 million
in 1997. The increase was primarily due to additional legal and bonus costs in
1997 related to the Chicago Flood Litigation and the favorable impact from the
termination in 1996 of the Company's defined benefit plan for salaried
employees, which was not repeated in 1997.
Operating Income. Operating income of $10.8 million in 1996 and $11.0
million in 1997 remained essentially unchanged from 1996 to 1997.
EBITDA. EBITDA of $24.7 million in 1996 and $24.6 million in 1997 remained
essentially unchanged from 1996 to 1997.
Interest Expense, Net. Interest expense, net remained level from 1996 to
1997, representing $6.0 million in each of 1996 and 1997.
Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures
increased $2.0 million or 175.0%, from $1.1 million in 1996 to $3.1 million in
1997. The increase was primarily due to sales growth at Amboy and the addition
of earnings from the Company's investment in Riovia in 1997.
Income Tax Expense. Income tax expense increased $0.2 million or 14.8%, from
$2.4 million in 1996 to $2.6 million in 1997. The increase was primarily due
to increased earnings but offset partially by lower state tax rates in certain
project locations in 1997. The overall effective tax rates were 39.7% and
32.8% for the 1996 and 1997 period, respectively. The decline in tax rate was
caused principally by variations in taxable earnings allocated to minority
interests.
Minority Interests. Minority interests increased $1.3 million or 297.9%,
from $0.4 million in 1996 to $1.7 million in 1997. The increase was primarily
attributable to the increased hopper maintenance dredging by vessels operated
by NATCO in 1997.
Discontinued Operations. The loss from discontinued operations of $1.1
million related to the sale of a non-core aggregate towing business in 1996.
Net Income. Net income increased $1.8 million or 89.5%, from $2.0 million in
1996 to $3.8 million in 1997. The increase was primarily attributable to
revenue growth, improved results in joint venture equity earnings, a reduction
in losses from discontinued operations and favorable state income tax
variances in certain domestic project locations.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Contract Revenues. Contract revenues increased $9.0 million or 4.0%, from
$226.9 million in 1995 to $235.9 million in 1996. The increase was primarily
due to an increase in Beach Nourishment contract revenues in 1996, partially
offset by reductions in Capital and Maintenance contract revenues. Beach
Nourishment contract revenues increased $36.3 million in 1996 over 1995 due to
increased demand and funding for Beach
33
<PAGE>
Nourishment projects. During 1995, the East Coast of the United States was
struck by the most severe hurricane and tropical storms experienced in over 60
years, which caused certain 1995 Beach Nourishment projects to be delayed
until 1996 and severely eroded numerous beaches along the East Coast resulting
in more Beach Nourishment projects performed in 1996. The reductions in
Capital contract revenues were due primarily to increased competition from a
competitor, which has since ceased competing with the Company in the Capital
dredging business. The reductions in Maintenance contract revenues were due to
normal fluctuations in the number and size of projects awarded from year to
year.
Costs of Contract Revenues. Costs of contract revenues declined $8.4 million
or 3.9%, from $217.1 million in 1995 to $208.7 million in 1996. The percent of
costs of contract revenues compared to contract revenues was 88.5% in 1996 and
95.7% in 1995. The improvement in 1996 over 1995 was primarily due to the
losses incurred in 1995 on certain Beach Nourishment contracts adversely
affected by severe weather conditions.
Gross Profit. Gross profit increased $17.4 million or 177.4%, from $9.8
million in 1995 to $27.2 million in 1996. The increase was primarily
attributable to the increased contract revenues in 1996 and the reduction in
costs associated with Beach Nourishment projects in 1996 as weather conditions
normalized.
General and Administrative Expenses. General and administrative expenses
increased $0.5 million or 3.3%, from $15.9 million in 1995 to $16.4 million in
1996. The increase was primarily due to higher incentive expense connected
with increased earnings levels, partially offset by the favorable impact from
the termination of the Company's defined benefit plan for salaried employees
in 1996.
Operating Income. Operating income increased $16.9 million from a loss of
$6.1 million in 1995 to $10.8 million in 1996. The increase was primarily
attributable to the increased contract revenues in 1996 and the reduction in
costs associated with Beach Nourishment projects in 1996 as weather conditions
normalized.
EBITDA. EBITDA increased $16.1 million or 186.0%, from $8.6 million in 1995
to $24.7 million in 1996. The increase was primarily due to the impact of
increased earnings and improved margins.
Interest Expense, Net. Interest expense, net declined $1.9 million or 23.1%,
from $7.9 million in 1995 to $6.0 million in 1996. The decrease was primarily
due to lower borrowing levels in 1996.
Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures of
$1.3 million in 1995 and $1.1 million in 1996 remained essentially unchanged
from 1995 to 1996.
Income Tax Expense (Benefit). Income taxes increased $6.6 million from a
benefit of $4.2 million in 1995 to an expense of $2.4 million in 1996. The
increase was primarily due to increased earnings. The overall effective tax
rates were 33.0% and 39.7% for the 1995 and 1996 period, respectively. The
increase in tax rate was caused principally by variations in state income
taxes.
Minority Interests. Minority interests decreased $0.8 million or 65.2%, from
$1.2 million in 1995 to $0.4 million in 1996. The decrease was primarily
attributable to lower levels of hopper Maintenance work in 1996 as compared to
1995 due to normal fluctuations in the number and size of projects awarded
from year to year.
Discontinued Operations. The loss from discontinued operations increased
$0.8 million or 237.1%, from $0.3 million in 1995 to $1.1 million in 1996.
Discontinued operations related to the non-core aggregate towing business that
was sold in 1996.
Net Income. Net income increased $12.0 million from a loss of $10.0 million
in 1995 to a profit of $2.0 million in 1996. The increase was primarily due to
improved operating results in Beach Nourishment and hopper Maintenance
projects.
34
<PAGE>
BACKLOG
The Company's contracts backlog represents management's estimate of the
revenues which will be realized under the portion of contracts remaining to be
performed based upon estimates relating to, among other things, the time
required to mobilize the necessary assets at the project site, the amount of
material necessary to be dredged and the time necessary to demobilize the
project assets. However, such estimates are necessarily subject to
fluctuations based upon the amount of material which actually must be dredged,
as well as factors affecting the time required to complete the job.
Consequently, backlog is not necessarily indicative of future sales. In
addition, because substantially all of the Company's backlog relates to
government contracts, the Company's order backlog can be canceled at any time
without penalty, except, in some cases, the recovery of the Company's actual
committed costs and profit on work performed up to the date of cancellation.
The Company's backlog does not include contract revenues with respect to
project bids that have been awarded to the Company but for which the Company's
customer has not provided an executed contract. As of September 30, 1998,
there were $3.8 million of contracts on which the Company was the low bidder,
but which had not yet been awarded to the Company.
As of December 31, 1997, the Company had a backlog of contract revenues of
$155.3 million, which represents an increase of $47.4 million, or 43.9%, over
December 31, 1996 backlog of $107.9 million. The Company had backlog of $247.0
million at September 30, 1998, $68.4 million of which the Company expects to
complete in 1998, although there can be no assurance that all such backlog
will be completed within that period.
The largest component of backlog at December 31, 1997 was $79.8 million
attributable to a large Capital project in Los Angeles. As of September 30,
1998, $44.9 million relating to this project remained in backlog which
included $2.3 million of additional work awarded in the first six months of
1998. Additionally, backlog at September 30, 1998 includes $29.7 million
attributable to the Boston Harbor Deep Port project that the Company won in
the second quarter of 1998.
SEASONALITY
The Company has historically realized lower contract revenues and earnings
in the first and fourth quarters of each year. This trend is due to a number
of factors including variation in weather conditions and government funding
cycles, which affect the timing and execution of projects.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations and
borrowings under the revolving line of credit. The Company's primary uses of
cash are funding working capital, capital expenditures and debt service.
The Company's net cash flows from operating activities for the nine months
ended September 30, 1998 and 1997 were $23.0 million and $1.8 million,
respectively. The increase in cash flows from operating activities in 1998
compared to 1997 was due to a decrease in working capital resulting primarily
from favorable timing in the collection of receivables. The Company's net cash
flows from operating activities for the years ended December 31, 1997, 1996
and 1995, were $13.6 million, $24.7 million and $(3.7) million, respectively.
The decrease in net cash flow from operating activities in 1997 compared to
1996 was a result of an increase in working capital in the fourth quarter of
1997 due to high revenue levels in the fourth quarter of 1997. Net cash flows
increased in 1996 compared to 1995 due to earnings levels in 1996 compared to
operating losses in 1995.
The Company's net cash flows from investing activities for the nine months
ended September 1998 and 1997 were a use of $27.4 million and a use of $1.8
million, respectively. The decrease in net cash flows from investing
activities in 1998 compared to 1997 was a result of increased capital
expenditures. The increase in capital expenditures is related to certain
equipment acquired from a competitor for approximately $13.3 million and costs
related to the construction of a new dredge of approximately $5.7 million. The
Company's net cash
35
<PAGE>
flows from investing activities for the years ended December 31, 1997, 1996
and 1995, were $(6.2) million, $(0.8) million and $(3.9) million,
respectively. The decrease in net cash flows from investing activities in 1997
from 1996 was a result of increased capital expenditures in 1997 over 1996.
The increase in net cash flows from investing activities in 1996 from 1995 was
a result of decreased capital expenditures in 1996 from 1995.
The Company's net cash flows from financing activities for the nine months
ended September 30, 1998 and 1997 were a source of $3.2 million and a use of
$1.9 million, respectively. During the nine months ended September 30, 1998,
the Company effected the Recapitalization which extinguished the debt under
the former credit agreement and redeemed the stock of the majority
shareholders with proceeds from the new bank term and revolving credit
agreement, issuance of senior subordinated notes and equity investments by new
shareholders. The Company's net cash flows from financing activities for the
years ended December 31, 1997, 1996 and 1995 were $(7.6) million, $(24.3)
million and $6.5 million, respectively. The increase in net cash flows from
financing activities in 1997 compared to 1996 was primarily a result of
funding additional capital expenditures and the increase in working capital
requirements. The decrease in net cash flows from financing activities in 1996
compared to 1995 was a result of the increased repayments of debt with
additional cash generated from increased earnings in 1996.
Distributions from both Amboy and Riovia are subject to the unanimous
consent of each partner in such joint venture. The Company received
distributions from joint ventures of $5.5 million, $0.8 million, $1.0 million
and $0.0 million in 1995, 1996, 1997 and the first nine months of 1998,
respectively, and recorded earnings from such joint ventures of $1.3 million,
$1.1 million, $3.1 million, and $0.4 million, respectively, for the same
periods. The Company paid dividends of $0.6 million, $0.7 million, $3.0
million and $0.0 million in respect of minority interests in 1995, 1996, 1997
and the first nine months of 1998, respectively, and the Company recorded
minority interest expense of $1.2 million, $0.4 million, $1.7 million and $1.9
million, respectively, for the same periods.
The Company has entered into operating lease agreements for certain dredging
assets and office space, which require annual lease payments totaling
approximately $6.0 million annually through 2006. Additionally the Company
expects to incur annual maintenance expense of between $15 and $18 million
annually. Amounts expended for operating leases and maintenance expense are
charged to operations on an annual basis.
Planned capital expenditures, which primarily include support equipment and
equipment upgrades, are expected to require annual spending of between $8
million and $11 million annually for the foreseeable future. The Company's
capital expenditures for 1998 are expected to be $11.0 million for
improvements to its current fleet. In August 1998 the Company acquired two
hydraulic dredges, certain support vessels and operating inventory from a
competitor for approximately $13.8 million. The Company expects to refinance
the purchase of the equipment for approximately $14.5 million before the end
of the year with an operating lease increasing annual operating lease expense
by approximately $1.8 million. The Company initially financed the purchase
price for such assets with borrowings under the Revolving Credit Facility. In
addition, the Company has contracted to build a new backhoe dredge, costing
approximately $18.0 million, for delivery in early to mid 1999. In October
1998, the dredge construction costs were refinanced through an operating lease
that will increase annual operating lease expense by approximately
$2.0 million starting mid-1999 upon completion of the dredge.
In connection with the Recapitalization, the Company entered into the New
Credit Facility. The New Credit Facility is secured by first liens on
approximately $55.0 million in market value of dredging equipment and second
liens on approximately an additional $40.0 million in market value of dredging
equipment. Such lien positions restrict the Company's ability to incur
additional indebtedness as a significant portion of its assets are subject to
liens. Additionally, the New Credit Facility restricts the total amount of
indebtedness the Company can incur. The Term Loan under the New Credit
Facility will require quarterly principal payments aggregating $0.0 million,
$2.5 million, $6.5 million, $9.0 million and $11.0 million in 1998, 1999,
2000, 2001 and 2002, respectively. See "Description of the New Credit
Facility."
36
<PAGE>
In connection with the Recapitalization, the Company entered into the New
Bonding Agreement, which provides surety bonds required for bidding and
performing projects. The bonding company's obligation to issue bonds is
discretionary. The Company's obligations under the New Bonding Agreement are
secured by approximately $160 million of vessel and equipment collateral which
the bonding company has either a first lien position or a second lien position
(behind the first liens securing the Company's obligations under the New
Credit Facility). Additionally, the New Bonding Agreement contains restrictive
covenants which, among other things, limit the Company's ability to incur
indebtedness and place liens on its assets. See "Description of New Bonding
Agreement."
In connection with the Recapitalization, the Company sold the Existing
Notes, with an aggregate principal amount of $115.0 million, to the initial
purchaser. The Notes are general unsecured obligations of the Company
subordinated in right of payment to all existing and future senior debt. The
Indenture contains certain covenants that limit, among other things, the
ability of the Company to (i) pay dividends, redeem capital stock or make
certain other restricted payments or investments, (ii) incur additional
indebtedness or issue certain preferred equity interests, (iii) sell all or
substantially all of its assets and (iv) create certain liens on assets. The
Notes bear interest at the rate of 11 1/4% per annum, payable semi-annually on
February 15 and August 15, commencing February 15 1999. The Notes mature on
August 15, 2008. See "Description of Notes."
Management believes cash flow from operations and available credit will be
sufficient to finance operations, planned capital expenditures and debt
service requirements for the foreseeable future. The Company's ability to make
scheduled payments of principal of, or to pay the interest or Liquidated
Damages (as defined hereinafter), if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. The Company may, however, need to
refinance all or a portion of the principal of the Notes on or prior to
maturity. There can be no assurance that the Company's business will generate
sufficient cash flow from operations or that future borrowings will be
available under the New Credit Facility in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the Company will
be able to effect any such refinancing on commercially reasonable terms or at
all.
YEAR 2000 ISSUE
Historically, many computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
program failing to recognize a year that begins with "20" instead of "19".
This, in turn, could result in major system failures or miscalculations, and
is generally referred to as the "Year 2000 issue".
In June 1996, the Company's MIS Department developed a plan to identify and
address issues related to Year 2000 compliance. The Company's internal systems
were the primary focus of the plan. At that time, the Company compiled an
inventory of its internally developed and third party software. The Company
also evaluated various solutions and techniques for making its internally
developed databases and programs Year 2000 ready. The Company prioritized the
tasks taking into account the likelihood of Year 2000 failure, the impact of
Year 2000 failure on its business, and the effort required to complete the
task. In March 1997, senior management of the Company reviewed the tasks and
approved the plan.
The Company's Year 2000 Plan contemplated four phases--assessment,
implementation, testing and release/installation--which overlap to a degree.
The Company has completed all phases for its most critical systems. The
Company is currently in the implementation, testing and installation phase for
its less critical systems and anticipates completing the final installation
phase during the fourth quarter of 1998. Some non-critical systems will be
addressed during calendar year 1999 and the Company believes such systems are
not material to its operations.
37
<PAGE>
The Company has received information concerning the Year 2000 status of
certain critical suppliers, and anticipates initiating more extensive
inquiries with significant suppliers during the fourth quarter of 1998 to
determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 issues.
The Company currently estimates that the total cost of implementing its Year
2000 Plan, consisting primarily of increased staffing requirements and outside
consulting services, will not be material. This estimate is based on presently
available information and will be updated as the Company continues its
assessment and proceeds with implementation.
If the Company's computer systems fail with respect to the Year 2000 Issue,
or if any applications or embedded chips critical to the Company's reporting
process are overlooked there could be a material adverse effect on the
business, results of operations or financial condition of the Company.
Additionally, there can be no assurance that the systems of other companies on
which the Company's systems rely will be timely converted, or that a failure
to convert by another company would not have material adverse effect on the
business, results of operations or financial condition of the Company. The
Company has not yet established a contingency plan in this regard, but intends
to formulate one to address unavoided or unavoidable risks and expects to have
the contingency plan formulated by July 1999.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), which
could require the Company to make additional disclosures in its financial
statements no later than for the year ending December 31, 1998. SFAS 130
defines comprehensive income, which includes items in addition to those
reported in the statement of operations, and requires disclosures about its
components. Management is presently evaluating the effect on the Company's
financial reporting from the adoption of this statement and does not expect it
to have any material effect. SFAS 131 requires disclosures for each segment of
a business and the determination of segments based on the Company's internal
management structure. Management is in the process of evaluating the impact on
the Company's financial reporting from the adoption of this statement.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS 133 requires
that all derivatives be recognized as either assets or liabilities in the
statement of financial position and be measured at fair value. Management is
in the process of evaluating the impact on the Company's financial position
from adoption of SFAS 133.
INFLATION
The Company does not believe that inflation has had a material impact on the
Company's operations.
38
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were sold by the Company to the Initial Purchaser on
August 19, 1998 (the "Issue Date"). The Initial Purchaser subsequently sold
the Existing Notes to qualified institutional buyers in reliance on Rule 144A
under the Securities Act. Because the Existing Notes are subject to certain
transfer restrictions, as an inducement to the Initial Purchaser the Company,
the Subsidiary Guarantors and the Initial Purchaser entered into the
Registration Rights Agreement, pursuant to which the Company agreed (i) to
prepare and file with the Commission the Registration Statement of which this
Prospectus is a part not later than October 18, 1998 and (ii) to cause the
Registration Statement to become effective under the Securities Act not later
than February 15, 1999. The Registration Statement is intended to satisfy in
part the Company's obligations with respect to the Existing Notes under the
Registration Rights Agreement.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, management believes that the
Exchange Notes will be freely transferable by holders other than affiliates of
the Company after the Exchange Offer without further registration under the
Securities Act if the holder of the Exchange Notes represents that it is
acquiring the Exchange Notes in the ordinary course of its business, that it
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the Commission; provided, however,
that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes
in the Exchange Offer will have a prospectus delivery requirement with respect
to resales of such Exchange Notes. In interpretive letters issued to third
parties in unrelated transactions, the Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to exchange notes (other than a resale of an unsold
allotment from the original sale of existing notes) with the prospectus
contained in the registration statement pursuant to which such exchange notes
were registered. Based on those interpretive letters, the Company is of the
view that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes with this Prospectus, although
the Commission has expressed no opinion in this regard. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-
Dealers and other persons, if any, with similar prospectus-delivery
requirements to use this Prospectus in connection with the resale of such
Exchange Notes. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Existing Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a Prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Existing Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on March 18, 1999; provided, however, that if the Company
has extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer
is extended.
As of the date of this Prospectus, $115.0 million aggregate principal amount
of the Existing Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about February 10, 1999 to
all holders of Existing Notes known to the Company. The Company's obligation
to accept Existing Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth under "--Certain Conditions to the
Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Existing Notes,
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by giving notice of such extension to the holders thereof. During any such
extension, all Existing Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Existing
Notes not accepted for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Existing Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give notice of any extension, amendment, non-
acceptance or termination to the holders of the Existing Notes as promptly as
practicable, such notice in the case of any extension to be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
Holders of Existing Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law in connection with the Exchange
Offer.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to
tender Existing Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to The
Bank of New York at one of the addresses set forth below under "Exchange
Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for such Existing Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Existing Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility" or the "Depositary")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or the holder
must comply with the guaranteed delivery procedure described below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR EXISTING
NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Existing Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Existing Notes
who has not completed the box entitled "Special Issuance Instruction" or
"Special Delivery Instruction" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
maybe, are required to be guaranteed, such guarantees must be by a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust Company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Existing Notes are registered in
the name of a person other than a signer of the Letter of Transmittal, the
Existing Notes surrendered for exchange must be endorsed by, or be accompanied
by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by, the registered holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
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final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Existing Notes not properly tendered or to not
accept any particular Existing Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Existing Notes either before or after the
Expiration Date(including the right to waive the ineligibility of any holder
who seeks to tender Existing Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular
Existing Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Existing Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Existing Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any Existing Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder of Existing Notes will represent to the Company in
writing that, among other things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
holder and any beneficial holder, that neither the holder nor any such
beneficial holder has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and that neither the
holder nor any such other person is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company. If the holder is not a broker-dealer,
the holder must represent that it is not engaged in nor does it intend to
engage in a distribution of the Exchange Notes. If the holder is a broker-
dealer, the holder must represent that it will receive Exchange Notes for its
own account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading activities. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Existing Notes,
where such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (an "Exchanging Dealer"),
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution."
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Existing Note. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted properly tendered Existing Notes for exchange
when, as and if the Company has given oral and written notice thereof to the
Exchange Agent.
In all cases, issuance of Exchange Notes for Existing Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Existing Notes
or a timely Book-Entry Confirmation of such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Existing Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Existing Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged Existing Notes will be returned without expense to the
tendering holder thereof(or, in the case of Existing Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Existing Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration of the Exchange Offer.
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BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing
the Book-Entry Transfer Facility to transfer such Existing Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Existing Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof with any required signature guarantees and any other
required documents must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "Exchange Agent"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
The Company understands that the Exchange Agent has confirmed with the Book-
Entry Transfer Facility that any financial institution that is a participant
in the Book-Entry Transfer Facility's system may utilize the Book-Entry
Transfer Facility's Automated Tender Offer Program ("ATOP") to tender Existing
Notes. The Company further understands that the Exchange Agent will request,
within two business days after the date the Exchange Offer commences, that the
Book-Entry Transfer Facility establish an account with respect to the Existing
Notes for the purpose of facilitating the Exchange Offer, and any participant
may make book-entry delivery of Existing Notes by causing the Book-Entry
Transfer Facility to transfer such Existing Notes into the Exchange Agent's
account in accordance with the Book-Entry Transfer Facility's ATOP procedures
for transfer. However, the exchange of the Existing Notes so tendered will
only be made after timely confirmation (a "Book-Entry Confirmation") of such
book-entry transfer and timely receipt by the Exchange Agent of an Agent's
Message (as defined in the next sentence), an appropriate Letter of
Transmittal with any required signature guarantee, and any other documents
required. The term "Agent's Message" means a message, transmitted by the Book-
Entry Transfer Facility and received by the Exchange Agent and forming part of
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility
has received an express acknowledgment from a participant tendering Existing
Notes which are the subject of such Book-Entry Confirmation and that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that the Company may enforce such agreement against such
participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Existing Notes desires to tender such Existing
Notes and the Existing Notes are not immediately available, or time will not
permit such holder's Existing Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Existing Notes
and the amount of Existing Notes tendered, stating that the tender is being
made thereby and guaranteeing that within five New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Existing Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Existing Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within five NYSE trading days after the date of execution of the Notice
of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must specify
the name of the person
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having tendered the Existing Notes to be withdrawn, identify the Existing
Notes to be withdrawn (including the principal amount of such Existing Notes),
and (where certificates for Existing Notes have been transmitted) specify the
name in which such Existing Notes are registered, if different from that of
the withdrawing holder. If certificates for Existing Notes have been delivered
or otherwise identified to the Exchange Agent, then, prior to the release of
such certificates, the withdrawing holder must also submit the serial numbers
of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Existing Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice
of withdrawal must specify the name and number of the account at the Book-
Entry Transfer Facility to be credited with the withdrawn Existing Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Existing Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer.
Any Existing Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost
to such holder (or in the case of Existing Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Existing
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Existing Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Existing Notes may be retendered by following one of the procedures described
under "--Procedures for Tendering Existing Notes" above at any time on or
prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Existing Notes and may terminate or amend the Exchange Offer if at
any time before the acceptance of such Existing Notes for exchange or the
exchange of Exchange Notes for such Existing Notes, the Company determines
that (i) the Exchange Offer does not comply with any applicable law or any
applicable interpretation of the staff of the Commission, (ii) the Company has
not received all applicable governmental approvals or (iii) any actions or
proceedings of any governmental agency or court exist which could materially
impair the Company's ability to consummate the Exchange Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable discretion. The failure by the Company
at any time to exercise any of the foregoing rights shall not be deemed a
waiver of such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Existing Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). In any such
event the Company is required to use every reasonable effort to obtain the
withdrawal of any stop order at the earliest possible time.
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EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
By Hand Or Overnight Facsimile Transmissions: By Registered Or Certified
Delivery: Mail:
(Eligible Institutions Only)
The Bank of New York (212) 571-3080 The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
New York, New York 10286 To Confirm by Telephone New York, New York 10286
Corporate Trust Services or for Information Call: Attention: Reorganization
Window Section,
Ground Level (212) 815-6333
Attention: Reorganization
Section,
Delivery to an address other than as set forth above or transmission via
facsimile to a number other than as set forth above does not constitute a
valid delivery.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying amount as the
Existing Notes, which is the principal amount as reflected in the Company's
accounting records on the date of the exchange and, accordingly, no gain or
loss will be recognized. The debt issuance costs will be capitalized and
amortized to interest expense over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register Exchange Notes in the name of, or request
that Existing Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES
Holders of Existing Notes who do not exchange their Existing Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of, the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
accrue interest at 11 1/4% per annum and will otherwise remain outstanding in
accordance with their terms. Holders of Existing Notes do not have any
appraisal or dissenters' rights under the Delaware General Corporation Law in
connection with the Exchange Offer. In general, the Existing Notes may not be
offered or sold unless registered under the Securities
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Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, (i) if the Initial Purchaser so requests with respect
to Existing Notes not eligible to be exchanged for Exchange Notes in the
Exchange Offer and held by it following consummation of the Exchange Offer or
(ii) if any holder of Existing Notes(other than an Exchanging Dealer) is not
eligible to participate in the Exchange Offer or, in the case of any holder of
Existing Notes (other than an Exchanging Dealer) that participates in the
Exchange Offer, does not receive Exchange Notes in exchange for Existing Notes
that may be sold without restriction under state and federal securities laws
(other than due solely to the status of such holder as an affiliate of the
Company within the meaning of the Securities Act), the Company is obligated to
file a shelf registration statement on the appropriate form under the
Securities Act relating to the Existing Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by holders thereof (other than (i) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act or (ii) any broker-dealer that purchases Notes
from the Company to resell pursuant to Rule 144A or any other available
exemption) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. If any holder has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction. A broker-dealer who
holds Existing Notes that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Notes. Each such broker-dealer that receives Exchange
Notes for its own account in exchange for Existing Notes, where such Existing
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." The Company has not requested
the staff of the Commission to consider the Exchange Offer in the context of a
no-action letter, and there can be no assurance that the staff would take
positions similar to those taken in the interpretive letters referred to above
if the Company were to make such a no-action request.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption
from registration or qualification is available and is complied with. The
Company has agreed, pursuant to the Registration Rights Agreement and subject
to certain specified limitations therein, to register or qualify the Exchange
Notes for offer or sale under the securities or blue sky laws of such
jurisdictions in the United States as any selling holder of the Notes
reasonably requests in writing.
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BUSINESS
Great Lakes is the largest provider of dredging services in the United
States. Dredging generally involves the enhancement or preservation of
navigability of waterways or the protection of shorelines through the removal
or replenishment of soil, sand or rock. The U.S. dredging market consists of
three primary types of work: Capital, Maintenance (including controlled
disposal dredging) and Beach Nourishment, in which activities the Company
achieved a combined bid market share in the U.S. of 54% in 1997. In addition,
the Company is the only U.S. dredging contractor with significant
international operations, which represented approximately 22% of its contract
revenues in 1997. The Company's fleet of 25 dredges, 29 material
transportation barges, two drillboats, and 128 other specialized support
vessels is the largest and most diverse fleet in the U.S. The Company believes
its fleet would cost in excess of $600 million to build. For the twelve months
ended September 30, 1998, the Company's contract revenues and Adjusted EBITDA,
were $278.6 million and $40.6 million, respectively. In addition, as of
September 30, 1998, the Company's contract backlog totaled approximately
$247.0 million.
Over its 108-year life, the Company has grown to be the leader in each of
its business activities in the U.S. The Company's three principal business
activities are:
. CAPITAL (approximately 43% of 1997 contract revenues). Capital dredging
projects are primarily port expansion projects, which involve the
deepening of channels to allow larger, deeper draft ships and providing
land fill for building additional port facilities, thereby enhancing
port profitability and competitiveness. Approximately 31% of the
Company's Capital project revenues in 1997 derive from Deep Port
projects. The Company's cumulative bid market share of Deep Port
projects was 76% from 1991 to 1997. Capital projects also include land
reclamations, trench digging, and other construction-related dredging.
The Company's bid market share of total U.S. Capital projects (including
Deep Port projects) was 67% in 1997. Approximately 22% of the Company's
contract revenues were attributable to non-U.S. Capital projects.
. MAINTENANCE (approximately 29% of 1997 contract revenues). Maintenance
dredging consists of the redredging of waterways and harbors to remove
silt, sand and other accumulated sediments. Due to natural
sedimentation, active channels generally require Maintenance dredging
every one to three years, thus creating a continuous source of dredging
work that is typically non-deferable if optimal navigability is to be
maintained. The Company's bid market share of U.S. Maintenance projects
was 28% in 1997.
. BEACH NOURISHMENT (approximately 23% of 1997 contract revenues). Beach
Nourishment dredging projects generally involve moving sand from the
ocean floor to shoreline locations when erosion has progressed to a
stage that threatens substantial shoreline assets. The Company's bid
market share of U.S. Beach Nourishment projects was 86% in 1997.
The Company believes that it benefits from a number of favorable trends in
the U.S. dredging market. The average controlling depth of the top ten largest
U.S. ports, as measured by annual container volume, is 40.4 feet compared to
52.7 feet for the top ten non-U.S. ports worldwide. Without significant
deepening efforts, most major U.S. ports risk being unable to accommodate
larger cargo vessels, which renders them less competitive with deeper ports.
The Corps, which has the primary responsibility for maintaining and improving
the nation's waterways, ports and shorelines, has recently announced 18 new
Deep Port projects to be completed over the next seven years, which the Corps
estimates will have an aggregate value in excess of $2.2 billion. Funding for
announced projects has also increased significantly during the past 12 months
due to increased federal funding and increased cost sharing of Capital
projects by local governments. In addition, the Corps, which historically has
performed a significant amount of domestic Maintenance dredging projects, has
substantially reduced its fleet from its height of 42 dredges in 1976 to 12
dredges in 1998, and has recently idled the largest of its four remaining
hopper dredges, which are the only Corps dredges that compete with the
Company.
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COMPETITIVE STRENGTHS
The Company possesses a number of competitive strengths that have allowed it
to develop and maintain its leading position within the dredging industry,
including the following:
FLEXIBLE PORTFOLIO OF ASSETS. The Company operates the largest and most
diverse dredging fleet in the U.S., which the Company believes would cost in
excess of $600 million to build. Great Lakes owns over 180 vessels including
approximately 40% of the vessels certified by the U.S. Coast Guard and
American Bureau of Shipping to perform offshore dredging operations, 47% of
available hopper dredge capacity, 33% of large capacity clamshell dredges
operating in the U.S., 100% of the drill boats in the U.S. and certain
specialized equipment, such as the only two large electric dredges in the U.S.
The size and breadth of the fleet improves the Company's competitiveness as it
generally permits the Company to select the most efficient equipment for a
particular job. To maintain the value and effectiveness of its fleet, the
Company emphasizes proactive maintenance that results in lower downtime,
increased profitability, enhanced vessel life and relatively low capital
expenditure requirements. To this end, the Company incurred $17.3 million of
maintenance expense in 1997 in addition to capital expenditures of $11.5
million.
FAVORABLE COMPETITIVE DYNAMIC. Great Lakes is the largest U.S. provider of
dredging services and has consistently maintained a cumulative bid market
share of 38% since 1991, which is substantially greater than its nearest
competitor's share for those projects. In addition to operating and owning the
industry's largest and most diverse fleet, the Company believes that it
benefits from a number of significant advantages relative to both existing and
potential competitors, including: (i) the requirements of the Dredging Act of
1906 and the Jones Act of 1920, which effectively prohibit foreign dredges and
foreign-owned dredging companies from competing in the U.S.; (ii) its being
one of three competitors that it believes are independently able to obtain
performance bonds in an amount greater than $50 million; (iii) the relatively
high capital costs associated with the construction of a new dredge, which the
Company estimates at between $10 to $50 million; and (iv) the Company's
reputation for quality and customer service built up over its 108 year
operating history, during which time it has never failed to complete a
project. In addition, the Company's long history as a leader in the industry
has enabled it to develop a proprietary database that contains detailed
bidding and technical information on most domestic dredging projects since
1970, which management believes allows the Company, among other things, to be
more accurate than its competitors in predicting contract costs prior to
bidding.
SPECIALIZED CAPABILITY IN CAPITAL PROJECTS. Great Lakes believes it is the
leader in Capital dredging projects which generally require specialized
engineering expertise, specific combinations of equipment and experience in
performing complex projects. From 1991 to 1997, Great Lakes achieved a 38%
U.S. bid market share of the Capital projects. The Corps has recently
announced 18 new Deep Port projects to be completed through 2005. The Corps
has estimated the aggregate dollar value of these projects to exceed $2.2
billion (of which bidding for approximately $1 billion of such projects is
scheduled to commence in 1998) compared to $887 million of projects bid
between 1986 and 1997. The Company's cumulative bid market share of Deep Port
projects was 76% from 1991 to 1997. The Company believes its extensive
experience on complex projects significantly enhances its ability to
profitably bid and complete these contracts.
PROVEN, EXPERIENCED MANAGEMENT TEAM. The Company's senior managers include:
Douglas B. Mackie, President and Chief Executive Officer; Richard M. Lowry,
Executive Vice President and Chief Operating Officer; and Bruce J. Biemeck,
Senior Vice President and Chief Financial Officer, who have an average of 17
years of experience in the dredging industry. The Company believes that its
experienced management team provides it with a significant advantage over its
competitors, many of whom are family owned and managed. As a result of the
Transaction, the management of the Company owns approximately 16% of the
issued and outstanding common stock of Great Lakes.
BUSINESS STRATEGY
The Company's strategy is to continue to grow contract revenues and cash
flow and strengthen its competitive position worldwide. The principal elements
of this strategy include:
47
<PAGE>
CONTINUE TO GROW IN DOMESTIC MARKETS. The Company expects to strengthen its
domestic leadership position by leveraging (i) the size and breadth of its
fleet, (ii) its industry-leading operating experience, (iii) its engineering
expertise, and (iv) its efficient project management practices. For example,
the Company has contracted to build a new backhoe at a cost of approximately
$18 million, which will enhance its ability to compete for and execute new
Deep Port projects. To further enhance the Company's operating capabilities,
on August 25, 1998, the Company acquired T.L. James & Company, Inc., a
significant competitor, at a cost of approximately $13.8 million, a large
hydraulic dredge and midsize hydraulic dredge together with support equipment,
inventory and spare parts. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
GROW ESTABLISHED FOREIGN MARKET BASE. Since the early 1990s, a consolidation
among certain foreign competitors, together with an increase in foreign
governments' port infrastructure investments, have resulted in new overseas
dredging opportunities for Great Lakes. In 1997, the Company recorded
approximately $55.9 million in revenue from non-U.S. dredging projects. The
Company intends to continue to selectively pursue international opportunities
that offer it the potential to increase the utilization of its asset base, to
leverage its project management capabilities and to expand its non-U.S.
dredging market share.
EXPLOIT GROWTH IN CONTROLLED DISPOSAL DREDGING. In recent years, in response
to more stringent regulations governing the disposal of dredged materials,
certain of the Company's projects have required dredged materials to be
disposed of in a more controlled manner. The Company believes it is well
positioned to exploit this trend due to its equipment mix, its operating
expertise and its joint venture with the owner and operator of two fully
permitted upland disposal sites in New Jersey, which represent a substantial
percentage of the upland disposal capacity in the greater New York City area.
During 1997, Great Lakes completed $12.0 million of controlled disposal
dredging projects. The Company has estimated that over $100 million of
dredging revenue related to projects requiring upland disposal is expected to
be completed through 2005 in New York and New Jersey.
OPERATIONS
U.S. Capital Dredging. Capital dredging projects are primarily from
expansion projects, which involve the deepening of channels to allow larger,
deeper draft ships and providing land fill for building additional port
facilities, thereby enhancing port profitability and competitiveness. The
Company's cumulative bid market share of Deep Port projects was 76% from 1991
to 1997. Capital projects also include other land reclamations, trench
digging, and other construction-related dredging.
48
<PAGE>
U.S. Capital includes Deep Port projects authorized under the 1986 Water
Resource Development Act, as amended and supplemented ("WORDA"). In 1986,
WORDA authorized the deepening of 39 ports and subsequently authorized
additional port deepening projects and modifications to previously authorized
projects. As of the date of this Offering Memorandum, port deepening projects
have commenced or been completed in Norfolk, VA, Baltimore, MD, Mobile, AL,
New York, NY, Miami, FL, Oakland, CA, Los Angeles, CA and Long Beach, CA. The
budgeted cost of all federally authorized Deep Port projects is expected to be
in excess of approximately $3.0 billion. Great Lakes has had a bid market
share of 65.4% on the $887.0 of Deep Port projects awarded since WORDA was
enacted in 1986. Increasing competition among ports has resulted in added
pressure on the Corps and Congress to schedule projects previously approved
but not yet put out for bid. Additionally, funding for announced projects has
also increased significantly during the past 12 months due to (i) increased
federal funding, and (ii) increased cost sharing of Capital projects by local
governments. As a result, the Corps has announced over $2.2 billion of Capital
projects to be let for bid and executed over the next seven years, of which
the bidding for approximately $1.0 billion of such projects is scheduled to
commence in 1998. The table below lists the Deep Port projects, estimated size
and expected time frame for construction identified by the Corps for bid
through 2005. See "Risk Factors--Dependence on Government Contracts and
Funding."
DEEP PORT PROJECTS PLANNED THROUGH 2005
<TABLE>
<CAPTION>
ESTIMATED
SIZE EXPECTED TIME FRAME
(MILLIONS) FOR CONSTRUCTION
<S> <C> <C>
Arthur Kill/Kill Van Kull, NY.................... $ 750 1999-2005
Houston Ship Channel, TX......................... 250 1998-2004
Cape Fear River, NC.............................. 248 2000-2003
Delaware River, PA............................... 236 2000-2003
Oakland, CA...................................... 124 2001-2004
Charleston Harbor, SC............................ 117 1999-2002
Columbia River, OR............................... 100 2002-2003
San Diego Harbor, CA............................. 87 2001-2003
Baltimore Harbor, MD............................. 63 2002-2004
Savannah, GA..................................... 60 2000-2001
San Juan Harbor, Puerto Rico..................... 50 1998-2000
Los Angeles/Long Beach, CA....................... 45 1998-1999
Brunswick, GA.................................... 40 1999-2001
Jacksonville Harbor, FL.......................... 40 2000-2002
Humbolt Harbor, CA............................... 15 1998-1999
------
Total........................................ $2,255
======
</TABLE>
Capital dredging involves a higher level of complexity and the use of
specialized equipment. These requirements limit the number of competitors
qualified to perform this type of work. The Company's experience, expertise
and extensive and diverse equipment fleet make Great Lakes the leading
provider of dredging services with a significant cumulative bid market share
of all Capital projects, approximately 38% over the last seven years.
Maintenance. Maintenance dredging consists of the redredging of waterways
and harbors to remove silt, sand, and other accumulated sediments. Channels
are typically redredged to depths established prior to recent sedimentation.
Due to natural sedimentation, active channels generally require Maintenance
dredging every one to three years, thus creating a continuous source of
dredging work that is typically non-deferrable if optimal navigability is to
be maintained. The frequency of Maintenance dredging requirements is often
accelerated by snowfall or heavy rainfall in the midwest which causes
additional siltation in the Mississippi River and its tributaries.
49
<PAGE>
The majority of Maintenance dredging work is contracted by the Corps. Other
entities which contract Maintenance dredging include state and local
governments, port authorities, private enterprises, and foreign entities.
Equipment utilized in Maintenance work varies with the specifications of the
project.
The Corps' Maintenance dredging program has grown since 1990 due to both
additional ongoing dredging required in channels deepened under the WORDA
legislation and the execution by the private sector of work previously done by
the Corps. In 1994, the Corps reduced the level of utilization of its hopper
dredging fleet by 20.0% and awarded this additional work to the private
sector. In addition, pursuant to federal legislation enacted in late 1997, the
Corps idled the largest of its four hopper dredges, which are the only Corps
dredges that compete with the Company. The legislation provides that if the
private sector's performance is satisfactory, the idled Corps dredge will be
permanently idled, which will provide the private sector with additional
business opportunities.
The Company believes that the maintenance market will be favorably impacted
by a number of factors, including but not limited to: (i) increasing demands
by the shipping industry to maintain ports more frequently to ensure proper
depths for increasingly larger deeper draft ships, and (ii) additional
maintenance required upon the completion of Capital-related projects, as
deeper channels tend to accumulate sediment more rapidly.
In recent years, in response to more stringent regulations governing the
disposal of dredged materials, certain of the Company's projects have required
dredged materials to be disposed of in a more controlled manner. The Company
believes it is well positioned to exploit this trend due to its equipment mix,
its operating expertise and its joint venture with the owner and operator of
two fully permitted upland disposal sites in New Jersey, which represent a
substantial percentage of the upland disposal capacity in the greater New York
City area. During 1997, Great Lakes completed $12.0 million of controlled
disposal dredging projects. The Corps has estimated that over $100.0 million
of dredging revenue related to projects requiring upland disposal is expected
to be completed through 2005 in New York and New Jersey.
Beach Nourishment. Beach Nourishment dredging projects generally involve
moving sand from the ocean floor to shoreline locations and typically arise
when beach erosion has progressed to a stage that threatens substantial
shoreline assets. Beach Nourishment achieves a more esthetic result than
trapping sand through the use of sea walls and jetties, and a more economic
response to relocating buildings and other assets from the shoreline. Primary
customers for Beach Nourishment jobs are federal, state and local agencies and
municipalities.
Beach Nourishment projects have become in recent years a more important
component of the dredging industry. The increased commercial development of
U.S. shorelines, combined with their continual erosion, has created potential
replenishment opportunities on hundreds of miles of coastline, particularly on
the East Coast. The offshore areas from which replacement sand is dredged,
known as borrow areas, are increasingly located further from the beach, which
(i) requires in certain cases the use of ocean-certified dredges, of which the
Company has the largest U.S. fleet, and (ii) limits the ability to directly
pump the sand. This benefits the Company because it has the largest fleet of
ocean-certified vessels which are capable of performing this activity.
During the period from 1960 through 1985, a substantial amount of beach
rebuilding was performed. However, there was an inadequate amount of follow-up
maintenance performed subsequent to 1985. Since 1996, the Beach Nourishment
market has improved due to (i) an increased amount of follow-up work and (ii)
the recent increase in the severity of the storm and hurricane activity along
the eastern seaboard.
Foreign Dredging Operations. Since 1993, the Company has established itself
as a capable and competitive provider of international dredging services for
Capital projects. Great Lakes has built strong relationships with certain
foreign customers due to its willingness to redesign projects, its ethical
business practices and the desire of certain foreign governments to conduct
business with U.S. firms. Great Lakes is now routinely invited to bid on
projects in certain foreign markets and as a result has been successful in
increasing its foreign business. Since 1993, the Company has worked in Europe,
the Middle East, Africa, Mexico and South America. In 1997, 22% of the
Company's contract revenues were derived from international dredging projects.
50
<PAGE>
JOINT VENTURES
Amboy. The Company and a New Jersey aggregates company each own 50% of
Amboy. Amboy was formed in December 1984 to mine sand from the entrance
channel to the New York harbor and to process, transport, and market fine
aggregate, which is used principally as an ingredient in ready-mix concrete
and asphalt. Great Lakes' dredging expertise and its partner's knowledge of
the aggregate market formed the basis for the joint venture. Amboy is
accounted for by the Company under the equity method. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
Amboy is the only East coast aggregate producer to mine sand from the ocean
floor. In 1988 Amboy built a specially designed dredge at a cost of $9.0
million for sand mining, de-watering and dry delivery. No other vessel of this
type operates in the U.S. Amboy's ocean-based supply of sand provides a long-
term competitive advantage in the Northeast as land-based sand deposits are
depleted or rendered less cost competitive by escalating land values.
Mining operations are performed pursuant to permits granted to Amboy by the
federal government and the states of New York and New Jersey. Amboy is in the
process of obtaining permits to mine sand in new borrow areas which contain
aggregate more closely meeting the specifications for concrete sand. These new
sources will require less blending of material with the dredged aggregate,
reducing the cost of the final product and improving margins. The Company
believes that these permits are likely to be obtained in the next 18 months.
However, there can be no assurance that such permits will be obtained.
Argentine Joint Venture. In 1996, Great Lakes acquired a 14% interest in
Riovia, a joint venture with four leading European dredging firms and two
Argentine dredging firms to dredge the long neglected Rio Via channel linking
Buenos Aires, Argentina and Montevideo, Uruguay which is important for
shipping to Argentina and Uruguay. This venture has afforded Great Lakes the
opportunity to work with other international dredging companies to design,
manage and execute this project.
CUSTOMERS
More than 400 ports and 25,000 miles of navigation channels are dredged
throughout the U.S. in order to keep ship traffic operating efficiently. The
dredging industry's customers include federal, state, and local governments,
foreign governments, and both domestic and foreign private concerns such as
utilities and oil companies. Most dredging projects are competitively bid,
with the award going to the lowest bonded bidder. There are generally few
economic substitutes that customers can use for dredging services. Foreign
governments are the primary dredging customers in international markets,
generally for capital projects relating to infrastructure development. See
"Risk Factors--Dependence on Government Contracts and Funding."
The Corps is the largest dredging customer in the U.S. and has
responsibility for federally funded projects related to navigation and flood
control. In addition, the United States Coast Guard and the United States Navy
are responsible for awarding federal contracts with respect to their own
facilities. Until the early 1970's, the Corps used its own fleet to execute
nearly all of its authorized maintenance dredging. In 1973, Congress imposed a
moratorium on upgrading the Corps' dredging fleet in response to industry
pressure which challenged the efficiency of the Corps' operation. Legislation
was ultimately passed by Congress in 1978 limiting the Corps' fleet of dredges
to a size and configuration considered necessary only for emergencies and
national defense. As a result, its fleet was reduced from 42 dredges in 1976
to 12 dredges in 1998. Currently, only the Corps' four hopper dredges compete
directly with the Company. Furthermore, the Corps recently idled the largest
of its four remaining hopper dredges for a two-year test program. The Corps is
currently conducting a study on alternatives to operating its remaining fleet,
but the Corps is prohibited from selling any of its fleet for use in the U.S.
BIDDING PROCESS
Most dredging contracts are obtained through competitive bidding on terms
specified by the party inviting the bid. The nature of the specified services
dictates the types of equipment, material and labor involved, all of which
affect the cost of performing the contract and the price that dredging
contractors will bid.
51
<PAGE>
For contracts under its jurisdiction, the Corps typically prepares a cost
estimate based on its understanding of the availability of contractors and
their equipment. To be successful, a bidder must be determined by the Corps to
be a responsible bidder (i.e., a bidder that generally has the necessary
equipment and experience to successfully complete the project) and submit the
lowest responsive bid that does not exceed 125% of an estimate determined by
the Corps to be fair and reasonable. With respect to projects that are not
administered by the Corps, contracts are generally awarded to the lowest
qualified bidder, provided such bid is no greater than the amount of funds
that are available for such project.
Substantially all of the Company's contracts are competitively bid. However,
some government contracts are awarded by a sole source procurement process
through negotiation between the contractor and the government. Prior to
negotiations, the contractor submits a proposal and cost and pricing data to
the government. Under such contracts, the government has the right, after
award and/or completion of the contract, to audit the contractor's books and
records, including the proposal and data available to the contractor during
negotiations, to ensure compliance with the contract and applicable federal
legislation, rules and regulations. The government may seek a price adjustment
based on the results of such audit.
Great Lakes has operated for over 100 years and maintains an extensive
historical database of dredging production records from its own and its
competitors' activities and past bidding results. Prior production records
help the Company predict sediment composition and optimum equipment
requirements. Management believes that its extensive database and its
accumulated estimating and bidding expertise allow the Company to be more
accurate than its competitors in predicting dredging cost, prior to bidding
for contracts.
BONDING AND FOREIGN PROJECTS GUARANTEES
For most domestic projects and some foreign projects, dredging service
providers are required to obtain three types of bonds, which are typically
provided by large insurance companies. A bid bond is required to serve as a
guarantee that if a service provider's bid is chosen, the service provider
will sign the contract. The amount of the bond is typically 20% of the service
provider's bid, up to a maximum bond of $3.0 million. After a contract is
signed, the bid bond is replaced by a performance bond, the purpose of which
is to guarantee that the job will be completed. A performance bond typically
covers 100% of the contract value with no maximum bond amounts. If the service
provider fails to complete a job, the bonding company assumes such obligation
and pays to complete the job, generally by using the equipment of the
defaulting company. A company's ability to obtain performance bonds with
respect to a particular contract depends upon the size of the contract, as
well as the size of the service provider and its financial position. A payment
bond is also required to protect the service provider's suppliers and
subcontractors in the event that the service provider cannot make timely
payments. Payment bonds are generally written in amounts ranging from 40% to
50% of the contract value, up to a maximum of $2.5 million.
Great Lakes has never failed to complete a project during its 108 year
history, and therefore a performance bond has never been called. This reflects
(i) the fact that the range of work performed by Great Lakes is limited and
often repetitive; (ii) the relatively short duration of most projects and
(iii) Great Lakes' broad experience in most U.S. harbors.
The Company's projects have been bonded by Reliance Surety Company
("Reliance") since 1985, with whom it believes it has a good relationship. The
Company has not experienced difficulty in obtaining bonding from Reliance for
any of its projects. If the Company were to fail to complete a project, the
bond provider would be required to either (i) permit the customer to complete
the job and reimburse the customer for the cost of completion or (ii) complete
the defaulted contract utilizing the Company's equipment and labor force or a
third party service provider. In the event the bonding company were to
complete the defaulted contract, it would be entitled to be paid the contract
price directly by the customer. However, the bonding company would be entitled
to be paid by the Company an amount equal to the difference, if any, between
the contract price and the cost of completing the project plus a profit margin
thereon.
For most foreign projects, letters of credit or bank guarantees issued by
foreign banks, which are secured by letter of credit issued under the Credit
Agreement, are required as security for the bid, performance and, if
52
<PAGE>
applicable, advance payments. Foreign bid guarantees are usually 2% to 5% of
the service provider's bid. Foreign performance and advance payment guarantees
are each typically 5% to 10% of the contract value.
COMPETITIVE ENVIRONMENT
The U.S. dredging industry is highly fragmented but has experienced
significant consolidation in recent years. Approximately 180 entities in the
U.S. presently operate more than 600 dredges, most of which are smaller, serve
the inland, as opposed to coastal, waterways and therefore do not compete with
Great Lakes.
Competition in the Company's markets is based mainly on the basis of price,
and competition is often limited by the size of the job, equipment
requirements, bonding requirements, certification requirements, or government
regulations. Currently, Great Lakes and two competitors are the only dredging
companies which independently bid on jobs with values in excess of $50.0
million.
Most dredging competitors concentrate their efforts in certain regions and
operate only one type of dredge. The Company believes the concentration is
usually the result of (i) a limited capital base from which to expand
operations, (ii) familiarity with the local markets and (iii) expertise with a
particular type of equipment. Regional concentrations do not allow these
competitors to respond to opportunities in other regions or to diversify their
risks in the event of a temporary decline in the market in their area. A
company with a variety of equipment, such as Great Lakes, is better able to
respond to changes in demand for certain types of dredges and can select the
most suitable equipment for any particular project, minimizing its project
completion cost. Additionally, Great Lakes, with its extensive fleet and
engineering expertise, can readily meet applicable certification, government
and bonding requirements.
EQUIPMENT OVERVIEW
Great Lakes' dredging fleet is the largest in the western hemisphere and one
of the largest fleets in the world. The fleet consists of over 180 pieces of
equipment, including the largest hopper, and most of the large hydraulic
dredges in the U.S.
The following table provides a listing of the Company's fleet of equipment.
FLEET OF EQUIPMENT (1)
<TABLE>
<CAPTION>
TYPE OF EQUIPMENT QUANTITY
<S> <C>
Hydraulic Dredges...................................................... 10
Hopper Dredges......................................................... 8
Clamshell Dredges...................................................... 7
Unloaders.............................................................. 2
Drill Boats............................................................ 2
Dump Barges............................................................ 20
Hopper Barges.......................................................... 9
Deck Barges............................................................ 32
Other Barges........................................................... 23
Booster Pumps.......................................................... 6
Tugs................................................................... 10
Launches............................................................... 19
Derricks............................................................... 6
Cranes................................................................. 7
Loaders/Dozers......................................................... 10
Survey Boats........................................................... 13
---
Total................................................................ 184
===
</TABLE>
- --------
(1) In addition, the Company has entered into an agreement to purchase two
hydraulic dredges and support vessels and is building a backhoe dredge.
53
<PAGE>
Along with being among the largest and most versatile in the U.S., five of
Great Lakes' hoppers are split-hulled (to facilitate dumping) and self
propelled. In addition, the Company operates the only two large electric
dredges in the U.S., which makes Great Lakes particularly competitive in
markets with stringent emissions standards (such as southern California). The
Company also has the largest fleet of material transportation barges in the
industry which provide cost advantages when dredged material is required to be
disposed of far offshore or when transporting material requiring controlled
disposal.
The Company is committed to preventive maintenance, which it believes is
reflected in the long life of most of its equipment and its low level downtime
on jobs. The Company spent $17.3 million on maintenance in 1997, in addition
to approximately $11.5 million on capital expenditures.
Great Lakes' domestic fleet is typically positioned on the East and West
coast with a smaller number of vessels on the Gulf of Mexico and on the inland
rivers. The mobility of the Company's fleet enables Great Lakes to move
equipment in response to changes in demand. The Company believes that on
average, its dredge equipment capacity utilization based on actual operating
time is among the highest in the industry. Great Lakes' international fleet is
currently positioned in the Middle East, Europe, Africa, Puerto Rico and
Central and South America.
There are three primary types of dredging equipment: hopper dredges,
hydraulic dredges and mechanical dredges.
Hopper Dredges. Hopper dredges are self-propelled with molded hulls and have
the general appearance of an ocean-going vessel. The dredge has hollow hulls
into which material is suctioned hydraulically through dragarms and deposited.
Once the hollow hulls or "hoppers" are filled, the dredge will sail to the
designated disposal site and either (i) bottom dump the material or (ii) pump
the material from the hoppers through a pipeline to the designated site.
Hopper dredges can operate in rough waters, are less likely to interfere with
ship traffic and can move quickly from one project to another.
Hydraulic Dredges. Hydraulic dredges remove material using a revolving
cutterhead which cuts and churns the sediment on the ocean floor and
hydraulically pumps the material by pipe to the disposal location. These
dredges are very powerful and can dredge some types of rock. Certain dredged
materials can be directly pumped as far as seven miles with the aid of a
booster pump. Hydraulic dredges work with an assortment of support equipment
which help with the positioning and movement of the dredge, handling of the
pipelines, and the placement of the dredged material.
Mechanical Dredges. There are two basic types of mechanical dredges:
clamshell and backhoe. In all cases the dredge uses a bucket which excavates
the material from the ocean floor. The dredged material is placed by the
bucket into material barges or "scows" for transport to the designated
disposal area. The scows are emptied by bottom-dumping, direct-pump out or
removal by a crane with a bucket. Mechanical dredges are capable of removing
hardpacked sediments and debris and can work in tight areas such as along
docks or terminals. Clamshell dredges with specialized buckets are ideally
suited to handle material requiring controlled disposal.
Future Equipment Needs. The current Great Lakes fleet is sufficient to meet
the demand associated with the anticipated future Maintenance dredging and
Beach work. A significant portion of the upcoming Capital projects will
require the use of a special type of backhoe dredge. Great Lakes has
contracted to build a backhoe dredge for delivery in early 1999 to meet the
anticipated timing for these projects. Great Lakes believes that this new
dredge will significantly enhance its ability to efficiently bid and execute a
substantial portion of the upcoming Capital projects. To further enhance the
Company's operating capabilities, on July 27, 1998 the Company entered into an
agreement with T.L. James & Company, Inc., a significant competitor, to
acquire a large hydraulic dredge and midsize hydraulic dredge together with
support equipment, inventory and spare parts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
54
<PAGE>
EQUIPMENT CERTIFICATION
Certification of equipment by the U.S. Coast Guard and the establishment of
the permissible loading capacity by the American Bureau of Shipping ("A.B.S.")
are important factors in Great Lakes business. Many projects, such as Beach
Nourishment projects with offshore sand, dredging projects in exposed entrance
channels, and dredging projects with offshore disposal areas, are restricted
by federal regulations to be performed only by dredges or scows that have U.S.
Coast Guard certification and a load line established by the A.B.S. The
certifications indicate that the dredge is structurally capable of operating
in open waters.
GOVERNMENT REGULATIONS
The Company is subject to government regulation pursuant to the dredging
statute (46 U.S.C. Section 292) which protects the United States dredging
industry from competition from foreign-built dredges. The law prohibits
foreign-built vessels (absent special legislative action) from competing in
the United States dredging market. Dredges operating in the navigable waters
of the United States must also meet the coastwise trade requirements of the
Jones Act (Section 27 of the Merchant Marine Act, 1920) and Section 2 of the
Shipping Act, 1916, as amended, and must have a coastwise endorsement pursuant
to the Vessel Documentation Act (46 U.S.C. Section 12101 et seq.). These acts
prohibit vessels owned or controlled by entities which are less than 75% owned
and controlled by United States citizens from transporting dredged material
between points in the United States.
The Company's operations and facilities are subject to a variety of federal
and state environmental statutes and regulations. In addition, the Company is
required to comply with federal and state statues designed to protect certain
species and habitats.
EMPLOYEES
Currently, the Company employs approximately 220 full-time salaried
personnel, with additional hourly personnel hired on a project-by-project
basis. During 1997, the Company employed an average of approximately 500
hourly personnel, most of whom are unionized, on a project-by-project basis.
Crews are generally available for hire on relatively short notice.
The Company is a party to more than twenty-five collective bargaining
agreements that govern its relationship with its hourly personnel. Six primary
agreements apply to more than ninety percent of such employees, which are
listed below with the corresponding expiration dates of the agreements.
(1) Northern Labor Agreement--Local 25, Marine Division, International
Union of Operating Engineers, AFL-CIO, expires October 1, 1999
(2) Southern Labor Agreement--Local 25, Marine Division, International
Union of Operating Engineers, AFL-CIO, expires February 1, 2000
(3) Seafarers International Union of America--Licensed Agreement, expires
March 1, 2000
(4) Seafarers International Union of America--Unlicensed Agreement, expires
March 1, 2000
(5) Northern California Agreement--Local 3, International Union of
Operating Engineers, expires March 1, 2000
(6) Southern California Master Labor Agreement--Local 12, International
Union of Operating Engineers ("Local 12"), expired August 1, 1998,
which agreement was extended until August 1, 2001 pursuant to an
agreement in principle.
During the past five years the only collective labor disruption experienced
by the Company was a strike by Local 12, in August 1995 at the Company's Los
Angeles, California project site. There can be no assurance that the Company
will not experience labor strikes or disturbances in the future.
55
<PAGE>
LEGAL AND ENVIRONMENTAL MATTERS
In the ordinary course of business, Great Lakes is engaged in various
litigation. However, management does not believe any current litigation is
material to the Company's operation or financial position.
In 1992, an underwater utility tunnel located beneath the Chicago Loop
failed adjacent to a construction site completed by Great Lakes during the
fall of 1991. The failure resulted in a flooding of the tunnel and building
basements serviced by the tunnel. Numerous suits were filed against the
Company for claims of flood damage and losses due to business interruption.
During 1997 all remaining claims were settled relating to the Chicago Flood
Litigation.
In 1988 Great Lakes and a subsidiary entered into a plea agreement with the
United States of America wherein Great Lakes and the subsidiary agreed to
plead guilty to five violations of the Sherman Antitrust Act for conspiring to
rig bids on projects between 1981 and 1985. The employment of all former
officers of the Company who were involved in the alleged improper bidding
activities was terminated in 1986. Great Lakes and the subsidiary were never
debarred from bidding by any State or Federal Agency as a result of the
improper bidding activities.
Great Lakes is not currently involved in any material environmental or
related claims or legal matters.
The Company's operations and facilities are subject to a variety of federal
and state environmental statutes and regulations, including those regulating
dredging operations, the disposal of dredged material, wetlands, storm and
waste water discharges, air emissions and the handling of certain substances.
The scope of such statutes and regulations and parties liable thereunder have
been afforded broad interpretations by state and federal regulators and
courts. In addition, the Company is required to comply with federal and state
statutes designed to protect certain species and habitats. Such compliance can
delay the authorization of, appropriation with respect to, and performance of,
particular projects and increase expenses in connection therewith.
The Company cannot predict what environmental laws will be enacted in the
future, how existing or future environmental laws will be administered or
interpreted or what environmental conditions may be found to exist on its
properties. Compliance with more stringent environmental laws, as well as more
vigorous enforcement policies of the regulatory agencies or stricter
interpretation of those laws, and discovery of new conditions may require
additional expenditure by the Company. There can be no assurance that one or
more of the foregoing will not have a material adverse effect on the Company.
BACKLOG
The Company's contracts backlog represents management's estimate of the
revenues which will be realized under the Company's contracts remaining to be
performed based upon estimates relating to, among other things, the time
required to mobilize the necessary assets at the project site, the amount of
material necessary to be dredged and the time necessary to demobilize the
project assets. However, such estimates are necessarily subject to
fluctuations based upon the amount of material which actually must be dredged,
as well as factors affecting the time required to complete the job.
Consequently, backlog is not necessarily indicative of future sales. In
addition, because all of the Company's backlog relates to government
contracts, the Company's order backlog can be canceled at any time without
penalty, except, in some cases, the recovery of the Company's actual committed
costs and profit on work performed up to the date of cancellation.
The Company's backlog does not include contract revenues with respect to
project bids that have been awarded to the Company but for which the Company's
customer has not provided an executed contract, which, as of September 30,
1998, includes $3.8 million of contracts on which the Company was the low
bidder, but which had not yet been awarded to the Company.
As of December 31, 1997, the Company had a backlog of contract revenues of
$155.3 million, which represents an increase of $47.4 million, or 43.9%, over
December 31, 1996 backlog of $107.9 million. The
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Company had backlog of $247.0 million at September 30, 1998, $68.4 of which
the Company expects to complete in 1998, although there can be no assurance
that all such backlog will be completed within that period.
The largest component of backlog at December 31, 1997, was $79.8 million
attributable to a large Capital project in Los Angeles. As of September 30,
1998, $44.9 million relating to this project remained in backlog which
included $2.3 million of additional work awarded in the first six months of
1998. Additionally, backlog at September 30, 1998 includes $29.7 million
attributable to the Boston Harbor Deep Port project won in the second quarter
of 1998.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below are the names, ages and positions with the Company of the
persons who serve as the directors, executive officers and key employees of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Douglas B. Mackie................ 46 President, Chief Executive Officer and Director
Richard M. Lowry................. 43 Executive Vice President and Chief Operating Officer
Bruce J. Biemeck................. 49 Sr. Vice President, Chief Financial Officer and Treasurer
William F. Pagendarm............. 49 Vice President--Division Manager
Steven F. O'Hara................. 43 Vice President--Division Manager
Bradley T.J. Hansen.............. 45 Vice President--Division Manager
Daniel L. Hussin................. 49 Vice President--Manager of U.S. Business Development
Michael A. Delaney............... 44 Director
David Wagstaff III............... 60 Director
</TABLE>
Douglas B. Mackie--Mr. Mackie has been President, Chief Executive Officer
and Director of the Company since 1995. Mr. Mackie joined the Company in 1978
as Corporate Counsel. In 1987 he was named Senior Vice President.
Richard M. Lowry--Mr. Lowry has been the Executive Vice President and Chief
Operating Officer of the Company since 1995. Mr. Lowry joined the Company in
1978 as a Project Engineer and has since held positions of increasing
responsibility in the engineering and operating areas of the Company. In 1990
he was named Senior Vice President and Chief Engineer.
Bruce J. Biemeck--Mr. Biemeck has been the Senior Vice President, Chief
Financial Officer and Treasurer of the Company since 1994. Mr. Biemeck joined
the Company as Controller in 1987. He was named Vice President, Chief
Financial Officer and Treasurer in 1989.
William F. Pagendarm--Mr. Pagendarm has been the Vice President and Division
Manager of the Company since 1985. He joined the Company in 1979 as Project
Superintendent.
Steven F. O'Hara--Mr. O'Hara has been the Vice President and Division
Manager of the Company since 1988. He joined the Company in 1978 as Cost
Accountant.
Bradley T.J. Hansen--Mr. Hansen has been the Vice President and Division
Manager of the Company since 1994, and Vice President & General Superintendent
of the Company from 1991 to 1994. He joined the Company in 1977 as Area
Engineer.
Daniel L. Hussin--Mr. Hussin has been Vice President--Manager of U.S.
Business Development since 1995, and Vice President and Division Manager of
the Company from 1973 to 1995. He joined the Company in 1972 as an Estimator.
Michael A. Delaney--Mr. Delaney became a director of the Company upon
consummation of the Transaction. Mr. Delaney has been a Managing Director of
399 Venture Partners, Inc. and its affiliate Citicorp Venture Capital Ltd.
since 1989. From 1986 through 1989, he was Vice President of Citicorp Mergers
and Acquisitions. Mr. Delaney is also a director of GVC Holdings, JAC
Holdings, CORT Business Services, Inc., Palomar Technologies, Inc., SC
Processing, Inc., Triumph Group, Inc., CLARK Material Handling Inc., MSX
International, Delco Remy International, Inc., International Knife and Saw
Inc., Fabri-Steel Products, Inc., Aetna Inc., AmeriSource Health Corporation
and Allied Digital Technologies Inc.
David Wagstaff III--Mr. Wagstaff became a director of the Company upon
consummation of the Transaction. Mr. Wagstaff has served as President and
Chief Executive Officer of Vectura Group, Inc. since
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1993. He was previously the Principal in a private consulting business and has
worked in various executive capacities at the Equitable Life Assurance Company
and Citicorp.
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid during 1997 to
Great Lakes' Chief Executive Officer and the next four highest paid executive
officers of the Company (collectively, together with the Chief Executive
Officer, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------------ ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (1) COMPENSATION (2)
- --------------------------- -------- --------- ----------------
<S> <C> <C> <C>
Douglas B. Mackie, President and CEO....... $286,700 $236,814 $ 134,140(3)
Richard M. Lowry, Executive Vice President
and Chief Operating Officer............... 248,000 204,848 113,586(4)
Bruce J. Biemeck, Senior Vice President,
Chief Financial Officer and Treasurer..... 176,400 114,484 72,891(5)
William F. Pagendarm, Vice President,
Division Manager.......................... 136,000 35,000 22,188(6)
Bradley T.J. Hansen, Vice President,
Division Manager.......................... 108,000 40,000 19,058(7)
</TABLE>
- --------
(1) Attributable to 1997, but paid in 1998.
(2) Includes employer matching contributions under Great Lakes 401(k) plan,
profit sharing contribution under 401(k) plan and lost 401(k) benefit
bonus due to IRS limitations.
(3) Includes employer matching contributions under Great Lakes' 401(k) plan of
$9,500, profit sharing contribution of $11,000 and payment of lost 401(k)
benefit due to IRS limitations of $113,640.
(4) Includes employer matching contributions under Great Lakes' 401(k) plan of
$9,500, profit sharing contribution of $11,000 and payment of lost 401(k)
benefit due to IRS limitations of $93,086.
(5) Includes employer matching contributions under Great Lakes' 401(k) plan of
$9,500, profit sharing contribution of $11,000 and payment of lost 401(k)
benefit due to IRS limitation of $52,391.
(6) Includes employer matching contributions under Great Lakes' 401(k) plan of
$9,500, profit sharing contribution of $11,000 and payment of lost 401(k)
benefit due to IRS limitation of $1,688.
(7) Includes employer matching contributions under Great Lakes' 401(k) plan of
$9,500 and profit sharing contribution of $9,558.
EXECUTIVE EMPLOYMENT ARRANGEMENTS
The Company has entered into an Employment Agreement, dated as of January 1,
1992, with Douglas B. Mackie. The employment agreement provides for an initial
term of three years with automatic renewal for successive one year terms,
unless sooner terminated by either party giving 90 days written notice prior
to the end of the then current term. In addition, either party may terminate
the employment agreement at any time, with or without cause, by giving the
other party 30 days prior written notice.
Mr. Mackie's current annual base salary under his employment agreement is
$300,000, which is subject to annual increase as determined by the
compensation committee of the Board of Directors, and benefits as provided
from time to time by the Company to its senior executives. In the event Mr.
Mackie resigns for good reason (defined to include, among other things, a
material breach of the employment agreement by the Company) or the employment
agreement is otherwise terminated by the Company for any reason other than
cause, death or permanent disability, Mr. Mackie will be entitled to receive
severance compensation in the amount equal to the sum of (a) Mr. Mackie's
current annual current base salary and (b) a bonus calculated by multiplying
current base salary by the average percentage of Mr. Mackie's base salary
represented by the bonuses Mr. Mackie received during the term of the
employment agreement.
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During the term of the employment agreement and for one year thereafter, Mr.
Mackie is prohibited from directly or indirectly carrying on, engaging or
having a financial interest in any business which is in material competition
with the business of the Company.
The Company has also entered into employment agreements with Richard M.
Lowry and Bruce J. Biemeck, which agreements contain terms substantially
similar to Mr. Mackie's employment agreement, other than the amount of base
salary and the office held. Mr. Lowry's and Mr. Biemeck's current annual base
salaries under their respective employment agreements are $260,000 and
$195,000, respectively.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the preferred stock and common stock of the Company
immediately following the Transaction.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES
------------------------------------------------
PREFERRED
STOCK CLASS A STOCK CLASS B STOCK
-------------- --------------- -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------------------------ ------ ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Vectura Holding Company
LLC(1)....................... 41,818 92.9% 818,000 49.9% 3,363,900 100%
c/o Great Lakes Dredge & Dock
Corporation
2122 York Road
Oak Brook, Illinois 60521
Douglas B. Mackie............. 930 2.1% 208,000 12.7% -- --
c/o Great Lakes Dredge & Dock
Corporation
2122 York Road
Oak Brook, Illinois 60521
Richard M. Lowry.............. 930 2.1% 208,000 12.7% -- --
c/o Great Lakes Dredge & Dock
Corporation
2122 York Road
Oak Brook, Illinois 60521
Bruce J. Biemeck.............. 700 1.6% 149,800 9.2% -- --
c/o Great Lakes Dredge & Dock
Corporation
2122 York Road
Oak Brook, Illinois 60521
William F. Pagendarm.......... 130 0.3% 33,000 2.0% -- --
Bradley T. J. Hansen.......... 130 0.3% 33,000 2.0% -- --
All directors and executive
officers as a group.......... 3,080 6.8% 697,800 42.7% -- --
</TABLE>
- ----------------
(1) Vectura Holding Company LLC ("Vectura") is a Delaware limited liability
company which beneficially owns the stock of the Company indicated above as
well as other investments. Investors in Vectura hold voting and economic
interests that vary depending on the Vectura investment concerned. With respect
to Vectura's investment in the Company, 49.7% of the voting interests
(including voting power and investment power) are owned by 399 Venture
Partners, Inc., a wholly owned indirect subsidiary of Citigroup Inc., and 49.1%
of the voting interests (including voting power and investment power) are owned
by David Wagstaff III, a director of the Company and a vice president of
Vectura.
DESCRIPTION OF CAPITAL STOCK
PREFERRED STOCK
The Company's Certificate of Incorporation provides that the Company may
issue 250,000 shares of preferred stock, all of which is designated as 12%
Series A Cumulative Compounding Preferred Stock (the "Preferred Stock"). The
Preferred Stock has a stated value of $1,000 per share and is entitled to
annual dividends when, as and if declared, which dividends are cumulative,
whether or not earned or declared, and accrue at a rate of 12%, compounding
annually. The vote of a majority of the outstanding shares of the Preferred
Stock, voting as a separate class, is required to (i) create, authorize or
issue any other class or series of stock entitled to a preference prior to the
Preferred Stock upon any dividend or distribution or any liquidation,
distribution of assets, dissolution or winding up of the Company, or increase
the authorized amount of any such other class or series, or (ii) amend the
Company's Certificate of Incorporation if such amendment would adversely affect
the relative rights and preferences of the holders of the Preferred Stock.
Except as described in the immediately preceding sentence or as otherwise
required by law, the Preferred Stock is not entitled to vote. The Company may
not pay any dividend upon (except for a dividend payable in Junior Stock, as
defined below), or redeem or otherwise acquire shares of, capital stock junior
to the Preferred Stock (including the Common Stock) ("Junior Stock") unless all
cumulative dividends on the Preferred Stock have been paid in full. Upon
liquidation, dissolution or winding up of the Company, holders of Preferred
Stock will be entitled to receive out of the legally available assets of the
Company, before any amount shall be paid to holders of Junior Stock, an amount
equal to $1,000 per share of Preferred Stock, plus all accrued and unpaid
dividends to the date of final
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distribution. If such available assets are insufficient to pay the holders of
the outstanding shares of Preferred Stock in full, such assets, or the
proceeds thereof, will be distributed ratably among such holders. The
Preferred Stock will not be mandatorily redeemable prior to the maturity of
the Notes. The Company may optionally redeem, in whole or in part, the
Preferred Stock at any time at a price per share of $1,000, plus accrued and
unpaid dividends to the date of redemption. At the option of the Company, the
Preferred Stock may be exchanged for junior subordinated debentures of the
Company, subject to the Company's compliance with the requirements of the New
Credit Facility, the New Bonding Agreement and the Notes. The Company
currently anticipates that the dividends on the Preferred Stock will be
declared and accrued but not paid. The ability of the Company to pay cash
dividends, and to redeem the Preferred Stock, is subject to restrictions
contained in the New Credit Facility, the New Bonding Agreement and the Notes.
COMMON STOCK
The Certificate of Incorporation of the Company provides that the Company
may issue 50 million shares of Common Stock, divided into two classes
consisting of 25 million shares of Class A Stock and 25 million shares of
Class B Stock. The holders of Class A Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
Except as required by law, the holders of Class B Stock have no voting rights.
Under the Company's Certificate of Incorporation, a holder of either class of
Common Stock may convert any or all of his shares into an equal number of
shares of the other class of Common Stock; provided that in the case of a
conversion from Class B Stock, which is nonvoting, into Class A Stock, which
is voting, the holders of shares to be converted would be permitted under
applicable law to hold the total number of shares of Class A Stock which would
be held after giving effect to the conversion.
STOCKHOLDERS' AGREEMENT
In connection with the Transaction, the stockholders of the Company entered
into a Securities Purchase and Holders Agreement (the "Stockholders'
Agreement") containing certain agreements among such stockholders with respect
to the capital stock and corporate governance of the Company. The following is
a summary description of the principal terms of the Stockholders' Agreement.
Pursuant to the Stockholders' Agreement, the Board of Directors of the
Company is composed of up to five directors, which include: Mr. Mackie (so
long as he continues to be President of the Company and own shares of Common
Stock or Preferred Stock); the President of the Company if Mr. Mackie is no
longer serving on the Board of Directors; up to two individuals designated by
Vectura; and the remaining directors shall be such independent directors as
shall be designated by Vectura (to the extent permitted by applicable law as
determined by Vectura in its sole discretion), provided that in the event that
Vectura concludes that it is unable to designate, or elects not to designate
for any reason, one or more of such independent directors or the election of
any such independent director is not approved by the holders of a majority of
the outstanding shares of Class A Stock, such directorship(s) shall not be
filed by the remaining members of the Board of Directors but shall remain
vacant until the election of a director designated by Vectura to fill such
vacancy in accordance with the Stockholders' Agreement.
The Stockholders' Agreement contains certain provisions which, with certain
exceptions, restrict the ability of the stockholders to transfer any Common
Stock or Preferred Stock except pursuant to the terms of the Stockholders'
Agreement. If holders of more than 50% of the Common Stock approve the sale of
the Company (an "Approved Sale"), each stockholder has agreed to consent to
such sale and, if such sale includes the sale of stock, each stockholder has
agreed to sell all of such stockholder's Common Stock and Preferred Stock on
the terms and conditions approved by holders of a majority of the Common Stock
then outstanding. In the event the Company proposes to issue and sell (other
than in a public offering pursuant to a registration statement) any shares of
Common Stock or any securities containing options or rights to acquire any
shares of Common Stock or any securities convertible into Common Stock to
Vectura or any of its respective affiliates, the Company must first offer to
each of the other shareholders a pro rata portion of such shares. Such
preemptive rights will not be applicable to the issuance of shares of Common
Stock upon conversion of shares of one class of Common Stock
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<PAGE>
into shares of the other class. Subject to certain limitations neither
Vectura, nor any of its respective affiliates, may sell any of their shares of
Preferred Stock or Common Stock without offering the other stockholders a pro
rata opportunity to participate in such sale.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer of shares by Management Investors, including the
right of the Company to repurchase certain shares upon termination of such
stockholder's employment prior to 2003, at a formula price, and the grant of a
right of first refusal in favor of the Company in the event a Management
Investor elects to transfer shares of Common Stock.
STOCKHOLDERS' REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Stockholders' Agreement, the
Company, Vectura, the Management Investors and certain other stockholders of
the Company entered into the Stockholders' Registration Rights Agreement.
Pursuant to the Stockholders' Registration Rights Agreement, upon the written
request of Vectura, the Company will prepare and file a registration statement
with the Securities and Exchange Commission concerning the distribution of all
or part of the shares held by Vectura and use its best efforts to cause such
registration statement to become effective. If at any time the Company files a
registration statement for the Common Stock pursuant to a request by Vectura
or otherwise (other than a registration statement of Form S-8, Form S-4 or any
similar form, a registration statement filed in connection with a share
exchange or an offering solely to the Company's employees or existing
stockholders, or a registration statement registering a unit offering (as
defined)) (a "Qualifying Offering"), the Company will use its best efforts to
allow the other parties to the Stockholders' Registration Rights Agreement to
have their shares of Common Stock (or a portion of their shares under certain
circumstances) included in such offering of Common Stock. Registration
expenses of the selling stockholders (other than underwriting fees, brokerage
fees and transfer taxes applicable to the shares sold by such stockholders or
in certain cases the fees and expenses of any accountants or other
representatives retained by a selling stockholder) will be paid by the
Company.
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<PAGE>
DESCRIPTION OF THE NEW CREDIT FACILITY
As part of the Transaction, the Company entered into a New Credit Facility
with a group of financial institutions (the "Lenders"), arranged by Bank of
America National Trust and Savings Association ("B of A"), with Bank of
Montreal, Chicago Branch, as the documentation agent and B of A acting as the
administrative agent for the Lenders ("Agent"). The New Credit Facility
provides for (i) the Revolving Credit Facility in the maximum amount of $55.0
million and (ii) a term loan facility (the "Term Loan Facility") in the amount
of $55.0 million. At Closing, the Company borrowed approximately $55.0 million
under the Term Loan Facility and approximately $7.1 million under the
Revolving Credit Facility. In addition, approximately $10.0 million of face
amount of letters of credit was outstanding under the Revolving Credit
Facility at closing. The Revolving Credit Facility enables the Company to
obtain revolving credit loans and standby letters of credit for the account to
the Company from time to time for working capital, acquisitions and general
corporate purposes. The New Credit Facility will expire on the six and one-
half year anniversary of the closing date.
The loans under the Revolving Credit Facility will bear interest, generally
at the Company's option, at a Base Rate plus a Base Rate Margin or at an
adjusted Eurodollar Rate plus Eurodollar Rate Margin. The "Base Rate" will
equal the higher of (A) the rate of interest publicly announced from time to
time by B of A, and (B) 0.5% per annum above the latest Federal Funds Rate.
The "Base Rate Margin" will range from 0.0% to 1.0% depending on the Company's
ratio of consolidated total debt to cashflow. The "Eurodollar Rate" will equal
the rate of interest determined by the Agent to be the rate per annum at which
deposits in Dollars in immediately available funds are offered to the Agent in
the interbank Eurodollar market two business days prior to the beginning of
the applicable interest period. The Eurodollar Rate Margin will range from
1.25% to 2.75% depending on the Company's ratio of consolidated total debt to
cashflow.
The New Credit Facility contains various covenants that restrict the Company
from various actions and that require the Company to achieve and maintain
certain financial ratios. The restrictive covenants include limitations on
consolidations, mergers and acquisitions, limitations on investments and
capital expenditures, limitations on the Company's ability to make payments,
restrictions on creating liens, restrictions on paying dividends, restrictions
on asset sales and limitations on borrowing money, among other restrictions.
The covenants relating to financial ratios include requirements to maintain a
total debt to cashflow ratio, a senior debt to cashflow ratio, a cashflow to
interest expense ratio and a minimum net worth. The New Credit Facility also
limits the Company's ability to modify the New Bonding Agreement or the
Company's certificate of incorporation, bylaws, shareholder agreements, voting
trusts or other similar arrangements.
The New Credit Facility includes events of default consisting of, among
other things: (i) any failure to pay principal or failure in the payment of
any reimbursement obligation under any letter of credit, or to pay interest or
fees within three business days after the date due or any other obligations
within five business days after the date due; (ii) any failure to pay certain
other indebtedness or contingent obligations, or defaults that result in or
permit the acceleration of such indebtedness or contingent obligations; (iii)
the breach by the Company or certain of its subsidiaries of covenants,
representations or warranties contained in the New Credit Facility; (iv)
certain events of bankruptcy, insolvency or dissolution of the Company or its
subsidiaries; (v) the incurrence of certain pension-related liabilities,
including liabilities with respect to failures to make certain required
contributions when due and termination of, or withdrawal from, certain pension
plans which result in liabilities in excess of specified amounts; (vi) the
invalidity of or any challenge to the validity of the guarantees of the
indebtedness under the New Credit Facility or of the security interests
granted to the Lenders; (vii) default by the Company or any of its
subsidiaries in the payment when due of any amount due under the New Bonding
Agreement or a breach or default with respect to any other term of the New
Bonding Agreement or bonded contracts that are the subject of such New Bonding
Agreement, or the failure of any surety in connection with the New Bonding
Agreement to issue bonds thereunder, the effect of which is materially adverse
to the Company; and (viii) certain change in control of the Company or its
subsidiaries.
"Change in Control" is defined in the New Credit Facility to include (i) (A)
prior to an initial public offering of the voting stock of the Company or any
person or entity which directly or indirectly owns all of the outstanding
voting stock of the Company or at any other time when such voting stock is not
traded on a national
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<PAGE>
securities exchange, the failure of one or more Principals (which term is
defined to have the same meaning as under the Indenture) (1) to own, directly
or indirectly, at least 51% of the voting stock of the Company, determined on
a fully diluted basis and (2) to have the power to direct or cause the
direction of the management or policies of the Company or (B) following such
initial public offering and at any time the voting stock of the Company or any
person or entity which directly or indirectly owns all of the outstanding
voting stock of the Company is traded on a national securities exchange,
Citicorp Venture Capital Ltd., Citicorp and any direct or indirect wholly-
owned subsidiary of Citicorp (individually or in the aggregate) own, directly
or indirectly, less than 40% of the voting stock of the Company, determined on
a fully-diluted basis, and a person or entity (other than a Principal) owns a
greater percentage of such voting stock, determined on a fully-diluted basis;
or (ii) the failure of the Company (A) to own (directly or indirectly), free
and clear of all liens or other encumbrances (other than any lien or
encumbrance created by the New Credit Facility and its ancillary agreements),
100% of the outstanding shares of each class of capital stock of any
Subsidiary Guarantor in existence on the closing date of the New Credit
Facility on a fully diluted basis and (B) to have the power (directly or
indirectly) to direct or cause the direction of the management or policies of
any such Subsidiary Guarantor; or (iii) a majority of the board of directors
of the Company are not Continuing Directors (defined generally to mean those
directors in office on August 19, 1998, or a director approved by a majority
of such directors); or (iv) any "Change of Control" (as defined in the
Indenture) occurs.
All obligations under the New Credit Facility are guaranteed by each of the
Subsidiary Guarantors. The loans under the New Credit Facility are secured by:
(i) a perfected first priority lien and security interest (exclusive of all
liens and security interests other than those in favor of the bonding company)
in vessels and equipment approved by the Agent and having appraised orderly
liquidation value of at least $65.0 million; (ii) a perfected second priority
lien and security interest in all vessels and equipment (with the exception of
those vessels and equipment operated by NATCO) securing the bonding company;
(iii) a perfected second priority lien in certain assets; and (iv) a security
interest in all of the accounts receivable of the Company and its
subsidiaries.
In connection with the execution of the New Credit Facility and the New
Bonding Agreement, the Agent and the sureties under the New Bonding Agreement
(the "Sureties") entered into an intercreditor agreement which addresses,
among other things, the lien priorities of shared collateral, the substitution
of vessels under ship mortgages, the exercise of rights under ship mortgages
and other shared collateral agreements, the application of proceeds of various
classes of shared collateral as well as certain collateral benefitting only
the Sureties, the exercise of remedies under the New Credit Facility and the
New Bonding Agreement, the release of certain liens, the taking of additional
collateral and other relevant intercreditor provisions. In addition, the
intercreditor agreement provides that the Sureties will have the right to use
all encumbered vessels and other equipment to perform any outstanding bonded
contracts.
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DESCRIPTION OF NEW BONDING AGREEMENT
As part of the Transaction, the Company and certain of its subsidiaries
entered into an Amended and Restated Underwriting and Continuing Indemnity
Agreement (the "New Bonding Agreement") with the Sureties, pursuant to which
the Sureties will act as surety, issue bid bonds, performance bonds and
payment bonds and obligate themselves upon other contracts of guaranty
required by the Company and its subsidiaries in the day-to-day operations of
its dredging business. The Sureties obligations under the New Bonding
Agreement are discretionary. As such, the Sureties are not obligated under the
New Bonding Agreement to issue bonds on behalf of the Company or any of its
subsidiaries.
The New Bonding Agreement contains various covenants that restrict the
Company from various actions and that require the Company to achieve and
maintain certain financial ratios. The restrictive covenants restrict the
Company's ability to borrow money, create or allow the creation of liens,
dispose of its assets, pay dividends, issue stock, make investments or enter
into agreements to merge or consolidate with other companies, among other
restrictions and limitations. The covenants also include limits on affiliate
transactions and contingent liabilities. The financial ratios include a
current ratio and a minimum net worth test.
The New Bonding Agreement includes events of default with respect to the
Company and certain of its subsidiaries, consisting of, among other things:
(i) the failure to pay any obligation owing to the Sureties; (ii) the breach
of covenants, representations or warranties contained in the New Bonding
Agreement; (iii) certain events of bankruptcy or insolvency; (iv) the default
of any provision under a bonded contract; (v) the failure to pay certain other
indebtedness, or defaults that result or permit the acceleration of such
indebtedness or contingent obligation; and (vi) certain judgments that are not
fully covered by insurance or bonded or discharged.
The obligations of the Company and its wholly owned subsidiaries under the
New Bonding Agreement are secured by a security interest in the Company's
fixed assets. In the event the Company or any of its subsidiaries fails or is
unable to complete the work under a bonded contract or breaches the New
Bonding Agreement, the Sureties may proceed against their collateral, cause
the performance of such bonded contract by subletting it in the name of the
Company or its wholly-owned subsidiary and seek reimbursement from the Company
and its wholly owned subsidiary for costs incurred in the subletting or
performance of such bonded contract.
In connection with the execution of the New Credit Facility and the New
Bonding Agreement, the Agent and the Sureties entered into an intercreditor
agreement which addresses, among other things, the lien priorities of shared
collateral, the substitution of vessels under ship mortgages, the exercise of
rights under ship mortgages and other shared collateral agreements, the
application of proceeds of various classes of shared collateral as well as
certain collateral benefitting only the Sureties, the exercise of remedies
under the New Credit Facility and the New Bonding Agreement, the release of
certain liens, the taking of additional collateral and other relevant
intercreditor provisions. In addition, the intercreditor agreement provides
that the Sureties will have the right to use all encumbered vessels and other
equipment to perform any outstanding bonded contracts.
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DESCRIPTION OF NOTES
GENERAL
The Existing Notes were issued pursuant to an Indenture (the "Indenture")
among the Company, the Subsidiary Guarantors and The Bank of New York, as
trustee (the "Trustee"), in a private transaction that was not subject to the
registration requirements of the Securities Act. The terms of the Indenture
apply to the Existing Notes and to the Exchange Notes to be issued in exchange
therefor pursuant to the Exchange Offer (all such Notes being referred to
herein collectively as the "Notes"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act. The Notes are subject to all such terms, and Holders
of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. Copies of the Indenture, the form of Notes and the Registration
Rights Agreement are available as set forth below under "--Additional
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions." For purposes of this
summary, the term "Company" refers only to Great Lakes Dredge & Dock
Corporation and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt, including
Indebtedness pursuant to the New Credit Facility. The Company's obligations
under the Notes are guaranteed (the "Subsidiary Guarantees") on a senior
subordinated basis by the Subsidiary Guarantors. See "--Subsidiary
Guarantees." As of June 30, 1998, on a pro forma basis after giving effect to
the Transaction, the Notes would have been subordinated to $62.7 million of
Senior Debt, excluding contingent obligations, of the Company and the
Subsidiary Guarantors and effectively subordinated to $37.2 million of
liabilities of the Company's subsidiaries that are not Subsidiary Guarantors.
Upon closing of the Transaction, approximately $37.9 million was available for
additional borrowing under the New Credit Facility. The Indenture permits the
incurrence of additional Senior Debt in the future. See "Risk Factors--
Subordination."
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of such Subsidiaries to
meet their obligations, including their obligations under the Notes. All of
the existing domestic Wholly Owned Restricted Subsidiaries of the Company are,
and all future domestic Restricted Subsidiaries are expected to be, Subsidiary
Guarantors. As of the date of this Prospectus, all of the Company's
Subsidiaries are Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture. In
addition, the Notes are effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and capital lease
obligations) of the Company's foreign Subsidiaries and the Company's
Subsidiaries that are not Wholly Owned Restricted Subsidiaries. Any right of
the Company to receive assets of any of its foreign Subsidiaries or its
Subsidiaries that are not Wholly Owned Restricted Subsidiaries upon such
Subsidiary's liquidation or reorganization (and the consequent right of the
Holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors. As of June 30,
1998, on a pro forma basis after giving effect to the Transaction, the
aggregate amount of liabilities (including trade payable) of the Company's
foreign Subsidiaries and the Company's Subsidiaries that are not Wholly Owned
Restricted Subsidiaries was $37.2 million.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $165.0 million, of
which $115.0 million were issued as the Existing Notes on August 19, 1998, and
will mature on August 15, 2008. Interest on the Notes will accrue at the rate
of 11 1/4% per annum and will be payable semi-annually in arrears on February
15 and August 15 of each year, commencing February 15, 1999, to Holders of
record on the immediately preceding February 1 and August 1. Additional Notes
may be issued from time to time, subject to the provisions of the Indenture
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified
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Stock." The Existing Notes, the Exchange Notes and any additional Notes
subsequently issued would be treated as a single class for all purposes under
the Indenture, including without limitations, waivers, amendments, redemptions
and offers to purchase. Interest on the Exchange Notes will accrue from the
most recent date to which interest has been paid on the Existing Notes or, if
no such interest has been paid, from the date of original issuance of the
Existing Notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium and Liquidated Damages,
if any, and interest on the Notes will be payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of principal, premium, interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments of principal, premium, interest and
Liquidated Damages, if any, with respect to Notes the Holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. Notes are issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred. The Notes rank pari passu in right of
payment with all other senior subordinated Indebtedness of the Company and
senior in right of payment to all subordinated Indebtedness.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not allowed in such
proceeding) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all Obligations with respect to
such Senior Debt are paid in full in cash, any distribution to which the
Holders of Notes would be entitled shall be made to the holders of Senior Debt
(except that Holders of Notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or the representatives
of the holders of any Designated Senior Debt. Payments on the Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived in writing and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived in writing or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior Debt
has been accelerated. No new period of payment blockage may be commenced
unless and until (i) 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due
during such payment blockage period have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for
a subsequent Payment Blockage Notice unless such default shall have been
waived for a period of not less than 90 days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
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As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Acquisition, the principal amount of Senior Debt
outstanding at June 30, 1998 would have been approximately $62.7 million. The
Indenture limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its subsidiaries can
incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock" and "Risk Factors--Subordination."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (the "Subsidiary
Guarantees") by the Subsidiary Guarantors. The Subsidiary Guarantee of each
Subsidiary Guarantor is subordinated to the prior payment in full of all
Senior Debt of such Guarantor. As of June 30, 1998, on a pro forma basis
giving effect to the Transaction, the Subsidiary Guarantors would have had an
aggregate of approximately $62.7 million of Senior Debt outstanding. The
Indenture permits the Subsidiary Guarantors to incur additional Senior Debt,
subject to certain limitations. The obligations of each Subsidiary Guarantor
under its Subsidiary Guarantee will be limited so as not to constitute a
fraudulent conveyance under applicable law. See, however, "Risk Factors--
Fraudulent Conveyance Statutes."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another Person whether or not affiliated with such Subsidiary
Guarantor unless (i) subject to the provisions of the following paragraph, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes, by operation of law or otherwise, all the
obligations of such Subsidiary Guarantor pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee, under the Notes,
the Subsidiary Guarantees, the Indenture, and the Registration Rights
Agreement; and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists, provided that nothing in the foregoing
provisions shall prohibit the merger or consolidation of a Subsidiary
Guarantor with and into the Company or another Wholly Owned Subsidiary
Guarantor where the Company or such other Wholly Owned Subsidiary Guarantor is
the surviving Person.
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Subsidiary Guarantor, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of
the capital stock of any Subsidiary Guarantor, then such Subsidiary Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Subsidiary
Guarantor) or the corporation or other entity acquiring the property (in the
event of a sale or other disposition of all or substantially all of the assets
of such Subsidiary Guarantor) will be released and relieved of any and all
obligations under its Subsidiary Guarantee (and, in the event of a disposition
of assets, any Liens in favor of the Holders will be released); provided that
the Net Proceeds of such sale or other disposition are applied in accordance
with the applicable provisions of the Indenture. See "--Repurchase at Option
of Holders", "--Asset Sales." In addition, the Indenture provides that, in the
event the Company designates a Restricted Subsidiary to become an Unrestricted
Subsidiary in accordance with the Indenture, then such Restricted Subsidiary
shall, in accordance with the Indenture, be released from its obligations
under its Subsidiary Guarantee upon the effectiveness of such designation.
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OPTIONAL REDEMPTION
The Notes are redeemable at any time at the option of the Company, in whole
or in part upon not less than 30 nor more than 60 days' notice, in cash at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003............................................................ 105.625%
2004............................................................ 103.750%
2005............................................................ 101.875%
2006 and thereafter............................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to August 15, 2001, the
Company may (but will not have the obligation to) on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes originally issued
at a redemption price equal to 111.250% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that at least 65% of the aggregate principal amount of
Notes originally issued remain outstanding immediately after the occurrence of
such redemption (excluding Notes held by the Company and its Subsidiaries);
and provided, further, that such redemption shall occur within 180 days of the
date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed or repurchased at any time,
selection of Notes for redemption or repurchase will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed, or, if the Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided that no Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder
of Notes to be redeemed at its registered address. Notices of redemption or
repurchase may not be conditional. If any Note is to be redeemed or
repurchased in part only, the notice of redemption or repurchase that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed or repurchased. A new Note in principal amount equal to the
unredeemed or unrepurchased portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. Notes called for
redemption or repurchase become due on the date fixed for redemption or
repurchase. On and after the redemption or repurchase date, interest and
Liquidated Damages ceases to accrue on Notes or portions of them called for
redemption or repurchase.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Notes on the date specified in such notice, which date
shall be
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no earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations directly conflict with the provisions of the
Indenture relating to such Change of Control Offer, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent (as
defined in the Indenture) an amount equal to the Change of Control Payment in
respect of all Notes or portions thereof so tendered and (3) deliver or cause
to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Notes so tendered the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Indenture provides that, prior to complying
with the provisions of this covenant, but in any event within 90 days
following a Change of Control, the Company will either repay all outstanding
Senior Debt or obtain the requisite consents, if any, under the agreements
governing outstanding Senior Debt to permit the repurchase of Notes required
by this covenant. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable (and will not
affect the subordination provisions). Except as described above with respect
to a Change of Control, the Indenture does not contain provisions that permit
the Holders of the Notes to require that the Company repurchase or redeem the
Notes in the event of a takeover, recapitalization or similar transaction. The
New Credit Facility currently prohibits the Company from repurchasing any
Notes and also provides that certain change of control events with respect to
the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event
a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a
default under the New Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to
the Holders of Notes. In addition, the exercise by Holders of the Notes of
their right to require the Company to repurchase the Notes could cause a
default under such Senior Debt, even if the Change of Control itself does not,
due to the financial effect of such repurchases on the Company. Finally, the
Company's ability to pay cash to the Holders of Notes upon a repurchase may be
limited by the Company's then existing financial resources.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries
(determined on a consolidated basis), in each case, to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act) other than the
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Company or a Wholly Owned Restricted Subsidiary or any Principal or a Related
Party of a Principal (as defined below), (ii) the adoption of a plan relating
to the liquidation or dissolution of the Company (other than in a transaction
which complies with the provisions described under "--Merger, Consolidation or
Sale of Assets"), (iii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that
any "person" (as defined above), other than one or more Principals or their
Related Parties, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall
be deemed to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition), directly or
indirectly, of more than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares) and the Principals do not
beneficially own as much or more of the Voting Stock of the Company (measured
by voting power rather than by number of shares) than such person or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries (determined on a
consolidated basis). Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Company to repurchase such Notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or was designated by a Principal or a Related Party of
a Principal.
"Principals" means (i) CVC and the Management Investors and (ii) any Related
Party of a Person referred to in clause (i).
"Related Party" means (a) with respect to CVC (i) Citicorp, any direct or
indirect wholly owned subsidiary of Citicorp, and any officer, director or
employee of CVC, Citicorp or any wholly owned subsidiary of Citicorp, (ii) any
spouse or lineal descendant (including by adoption and stepchildren) of the
officers, directors and employees referred to in clause (a) (i) above, (iii)
any trust, corporation or partnership 100%-in-interest of the beneficiaries,
stockholders or partners of which consists of one or more of the persons
described in clause (a) (i) or (ii) above or (iv) Vectura, so long as CVC or
any of its Related Parties described in (i), (ii) or (iii) above holds at
least 50% of the Great Lakes membership interests in Vectura; and (b) with
respect to any officer or employee of the Company or a Subsidiary of the
Company (i) any spouse or lineal descendant (including by adoption and
stepchildren) of such officer or employee and (ii) any trust, corporation or
partnership 100%-in-interest of the beneficiaries, stockholders or partners of
which consists of such officer or employee, any of the persons described in
clause (b) (i) above or any combination thereof.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of Qualified Proceeds; provided that the aggregate fair market
value of Qualified Proceeds (other than cash or Cash Equivalents), which may
be received in consideration for asset sales pursuant to this clause (ii)
shall not exceed $5.0 million since the date of the
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Indenture; provided further that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet),
of the Company or any Restricted Subsidiary (other than contingent liabilities
and liabilities that are by their terms subordinated to the Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, Notes or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) within 90 days
following the closing of such Asset Sale, shall be deemed to be cash for
purposes of this provision, provided further that the 75% limitation referred
to above shall not apply to any Asset Sale in which the cash and Cash
Equivalents portion of the consideration received therefor, determined in
accordance with the foregoing proviso, is equal to or greater than what the
net after-tax proceeds would have been had such Asset Sale complied with the
aforementioned 75% limitation.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any Restricted Subsidiary may apply such Net Proceeds, at its
option, (a) to repay Senior Debt, (b) to the acquisition of a majority of the
assets of, or a majority of the Voting Stock of, another Permitted Business,
the making of a capital expenditure or the acquisition or commitment to
acquire (provided that such commitment or a reasonable replacement thereof is
consummated substantially in accordance with the terms thereof) of other
assets that are used or useful in a Permitted Business or (c) for a
combination of uses described in clauses (a) and (b). Pending the final
application of any such Net Proceeds, the Company and its Restricted
Subsidiaries may temporarily reduce revolving credit borrowings or otherwise
invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to make an offer to all
Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of repurchase, in accordance with the procedures set forth in the
Indenture. To the extent that any Excess Proceeds remain after consummation of
an Asset Sale Offer, the Company may use such Excess Proceeds for any general
corporate purpose. If the aggregate principal amount of Notes tendered into
such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Company's or any of its Restricted Subsidiaries'
Equity Interests in their capacity as such (other than, in each case,
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to
the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem
or otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company (other than Equity Interests owned by the Company or
any Restricted Subsidiary of the Company) or any direct or indirect parent of
the Company; (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Notes (other than any subordinated indebtedness held by
the Company or any Subsidiary Guarantor), except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless:
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(a) at the time of and after giving effect to such Restricted Payment,
no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (viii), (ix) and (xi) of the next
succeeding paragraph), is less than the sum, without duplication, of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate fair market value of Qualified Proceeds received
by the Company since the date of the Indenture as a contribution to its
equity capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for Qualified Proceeds, the lesser of (A) the fair market of the Qualified
Proceeds received with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) 50% of any dividends received by the Company or a
Wholly Owned Restricted Subsidiary after the date of the Indenture from an
Unrestricted Subsidiary of the Company, to the extent that such dividends
were not otherwise included in Consolidated Net Income of the Company for
such period, plus (v) to the extent that any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary after the date of the Indenture,
the lesser of (A) the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation or (B) such fair market
value as of the date on which such Subsidiary was originally designated as
an Unrestricted Subsidiary.
The foregoing provisions do not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company or any Subsidiary Guarantor, in each case, in exchange for, or out of
the net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other Equity Interests of the Company (other
than any Disqualified Stock) or the net cash proceeds of a common equity
capital contribution to the Company; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase
or other acquisition of subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
any dividend or making of any distribution by a Subsidiary of the Company to
the holders of its Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the Company or any Subsidiary of the Company held by any former
member of the Company's (or any of their Subsidiaries') Board of Directors or
any former officer, employee or director of the Company or any of its
Restricted Subsidiaries pursuant to any equity subscription agreement,
stockholder agreement, stock option agreement, employment agreement or other
similar agreements or employee benefit plan; provided that (A) the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed (1) $2.0 million in any calendar year (with unused
amounts in any calendar year being carried over to succeeding calendar years
subject to a maximum (without giving effect to clause (2)) of $5.0 million,
plus (2) in the case of a repurchase, redemption or other acquisition or
retirement of Equity Interests of the
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Company, the aggregate cash proceeds received by the Company during such
calendar year from any reissuance of Equity Interests by or the Company to
employees, officers and directors of the Company and its Restricted
Subsidiaries plus the cash proceeds of any "key man" life insurance policy
received by the Company with respect to the owner of, and any cash proceeds
paid to the Company in connection with the issuance or exercise of, any
management or employee Equity Interests so acquired plus (3) in the case of a
repurchase, redemption or other acquisition or retirement of Equity Interests
of a Subsidiary Guarantor, the aggregate cash proceeds received by such
Subsidiary Guarantor during such calendar year from any reissuance of Equity
Interests of such Subsidiary Guarantor to employees, officers, and directors
of such Subsidiary Guarantor plus the cash proceeds of any "key man" life
insurance policy received by such Subsidiary Guarantor with respect to the
owner of any cash proceeds paid to such Subsidiary Guarantor in connection
with the issuance or exercise of, any management or employee Equity Interests
so acquired, and (B) no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; provided, further that the
aggregate cash proceeds referred to in (2) above shall be excluded from clause
(c)(ii) of the preceding paragraph; (vi) any Investment to the extent that the
consideration therefor consists of the net cash proceeds of the substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of Equity
Interests of the Company (other than any Disqualified Stock); (vii) so long as
no Default or Event of Default has occurred and is continuing and the Company
can incur at least $1.00 of additional indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock," the declaration and payment of dividends to holders of
any class or series of Disqualified Stock of the Company, or any Subsidiary
Guarantor issued after the date of the Indenture in accordance with the
covenant described below under the caption "Incurrence of Indebtedness and
Issuance of Disqualified Stock;" (viii) repurchase of Equity Interests deemed
to occur upon exercise of stock options if such Equity Interests represent a
portion of the exercise price of such options; (ix) loans to employees of the
Company or any Subsidiary Guarantor not to exceed $2.0 million at any one time
outstanding; (x) Restricted Payments not to exceed $5.0 million since the date
of the Indenture and (xi) payments made pursuant to the Merger Agreement and
tax "gross up" payments made pursuant to the Stockholders Agreement in
connection with the Recapitalization, in each case, as in effect on the date
of the Indenture, as the same may be amended, modified or replaced from time
to time so long as such amendment, modification or replacement does not
increase the amount of any such payments from the amount of such payments
provided for in the Merger Agreement or Stockholders Agreement, as the case
may be, as in effect on the date of the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
For purposes of determining compliance with this covenant, in the event that
a Restricted Payment meets the criteria of more than one of the exceptions
described in (i) through (x) above or is entitled to be made pursuant to the
first paragraph of this covenant, the Company shall, in its sole discretion,
classify such Restricted Payment in any manner that complies with the
covenant. The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment or return of capital
on any Restricted Subsidiary shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $7.5 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the
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calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock and the Company's
Subsidiaries may incur Indebtedness or issue preferred equity if the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 2.0 to 1, determined on
a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Subsidiary Guarantors of term
Indebtedness under the New Credit Facility (including any guarantee thereof
by any Subsidiary Guarantor); provided that the aggregate principal amount
of all term Indebtedness outstanding under the New Credit Facility after
giving effect to such incurrence does not exceed an amount equal to $55.0
million plus (in the case of any refinancing thereof) the aggregate amount
of fees, underwriting discounts, premiums and other costs and expenses
incurred in connection with such refinancing less the aggregate amount of
all scheduled or mandatory repayments of the principal of any term
Indebtedness under the New Credit Facility (other than repayments that are
immediately reborrowed) that have been made since the date of the
Indenture;
(ii) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness and reimbursement obligations in respect of letters of credit
under Credit Facilities (including any guarantee thereof by any Subsidiary
Guarantor); provided that the aggregate principal amount of all revolving
credit or other Indebtedness (other than term Indebtedness permitted under
clause (i) above) (with letters of credit being deemed to have a principal
amount equal to the maximum face amount thereunder) outstanding under all
Credit Facilities after giving effect to such incurrence does not exceed an
amount equal to $55.0 million;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company of Indebtedness represented by the
Notes sold in the Offering and the incurrence by the Subsidiary Guarantors
of Indebtedness represented by the Subsidiary Guarantees of such Notes;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage or
construction financings or purchase money obligations or similar
financings, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary, in an aggregate principal amount not to exceed $20.0
million at any time outstanding;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (iii), (iv), (v), (vi)
or (ix) of this paragraph;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or
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transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Restricted Subsidiary thereof
and (B) any sale or other transfer of any such Indebtedness to a Person
that is not either the Company or a Restricted Subsidiary thereof shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (i) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding, (ii) the value of foreign currencies purchased or received by
the Company or any Restricted Subsidiary in the ordinary course of business
as conducted by the Company or (iii) commodity risk relating to commodity
agreements to the extent entered into in the ordinary course of business
solely to protect the Company and its Restricted Subsidiaries from
fluctuations in the prices of raw materials used in its business;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness (in addition to Indebtedness permitted by other clauses of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (ix), not to exceed $25.0 million;
(x) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x);
(xi) the Guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or a Subsidiary Guarantor, which Indebtedness
was permitted to be incurred by another provision of this covenant;
(xii) Indebtedness of the Company or a Restricted Subsidiary owed to
(including obligations in respect of letters of credit for the benefit of)
any Person in connection with worker's compensation, health, disability or
other employee benefits or property, casualty or liability insurance
provided by such Person to the Company or such Restricted Subsidiary,
pursuant to reimbursement or indemnification obligations to such Person, in
each case incurred in the ordinary course of business and consistent with
past practices;
(xiii) the incurrence of Permitted Bonding Obligations;
(xiv) the issuance of preferred stock (other than Disqualified Stock) by
any Subsidiary Guarantor to members of management of such Subsidiary
Guarantor, provided that such preferred stock does not require the Company
or any Restricted Subsidiary to pay dividends thereon other than in shares
of additional preferred stock (other than Disqualified Stock); and
(xv) the incurrence of Indebtedness arising from agreements of the
Company or any Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case, incurred
or assumed in connection with the disposition of any business, assets or
Capital Stock of a Restricted Subsidiary; provided that the maximum
aggregate liability of such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company and its Restricted Subsidiaries
in connection with any such disposition.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xv) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and
the payment of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an
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issuance of Disqualified Stock for purposes of this covenant; provided, in
each such case, that the amount thereof is included in Fixed Charges of the
Company as accrued.
No Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Indebtedness and senior in
any respect in right of payment to the Notes, and (ii) no Subsidiary Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of such Subsidiary Guarantor and senior in any respect in right
of payment to the Subsidiary Guarantee of such Subsidiary Guarantor; provided
that no Indebtedness will be deemed subordinate or junior in right of payment
to any other Indebtedness solely by reason of the fact that such Indebtedness
is unsecured.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any
asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, except (i) Permitted
Liens, and (ii) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured
by a Lien on such property, assets or proceeds that is senior in priority to
such Liens (with the same relative priority as such subordinate or junior
Indebtedness shall have with respect to the Notes and the Subsidiary
Guarantees) and (y) in all other cases, the Notes are secured by such Lien on
an equal and ratable basis.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the New Credit
Facility and Permitted Bonding Obligations as in effect as of the date of the
Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are not
materially more restrictive, taken as a whole, with respect to such dividend
and other payment restrictions than those contained in the New Credit Facility
or in agreements with respect to Permitted Bonding Obligations, as applicable,
as in effect on the date of the Indenture, (c) the Indenture, the Notes and
the Subsidiary Guarantees, (d) applicable law, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of
its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (f) customary non-assignment
provisions in leases or other similar agreements entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) any agreement for the sale of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale, (i) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such
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Permitted Refinancing Indebtedness are not materially more restrictive, taken
as a whole, than those contained in the agreements governing the Indebtedness
being refinanced, (j) secured Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption
"--Liens" that limits the right of the debtor to dispose of the assets
securing such Indebtedness, (k) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements entered into in the ordinary course of business, (l)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business, (m) mortgage or
construction financing that imposes restrictions on the transfer of the
property acquired or improved, (n) encumbrances or restrictions imposed by
amendments to the contracts, agreements or obligations referred to in the
foregoing clauses (a), (c), (e), (f), (g), (h), (j), (k) and (n), provided
that such amendments are not materially more restrictive than the agreement so
amended; and (o) protective liens filed in connection with sale-leaseback
transactions permitted under the caption "--Sale and Leaseback Transactions."
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the entity or
the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation or other
entity organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the then existing
obligations of the Company under the Registration Rights Agreement, the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Subsidiary of the Company, the Company
or the Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock." The Indenture will provide that the Company
will not, directly or indirectly, lease all or substantially all of its
properties or assets to any Person.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $2.0 million, a resolution of the Board of Directors of the Company
set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors of the Company and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $7.5 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing. Notwithstanding the
foregoing, the following items shall not be deemed to be Affiliate
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Transactions: (i) any employment agreement, compensation, employee benefit
arrangements and incentive arrangements or indemnification agreement or
arrangement with any officer, director, member or employee entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business of the Company or such Restricted Subsidiary, (ii) transactions
between or among the Company and/or its Restricted Subsidiaries, (iii) payment
of reasonable directors fees, (iv) Restricted Payments (other than Restricted
Investments) that are permitted by the provisions of the Indenture described
above under the caption "--Restricted Payments," (v) loans and advances to
officers, directors and employees of the Company or any Restricted Subsidiary
for travel, entertainment, moving and other relocation expenses, in each case
made in the ordinary course of business; (vi) transactions pursuant to the
Stockholders' Agreement and the Merger Agreement, in each case, as in effect
on the date of the Indenture as the same may be amended, modified or replaced
from time to time so long as such amendment, modification or replacement is no
less favorable to the Company and its Restricted Subsidiaries, taken as a
whole, than the Stockholders' Agreement or the Merger Agreement, as the case
may be, as in effect on the date of the Indenture.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company or any of its Restricted Subsidiaries may enter into
a sale and leaseback transaction if (i) the Company or such Restricted
Subsidiary could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the covenant described above under the caption "--Incurrence of Additional
Indebtedness and Issuance of Disqualified Stock" and (b) incurred a Lien to
secure such Indebtedness pursuant to the covenant described above under the
caption "--Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors of the Company and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and if applicable, the Company
applies the proceeds of such transaction in compliance with, the covenant
described above under the caption "--Asset Sales." Notwithstanding the
foregoing, this covenant shall not apply to the sale and leaseback of (i) the
backhoe dredge "New York" under construction on the date of the Indenture or
(ii) the dredging assets acquired from T.L. James & Company, Inc. pursuant to
the acquisition agreement in effect on the date of the Indenture, as such
agreement is in effect on such date, in the case of clauses (i) and (ii),
within 120 days of the date of completion of such construction or acquisition
of such assets, as applicable.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole.
Payments for Consent
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another domestic Subsidiary after the
date of the Indenture, then, unless such Subsidiary is properly designated as
an Unrestricted Subsidiary, such newly acquired or created Subsidiary shall
become a Subsidiary Guarantor
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and execute a Supplemental Indenture and deliver an opinion of counsel, in
accordance with the terms of the Indenture.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee any other Indebtedness of the
Company or a Subsidiary Guarantor unless, if such Restricted Subsidiary is not
a Guarantor, such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for the Guarantee of the
payment of the Notes by such Restricted Subsidiary, which Guarantee shall be
senior to or pari passu with such Subsidiary's Guarantee of such other
Indebtedness unless such other Indebtedness is Senior Debt, in which case the
Guarantee of the Notes may be subordinated to the Guarantee of such Senior
Debt to the same extent as the Notes are subordinated to such Senior Debt.
Notwithstanding the foregoing, any such Subsidiary Guarantee shall provide by
its terms that it shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer, to any Person not an Affiliate
of the Company, of all of the Company's stock in, or all or substantially all
the assets of, such Restricted Subsidiary, which sale, exchange or transfer is
made in compliance with the applicable provisions of the Indenture. The form
of such Subsidiary Guarantee attached as an exhibit to the Indenture.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly financial information beginning with the quarter ended
September 30, 1998 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 was required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its
Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company) and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods specified in the
Commission's rules and regulations. In addition, following the consummation of
the exchange offer contemplated by the Registration Rights Agreement, whether
or not required by the rules and regulations of the Commission, the Company
will file a copy of all such information and reports with the Commission for
public availability within the time periods specified in the Commission's
rules and regulations (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, (i) at all times the Commission does not
accept the filings provided for in the preceding sentence or (ii) such filings
provided for in the preceding sentence do not contain the information required
to be delivered upon request pursuant to Rule 144A(d)(4) under the Securities
Act, then, in each case, the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not permitted by the
subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the Notes (whether or not permitted
by the subordination provisions of the Indenture); (iii) failure by the
Company or any of its Restricted Subsidiaries to comply with the provisions
described under the caption "--Change of Control;" (iv) failure by the Company
or any of its Restricted Subsidiaries for 60 days
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after notice by the Trustee or by the Holders of at least 25% in principal
amount of Notes then outstanding to comply with any of its other agreements in
the Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default (a)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its stated maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated (after giving
effect to any applicable grace period), aggregates $10.0 million or more; (vi)
failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million (net of any amount with
respect to which a reputable insurance company with assets over $100.0 million
has acknowledged liability in writing), which judgments are not paid,
discharged or stayed for a period of 60 days after their entry; (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries and (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Subsidiary Guarantees or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance") except for (i)
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the rights of Holders of outstanding Notes to receive payments in respect of
the principal of, premium and Liquidated Damages, if any, and interest on such
Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and
the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default &
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, subject to customary assumptions
and exceptions, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exceptions, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that,
subject to customary assumptions and exceptions, after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders of Notes over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the
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Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Note selected for redemption. Also, the Company is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Subsidiary Guarantees or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture,
the Notes or the Subsidiary Guarantees may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes, (vii) waive a redemption payment
with respect to any Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (viii) release any Subsidiary Guarantor from any of its obligations
under its Subsidiary Guarantee or the Indenture, except in accordance with the
terms of the Indenture, or (ix) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions of Article 10
and Section 11.02 of the Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal
amount of the Notes then outstanding if such amendment would adversely affect
the rights of Holders of the Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Subsidiary Guarantors, the Company and the Trustee may amend or supplement
the Indenture, the Subsidiary Guarantees or the Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Company's
or a Subsidiary Guarantor's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to provide for the issuance of Additional Notes in accordance with the
provisions set forth in the Indenture on the date of the Indenture, to make
any change that would provide any additional rights or benefits to the Holders
of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act or to allow any Subsidiary Guarantor to guarantee the
Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
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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.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes will be in the form of a global note without interest
coupons (the "Global Note"). Upon issuance, the Global Note will be deposited
with the Trustee, as custodian for DTC, in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to the accounts of
DTC's Direct and Indirect Participants (as defined below).
The Global Note may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Note may be
exchanged for Notes in certificated form in certain limited circumstances. See
"--Transfer of Interests in Global Note for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through
electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect, custodial relationship with a
Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or Indirect Participants and such other persons' ownership
interest and transfer of ownership interest will be recorded only on the
records of the Direct Participant and/or Indirect Participant, and not on the
records maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Note, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes allocated by the Initial Purchasers to
such Direct Participants, and (ii) DTC will maintain records of the ownership
interests of such Direct Participants in the Global Notes and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests
by and between, Indirect Participants or other owners of beneficial interests
in the Global Notes. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global Notes.
Investors in the Global Note may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit
or curtail the ability to transfer beneficial interests in a Global Note to
such persons. Because DTC can act only on behalf of Direct Participants, which
in turn act on behalf of Indirect Participants and others, the ability of a
person having a beneficial interest in a Global Note to pledge such interest
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to persons or entities that are not Direct Participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the Notes see "--Transfers of Interests
in Global Notes for Certificated Notes."
Except as described in "Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will
not have Notes registered in their names, will not receive physical delivery
of Notes in certificated form and will not be considered the registered owners
or holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, the Company, the Subsidiary Guarantors and
the Trustee will treat the persons in whose names the Notes are registered
(including Notes represented by the Global Note) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, Liquidated Damages, if any, and
interest on the Global Note registered in the name of DTC or its nominee will
be payable by the Trustee to DTC or its nominee as the registered holder under
the Indenture. Consequently, neither the Company, the Trustee nor any agent of
the Company or the Trustee has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Direct Participant's or Indirect
Participant's records relating to the beneficial ownership interests in any
Global Note or (ii) any other matter relating to the actions and practices of
DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to
the beneficial owners of the Notes will be governed by standing instructions
and customary practices between them and will not be the responsibility of
DTC, the Trustee, the Company or the Subsidiary Guarantors. Neither the
Company, the Subsidiary Guarantors nor the Trustee will be liable for any
delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Notes for
all purposes.
Interests in the Global Note are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and, therefore, transfers between Direct
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in immediately available funds. Transfers between Indirect
Participants who hold an interest through a Direct Participant will be
effected in accordance with the procedures of such Direct Participant but
generally will settle in immediately available funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and
to distribute such certificated forms of Notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
TRANSFERS OF INTERESTS IN THE GLOBAL NOTE FOR CERTIFICATED NOTES
The entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC
(x) notifies the Company that it is unwilling or unable to continue as
depositary for the Global Note and the Company thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Company, at
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its option, notifies the Trustee in writing that it elects to cause the
issuance of Certificated Notes or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Notes. In any
such case, the Company will notify the Trustee in writing that, upon surrender
by the Direct and Indirect Participants of their interest in the Global Note,
Certificated Notes will be issued to each person that such Direct and Indirect
Participants and DTC identify as being the beneficial owner of the related
Notes.
Beneficial interests in the Global Note held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
such Direct Participant (for itself or on behalf of an Indirect Participant),
but only upon at least 20 days' prior written notice given to the Trustee by
or on behalf of DTC in accordance with customary DTC procedures. Certificated
Notes delivered in exchange for any beneficial interest in the Global Note
will be registered in the names, and issued in any approved denominations,
requested by DTC on behalf of such Direct or Indirect Participants (in
accordance with DTC's customary procedures).
Neither the Company, the Subsidiary Guarantors nor the Trustee will be
liable for any delay by the holder of the Global Note or the DTC in
identifying the beneficial owners of Notes, and the Company and the Trustee
may conclusively rely on, and will be protected in relying on, instructions
from the holder of the Global Note or the DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the holder of such Global Note. With
respect to Certificated Notes, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the Certificated Notes will also be settled in immediately
available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions
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described above under the caption "Merger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sale covenant), and (ii) the issue or
sale by any Restricted Subsidiary of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $2.0 million or (b) for net proceeds in excess of $2.0
million. Notwithstanding the foregoing, the following items shall not be
deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly
Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of
Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to
another Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "--Restricted
Payments," (iv) the sale and leaseback of any assets within 120 days of the
date of acquisition or completion of construction of such assets, (v) the sale
at fair market value of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be, in
the ordinary course of business and (vi) bare-boat charters entered into in
the ordinary course of business for a term not to exceed 12 months.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during 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).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one-year
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million, (iv) repurchase
obligations with a term of not more than thirty days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) obligations issued or fully guaranteed by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (vi) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within one year after the date of acquisition, (vii) money
market funds at least 95% of the assets of which constitute Cash Equivalents
of the kinds described in clauses (i) through (vii) of this definition and
(viii) short-term asset management accounts offered by any lender under Credit
Facilities for the purpose of investing in notes issued by a corporation
(other than the Company or any Affiliate of the Company) organized under the
laws of any state of the United States or of the District of Columbia and
rated A-2 or higher by Standard & Poor's Rating Group, a division of McGraw
Hill, Inc. or P-2 or higher by Moody's Investors Service, Inc.
"Citicorp" means Citicorp, a Delaware corporation, or any successor thereto
by merger or consolidation.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary or nonrecurring loss plus any net loss realized in
connection with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income, plus (ii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was deducted in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit
or bankers' acceptance financings, and net payments (if any) pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus, without duplication,
(v) any interest expense on Indebtedness of another person that is guaranteed
by such person or a Subsidiary of such person or secured by a Lien on the
assets of such person or one of its Subsidiaries (to the extent that such
interest expense was deducted in computing Consolidated Net Income in such
period), plus (vi) expenses and charges of the Company related to the
Transaction incurred or for which the Company became obligated on or prior to
or within 30 days after the date of the Indenture plus (vii) incremental
expenses incurred associated with the Chicago Flood Litigation not exceeding
$800,000, minus (viii) non-cash items increasing such Consolidated Net Income
for such period, in each case, on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income (but not loss) of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Subsidiaries.
"Credit Facilities" means, with respect to the Company or its Restricted
Subsidiaries, one or more debt facilities (including, without limitation, the
New Credit Facility) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as increased as
permitted by the terms of the Indenture, and amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to
time.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation, or any
successor thereto by merger or consolidation.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Designated Senior Debt" means (i) any Obligations outstanding under the New
Credit Facility (including letters of credit), (ii) any Permitted Bonding
Obligation and (iii) any other Senior Debt permitted under the Indenture the
principal amount of which is $50.0 million or more and that has been
designated by the Company as "Designated Senior Debt." Notwithstanding the
foregoing, Indebtedness under the New Credit Facility shall be deemed
outstanding for purposes of this definition at all times when the lenders
thereunder have an effective commitment to extend credit thereunder,
regardless of whether any such Indebtedness is actually outstanding at such
time.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness (including Guarantees) of the
Company and its Subsidiaries (other than Indebtedness under the New Credit
Facility) in existence on the date of the Indenture, until such amounts are
permanently repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to interest Hedging Obligations; provided, however,
that in no event shall any amortization of deferred financing costs incurred
in connection with the Transaction be included in Fixed Charges) and (ii) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all cash dividend payments and non-cash dividend
payments, on any series of preferred stock and any series of Disqualified
Stock, in each case, of such Person or any of its Restricted Subsidiaries,
other than dividend payments (x) on Equity Interests payable solely in Equity
Interests of the Company (other than Disqualified Stock) or (y) to the Company
or a Subsidiary Guarantor, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays or redeems any Indebtedness (other than repayment of
revolving credit borrowings that are not accompanied by a permanent reduction
in the commitment amount) or issues or redeems preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence,
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assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through
mergers (including the Merger) or consolidations and including any related
financing transactions, during the four-quarter reference period or subsequent
to such reference period and on or prior to the Calculation Date shall be
deemed to have occurred on the first day of the four-quarter reference period
and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate or currency swap agreements, interest rate
cap agreements and interest rate collar agreements, (ii) other agreements or
arrangements solely designed to protect such Person against fluctuations in
interest or currency exchange rates and (iii) commodities purchase and sale
agreements and other similar agreements designed to protect such Person
against fluctuations in the price of raw materials used by the Company and its
Restricted Subsidiaries in the ordinary course of business.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit,
Hedging Obligations and Attributable Debt) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (whether
or not such Indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness (other than Hedging Obligations,
guarantees and Attributable Debt) outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of Equity Interests or other securities by
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the Company or any of its Restricted Subsidiaries for consideration consisting
solely of Equity Interests (other than Disqualified Stock) of the Company
shall not be deemed to be an Investment. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Equity Interests
of any direct or indirect Restricted Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such Person is no longer
a Restricted Subsidiary of the Company, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of dividends on preferred interests, (i) excluding,
however, (a) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (1) any Asset
Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (2) the disposition of any securities by such
Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (b) any
extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss)
and (ii) less the aggregate amount of all Restricted Payments made by such
Person or any of its Restricted Subsidiaries for such period pursuant to
clause (vii) of the covenant described under the caption "--Certain
Covenants--Restricted Payments" to the extent not otherwise deducted in
computing such Net Income.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, any taxes paid or payable as
a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"New Bonding Agreement" means that certain Second Amended and Restated
Underwriting and Continuing Indemnity Agreement, dated as of the date of the
Indenture, by and among the Company, certain of its Subsidiaries and the
Sureties, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as amended,
restated, modified, renewed, refunded, replaced or refinanced from time to
time.
"New Credit Facility" means that certain Credit Agreement, dated as of the
date of the Indenture, by and among the Company, Bank of America National
Trust and Savings Association, as agent, and certain other lenders party
thereto, initially providing for up to $55.0 million of revolving credit
borrowings and $55.0 million of term borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as increased as permitted by the terms
of the Indenture, and amended, modified, renewed, restated, refunded, replaced
or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both)
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any holder of any other Indebtedness (other than the Notes being offered
hereby) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, costs, expenses, reimbursement obligations, damages and
other liabilities and obligations which may arise under or in connection with
the New Credit Facility or the New Bonding Agreement or under or in connection
with the documentation governing any Indebtedness, and in all cases whether
direct or indirect, absolute or contingent, now outstanding or hereafter
created, assumed or incurred and including, without limitation, interest
accruing subsequent to the filing of a petition in bankruptcy or the
commencement of any insolvency, reorganization or similar proceedings at the
rate provided in the relevant document, whether or not an allowed claim, and
any obligation to redeem or defease any of the foregoing.
"Permitted Bonding Obligations" means (i) obligations incurred by the
Company or any of its Subsidiaries (including Guarantees) with respect to bid,
performance, surety, appeal or similar bonds and completion guarantees in the
ordinary course of business and consistent with past practices and (ii)
obligations incurred by the Company or any of its Subsidiaries (including
Guarantees) under the New Bonding Agreement.
"Permitted Business" means any of the businesses engaged in by the Company
and its Restricted Subsidiaries on the date of the Indenture and any other
business reasonably related, complementary or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is a Subsidiary Guarantor and is
engaged in a Permitted Business; (b) any Investment in Cash Equivalents; (c)
any Investment by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company and a Subsidiary Guarantor and is engaged in a
Permitted Business or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Restricted Subsidiary of the Company that
is a Subsidiary Guarantor and that is engaged in Permitted Business; (d) any
Investment made as a result of the receipt of assets not constituting Cash
Equivalents from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales;" (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company; (f) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (f) that are at the time
outstanding, not to exceed $10.0 million; (g) Investments in securities of
customers received in settlement of obligations or pursuant to a plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
such trade creditors or customers; (h) Investments existing on the date of the
Indenture; (i) loans and advances to officers, directors, members and
employees for business-related travel expenses, moving expenses and other
similar expenses, in each case, incurred in the ordinary course of business
and consistent with past practices not to exceed $1.0 million in the aggregate
at any time; (j) any Hedging Obligation; (k) Investments consisting of
intercompany loans from the Company and its Restricted Subsidiaries to
Restricted Subsidiaries, including Restricted Subsidiaries that are not
Subsidiary Guarantors; (l) Investments consisting of capital contributions
from the Company or any Restricted Subsidiaries to Restricted Subsidiaries
that are not Subsidiary Guarantors in an aggregate amount at any one time
outstanding not to exceed $10.0 million; and (m) Investments in joint ventures
formed in the ordinary course of business for the purpose of bidding and
completing specific projects within a Permitted Business in an aggregate
amount at any one time outstanding not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or any
Subsidiary Guarantor or debt securities that are subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt pursuant
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to the Indenture; provided that no such Equity Interests or debt securities
may be issued if the rights of the holders of the Senior Debt are impaired by
any such issuance in connection with a reorganization, including, without
limitation, by reason of such rights being impaired within the meaning of
Section 1124 of Title 11 of the United States Code.
"Permitted Liens" means (i) Liens on assets of the Company securing Senior
Debt of the Company and Liens on assets of Subsidiary Guarantors securing
Senior Debt, provided, in each case, that such Indebtedness was permitted by
the terms of the Indenture to be incurred; (ii) Liens in favor of the Company
or a Subsidiary Guarantor; (iii) Liens on property of a Person existing at the
time such Person is merged with or into or consolidated with the Company or
any Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, bid bonds, payment bonds, performance and
lien bonds or other obligations of a like nature incurred in the ordinary
course of business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (v) or (ix) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
covering, in the case of such clause (v), only the assets acquired with such
Indebtedness; (vii) Liens existing on the date of the Indenture; (viii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (ix) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (x)
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $7.5 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b) do
not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company
or such Restricted Subsidiary; (xi) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens (including statutory maritime Liens) imposed by law incurred in the
ordinary course of business; (xii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security or similar
obligations, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (xiii) judgment or attachment Liens not
giving rise to an Event of Default; (xiv) easements, rights-of-way, zoning
restrictions and other similar charges or encumbrances in respect of real
property not interfering in any material respect with the ordinary course of
the business of the Company or any of its Restricted Subsidiaries; (xv) any
interest or title of a lessor under any lease, whether or not characterized as
capital or operating; provided that such Liens do not extend to any property
or assets which is not leased property subject to such lease; (xvi) Liens
securing Hedging Obligations which Hedging Obligations relate to Indebtedness
that is otherwise permitted under the Indenture; (xvii) Liens securing
reimbursement obligations with respect to letters of credit and products and
proceeds thereof; (xviii) Liens securing Permitted Refinancing Indebtedness
which is incurred to refinance any Indebtedness which has been secured by a
Lien permitted under the Indenture and which has been incurred in accordance
with the provisions of the Indenture; (xix) Liens in favor of the Company or
any of its Restricted Subsidiaries securing Indebtedness of any Restricted
Subsidiary that is not a Subsidiary Guarantor; (xx) Liens with respect to
current wages of the master and crew and for wages of a stevedore when
employed directly by the Company or any Subsidiary of the Company, or by the
charterer, operator, master or agent of any of the vessels owned or operated
by the Company or any Subsidiary of the Company; and (xxi) Liens for salvage
(including contract salvage).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, to extend,
refinance, renew, replace, defease or refund other Indebtedness of
94
<PAGE>
the Company or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses, premiums, penalties, fees
and interest incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Public Equity Offering" means a public offering pursuant to an effective
registration statement under the Securities Act of Equity Interests (other
than Disqualified Stock) of the Company.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or
useful in a Permitted Business and (iv) the Capital Stock of any Person
engaged in a Permitted Business if, in connection with the receipt by the
Company or any Restricted Subsidiary of the Company of such Capital Stock, (a)
such Person becomes a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or any Restricted Subsidiary of
the Company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all Obligations of the Company or a Subsidiary
Guarantor outstanding under the New Credit Facility, including any Guarantee
thereof and all Hedging Obligations with respect thereto and all interest and
fees accrued with respect thereto following the commencement of a proceeding
under bankruptcy law, whether or not considered an allowed claim in such
proceeding, (ii) all Permitted Bonding Obligations from time to time
outstanding, (iii) any other Indebtedness of the Company or a Subsidiary
Guarantor permitted to be incurred under the terms of the Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the Notes
and (iv) all Obligations with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include (v)
any liability for federal, state, local or other taxes owed or owing, (w) any
Indebtedness of the Company or any Subsidiary Guarantor to any Subsidiary of
the Company or any other Affiliates of the Company, (x) any trade payables,
(y) any Indebtedness which is expressly subordinated to any other Indebtedness
of the Company or any of its Subsidiaries, or (z) any Indebtedness that is
incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal (including any sinking fund payment) on any series of Indebtedness,
the date on which such payment of interest or principal was scheduled to be
paid in the original documentation governing such Indebtedness, and shall not
include any
95
<PAGE>
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Stockholders' Agreement" means the Securities Purchase and Holders
Agreement among the stockholders of the Company, as in effect on the date of
the Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantors" means each of (i) the wholly owned domestic
Restricted Subsidiaries of the Company on the date of the Indenture and (ii)
any other subsidiary that executes a Subsidiary Guarantee in accordance with
the provisions of the Indenture, and their respective successors and assigns.
"Sureties" means Reliance Insurance Company, United Pacific Insurance
Company, Reliance National Insurance Company and Reliance Surety Company,
together with any of their respective affiliates.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company or any
successor to any of them) that is designated by the Board of Directors of the
Company as an Unrestricted Subsidiary pursuant to a board resolution; but only
to the extent that such Subsidiary: (a) has no Indebtedness other than Non-
Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries; and (e) has at least one director on its board
of directors that is not a director or executive officer of the Company or any
of its Restricted Subsidiaries and has at least one executive officer that is
not a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such
date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock," the Company
shall be in default of such covenant). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference
period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
96
<PAGE>
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
97
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the Exchange Offer to a holder of Existing Notes
who is an individual citizen or resident of the United States or a United
States corporation that purchased the Existing Notes pursuant to their
original issue (a "U.S. Holder"). It is based on the Internal Revenue Code of
1986, as amended to the date hereof (the "Code"), existing and proposed
Treasury regulations, and judicial and administrative determinations, all of
which are subject to change at any time, possibly on a retroactive basis. The
following relates only to the Existing Notes, and the Exchange Notes received
therefor, that are held as "capital assets" within the meaning of Section 1221
of the Code by U.S. Holders. It does not discuss state, local, or foreign tax
consequences, nor does it discuss tax consequences to subsequent purchasers
(persons who did not purchase the Existing Notes pursuant to their original
issue), or to categories of holders that are subject to special rules, such as
foreign persons, tax-exempt organizations, insurance companies, banks and
dealers in stocks and securities. Tax consequences may vary depending on the
particular status of an investor. No rulings will be sought from the Internal
Revenue Service with respect to the federal income tax consequences of the
Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING
NOTES FOR EXCHANGE NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX
ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER
TAX LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE
EXISTING NOTES FOR EXCHANGE NOTES.
THE EXCHANGE OFFER
The exchange of Existing Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Existing Notes, because the
terms of the Exchange Notes are not materially different from the terms of the
Existing Notes. Accordingly, such exchange should not constitute a taxable
event to U.S. Holders and, therefore, (i) no gain or loss should be realized
by U.S. Holders upon receipt of an Exchange Note, (ii) the holding period of
an Exchange Note should include the holding period of the Existing Note
exchanged therefor and (iii) the adjusted tax basis of an Exchange Note should
be the same as the adjusted tax basis of the Existing Note exchanged therefor
immediately before the exchange.
STATED INTEREST
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or
retirement of a Note in an amount equal to the difference between the amount
realized on the sale, exchange or retirement and the tax basis of the Note.
Gain or loss recognized on the sale, exchange or retirement of a Note
(excluding amounts received in respect of accrued interest, which will be
taxable as ordinary interest income) generally will be capital gain or loss
and will be long-term capital gain or loss, if the Note was held for more than
one year. Under recently enacted legislation, net long-term capital gain
recognized by non-corporate taxpayers is generally subject to a 20% maximum
rate of tax.
98
<PAGE>
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest
thereon or the gross proceeds from the disposition thereof.
This withholding generally applies if the U.S. Holder fails to furnish his
or her social security number or other taxpayer identification number in the
specified manner and in certain circumstances or fails to properly certify
that he or she is not subject to backup withholding in general. Any amount
withheld from a payment to a U.S. Holder under the backup withholding rules is
allowable as a credit against such U.S. Holder's federal income tax liability.
Corporations and certain other entities described in the Code and Treasury
regulations are exempt from backup withholding if their exempt status is
properly established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Existing
Notes where such Existing Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until 90 days after the date of this
Prospectus, all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby will
be passed upon for the Company by Dechert Price & Rhoads, Philadelphia,
Pennsylvania.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of Amboy as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been audited by J.H. Cohn LLP, independent public accountants,
as stated in their report included herein.
100
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES Page
Condensed Consolidated Balance Sheet of Great Lakes Dredge & Dock
Corporation and Subsidiaries as of September 30, 1998--unaudited........ F-2
Condensed Consolidated Statements of Operations for Great Lakes Dredge &
Dock Corporation and Subsidiaries for the nine months ended September
30, 1998 and 1997--unaudited............................................ F-3
Condensed Consolidated Statements of Cash Flows for Great Lakes Dredge &
Dock Corporation and Subsidiaries for the nine months ended September
30, 1998 and 1997--unaudited............................................ F-5
Notes to Condensed Consolidated Financial Statements of Great Lakes
Dredge & Dock Corporation and Subsidiaries as of September 30, 1998--
unaudited............................................................... F-6
Independent Auditors' Report............................................. F-16
Consolidated Balance Sheets of Great Lakes Dredge & Dock Corporation and
Subsidiaries as of December 31, 1997 and 1996........................... F-17
Consolidated Statements of Income and Retained Earnings of Great Lakes
Dredge & Dock Corporation and Subsidiaries for the years ended December
31, 1997, 1996 and 1995................................................. F-18
Consolidated Statements of Cash Flows of Great Lakes Dredge & Dock
Corporation and Subsidiaries for the years ended December 31, 1997, 1996
and 1995................................................................ F-19
Notes to Consolidated Financial Statements of Great Lakes Dredge & Dock
Corporation and Subsidiaries for the years ended December 31, 1997, 1996
and 1995................................................................ F-20
AMBOY AGGREGATES JOINT VENTURE
Report of Independent Public Accountants................................. F-37
Balance Sheets of Amboy Aggregates (A Joint Venture) as of December 31,
1997 and 1996........................................................... F-38
Statements of Income and Partners' Capital of Amboy Aggregates (A Joint
Venture) for the years ended December 31, 1997, 1996 and 1995........... F-39
Statements of Cash Flows for Amboy Aggregates (A Joint Venture) for the
years ended December 31, 1997, 1996 and 1995............................ F-40
Notes to Financial Statement for Amboy Aggregates (A Joint Venture)...... F-41
</TABLE>
F-1
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARES AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
ASSETS
Current assets:
Cash and equivalents............................................. $ 528
Accounts receivable, net......................................... 27,939
Contract revenues in excess of billings.......................... 11,862
Inventories...................................................... 11,416
Asset held for sale.............................................. 5,657
Prepaid and other current assets................................. 12,708
--------
Total current assets........................................... 70,110
Property and equipment, net...................................... 148,800
Inventories...................................................... 6,831
Investments in joint ventures.................................... 9,017
Other assets..................................................... 5,695
--------
Total assets................................................... $240,453
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................. $ 24,296
Accrued expenses and other....................................... 17,328
Billings in excess of contract revenues.......................... 4,047
Current maturities of long-term debt............................. 1,450
--------
Total current liabilities...................................... 47,121
Long-term debt................................................... 182,650
Deferred income taxes............................................ 46,511
Foreign income taxes............................................. 6,282
Other............................................................ 4,989
--------
Total liabilities.............................................. 287,553
Minority interests............................................... 3,664
Commitments and contingencies (Note 13).......................... --
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 250,000 shares authorized:
45,000 issued and outstanding. ................................ 1
Common stock, $.01 par value; 50,000,000 shares authorized:
5,000,000 issued and outstanding. ............................. 50
Additional paid-in capital...................................... 50,457
Retained deficit................................................ (101,272)
--------
Total stockholders' deficit.................................... (50,764)
--------
Total liabilities and stockholders' deficit.................... $240,453
========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-2
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Contract revenues.......................................... $200,244 $179,876
Costs of contract revenues................................. 167,364 162,168
-------- --------
Gross profit............................................. 32,880 17,708
General and administrative expenses........................ 15,175 13,524
Equity incentive plan and other compensation expenses...... 8,169 --
Recapitalization related expenses.......................... 9,521 --
-------- --------
Operating income......................................... 15 4,184
Interest expense, net...................................... (4,798) (4,529)
Equity in earnings of joint ventures....................... 421 1,773
-------- --------
Income (loss) before income taxes, minority interests and
extraordinary item...................................... (4,362) 1,428
Income tax benefit (expense)............................... 449 (53)
Minority interests......................................... (1,870) (1,299)
-------- --------
Income (loss) before extraordinary item.................... (5,783) 76
Extraordinary item (net of income tax benefit of $543)..... (925) --
-------- --------
Net income (loss)........................................ $ (6,708) $ 76
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------
ADDITIONAL RETAINED
COMMON PREFERRED PAID-IN EARNINGS
COMMON PREFERRED STOCK STOCK CAPITAL (DEFICIT) TOTAL
--------- --------- -------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 100 -- $ 60,000 -- -- $ 18,156 $ 78,156
Exercise of stock op-
tions.................. 8 -- 4,516 -- -- -- 4,516
Tax benefit on tax com-
pensation expense re-
lated to stock options
exercised.............. -- -- 944 -- -- -- 944
Assignment of settlement
advance receivable..... -- -- -- -- -- (11,000) (11,000)
Common stock purchased.. 3,552,190 -- 8,704 -- -- -- 8,704
Issuance of preferred
stock.................. -- 34,420 -- 34,420 -- -- 34,420
Conversion of common
shares to preferred
shares................. (7.0) 10,580 (8,656) 10,580 -- (1,924) --
Redemption of common
shares................. (100) -- (60,000) -- -- (99,796) (159,796)
Record shares at par
value.................. 1,447,809 -- (5,458) (44,999) 50,457 -- --
Net loss................ -- -- -- -- -- (6,708) (6,708)
--------- ------ -------- -------- ------- --------- ---------
Balance at September 30,
1998................... 5,000,000 45,000 $ 50 $ 1 $50,457 $(101,272) $ (50,764)
========= ====== ======== ======== ======= ========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................ $ (6,708) $ 76
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation........................................... 10,980 10,361
Earnings of joint ventures............................. (421) (1,773)
Minority interests..................................... 1,870 1,299
Deferred income taxes.................................. (1,175) (2,332)
Foreign income taxes................................... 1,204 4,498
Gain on dispositions of property and equipment......... -- (3,279)
Compensation expense related to exercise of options.... 5,152 --
Extraordinary item..................................... 925 --
Other, net............................................. 45 129
Changes in assets and liabilities:
Accounts receivable.................................. 12,360 (29,626)
Contract revenues in excess of billings.............. 3,646 411
Inventories.......................................... (2,726) 319
Prepaid expenses and other current assets............ 1,529 (2,162)
Accounts payable and accrued expenses ............... (4,796) 16,320
Billings in excess of contract revenues.............. 1,073 7,540
--------- --------
Net cash flows from operating activities............... 22,958 1,781
INVESTING ACTIVITIES
Purchases of property and equipment...................... (26,365) (7,882)
Dispositions of property and equipment................... -- 5,218
Investments in and distributions from joint ventures,
net..................................................... (1,027) (908)
Distribution to minority interests....................... -- (700)
Deposit.................................................. -- 2,500
--------- --------
Net cash flows from investing activities............... (27,392) (1,772)
FINANCING ACTIVITIES
Proceeds from long-term debt............................. 126,500 31,500
Repayments of long-term debt............................. (115,000) (20,636)
Proceeds from 11 1/4% subordinated debt.................. 115,000 --
Exercise of options...................................... 4,516 --
Common stock purchased................................... 3,552 --
Issuance of preferred stock.............................. 34,420 --
Financing fees........................................... (5,947) (1,740)
Redemption of shares..................................... (159,796) --
Settlement advance....................................... -- (11,000)
--------- --------
Net cash flows from financing activities............... 3,245 (1,876)
--------- --------
Net decrease in cash and equivalents..................... (1,189) (1,867)
Cash and equivalents at beginning of period.............. 1,717 1,887
--------- --------
Cash and equivalents at end of period.................... $ 528 $ 20
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................... $ 2,877 $ 4,593
========= ========
Cash paid for taxes...................................... $ 3,264 $ 253
========= ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-5
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, these financial statements do not
include all the information in the notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the unaudited condensed consolidated financial statements include
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the financial position, results of
operations and cash flows. The unaudited condensed consolidated financial
statements and notes herein should be read in conjunction with the audited
consolidated financial statements of the Company and the notes thereto.
2. RECAPITALIZATION OF GREAT LAKES DREDGE & DOCK CORPORATION
Great Lakes Dredge & Dock Corporation (the Company) effected a
recapitalization of the Company on August 19, 1998 whereby (i) management
exercised vested options representing 7% of the Company's then outstanding
common stock, (ii) newly issued common stock and preferred stock was sold to
Vectura Holding Company, LLC (Vectura) and certain members of management,
(iii) the common stock formerly held by Blackstone Dredging Partners L.P. and
Blackstone Family Investment Partnership I L.P. (Blackstone) was redeemed, and
(iv) a portion of the common stock held by management was purchased directly
by Vectura. The redemption of the common stock formerly held by Blackstone was
financed using a portion of the proceeds from $115,000 of senior subordinated
debt, a $110,000 new bank credit facility and the issuance of preferred stock
for $34,420 and common stock for $3,552 received by Vectura and certain
members of management. As a result of the recapitalization, certain members of
the Company management own approximately 16% of the outstanding common stock
and Vectura owns approximately 84%. Expenses related to the recapitalization,
which were charged to operations during the period, totaled $9,521 and are not
expected to be recurring expenses.
3. EXTRAORDINARY ITEM
In August 1998, in conjunction with the recapitalization, the Company
entered into a new credit agreement. As a result, deferred financing fees
associated with the Company's prior credit agreement of $1,468 ($925 net of
income tax benefit) were written off as an extraordinary item.
4. ALLOCATION OF EQUIPMENT COST
The Company can have significant fluctuations in equipment utilization
throughout the year. Accordingly, for interim reporting, the Company defers or
accrues fixed equipment costs and amortizes the expenses in proportion to
revenues recognized over the year to better match revenues and expenses.
F-6
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
5. ACCOUNTS RECEIVABLE
Accounts receivable at September 30, 1998 are as follows:
<TABLE>
<S> <C>
Completed contracts.................................................... $ 8,354
Contracts in progress.................................................. 16,517
Retainage.............................................................. 3,550
-------
28,421
Allowance for doubtful accounts........................................ (482)
-------
$27,939
=======
</TABLE>
6. CONTRACTS IN PROGRESS
The components of contracts in progress at September 30, 1998 is are follows:
<TABLE>
<S> <C>
Costs and earnings in excess of billings:
Accumulated costs and earnings for contracts in progress........... $ 129,289
Amounts billed..................................................... (119,264)
---------
Costs and earnings in excess of billings for contracts in progress... 10,025
Costs and earnings in excess of billings for completed contracts..... 1,837
---------
$11,862
=========
Billings in excess of costs and earnings:
Amounts billed..................................................... $(37,413)
Accumulated costs and earnings for contracts in progress........... 33,366
---------
$ (4,047)
=========
</TABLE>
F-7
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
7. INVESTMENTS IN JOINT VENTURES
The Company has a 50% ownership interest in Amboy Aggregates Joint Venture,
whose primary business is the dredge mining and sale of fine aggregate, and a
14% ownership interest in a venture whose sole business is the performance of
a dredging contract in Argentina and Uruguay (Riovia S.A. Venture). Financial
information for the Riovia Venture is provided as of August 31, 1998 and for
the eight months ended August 31, 1998 and 1997, the most recently available
information for preparation of the Company's respective September financial
statements. Summarized information for the joint ventures is as follows:
<TABLE>
<CAPTION>
AMBOY RIOVIA
AGGREGATES VENTURE
------------- ------------
SEPTEMBER 30, AUGUST 31,
1998 1998
------------- ------------
<S> <C> <C>
Current assets....................................... $ 8,323 $ 35,724
Non-current assets................................... 15,259 737
-------- --------
Total assets....................................... $ 23,582 $ 36,461
-------- --------
Current liabilities.................................. 2,689 8,828
Non-current liabilities.............................. 9,636 17,302
-------- --------
Equity............................................. $ 11,257 $ 10,331
======== ========
<CAPTION>
NINE MONTHS EIGHT MONTHS
ENDED ENDED
------------- ------------
SEPTEMBER 30, AUGUST 31,
1998 1998
------------- ------------
<S> <C> <C>
Revenues............................................. $ 12,816 $ 26,415
Costs and expenses................................... (12,527) (24,328)
-------- --------
Net income......................................... $ 289 $ 2,087
-------- --------
<CAPTION>
SEPTEMBER 30, AUGUST 31,
1997 1997
------------- ------------
<S> <C> <C>
Revenues............................................. $ 17,116 $ --
Costs and expenses................................... (13,444) --
-------- --------
Net income......................................... $ 3,672 $ --
======== ========
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt as of September 30, 1998 is as follows:
Bank Debt:
Term loan......................................................... $ 55,000
Revolving loan.................................................... 13,500
11 1/4% subordinated debt........................................... 115,000
Other secured debt.................................................. 600
--------
184,100
Current maturities of long-term debt.................................. (1,450)
--------
$182,650
========
</TABLE>
In August 1998, the Company entered into a new bank credit agreement (Credit
Agreement). The Credit Agreement, expiring in 2004, consists of a $55,000 term
loan and a $55,000 aggregate revolving credit facility which may be used for
borrowings or for letters of credit. At September 30, 1998, availability under
the aggregate revolving credit facility was $29,171. The terms of the Credit
Agreement provide for interest rate
F-8
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
spreads based on the Company's debt level compared to earnings, as defined,
and allow for various interest rate options for loan amounts and periods that
are selected at the discretion of the Company. At September 30, 1998, the
average borrowing rate was 8.7%, including amortization of financing fees. The
Company also pays an annual commitment fee of up to 0.5% on the average daily
unused capacity available under the revolving credit facility.
The Credit Agreement contains provisions that require the Company to
maintain a minimum net worth and certain other financial ratios, limit payment
of dividends and restrict certain other transactions. Borrowings under the
Credit Agreement are secured by first lien mortgages on certain operating
equipment of the Company with a net book value of approximately $34,760 at
September 30, 1998 and are guaranteed by certain subsidiaries of the Company.
Beginning September 30, 1999, quarterly principal payments of the term loan
are required as specified in the Credit Agreement. Annual prepayments of
principal may be required to the extent the Company has excess cash, as
defined, and voluntary prepayments are allowed. All prepayments modify the
requirements for scheduled principal payments. Scheduled long-term debt
maturities for the five years ending December 31 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 200
1999................................................................ 2,700
2000................................................................ 6,700
2001................................................................ 9,000
2002................................................................ 11,000
</TABLE>
On August 19, 1998, the Company issued $115,000 of senior subordinated notes
(Notes) which will mature on August 15, 2008. Interest on the Notes accrues at
a rate of 11 1/4% per annum and is payable semi-annually beginning on February
15, 1999. The Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior debt,
including borrowings under the Credit Agreement. The Company's obligation
under the Notes are guaranteed on a senior subordinated basis by the Company's
wholly owned domestic subsidiaries.
9. INCOME TAXES
The Company's effective tax rate on earnings (losses) for the nine month
periods ended September 30, 1998 and 1997 are reconciled to the statutory U.S.
federal income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Statutory U.S. federal income tax rate........................ (34.0)% 34.0%
State income tax, net of federal income tax benefit........... 6.8 0.4
Partnership gain allocated to minority interests.............. (13.1) (26.2)
Nondeductible recapitalization expenses....................... 27.1 --
Other......................................................... 2.9 (4.5)
----- -----
Effective tax rate............................................ (10.3)% 3.7%
===== =====
</TABLE>
10. CAPITAL STOCK
As part of the recapitalization, the Company authorized and issued 250,000
and 45,000 shares, respectively, of preferred stock. The preferred stock pays
dividends, if declared, at the rate of 12% per annum and is cumulative.
Additionally, the Company authorized and issued 25,000,000 and 1,636,100
shares, respectively, of class A voting common stock, and 25,000,000 and
3,363,900 shares, respectively, of class B nonvoting common stock, with a par
value of $.01 per share. Previously, authorized and issued common stock had no
par value.
F-9
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
A portion of the common stock held by management prior to the
recapitalization was converted to preferred stock.
11. STOCK PLAN
In August 1998, all outstanding options granted under the Equity Incentive
Plan were exercised at an exercise price of $600,000 per share, which
represented 7.5 shares of common stock or 7% of common stock outstanding after
the exercise. Subsequently, 5.2 of these shares (or 4.8% of common stock
outstanding) were sold to Vectura in conjunction with the recapitalization,
resulting in non-cash compensation expense of $5,152. The Equity Incentive
Plan was terminated as of the date of recapitalization.
12. OTHER TRANSACTIONS
In September 1998, the Company approved and paid discretionary bonuses of
$3,017 to certain members of management.
13. COMMITMENTS AND CONTINGENCIES
At September 30, 1998, the Company is contingently liable, in the normal
course of business, for $1,237 in additional letters of credit related to
contract performance guarantees.
The Company has contracted to build a backhoe dredge for approximately
$18,000 for delivery in early 1999. At September 30, 1998, the Company had
$5,657 of related backhoe construction expenses recorded as an asset held for
sale. In October of 1998, the Company sold the construction in progress and
entered into a long-term operating lease to complete the backhoe dredge
construction and to operate the dredge upon completion.
In 1992, an underwater utility tunnel failed adjacent to a construction site
completed by Great Lakes Dredge & Dock Company (GLDD), a wholly owned
subsidiary of GLD Corporation. The failure resulted in a flooding of the
tunnel and building basements serviced by the tunnel. Numerous suits were
filed against GLDD for claims of flood damage to building basements and losses
due to business interruption. During 1997, all outstanding claims were settled
related to the flood litigation. Settlement payments totaling $11,000 were
advanced by the Company. As part of the recapitalization, the right to receive
the $11,000 settlement advance was retained by Blackstone.
In the normal course of business, the Company is a defendant in various
other legal proceedings. Resolutions of these claims is not expected to have a
material impact on the financial position or operations of the Company.
As is customary with negotiated contracts with the federal government, the
government has the right to audit the books and records of the Company to
ensure compliance with such contracts and applicable federal laws. The
government has the ability to seed a price adjustment based on the results of
such audit. Any such audits are not expected to have a material impact on the
financial position or operations of the Company.
14. RELATED PARTY TRANSACTIONS
In August 1998 the Company made recourse loans totaling $4,516 to certain
members of management in connection with the exercise of their options. The
loans were immediately repaid to the Company from proceeds received upon the
sale of a portion of the common stock owned by management to Vectura. See Note
2.
15. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The payment obligations of the Company under the senior subordinated notes
are guaranteed by certain of the Company's wholly owned domestic subsidiaries
(the Subsidiary Guarantors). Such guarantees are full, unconditional and joint
and several. Separate financial statements of the Subsidiary Guarantors are
not presented because the Company's management has determined that they would
not be material to investors. The following supplemental financial information
sets forth, on a combined basis, the balance sheet, statements of operations
and statements of cash flows for the Subsidiary Guarantors, the Company's non-
guarantor subsidiaries and for the Company (GLD Corporation).
F-10
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
ASSETS -------------------------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents........ $ 300 $ 228 $ -- $ -- $ 528
Accounts receivable, net.... 24,874 3,065 -- -- 27,939
Receivables from affiliates. 6,840 12,152 57,914 (76,906) --
Current portion of net
investment in direct
financing leases........... 3,153 4,596 -- (7,749) --
Contract revenues in excess
of billings................ 11,042 820 -- -- 11,862
Inventories................. 8,560 2,856 -- -- 11,416
Settlement advance.......... -- -- -- -- --
Assets held for sale........ 5,657 -- -- -- 5,657
Prepaid and other current
assets..................... 10,904 792 1,012 -- 12,708
----------------- ------- -------- --------- --------
Total current assets...... 71,330 24,509 58,926 (84,655) 70,110
Property and equipment, net... 131,973 16,827 -- 148,800
Net investment in direct
financing leases............. 6,602 10,087 -- (16,689) --
Investments in subsidiaries... 144,452 -- 67,156 (211,608) --
Note receivable from
affiliate.................... 31,177 1,377 -- (32,554) --
Inventories................... 6,831 -- -- -- 6,831
Investments in joint ventures. 9,017 -- -- -- 9,017
Other assets.................. 467 -- 5,228 -- 5,695
----------------- ------- -------- --------- --------
$ 401,849 $52,800 $131,310 $(345,506) $240,453
================= ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............ $ 20,834 $ 3,078 $ 384 $ -- $ 24,296
Payables to affiliates...... 75,112 1,615 179 (76,906) --
Accrued expenses and other.. 13,008 1,954 2,366 -- 17,328
Current portion of
obligations under capital
leases..................... -- 7,749 -- (7,749) --
Billings in excess of
contract revenues.......... 4,047 -- -- -- 4,047
Current maturities of long-
term debt.................. 200 -- 1,250 -- 1,450
----------------- ------- -------- --------- --------
Total current liabilities. 113,201 14,396 4,179 (84,655) 47,121
Long-term debt................ 400 -- 182,250 182,650
Obligations under capital
leases....................... -- 16,689 -- (16,689) --
Note payable to affiliate..... 32,554 -- -- (32,554) --
Deferred income taxes......... 43,513 2,998 -- -- 46,511
Foreign income taxes.......... 6,282 -- -- -- 6,282
Other......................... 4,934 55 -- -- 4,989
----------------- ------- -------- --------- --------
Total liabilities......... 200,884 34,138 186,429 (133,898) 287,553
Minority interests............ 3,787 -- -- (123) 3,664
Stockholders' equity
(deficit).................... 197,178 18,662 (55,119) (211,485) (50,764)
----------------- ------- -------- --------- --------
$ 401,849 $52,800 $131,310 $(345,506) $240,453
================= ======= ======== ========= ========
</TABLE>
F-11
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....... $ 167,617 $ 33,011 $ -- $ (384) $ 200,244
Costs of contract
revenues............... (145,950) (21,798) -- 384 (167,364)
--------- -------- -------- ------- ---------
Gross profit........ 21,667 11,213 -- -- 32,880
General and
administrative
expenses............... (12,110) (3,065) -- -- (15,175)
Equity incentive plan
and other compensation
expenses............... -- -- (8,169) -- (8,169)
Recapitalization related
expenses............... (5,922) -- (3,599) -- (9,521)
--------- -------- -------- ------- ---------
Operating income
(loss)............. 3,635 8,148 (11,768) -- 15
Other income (expense):
Interest, net......... (2,448) (133) (2,217) -- (4,798)
Equity earnings in
subsidiaries......... -- -- 4,353 (4,353) --
Equity in earnings of
joint ventures....... 421 -- -- -- 421
--------- -------- -------- ------- ---------
Income (loss) before
income taxes,
minority interests
and extraordinary
item............... 1,608 8,015 (9,632) (4,353) (4,362)
Income tax benefit
(expense) ............. (1,780) (695) 2,924 -- 449
Minority interests...... (1,870) -- -- -- (1,870)
--------- -------- -------- ------- ---------
Net income (loss)
before
extraordinary item. (2,042) 7,320 (6,708) (4,353) (5,783)
Extraordinary item (net
of income tax benefit
of $543)............... (925) -- -- -- (925)
--------- -------- -------- ------- ---------
Net income (loss)... $ (2,967) $ 7,320 $ (6,708) $(4,353) $ (6,708)
========= ======== ======== ======= =========
</TABLE>
F-12
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (2,967) $ 7,320 $ (6,708) $(4,353) $ (6,708)
Adjustments to reconcile
net income (loss) to net
cash flows from
operating activities:
Depreciation........... 7,957 3,023 -- -- 10,980
Earnings of joint
ventures and
subsidiaries.......... (421) -- (4,353) 4,353 (421)
Minority interests..... 1,870 -- -- -- 1,870
Deferred income taxes.. (1,150) (25) -- -- (1,175)
Foreign income taxes... 1,204 -- -- -- 1,204
Compensation expense
related to exercise of
options............... -- -- 5,152 -- 5,152
Extraordinary item..... -- -- 925 -- 925
Other, net............. (10) -- 55 -- 45
Changes in assets and
liabilities:
Accounts receivable... 16,140 (3,780) -- -- 12,360
Contact revenues in
excess of billings... 3,581 65 -- -- 3,646
Inventories........... (2,726) -- -- -- (2,726)
Prepaid expenses and
other current assets. 3,169 (1,292) (348) -- 1,529
Accounts payable and
accrued expenses..... (6,984) (579) 2,767 -- (4,796)
Billings in excess of
contract revenues.... 1,073 -- -- -- 1,073
--------- ------- --------- -------- ---------
Net cash flows from
operating activities.. 20,736 4,732 (2,510) -- 22,958
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (23,089) (3,276) -- -- (26,365)
Dispositions of property
and equipment.......... -- -- -- -- --
Investments in and
distributions from
joint ventures, net.... (1,027) -- -- -- (1,027)
Principal payments
received (paid) on
direct financing
leases................. (3,035) 3,035 -- -- --
Payments on notes
receivable from (to)
affiliate.............. (517) 517 -- -- --
--------- ------- --------- -------- ---------
Net cash flows from
investing activities. (27,668) 276 -- -- (27,392)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 51,000 -- 75,500 -- 126,500
Repayments of long-term
debt................... (108,000) -- (7,000) -- (115,000)
Proceeds from 11 1/4%
subordinated debt...... -- -- 115,000 -- 115,000
Exercise of options..... -- -- 4,516 -- 4,516
Common stock purchased.. -- -- 3,552 -- 3,552
Issuance of preferred
stock.................. -- -- 34,420 -- 34,420
Financing fees.......... -- -- (5,947) -- (5,947)
Redemption of shares.... -- -- (159,796) -- (159,796)
Principal receipts
(payments) on capital
leases................. 5,212 (5,212) -- -- --
Net change in accounts
with affiliates........ 57,735 -- (57,735) -- --
--------- ------- --------- -------- ---------
Net cash flows from
financing activities. 5,947 (5,212) 2,510 -- 3,245
--------- ------- --------- -------- ---------
Net decrease in cash and
equivalents............ (985) (204) -- -- (1,189)
Cash and equivalents at
beginning of period.... 1,285 432 1,717
--------- ------- --------- -------- ---------
Cash and equivalents at
end of period.......... $ 300 $ 228 $ -- $ -- $ 528
========= ======= ========= ======== =========
</TABLE>
F-13
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....... $ 140,856 $ 45,519 $-- $(6,499) $ 179,876
Costs of contract
revenues............... (134,095) (34,572) -- 6,499 (162,168)
--------- -------- ---- ------- ---------
Gross profit........ 6,761 10,947 -- -- 17,708
General and
administrative
expenses............... (10,353) (3,171) -- -- (13,524)
--------- -------- ---- ------- ---------
Operating income
(loss)............. (3,592) 7,776 -- -- 4,184
Other income (expense):
Interest, net......... (4,767) 238 -- -- (4,529)
Equity earnings in
subsidiaries......... -- -- 76 (76) --
Equity in earnings of
joint ventures....... 1,773 -- -- -- 1,773
--------- -------- ---- ------- ---------
Income (loss) before
income taxes and
minority interests. (6,586) 8,014 76 (76) 1,428
Income tax benefit
(expense) ............. 670 (723) -- -- (53)
Minority interests...... (1,299) -- -- -- (1,299)
--------- -------- ---- ------- ---------
Net income (loss) .. (7,215) 7,291 76 (76) 76
========= ======== ==== ======= =========
</TABLE>
F-14
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(UNAUDITED)--(CONCLUDED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (7,215) $ 7,291 $ 76 $(76) $ 76
Adjustments to reconcile
net income (loss) to net
cash flows from operat-
ing activities:
Depreciation........... 7,567 2,794 -- -- 10,361
Earnings of joint
ventures and
subsidiaries.......... (1,773) -- (76) 76 (1,773)
Minority interests..... 1,299 -- -- -- 1,299
Deferred income taxes.. (2,331) (1) -- -- (2,332)
Gain on dispositions of
property and
equipment............. (3,279) -- -- -- (3,279)
Foreign income taxes... 4,498 -- -- -- 4,498
Other, net............. 129 -- -- -- 129
Changes in assets and
liabilities:
Accounts receivable... (20,618) (9,008) -- -- (29,626)
Contract revenues in
excess of billings... (961) 1,372 -- -- 411
Inventories........... 319 -- -- -- 319
Prepaid expenses and
other current assets. (1,799) (363) -- -- (2,162)
Accounts payable and
accrued expenses..... 14,772 1,548 -- -- 16,320
Billing in excess of
contract revenues.... 7,540 -- -- -- 7,540
-------- ------- ---- ---- --------
Net cash flows from
operating activities.. (1,852) 3,633 -- -- 1,781
INVESTING ACTIVITIES:
Purchases of property
and equipment.......... (6,569) (1,313) -- -- (7,882)
Dispositions of property
and equipment.......... 5,218 -- -- -- 5,218
Investments in and
distributions from
joint ventures, net.... (908) -- -- -- (908)
Distributions to
minority interests..... -- (700) -- -- (700)
Deposit................. 2,500 -- -- -- 2,500
Principal payments
received (paid) on
direct financing
leases................. (2,629) 2,629 -- -- --
Payments on notes
receivable from (to)
affiliate.............. (1,028) 1,028 -- -- --
-------- ------- ---- ---- --------
Net cash flows from
investing activities.. (3,416) 1,644 -- -- (1,772)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 31,500 -- -- -- 31,500
Repayments of long-term
debt................... (20,636) -- -- -- (20,636)
Financing fees.......... (1,740) -- -- -- (1,740)
Principal receipts
(payments) on capital
leases................. 4,610 (4,610) -- -- --
Net changes in accounts
with affiliates........ -- -- -- -- --
Settlement advance...... (11,000) -- -- -- (11,000)
-------- ------- ---- ---- --------
Net cash flows from
financing activities.. 2,734 (4,610) -- -- (1,876)
-------- ------- ---- ---- --------
Net increase (decrease)
in cash and
equivalents............ (2,534) 667 -- -- (1,867)
Cash and equivalents at
beginning of period.... 570 1,317 -- -- 1,887
-------- ------- ---- ---- --------
Cash and equivalents at
end of period.......... $ (1,964) $ 1,984 $-- $-- $ 20
======== ======= ==== ==== ========
</TABLE>
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Great Lakes Dredge
& Dock Corporation:
We have audited the accompanying consolidated balance sheets of Great Lakes
Dredge & Dock Corporation and subsidiaries (the Company) as of December 31,
1997 and 1996, and the related consolidated statements of income and retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1997. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Great Lakes Dredge & Dock
Corporation and subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 30, 1998
F-16
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents....................................... $ 1,717 $ 1,887
Accounts receivable, net................................... 40,299 28,057
Contract revenues in excess of billings.................... 15,508 11,252
Inventories................................................ 9,195 9,910
Settlement advance......................................... 11,000 --
Prepaid expenses........................................... 5,118 2,875
Deposit.................................................... -- 2,500
Net assets of discontinued operations...................... -- 1,929
Other current assets....................................... 8,319 8,383
-------- --------
Total current assets..................................... 91,156 66,793
Property and equipment, net.................................. 138,716 142,966
Inventories.................................................. 6,326 6,875
Investments in joint ventures................................ 7,569 4,807
Other assets................................................. 1,788 617
-------- --------
$245,555 $222,058
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 31,001 $ 20,104
Accrued expenses........................................... 15,419 11,001
Billings in excess of contract revenues.................... 2,974 326
Current maturities of long-term debt....................... 200 13,322
-------- --------
Total current liabilities................................ 49,594 44,753
Long-term debt............................................... 57,400 39,114
Deferred income taxes........................................ 48,322 52,061
Foreign income taxes......................................... 5,078 2,382
Other........................................................ 5,149 6,180
-------- --------
Total liabilities........................................ 165,543 144,490
Minority interests........................................... 1,856 3,214
Commitments and contingencies (Notes 10 and 15)
Stockholders' equity:
Preferred stock--$.01 par value; authorized: 100; none
issued.................................................... -- --
Common stock--no par value; authorized: 200; issued and
outstanding: 100.......................................... 60,000 60,000
Retained earnings.......................................... 18,156 14,354
-------- --------
Total stockholders' equity............................... 78,156 74,354
-------- --------
$245,555 $222,058
======== ========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Contract revenues................................ $258,296 $235,871 $226,865
Costs of contract revenues....................... (228,383) (208,717) (217,077)
-------- -------- --------
Gross profit................................... 29,913 27,154 9,788
General and administrative expenses.............. (18,922) (16,391) (15,870)
-------- -------- --------
Operating income (loss)........................ 10,991 10,763 (6,082)
Other income (expense):
Interest income................................ 316 138 380
Interest expense............................... (6,303) (6,182) (8,242)
Equity in earnings of joint ventures........... 3,132 1,139 1,333
-------- -------- --------
Income (loss) before income taxes, minority
interests and discontinued operations....... 8,136 5,858 (12,611)
Income tax (expense) benefit..................... (2,667) (2,324) 4,160
Minority interests............................... (1,667) (419) (1,204)
-------- -------- --------
Income (loss) from continuing operations....... 3,802 3,115 (9,655)
Discontinued operations
Loss from operations, net of tax benefit: 1997-
$0; 1996-$695; and 1995-$163 ................. -- (1,044) (329)
Loss on disposal, net of tax benefit of $44 in
1996.......................................... -- (65) --
-------- -------- --------
Net income (loss)............................ 3,802 2,006 (9,984)
Retained earnings at beginning of year........... 14,354 12,348 22,332
-------- -------- --------
Retained earnings at end of year................. $ 18,156 $ 14,354 $ 12,348
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $ 3,802 $ 2,006 $ (9,984)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation.................................. 13,615 13,881 14,700
Earnings of joint ventures.................... (3,132) (1,139) (1,333)
Minority interests............................ 1,667 419 1,204
Deferred income taxes......................... (3,963) (3,796) (1,352)
Gain on dispositions of property and
equipment.................................... (3,308) (467) (1,496)
Foreign income taxes.......................... 2,696 2,382 --
Pension curtailment and settlement............ -- (1,688) --
Other, net.................................... (238) 217 6
Changes in assets and liabilities:
Accounts receivable......................... (12,242) 20,945 5,043
Contract revenues in excess of billings..... (4,256) 3,094 3,472
Inventories................................. 1,264 3,915 (3,714)
Prepaid expenses and other current assets... (250) (402) 2,110
Income taxes receivable..................... -- 3,509 (3,509)
Accounts payable and accrued expenses....... 15,315 (15,881) (8,500)
Billings in excess of contract revenues..... 2,648 (2,321) (396)
-------- -------- --------
Net cash flows from operating activities...... 13,618 24,674 (3,749)
INVESTING ACTIVITIES
Purchases of property and equipment............. (11,494) (5,411) (11,473)
Dispositions of property and equipment.......... 5,437 7,820 2,664
Distributions from joint venture................ 1,000 750 5,500
Investments in joint venture.................... (630) (755) --
Distribution to minority interests.............. (3,025) (700) (640)
Deposit......................................... 2,500 (2,500) --
-------- -------- --------
Net cash flows from investing activities...... (6,212) (796) (3,949)
FINANCING ACTIVITIES
Proceeds from long-term debt.................... 102,500 27,051 52,700
Repayments of long-term debt.................... (97,336) (51,368) (46,220)
Financing fees.................................. (1,740) -- --
Settlement advance.............................. (11,000) -- --
-------- -------- --------
Net cash flows from financing activities...... (7,576) (24,317) 6,480
-------- -------- --------
Net decrease in cash and equivalents............ (170) (439) (1,218)
Cash and equivalents at beginning of year....... 1,887 2,326 3,544
-------- -------- --------
Cash and equivalents at end of year............. $ 1,717 $ 1,887 $ 2,326
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.......................... $ 5,407 $ 6,131 $ 7,100
======== ======== ========
Cash paid for taxes............................. $ 4,588 $ 1,492 $ 5,047
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Great Lakes Dredge & Dock Corporation ("GLD Corporation") is wholly owned by
Blackstone Limited Partnerships. GLD Corporation and its subsidiaries (the
Company) are in the business of marine construction, primarily dredging. The
Company's primary customers are domestic and foreign government agencies.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of GLD
Corporation and its subsidiaries. All significant intercompany accounts and
transactions are eliminated. The Company is a joint venture partner in Amboy
Aggregates Joint Venture and Riovia S.A. which are accounted for under the
equity method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
REVENUE AND COST RECOGNITION ON CONTRACTS
Contract revenues are recognized under the percentage-of-completion method,
based on the Company's engineering estimates of the physical percentage
completed of each project. Billings on contracts are generally submitted after
verification with the customers of physical quantities completed. Costs of
contract revenues are adjusted to reflect the gross profit percentage expected
to be achieved upon ultimate completion of each project. Significant
expenditures incurred incidental to major contracts are deferred and
recognized as contract costs based on contract performance over the duration
of the related project. These expenditures are reported as prepaid expenses.
Provisions for estimated losses on contracts in progress are made in the
period in which such losses are determined. Claims for additional compensation
due the Company are not recognized in contract revenues until such claims are
settled.
CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES
The Company includes in current assets and liabilities amounts realizable
and payable in the normal course of contract completion unless completion of
such contracts extends significantly beyond one year.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are recorded at the lower of first-in, first-out cost or market.
Inventories consist mainly of pipe, purchased spare parts and supplies.
DEPRECIATION
Depreciation is calculated over the estimated useful lives of property and
equipment using the straight-line method. The estimated useful lives by class
of assets are 5 to 10 years for furniture and fixtures and 3 to 25 years for
operating equipment.
F-20
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments included in current assets and
liabilities approximates fair values due to the short-term maturities of these
instruments. The carrying value of long-term debt is a reasonable estimate of
its fair value as interest rates are variable, based on the prevailing market
rates. The contract amount of letters of credit and guarantees is a reasonable
estimate of their fair value as the value for each is fixed over the life of
the commitment.
LONG-LIVED ASSETS
Long lived assets are reviewed for possible impairment whenever events
indicate that the carrying amount of such assets may not be recoverable. If
such a review indicates an impairment, the carrying amount would be reduced to
estimated recoverable value.
CAPITAL STOCK
In 1996, the Company authorized an additional 100 shares of common stock and
effected a 5 for 1 stock split of the common shares outstanding.
The authorized capital stock of the Company includes 100 shares of preferred
stock, which the Board of Directors is authorized to issue and to establish
the dividend, redemption, voting and other rights, preferences, privileges and
restrictions of such issues. No shares of preferred stock are outstanding as
of December 31, 1997.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which could require the Company to make additional disclosures in its
financial statements no later than for the year ending December 31, 1998. SFAS
130 defines comprehensive income, which includes items in addition to those
reported in the statement of operations, and requires disclosures about its
components. Management is presently evaluating the effect on the Company's
financial reporting from the adoption of this statement and does not expect it
to have any material effect. SFAS 131 requires disclosures for each segment of
a business and the determination of segments based on the Company's internal
management structure. Management is in the process of evaluating the impact on
the Company's financial reporting from the adoption of this statement.
2. ACCOUNTS RECEIVABLE
Accounts receivable are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Completed contracts...................................... $13,797 $14,151
Contracts in progress.................................... 22,831 7,497
Retainage................................................ 4,121 6,713
------- -------
40,749 28,361
Allowance for doubtful accounts.......................... (450) (304)
------- -------
$40,299 $28,057
======= =======
</TABLE>
F-21
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. CONTRACTS IN PROGRESS
The components of contracts in progress are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Cost and earnings in excess of billings:
Costs and earnings for contracts in progress....... $ 56,981 $ 138,578
Prepaid contract costs............................. (1,053) (1,786)
Amounts billed..................................... (45,575) (129,162)
-------- ---------
Cost and earnings in excess of billings for contracts
in progress......................................... 10,353 7,630
Cost and earnings in excess of billings for completed
contracts........................................... 5,155 3,622
-------- ---------
$ 15,508 $ 11,252
======== =========
Billings in excess of costs and earnings:
Amounts billed..................................... $(44,870) $ (9,723)
Costs and earnings for contracts in progress....... 41,896 9,397
-------- ---------
$ (2,974) $ (326)
======== =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land................................................... $ 2,604 $ 2,604
Furniture and fixtures................................. 5,652 5,509
Operating equipment.................................... 203,784 196,010
-------- --------
212,040 204,123
Accumulated depreciation............................... (73,324) (61,157)
-------- --------
$138,716 $142,966
======== ========
</TABLE>
Performance bonds are customarily required for dredging and marine
construction projects. The Company obtains its performance bonds through a
bonding agreement with a group of insurance companies that have been granted a
security interest in a substantial portion of the Company's operating
equipment with a net book value of approximately $62,558 at December 31, 1997.
The bonding agreement contains financial and operating covenants that limit
the ability of the Company to incur indebtedness, create liens, pay dividends
and take certain other actions.
In 1996, the Company paid $2,500 for an option to purchase a used hopper
dredge. The option price was recorded as a current asset deposit. In 1997, the
Company recovered this amount through a lease transaction.
F-22
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INVESTMENTS IN JOINT VENTURES
The Company has a 50% ownership interest in a venture whose primary business
is the dredge mining and sale of fine aggregate (Aggregate Venture), and a 14%
ownership interest in a venture whose sole business is the performance of a
dredging contract in Argentina and Uruguay. Summarized financial information
of the combined joint ventures for 1997 and 1996 and of the Aggregate Venture
for 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets................................... $ 35,793 $ 12,160
Non-current assets............................... 19,627 23,227
-------- --------
Total assets..................................... 55,420 35,387
Current liabilities.............................. (16,735) (10,780)
Non-current liabilities.......................... (10,737) (12,215)
-------- --------
Equity......................................... $ 27,948 $ 12,392
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues............................... $ 67,498 $ 24,777 $ 15,825
Costs and expenses..................... (54,364) (23,437) (13,160)
---------- ---------- ----------
Net income........................... $ 13,134 $ 1,340 $ 2,665
========== ========== ==========
</TABLE>
The Aggregate Venture has a mortgage loan with a bank, which contains
certain restrictive covenants, including limitations on the amount of
distributions to its joint venture partners. The Company has guaranteed 50% of
the outstanding mortgage principal and accrued interest which totaled $5,850
at December 31, 1997.
In 1997, the Company paid royalties of $1,549 to the Aggregate Venture for
the right to mine sand related to performance of a contract of the Company. In
1996 and 1995, the Company provided dredging and towing services to the
Aggregate Venture and recorded revenue of $735 and $1,408, respectively, for
these services. As of December 31, 1996, $545 of the amount earned in 1996 was
included in accounts receivable.
6. ACCRUED EXPENSES
Accrued expenses are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Insurance................................................. $ 5,501 $ 4,128
Income and other taxes.................................... 5,138 467
Payroll and employee benefits............................. 2,835 2,493
Rentals................................................... -- 2,279
Other..................................................... 1,945 1,634
------- -------
$15,419 $11,001
======= =======
</TABLE>
F-23
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Bank debt:
New credit facility revolving loan.................... $57,000 $ --
Revolving loan........................................ -- 31,000
Term loan............................................. -- 20,084
Other secured debt...................................... 600 1,352
------- --------
57,600 52,436
Current maturities of long-term debt.................... (200) (13,322)
------- --------
$57,400 $ 39,114
======= ========
</TABLE>
In September 1997, the Company entered into a new revolving credit
agreement. The new credit agreement (Credit Agreement), expiring in 2002, is a
$100,000 aggregate revolving loan commitment of which $50,000 may be used for
letters of credit. At December 31, 1997, availability under the aggregate
commitment for both borrowings and letters of credit was $26,994. The terms of
the Credit Agreement provide for interest rate spreads based on the Company's
debt level compared to earnings, as defined, and allow for various interest
rate options for loan amounts and periods that are selected at the discretion
of the Company. At December 31, 1997 and 1996, the Company's average borrowing
rate was 8.0% and 8.7%, respectively, including amortization of financing
fees. The Company also pays an annual commitment fee of up to 0.5% on the
average daily unused capacity available under the credit commitment.
The Credit Agreement contains provisions that require the Company to
maintain a minimum net worth and certain other financial ratios, limit payment
of dividends and restrict certain other transactions. Borrowings under the
Credit Agreement are secured by first lien mortgages on certain operating
equipment of the Company with a net book value of approximately $34,968 at
December 31, 1997 and are guaranteed by certain subsidiaries of the Company.
No principal payments are required; however, the total commitment is reduced
by $5,333 semi-annually beginning March 24, 2001. The Company may voluntarily
reduce the amount of the commitment at any time.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Federal:
Current U.S. ................................ $ 2,372 $ 3,070 $(3,337)
Current foreign.............................. 3,112 2,268 384
Deferred..................................... (3,386) (3,396) (1,559)
State:
Current...................................... 1,146 782 145
Deferred..................................... (577) (400) 207
------- ------- -------
Income tax expense (benefit)................... $ 2,667 $ 2,324 $(4,160)
======= ======= =======
</TABLE>
F-24
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred income tax benefit is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Depreciation.................................... $(3,940) $(5,153) $ (860)
Insurance....................................... (237) 251 (641)
Pension termination............................. -- 848 --
Accrued claims.................................. -- 540 (412)
Royalties....................................... -- -- 308
Other........................................... 214 (282) 253
------- ------- -------
$(3,963) $(3,796) $(1,352)
======= ======= =======
</TABLE>
The Company's effective tax rate and the statutory U.S. federal income tax
rate are reconciled as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate................... 35.0% 35.0% 35.0%
State income tax, net of federal income tax benefit...... 4.6 4.3 1.8
Partnership gain allocated to minority interest.......... (6.0) (.6) (2.3)
Other.................................................... (0.8) 1.0 (1.5)
---- ---- ----
Effective tax rate..................................... 32.8% 39.7% 33.0%
==== ==== ====
</TABLE>
The deferred tax liabilities (assets) are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Gross deferred tax liabilities:
Depreciation.......................................... $47,435 $51,405
Other................................................. 2,509 2,610
------- -------
49,944 54,015
Gross deferred tax assets:
Accrued liabilities................................... (3,919) (4,027)
------- -------
46,025 49,988
Net current deferred tax assets (included in other
current assets)........................................ 2,297 2,073
------- -------
Net non-current deferred tax liabilities................ $48,322 $52,061
======= =======
</TABLE>
9. DISCONTINUED OPERATIONS
In April 1997, the Company completed the sale of its non-core aggregate
towing business segment. The segment was reported as discontinued operations
for 1996 and 1995. Revenues from the discontinued segment were $1,575 and
$6,927 for 1996 and 1995, respectively. In 1996 net assets of the discontinued
operation consisted primarily of property, plant and equipment.
F-25
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LEASE COMMITMENTS
The Company leases certain operating equipment and office facilities under
long-term operating leases expiring at various dates through 2009. The leases
contain renewal or purchase options which specify prices at the then fair
market value upon the expiration of the equipment leases. Future minimum lease
payments for the years ending December 31 are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 6,115
1999............................................................ 5,967
2000............................................................ 5,931
2001............................................................ 5,882
2002............................................................ 5,819
Thereafter...................................................... 26,605
-------
Total minimum lease payments.................................. $56,319
=======
</TABLE>
Total rent expense for the years ended December 31, 1997, 1996, and 1995 was
$16,457, $19,926 and $12,979, respectively.
11. RETIREMENT PLANS
The Company sponsors a 401(k) savings plan (Plan) covering substantially all
non-union employees. Under the Plan, individual employees may contribute a
percentage of compensation and the Company will match a portion of the
employees' contributions. Effective October 1, 1996, the Company amended the
Plan to add a profit-sharing component, permitting the Company to make
discretionary employer contributions to all eligible employees of the Plan.
The Company's expense for matching and discretionary contributions was $1,732,
$716, and $562 for 1997, 1996 and 1995, respectively.
The Company sponsored a non-contributory defined pension plan (Pension Plan)
covering substantially all non-union employees. The Pension Plan provided
pension benefits upon retirement, based on compensation and years of service
as defined in the plan. The Company's policy was to fund the Pension Plan as
required by ERISA.
During 1996, the Company terminated the Pension Plan. The Pension Plan's
liabilities were settled in December 1996 through a combination of lump sum
payouts and rollovers, and a group annuity contract. The Company recognized a
$2,440 curtailment gain and a $752 settlement loss on the termination of the
Pension Plan. The components of net pension expense for the years ended
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Service cost............................................. $ 488 $ 516
Interest on projected benefit obligation................. 541 541
Actual return on plan assets............................. (654) (1,142)
Net deferral and amortization............................ 57 600
Curtailment gain net of settlement loss.................. (1,688) --
------- -------
$(1,256) $ 515
======= =======
</TABLE>
F-26
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Actuarial assumptions used in accounting for the pension plan for 1996 and
1995 were as follows:
<TABLE>
<S> <C>
Discount rate...................................................... 7.00%
Long term rate of return on assets................................. 9.50
Rate of increase in compensation levels............................ 6.20
</TABLE>
The Company also contributes to various multi-employer pension plans
pursuant to collective bargaining agreements. In the event of a plan's
termination or Company withdrawal from a plan, the Company may be liable for a
portion of the plan's unfunded vested benefits. As of December 31, 1997,
unfunded amounts, if any, are not significant. Contributions to multi-employer
pension plans for the years ended December 31, 1997, 1996 and 1995 were
$2,173, $2,593 and $2,252, respectively.
12. STOCK PLANS
The Equity Incentive Plan of Great Lakes Dredge & Dock Corporation (the
Plan) provides for the grant of options and other stock-based awards to
management personnel designated by the Compensation Committee. Awards up to an
aggregate of 5.0% of authorized shares of common stock may be granted under
the Plan. On January 1, 1992, options were granted on 3.7% of authorized
shares of common stock at an exercise price of $600,000 per share representing
the estimated fair market value of the shares on the grant date (as defined in
the Agreement). Options become exercisable for 20% of the granted option
shares on each of the first five anniversaries of the grant date and remain
exercisable until the tenth anniversary. New options were granted during 1996
equal in number to those options forfeited in 1996 and with vesting provisions
as if such options had been granted on January 1, 1992. All options granted
are fully vested and outstanding as of December 31, 1997.
The Company uses Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its employee stock options.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) requires disclosures of the effect to net
income as if SFAS No. 123 had been adopted. The effects of applying SFAS No.
123 are not material to the Company's financial statements.
The Great Lakes Dredge & Dock Corporation Employee Stock Purchase Plan (the
Stock Plan) provides eligible employees with an option to purchase shares of
common stock at a discount to market price. The Stock Plan is considered non-
compensatory and is intended to qualify under Section 423 of the Internal
Revenue Code. An aggregate of 0.4% of authorized shares of common stock may be
granted pursuant to the Stock Plan. The Compensation Committee may grant
options at such times as it, in its discretion, determines but must grant them
to all eligible employees. As of December 31, 1997, no options have been
granted.
13. MAJOR CUSTOMERS
In 1997, 1996 and 1995, contract revenues earned from contracts with federal
government agencies were 47.4%, 35.8% and 30.2%, respectively. In 1997, 1996
and 1995, contract revenues earned from a contract with a state port authority
were 10.1%, 11.8% and 13.6%, respectively. An additional 9.5%, 10.9% and 15%,
were earned from contracts with a foreign government in 1997, 1996 and 1995,
respectively.
F-27
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. FOREIGN OPERATIONS
The Company derived revenues and gross profit from foreign project
operations, for the years ended December 31, as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Contract revenues............................ $ 55,919 $ 58,166 $ 53,910
Costs of contract revenues................... (48,695) (49,324) (48,866)
-------- -------- --------
Gross profit................................. $ 7,224 $ 8,842 $ 5,044
======== ======== ========
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1997 and 1996, the Company was contingently liable, in the
normal course of business, for $1,237 and $1,500, respectively, in letters of
credit related to contract performance guarantees.
In 1992, an underwater utility tunnel failed adjacent to a construction site
completed by Great Lakes Dredge & Dock Company (GLDD), a wholly owned
subsidiary of GLD Corporation. The failure resulted in a flooding of the
tunnel and building basements serviced by the tunnel. Numerous suits were
filed against GLDD for claims of flood damage to building basements and losses
due to business interruption. During 1997, all outstanding claims were settled
related to the flood litigation. Settlement payments totaling $11,000 were
advanced by the Company. Management believes all such advances will be fully
recovered through insurance proceeds in 1998.
In the normal course of business, the Company is a defendant in various
other legal proceedings. Resolution of these claims is not expected to have a
material impact on the financial position or operations of the Company.
As is customary with negotiated contracts with the federal government, the
government has the right to audit the books and records of the Company to
ensure compliance with such contracts and applicable federal laws. The
government has the ability to seek a price adjustment based on the results of
such audit. Any such audits are not expected to have a material impact on the
financial position or operations of the Company.
16. SUBSEQUENT EVENTS--UNAUDITED
A recapitalization of the Company was effected on August 19, 1998 whereby
(i) management exercised vested options representing 7% of the Company's then
outstanding common stock, (ii) newly issued common stock and preferred stock
was sold to Vectura Holding Company, LLC (Vectura) and certain members of
management, (iii) the common stock formerly held by Blackstone Dredging
Partners L.P. and Blackstone Family Investment Partnership I L.P. (Blackstone)
was redeemed, and (iv) a portion of the common stock held by management was
purchased directly by Vectura. The redemption of the common stock formerly
held by Blackstone was financed using a portion of the proceeds from $115,000
of senior subordinated debt, a $110,000 new bank credit facility and the
issuance of preferred stock for $34,420 and common stock for $3,552 received
by Vectura and certain members of management. As a result of the
recapitalization, certain members of the Company management own approximately
16% of the outstanding common stock and Vectura owns approximately 84%.
17. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The payment obligations of the Company under the proposed senior
subordinated note offering described above are to be guaranteed by the
Company's wholly-owned domestic subsidiaries ("Subsidiary Guarantors"). Such
guarantees are full, unconditional and joint and several. Separate financial
statements of the Subsidiary Guarantors are not presented because the
Company's management has determined that they would not be material to
investors. The following supplemental financial information sets forth, on a
combined basis, balance sheets, statements of income and statements of cash
flows for the Subsidiary Guarantors, the Company's non-guarantor subsidiaries
and for the Company.
F-28
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents... $ 1,285 $ 432 $ -- $ -- $ 1,717
Accounts receivable.... 37,167 3,132 -- -- 40,299
Receivables from
affiliates............ 18,716 9,713 -- (28,429) --
Current portion of net
investment in direct
financing leases...... 2,938 4,121 -- (7,059) --
Contract revenues in
excess of billings.... 14,623 885 -- -- 15,508
Inventories............ 7,016 2,179 -- -- 9,195
Settlement advance..... 11,000 -- -- -- 11,000
Prepaid expenses and
other current assets.. 13,259 178 -- -- 13,437
-------- ------- ------- --------- --------
Total current assets... 106,004 20,640 -- (35,488) 91,156
Property and equipment,
net.................... 122,142 16,574 -- -- 138,716
Net investment in direct
financing leases....... 8,994 13,596 -- (22,590) --
Investments in
subsidiaries........... 155,015 -- 78,156 (233,171) --
Notes receivable from
affiliates............. 26,717 1,893 -- (28,610) --
Inventories............. 6,326 -- -- -- 6,326
Investments in joint
ventures............... 7,569 -- -- -- 7,569
Other................... 1,788 -- -- -- 1,788
-------- ------- ------- --------- --------
$434,555 $52,703 $78,156 $(319,859) $245,555
======== ======= ======= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 26,852 $ 4,106 $ -- $ 43 $ 31,001
Payables to affiliates. 26,058 2,371 -- (28,429) --
Accrued expenses and
other................. 16,249 2,144 -- -- 18,393
Current portion of
obligations under
capital leases........ -- 7,059 -- (7,059) --
Current maturities of
long-term debt........ 200 -- -- -- 200
-------- ------- ------- --------- --------
Total current
liabilities........... 69,359 15,680 -- (35,445) 49,594
Long-term debt.......... 57,400 -- -- -- 57,400
Obligations under
capital leases......... -- 22,590 -- (22,590) --
Note payable to
affiliates............. 28,610 -- -- (28,610) --
Deferred income taxes... 45,299 3,023 -- -- 48,322
Other................... 10,159 68 -- -- 10,227
-------- ------- ------- --------- --------
Total liabilities...... 210,827 41,361 -- (86,645) 165,543
Minority interests...... 2,024 -- -- (168) 1,856
Stockholders' equity.... 221,704 11,342 78,156 (233,046) 78,156
-------- ------- ------- --------- --------
$434,555 $52,703 $78,156 $(319,859) $245,555
======== ======= ======= ========= ========
</TABLE>
F-29
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
ASSETS ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and equivalents... $ 570 $ 1,317 $ -- $ -- $ 1,887
Accounts receivable.... 25,720 2,337 -- -- 28,057
Receivables from
affiliates............ 19,308 12,659 -- (31,967) --
Current portion of net
investment in direct
financing leases...... 2,673 3,570 -- (6,243) --
Contract revenues in
excess of billings.... 8,894 2,358 -- -- 11,252
Inventories............ 8,307 1,603 -- -- 9,910
Prepaid expenses....... 2,875 -- -- -- 2,875
Deposit................ 2,500 -- -- -- 2,500
Net assets of
discontinued
operations............ 1,929 -- -- -- 1,929
Other current assets... 8,111 272 -- -- 8,383
-------- ------- ------- --------- --------
Total current assets... 80,887 24,116 -- (38,210) 66,793
Property and equipment,
net.................... 126,467 16,499 -- -- 142,966
Net investment in direct
financing leases....... 11,932 17,717 -- (29,649) --
Investment in
subsidiaries........... 160,420 -- 74,354 (234,774) --
Notes receivable from
affiliates............. 41,792 2,582 -- (44,374) --
Inventories............. 6,875 -- -- -- 6,875
Investments in joint
ventures............... 4,807 -- -- -- 4,807
Other................... 617 -- -- -- 617
-------- ------- ------- --------- --------
$433,797 $60,914 $74,354 $(347,007) $222,058
======== ======= ======= ========= ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Accounts payable....... $16,741 $ 3,384 $ -- $ (21) $ 20,104
Payables to affiliates. 28,805 2,462 -- (31,267)
Accrued expenses....... 9,456 1,545 -- -- 11,001
Billings in excess of
contract revenues..... 326 -- -- -- 326
Current portion of
obligations under
capital leases........ -- 6,243 -- (6,243) --
Current maturities of
long-term debt........ 13,322 -- -- -- 13,322
-------- ------- ------- --------- --------
Total current
liabilities........... 68,650 13,634 -- (37,531) 44,753
Long-term debt.......... 39,114 -- -- -- 39,114
Obligations under
capital leases......... 41,792 29,649 -- (71,441) --
Note payable to
affiliate.............. 2,582 (2,582)
Deferred income taxes... 48,682 3,379 -- -- 52,061
Other................... 8,505 57 -- -- 8,562
-------- ------- ------- --------- --------
Total liabilities...... 209,325 46,719 -- (111,554) 144,490
Minority interests...... 3,321 -- -- (107) 3,214
Stockholders' equity
Total stockholders'
equity................ 221,151 14,195 74,354 (235,346) 74,354
-------- ------- ------- --------- --------
$433,797 $60,914 $74,354 $(347,007) $222,058
======== ======= ======= ========= ========
</TABLE>
F-30
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1997
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....... $ 216,388 $ 53,504 $ -- $(11,596) $ 258,296
Costs of contract
revenues............... (198,428) (41,551) -- (11,596) (228,383)
--------- -------- ------ -------- ---------
Gross profit.......... 17,960 11,953 -- -- 29,913
General and
administrative
expenses............... (15,059) (3,863) -- -- (18,922)
--------- -------- ------ -------- ---------
Operating income...... 2,901 8,090 -- -- 10,991
Interest, net........... (6,135) 148 -- -- (5,987)
Equity in earnings of
subsidiaries........... 3,802 (3,802)
Equity in earnings of
joint ventures......... 3,132 -- -- -- 3,132
--------- -------- ------ -------- ---------
Income (loss) before
income taxes,
minority interests
and discontinued
operations........... (102) 8,238 3,802 (3,802) 8,136
Income tax expense...... (1,577) (1,090) -- -- (2,667)
Minority interests...... (1,667) -- -- (1,667)
--------- -------- ------ -------- ---------
Net income (loss)... $ (3,346) $ 7,148 $3,802 $ (3,802) $ 3,802
========= ======== ====== ======== =========
</TABLE>
F-31
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1996
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....... $202,864 $44,720 $ -- $(11,713) $235,871
Costs of contract
revenues............... (182,625) (37,805) -- (11,713) (208,717)
-------- ------- ------ -------- --------
Gross profit.......... 20,239 6,915 -- -- 27,154
General and
administrative
expenses............... (13,093) (3,298) -- -- (16,391)
-------- ------- ------ -------- --------
Operating income...... 7,146 3,617 -- -- 10,763
Interest, net........... (5,773) (271) -- -- (6,044)
Equity in earnings of
subsidiaries........... 2,006 (2,006)
Equity in earnings of
joint ventures......... 1,139 -- -- -- 1,139
-------- ------- ------ -------- --------
Income before income
taxes, minority
interests and
discontinued
operations......... 2,512 3,346 2,006 (2,006) 5,858
Income tax expense...... (1,213) (1,111) -- -- (2,324)
Minority interests...... (419) -- -- (419)
-------- ------- ------ -------- --------
Income from
continuing
operations......... 880 2,235 2,006 (2,006) 3,115
Discontinued operations
Loss from operations,
net of tax benefit of
$695................. (1,044) -- -- -- (1,044)
Loss on disposal, net
of tax benefit of
$44.................. (65) -- -- -- (65)
-------- ------- ------ -------- --------
Net income (loss)... $ (229) $ 2,235 $2,006 $ (2,006) $ 2,006
======== ======= ====== ======== ========
</TABLE>
F-32
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTAL
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....... $ 197,467 $ 38,193 $ -- $(8,795) $ 226,865
Costs of contract
revenues............... (196,994) (28,878) -- (8,795) (217,077)
--------- -------- ------- ------- ---------
Gross profit.......... 473 9,315 -- -- 9,788
General & administrative
expenses............... (13,100) (2,770) -- -- (15,870)
--------- -------- ------- ------- ---------
Operating income
(loss)............... (12,627) 6,545 -- -- (6,082)
Other income (expense):
Interest, net......... (7,447) (415) -- -- (7,862)
Equity in earnings of
subsidiaries......... (9,984) 9,984
Equity in earnings of
joint ventures....... 1,333 -- -- -- 1,333
--------- -------- ------- ------- ---------
Income (loss) before
income taxes,
minority interests
and discontinued
operations......... (18,741) 6,130 (9,984) 9,984 (12,611)
Income tax benefit
(expense).............. 5,235 (1,075) -- -- 4,160
Minority interests...... (1,204) -- -- (1,204)
--------- -------- ------- ------- ---------
Income (loss) from
continuing
operations......... (14,710) 5,055 (9,984) 9,984 (9,655)
Discontinued operations:
Loss from operations,
net of tax benefit of
$163................. (329) -- -- -- (329)
--------- -------- ------- ------- ---------
Net income (loss)... $ (15,039) $ 5,055 $(9,984) $ 9,984 $ (9,984)
========= ======== ======= ======= =========
</TABLE>
F-33
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (3,345) $ 7,147 $3,802 $(3,802) $ 3,802
Adjustments to reconcile
net income to net cash
flows from operation
activities:
Depreciation........... 9,899 3,716 -- -- 13,615
Earnings of
subsidiaries and joint
ventures.............. (3,132) -- (3,802) 3,802 (3,132)
Minority interests..... 6,317 (4,650) -- -- 1,667
Deferred income taxes.. (3,608) (355) -- -- (3,963)
Gain on dispositions of
property and
equipment............. (3,308) -- -- -- (3,308)
Foreign income taxes... 2,696 -- -- -- 2,696
Other, net............. (238) -- -- -- (238)
Changes in net assets
and liabilities:
Accounts receivable... (13,711) 1,469 -- -- (12,242)
Contract revenues in
excess of billings... (5,729) 1,473 -- -- (4,256)
Inventories........... 1,264 -- -- -- 1,264
Prepaid expenses and
other current
assets............... 232 (482) -- -- (250)
Accounts payable and
accrued expenses..... 13,251 2,064 -- -- 15,315
Billings in excess of
contract revenues.... 2,772 (124) 2,648
-------- ------- ------ ------- --------
Net cash flows from
operating activities.. 3,360 10,258 -- -- 13,618
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (7,703) (3,791) -- -- (11,494)
Proceeds from
dispositions of
property and equipment. 5,437 -- -- -- 5,437
Distributions from joint
venture................ 1,000 -- -- -- 1,000
Investments in joint
venture................ (630) -- -- -- (630)
Distributions to
minority interests..... -- (3,025) -- -- (3,025)
Deposit................. 2,500 -- -- -- 2,500
Principal payments
received on direct
financing leases....... (3,570) 3,570 -- -- --
Payments received on
notes receivable from
affiliate.............. (1,371) 1,371 -- -- --
-------- ------- ------ ------- --------
Net cash flows from
investing activities.. (4,337) (1,875) -- -- (6,212)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 102,500 -- -- -- 102,500
Repayments of long-term
debt................... (97,336) -- -- -- (97,336)
Principal payments on
capital leases......... 6,243 (6,243) -- -- --
Financing fees.......... (1,740) -- -- -- (1,740)
Settlement advance...... (11,000) -- -- -- (11,000)
-------- ------- ------ ------- --------
Net cash flows from
financing activities.. (1,333) (6,243) -- -- (7,576)
-------- ------- ------ ------- --------
Net increase (decrease)
in cash and
equivalents............ (2,310) 2,140 (170)
Cash and equivalents at
beginning of period.... 570 1,317 -- -- 1,887
-------- ------- ------ ------- --------
Cash and equivalents at
end of period.......... $ (1,740) $ 3,457 $ -- $ -- $ 1,717
======== ======= ====== ======= ========
</TABLE>
F-34
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (229) $2,235 $ 2,006 $(2,006) $ 2,006
Adjustments to reconcile
net income to net cash
flows from operating
activities:
Depreciation........... 10,191 3,690 -- -- 13,881
Earnings of
subsidiaries and joint
ventures.............. (1,139) -- (2,006) 2,006 (1,139)
Minority interests..... 3,219 (2,800) -- -- 419
Deferred income taxes.. (3,461) (335) -- -- (3,796)
Gain on dispositions of
property and
equipment............. (467) -- -- -- (467)
Foreign income taxes... 2,382 -- -- -- 2,382
Pension curtailment and
settlement............ (1,688) -- -- -- (1,688)
Other, net............. 217 -- -- -- 217
Changes in assets and
liabilities:
Accounts receivable... 20,956 (11) -- -- 20,945
Contract revenues in
excess of billings... 3,033 61 -- -- 3,094
Inventories........... 3,915 -- -- -- 3,915
Prepaid expenses and
other current assets. (281) (121) -- -- (402)
Income tax receivable. 3,509 -- -- -- 3,509
Accounts payable and
accrued expenses..... (17,074) 1,193 -- -- (15,881)
Billings in excess of
contract revenues.... (2,445) 124 -- -- (2,321)
------- ------ ------- ------- -------
Net cash flows from
operating activities.. 20,638 4,036 -- -- 24,674
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (4,023) (1,388) -- -- (5,411)
Dispositions of property
and equipment.......... 7,820 -- -- -- 7,820
Distributions from joint
venture................ 750 -- -- -- 750
Investments in joint
venture................ (755) -- -- -- (755)
Distribution to minority
interests.............. -- (700) -- -- (700)
Deposit................. (2,500) -- -- -- (2,500)
Principal payments
received on direct
financing leases....... (3,100) 3,100 -- -- --
Payments received on
notes receivable from
affiliate.............. (1,371) 1,371 -- -- --
------- ------ ------- ------- -------
Net cash flows from
investing activities.. (3,179) 2,383 -- -- (796)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 27,051 -- -- -- 27,051
Repayments of long-term
debt................... (51,368) -- -- -- (51,368)
Principal payments on
capital leases......... 5,533 (5,533) -- -- --
------- ------ ------- ------- -------
Net cash flows from
financing activities.. (18,784) (5,533) -- -- (24,317)
------- ------ ------- ------- -------
Net increase (decrease)
in cash and
equivalents............ (1,325) 886 -- -- (439)
Cash and equivalents at
beginning of period.... 1,895 431 -- -- 2,326
------- ------ ------- ------- -------
Cash and equivalents at
end of period.......... $ 570 $1,317 $(2,006) $2,006 $ 1,887
======= ====== ======= ======= =======
</TABLE>
F-35
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $(15,039) $ 5,055 $(9,984) $ 9,984 $ (9,984)
Adjustments to reconcile
net income to net cash
flows from operating
activities:
Depreciation........... 11,195 3,505 -- -- 14,700
Earnings of
subsidiaries and joint
ventures.............. (1,333) -- 9,984 (9,984) (1,333)
Minority interests..... 1,204 -- -- 1,204
Deferred income taxes.. (1,757) 405 -- -- (1,352)
Gain on dispositions of
property and
equipment............. (1,496) -- -- -- (1,496)
Other, net............. 6 -- -- -- 6
Changes in assets and
liabilities: -- -- --
Accounts receivable... 10,508 (5,465) -- -- 5,043
Contract revenues in
excess of billings... 4,585 (1,113) -- -- 3,472
Inventories........... (3,714) -- -- -- (3,714)
Prepaid expenses and
other current assets. 1,357 753 -- -- 2,110
Income tax receivable. (3,509) -- -- -- (3,509)
Accounts payable and
accrued expenses..... (8,757) 257 -- -- (8,500)
Billings in excess of
contract revenues.... (320) (76) -- (396)
-------- -------- ------- ------- --------
Net cash flows from
operating activities.. (7,070) 3,321 (3,749)
INVESTING ACTIVITIES
Purchases of property
and equipment......... (10,283) (1,190) -- -- (11,473)
Dispositions of
property and
equipment............. 2,664 -- -- -- 2,664
Distributions from
joint venture......... 5,500 -- -- -- 5,500
Distribution to
minority interests.... -- (640) -- -- (640)
Principal payments
received on direct
financing leases...... (2,740) 2,740 -- -- --
Payments received on
notes receivable from
affiliate............. (1,371) 1,371 -- -- --
-------- -------- ------- ------- --------
Net cash flows from
investing activities.. (6,230) 2,281 -- -- (3,949)
FINANCING ACTIVITIES
Proceeds from long-term
debt.................. 52,700 -- -- -- 52,700
Repayments of long-term
debt.................. (46,220) -- -- -- (46,220)
Principal payments on
capital leases........ 4,953 (4,953) -- -- --
Dividends paid......... 3,440 (3,440) -- -- --
-------- -------- ------- ------- --------
Net cash flows from
financing activities.. 14,873 (8,393) -- -- 6,480
-------- -------- ------- ------- --------
Net increase (decrease)
in cash and
equivalents............ 1,573 (2,791) -- -- (1,218)
Cash and equivalents at
beginning of period.... 322 3,222 -- -- 3,544
-------- -------- ------- ------- --------
Cash and equivalents at
end of period.......... $ 1,895 $ 431 $ 9,984 $(9,984) $ 2,326
======== ======== ======= ======= ========
</TABLE>
F-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners Amboy Aggregates
We have audited the accompanying balance sheets of AMBOY AGGREGATES (A JOINT
VENTURE) as of December 31, 1997 and 1996, and the related statements of
income and partners' capital and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 Amboy Aggregates (A Joint
Venture) as of December 31, 1997 and 1996, and its results of operations and
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
J.H. COHN LLP
Roseland, New Jersey
January 23, 1998
F-37
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,830,997 $ 914,810
Accounts receivable, net of allowance for doubtful
accounts of $100,147 and $192,401................... 6,319,106 3,749,758
Inventory............................................ 1,142,696 1,633,236
Prepaid expenses and other current assets............ 167,108 273,164
Due from general partners............................ 136,969
----------- -----------
Total current assets............................... 9,596,876 6,570,968
Property, plant and equipment, net of accumulated
depreciation........................................ 13,756,075 15,454,986
Deferred charges..................................... 59,995 70,280
Permits.............................................. 1,408,653 1,388,031
----------- -----------
Totals............................................. $24,821,599 $23,484,265
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt.................... $ 1,714,113 $ 1,635,024
Accounts payable..................................... 849,877 665,985
Accrued expenses and other current liabilities....... 552,943 319,451
Due general partners................................. 545,469
----------- -----------
Total current liabilities.......................... 3,116,933 3,165,929
Long-term debt, noncurrent portion..................... 9,985,353 11,666,812
Deferred compensation.................................. 751,431 548,138
----------- -----------
Total liabilities.................................. 13,853,717 15,380,879
Commitments and contingency
Partners' capital...................................... 10,967,882 8,103,386
----------- -----------
Totals............................................. $24,821,599 $23,484,265
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-38
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
STATEMENTS OF INCOME AND PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
INCOME
Revenue:
Net sales............................. $21,418,691 $17,507,797 $ 15,707,172
Royalties............................. 799,356 67,702
Interest.............................. 46,879 26,144 50,417
----------- ----------- ------------
Totals.............................. 22,264,926 17,533,941 15,825,291
----------- ----------- ------------
Costs and expenses:
Cost of sales......................... 14,442,219 12,457,297 10,891,600
Selling............................... 231,474 329,290 307,957
General and administrative............ 1,746,253 1,363,867 1,298,124
Interest.............................. 980,484 1,105,298 662,244
----------- ----------- ------------
Totals.............................. 17,400,430 15,255,752 13,159,925
----------- ----------- ------------
Net income.............................. 4,864,496 2,278,189 2,665,366
PARTNERS' CAPITAL
Balance, beginning of year.............. 8,103,386 7,325,197 15,659,831
Distributions........................... (2,000,000) (1,500,000) (11,000,000)
----------- ----------- ------------
Balance, end of year.................... $10,967,882 $ 8,103,386 $ 7,325,197
=========== =========== ============
</TABLE>
See Notes to Financial Statements.
F-39
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................ $ 4,864,496 $ 2,278,189 $ 2,665,366
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 2,265,295 2,119,526 2,105,152
Provision for doubtful accounts..... 120,000 120,000 60,000
Changes in operating assets and
liabilities:
Accounts receivable............... (2,689,348) (1,600,753) 698,451
Inventory......................... 490,540 (356,058) (533,780)
Prepaid expenses and other current
assets........................... 106,056 130,079 (89,042)
Accounts payable.................. 183,892 342,685 (427,156)
Accrued expenses and other
liabilities...................... 436,785 (6,328) (926,809)
Due general partners.............. (682,438) 545,469
----------- ----------- ------------
Net cash provided by operating
activities......................... 5,095,278 3,572,809 3,552,182
----------- ----------- ------------
INVESTING ACTIVITIES:
Capital expenditures.................. (556,099) (480,915) (1,568,823)
Increase in other assets.............. (20,622) (66,097) (99,757)
----------- ----------- ------------
Net cash used in investing
activities......................... (576,721) (547,012) (1,668,580)
----------- ----------- ------------
FINANCING ACTIVITIES:
Deferred charges...................... (19,721)
Proceeds of long-term debt............ 9,628,944
Payments of long-term debt............ (1,602,370) (1,500,818) (1,496,335)
Distributions......................... (2,000,000) (1,500,000) (12,800,000)
----------- ----------- ------------
Net cash used in financing activi-
ties............................... (3,602,370) (3,000,818) (4,687,112)
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents..................... 916,187 24,979 (2,803,510)
Cash and cash equivalents, beginning
of year.............................. 914,810 889,831 3,693,341
----------- ----------- ------------
Cash and cash equivalents, end of
year................................. $ 1,830,997 $ 914,810 $ 889,831
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
DATA:
Interest paid......................... $ 980,484 $ 1,105,298 $ 662,244
=========== =========== ============
</TABLE>
See Notes to Financial Statements.
F-40
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS:
Amboy Aggregates (the "Partnership") was established on January 1, 1989 as
an equal joint venture between Great Lakes Dredge and Dock Company and Ralph
Clayton and Sons Materials, L.P.
The Partnership's principal business activity is to dredge, process,
transport and sell fine aggregate in the New York Metropolitan area.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
CASH EQUIVALENTS:
The Partnership considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Partnership places its cash and cash equivalents
with high credit quality financial institutions. At times, such amounts exceed
Federally insured limits.
The Partnership generally extends credit to its customers, a significant
portion of which are in the construction industry. During 1997, 1996 and 1995,
approximately 50%, 47% and 64%, respectively, of the Partnership's net sales
were derived from major customers who accounted for approximately $4,441,000
and $1,762,000 of the accounts receivable balance at December 31, 1997 and
1996, respectively.
However, the Partnership closely monitors the extension of credit to its
customers while maintaining allowances for potential credit losses. Management
does not believe that significant credit risk exists at December 31, 1997.
The Partnership is currently negotiating a joint venture agreement with a
certain customer in which both parties will own a 50% interest in a newly-
formed limited liability company. It is currently anticipated that the Company
will contribute approximately $1,500,000 of its accounts receivable from this
customer to the newly-formed entity as a capital contribution, and the
customer will contribute equipment and other assets of approximate equal
value.
INVENTORY:
Inventory is stated at the lower of cost, determined using the first-in,
first-out (FIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the respective assets.
F-41
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DEFERRED CHARGES:
Costs incurred in connection with obtaining financing are amortized and
charged to interest expense over the term of the related loan using the
straight-line method which approximates the interest method.
OTHER ASSETS:
Costs incurred in connection with obtaining permits to dredge the
Partnership's products are amortized on the straight-line basis over the term
of the related permits.
ADVERTISING:
The Company expenses the cost of advertising and promotion as incurred.
Advertising costs charged to operations were not material during 1997, 1996
and 1995.
INCOME TAXES:
Income or loss of the Partnership is includible in the income tax returns of
the partners in proportion to their respective interests. Accordingly, there
is no provision for income taxes in the accompanying financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which could require the Company to make additional disclosures in its
financial statements no later than for the year ending December 31, 1998. SFAS
130 defines comprehensive income, which includes items in addition to those
reported in the statement of operations, and requires disclosures about its
components. Management believes that the adoption of SFAS 130 will not require
the Company to make any additional disclosures. SFAS 131 requires disclosures
for each segment of a business and the determination of segments based on its
internal management structure. Management is in the process of evaluating
whether SFAS 131 will require the Company to make any additional disclosures.
NOTE 3--INVENTORY:
Inventory consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials........................................ $ 654,845 $ 775,292
Finished goods....................................... 442,024 810,958
Supplies............................................. 45,827 46,986
---------- ----------
Totals............................................. $1,142,696 $1,633,236
========== ==========
</TABLE>
F-42
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
RANGE OF
ESTIMATED
USEFUL LIVES
(YEARS) 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Land................................. $ 677,408 $ 677,408
Plant and equipment.................. 3 to 15 6,616,018 6,245,360
Delivery equipment (Scows)........... 10 to 20 7,781,647 7,697,412
Dredging system...................... 15 to 20 13,828,348 13,796,684
Office equipment and trailers........ 10 222,170 214,294
Automobiles and trucks............... 3 to 5 141,098 113,755
----------- -----------
29,266,689 28,744,913
Less accumulated depreciation........ 15,510,614 13,289,927
----------- -----------
Totals............................. $13,756,075 $15,454,986
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $2,255,010, $2,109,241 and $1,961,074, respectively.
NOTE 5--ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Compensation............................................. $510,339 $165,452
Union health and welfare................................. 41,808 38,987
Insurance................................................ 71,903
Sundry................................................... 796 43,109
-------- --------
Totals................................................. $552,943 $319,451
======== ========
</TABLE>
NOTE 6--LONG-TERM DEBT:
At December 31, 1997 and 1996, long-term debt consists of borrowings under a
$15,000,000 variable rate term loan agreement which is payable in monthly
installments through October 2003 with interest at the lower of either the
bank's base rate minus 1/2% or the 30/90 day LIBOR rate plus 180 basis points.
The loan, which is secured by all of the Partnership's machinery and
equipment with a net book value of approximately $13,100,000 at December 31,
1997, also includes a negative pledge of the Partnership's real estate
prohibiting its use as collateral for any other debt. In addition, the loan is
guaranteed by the individual shareholders and/or partners of the general
partners of the Partnership. The loan agreement also contains various
covenants, including requirements for maintaining certain financial ratios and
places restrictions on capital expenditures and the amount of partners'
distributions.
Principal payment requirements in each of the five years subsequent to
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1998........................................................... $1,714,113
1999........................................................... 1,850,974
2000........................................................... 1,998,762
2001........................................................... 2,158,350
2002........................................................... 2,330,681
</TABLE>
F-43
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Partnership also has available a $2,000,000 revolving credit facility,
borrowings under which are secured by the Partnership's accounts receivable
and inventory and bear interest at either the bank's base rate on the 60/90
day LIBOR rate plus 140 basis points. There is a stand-by fee of 1/2% per year
on the unused portion of the revolving credit facility. The Partnership had no
amounts outstanding under the revolving credit facility at December 31, 1997
and 1996.
NOTE 7--RETIREMENT PLANS:
PENSION PLAN:
Employees covered by a union agreement are included in a multi-employer
pension plan to which the Partnership makes contributions in accordance with
the contractual union agreement. The Partnership made contributions of
$223,792, $191,170 and $183,767 during the years ended December 31, 1997, 1996
and 1995, respectively. Plan benefit and net asset data for the multi-employer
pension plan for union employees are not available.
401(K) PLAN:
The Partnership maintains a retirement plan qualifying under Section 401(k)
of the Internal Revenue Code which allows eligible employees to defer a
portion of their income through contributions to the plan. Under the
provisions of the plan, the Partnership makes contributions for the benefit of
the employees, subject to certain limitations. The Partnership's contributions
for the years ended December 31, 1997, 1996 and 1995 were $44,361, $20,015 and
$18,015, respectively.
NOTE 8--COMMITMENTS AND CONTINGENCY:
LICENSE AGREEMENT:
The Partnership has a license agreement with the State of New Jersey which
enables the Partnership to dredge in the Ambrose Channel for commercial fill.
Under this agreement, the State of New Jersey receives a royalty fee based on
the amount of material dredged of $.35 ($.40 beginning August 1, 1997) per
cubic yard. Royalties charged to operations during the years ended December
31, 1997, 1996 and 1995 amounted to $799,697, $667,780 and $695,233,
respectively.
LITIGATION:
In the ordinary course of business, the Partnership is a defendant in
various legal proceedings. In the opinion of management, resolution of these
claims is not expected to have a material adverse impact on the financial
position or results of operations of the Partnership.
NOTE 9--RELATED PARTY TRANSACTIONS:
During 1997, one of the general partners dredged fill material from the
Ambrose Channel under the Partnership's license agreement with the State of
New Jersey. As a result, the general partner reimbursed the Partnership for
the royalty fee of $774,326 which was paid to the State of New Jersey and, in
addition, paid the Partnership a royalty fee of $774,326.
The Partnership had a towage agreement, which expired in 1996, with a
general partner whereby the Partnership was required to pay the general
partner $2.35 in 1996 and $2.20 in 1995 per delivered cubic yard for towing
service. During 1996 and 1995, the Partnership incurred towage expenses of
approximately $190,000 and $1,248,000, respectively.
F-44
<PAGE>
AMBOY AGGREGATES (A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In addition, during 1996 and 1995, Partnership purchased approximately
$545,000 and $160,000, respectively, of dredging services from a general
partner.
The amounts due from/to general partners at December 31, 1997 and 1996 arose
from the aforementioned transactions.
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's material financial instruments at December 31, 1997 and 1996
for which disclosure of estimated fair value is required by certain accounting
standards consisted of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt. In the opinion of management, (i) cash and cash
equivalents, accounts receivable and accounts payable were carried at values
that approximated their fair values because of their liquidity and/or their
short-term maturities and (ii) long-term debt was carried at values that
approximated its face value because it bears interest at rates equivalent to
those currently prevailing for financial instruments with similar
characteristics.
* * *
F-45
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS OFFER-
ING MEMORANDUM, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER OR THE INITIAL PUR-
CHASER. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SO-
LICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS OFFERING MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE IS-
SUER SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................................................... i
Summary................................................................... 1
Risk Factors.............................................................. 10
The Transaction........................................................... 18
Use of Proceeds........................................................... 20
Capitalization............................................................ 21
Unaudited Pro Forma Condensed Consolidated Financial Statements........... 22
Selected Financial and Other Data......................................... 26
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 28
The Exchange Offer........................................................ 39
Business.................................................................. 46
Management................................................................ 58
Ownership of Capital Stock................................................ 61
Description of Capital Stock.............................................. 61
Description of the New Credit Facility.................................... 64
Description of New Bonding Agreement...................................... 66
Description of Notes...................................................... 67
Certain Federal Income Tax Consequences................................... 98
Plan of Distribution...................................................... 99
Legal Matters............................................................. 100
Experts................................................................... 100
Index to Consolidated Financial Statements................................ F-1
</TABLE>
Until May 6, 1999 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Notes, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$115,000,000
[LOGO OF GREAT LAKES DREDGE AND DOCK CORPORATION APPEARS HERE]
GREAT LAKES DREDGE
& DOCK CORPORATION
SERIES B 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008
---------------------------------
PROSPECTUS
---------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Restated Certificate of Incorporation provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the Company's Bylaws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Section 145 of the DGCL provides that a corporation may indemnify any persons,
including officers and directors, who were or are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person was an officer, director, employee or agent of such
corporation or is or was serving at the request of such corporation as an
officer, director, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, for criminal proceedings, had no reasonable cause to
believe that his conduct was unlawful. A Delaware corporation may indemnify
officers and directors in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses that such officer or director actually and
reasonably incurred. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
The directors and officers of the Company are insured against certain
liabilities under the registrant's directors' and officers' liability
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.01+ Plan and Agreement of Merger dated as of August 19, 1998 between the
Company and Great Lakes Dredge & Dock Acquisition, Inc.
3.01+ Restated Certificate of Incorporation of the Company.
3.02+ Bylaws of the Company.
4.01+ Indenture dated as of August 19, 1998 among the Company, the
Subsidiary Guarantors and The Bank of New York, as Trustee.
4.02+ Registration Rights Agreement dated as of August 19, 1998 among the
Company, the Subsidiary Guarantors and the Initial Purchaser.
Form of 11 1/4% Senior Subordinated Note due 2008 (included in Exhibit
4.03+ 4.01).
5.01+ Opinion of Dechert Price & Rhoads.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.01+ Credit Agreement dated as of August 19, 1998 among the Company and the
other loan parties thereto, as Borrowers, the financial institutions
from time to time party thereto, as Lenders, Bank of Montreal, Chicago
Branch, as Documentation Agent, Bank of America National Trust and
Savings Association, as Issuing Lender and Administrative Agent and
BancAmerica Robertson Stephens, as Lead Arranger.
10.02+ Second Amended and Restated Underwriting and Continuing Indemnity
Agreement dated August 19, 1998 among the Company, certain of its
Subsidiaries, Reliance Insurance Company, United Pacific Insurance
Company, Reliance National Insurance Company and Reliance Surety
Company.
10.03+ Contract relating to Boston Harbor Navigation Improvement and Berth
Dredging Project between Great Lakes Dredge & Dock Company and United
States Army Corps of Engineers, awarded May 18, 1998.
10.04+ Contract Relating to Stage 2, Port of Los Angeles, Pier 400 Deep
Draft, Navigation Improvements, Los Angeles and Long Beach Harbors,
San Pedro Bay, Los Angeles County, California, between Pier 400
Constructors and United States Army Corps of Engineers, awarded May
12, 1997.
10.05+ Employment Agreement between the Company and Douglas B. Mackie.
10.06+ Great Lakes Annual Cash Bonus Plan.
10.07+ Securities Purchase and Holders Agreement dated August 19, 1998 among
the Company, Vectura and the Management Investors.
10.08+ Registration Rights Agreement dated August 19, 1998 among the Company,
Vectura and the Management Investors.
10.09+ Employment Agreement between the Company and Richard Lowry.
10.10+ Employment Agreement between the Company and Bruce Biemeck.
21.01+ Subsidiaries of the Registrant.
23.01 Consent of Deloitte & Touche LLP (included on Page II-9).
23.02 Consent of J.H. Cohn LLP (included on Page II-10).
23.03+ Consent of Dechert Price & Rhoads (included in Exhibit 5.01).
24.01+ Powers of Attorney.
Statement of Eligibility and Qualification of The Bank of New York on
25.01+ Form T-1.
27.01+ Financial Data Schedule for the Company.
99.01+ Form of Letter of Transmittal.
99.02+ Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
+ Previously filed.
(b) Financial Statement Schedules:
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post- effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any
II-2
<PAGE>
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post- effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oak Brook and State of Illinois on
February 5, 1999.
GREAT LAKES DREDGE & DOCK CORPORATION
/s/ Bruce J. Biemeck
By: ______________________________________
Bruce J. Biemeck
Senior Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment has been signed by the following persons in the capacities and on
the dates indicated.
NAME TITLE DATE
President, Chief
* Executive Officer
- ------------------------------------- and Director
Douglas B. Mackie (principal executive
officer)
Senior Vice
/s/ Bruce J. Biemeck President, Chief February 5,
- ------------------------------------- Financial Officer 1999
Bruce J. Biemeck and Treasurer
(principal financial
officer and
principal accounting
officer)
* Director
- -------------------------------------
Michael A. Delaney
* Director
- -------------------------------------
David Wagstaff III
* By: /s/ Bruce J. Biemeck February 5,
- ------------------------------------- 1999
Bruce J. Biemeck Attorney-in-fact
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oak Brook and State of Illinois on
February 5, 1999.
GREAT LAKES DREDGE & DOCK COMPANY
/s/ Bruce J. Biemeck
By:__________________________________
Bruce J. Biemeck
Senior Vice President, Chief
Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment has been signed by the following persons in the capacities and on
the dates indicated.
NAME TITLE DATE
President, Chief
* Executive Officer
- ------------------------------------- and Director
Douglas B. Mackie (principal executive
officer)
Senior Vice
/s/ Bruce J. Biemeck President, Chief February 5,
- ------------------------------------- Financial Officer 1999
Bruce J. Biemeck and Treasurer
(principal financial
officer and
principal accounting
officer) and
Director
* Director
- -------------------------------------
Mark Thomas
* By: /s/ Bruce J. Biemeck February 5,
- ------------------------------------- 1999
Bruce J. Biemeck Attorney-in-fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oak Brook and State of Illinois on
February 5, 1999.
DAWSON DREDGING COMPANY
/s/ Bruce J. Biemeck
By: _________________________________
Bruce J. Biemeck
Senior Vice President, Chief
Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment has been signed by the following persons in the capacities and on
the dates indicated.
NAME TITLE DATE
President, Chief
* Executive Officer
- ------------------------------------- and Director
Douglas B. Mackie (principal executive
officer)
Senior Vice
/s/ Bruce J. Biemeck President, Chief February 5,
- ------------------------------------- Financial Officer 1999
Bruce J. Biemeck and Treasurer
(principal financial
officer and
principal accounting
officer) and
Director
* Director
- -------------------------------------
Mark Thomas
* By: /s/ Bruce J. Biemeck February 5,
- ------------------------------------- 1999
Bruce J. Biemeck Attorney-in-fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oak Brook and State of Illinois on
February 5, 1999.
GATES CONSTRUCTION CORP.
/s/ Bruce J. Biemeck
By: _________________________________
Bruce J. Biemeck
Senior Vice President, Chief
Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment has been signed by the following persons in the capacities and on
the dates indicated.
NAME TITLE DATE
President, Chief
* Executive Officer
- ------------------------------------- and Director
Douglas B. Mackie (principal executive
officer)
Senior Vice
/s/ Bruce J. Biemeck President, Chief February 5,
- ------------------------------------- Financial Officer 1999
Bruce J. Biemeck and Treasurer
(principal financial
officer and
principal accounting
officer) and
Director
* Director
- -------------------------------------
Richard M. Lowry
* By: /s/ Bruce J. Biemeck
- ------------------------------------- February 5,
Bruce J. Biemeck Attorney-in-fact 1999
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oak Brook and State of Illinois on
February 5, 1999
FIFTY-THREE DREDGING CORPORATION
/s/ Bruce J. Biemeck
By: __________________________________
Bruce J. Biemeck
President & Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
President, Chief
* Executive Officer
- ------------------------------------ and Director
Douglas B. Mackie (principal
executive officer)
Senior Vice
/s/ Bruce J. Biemeck President, Chief February 5,
- -------------------------------- Financial Officer 1999
Bruce J. Biemeck and Treasurer
(principal
financial officer
and principal
accounting officer)
* Director
- ------------------------------------
Mark Thomas
* By: /s/ Bruce J. Biemeck February 5, 1999
- ------------------------------------
Bruce J. Biemeck Attorney-in-fact
II-8
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-64687 of Great Lakes Dredge & Dock Corporation of our report dated January
30, 1998, appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 5, 1999
II-9
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
We consent to the inclusion in this Registration Statement on Amendment No.
2 to Form S-4 being filed by Great Lakes Dredge & Dock Corporation of our
report, dated January 23, 1998, on the financial statements of Amboy
Aggregates (A Joint Venture) as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997. We also consent to the
reference to our firm under the caption "Experts" in the Prospectus of the
Registration Statement.
J. H. Cohn LLP
Roseland, New Jersey
February 5, 1999
II-10
