<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-44542
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES
AND ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 2000
PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 14, 2000
4,000,000 SHARES
[THE SHAW GROUP INC. LOGO]
COMMON STOCK
----------------------
The Shaw Group Inc. is selling 1,768,227 shares of common stock. The
selling shareholders are selling 2,231,773 shares of common stock.
The common stock trades on the New York Stock Exchange under the trading
symbol "SGR." On September 13, 2000, the last sale price of our common stock as
reported on the New York Stock Exchange was $65 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price................................. $ $
Underwriting discount................................. $ $
Proceeds, before expenses, to Shaw.................... $ $
Proceeds, before expenses, to selling shareholders.... $ $
</TABLE>
The underwriters may also purchase up to an additional 600,000 shares from
Shaw at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus supplement to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The shares of common stock will be ready for delivery on or about
, 2000.
----------------------
Joint Book-Running Managers
MERRILL LYNCH & CO. CREDIT SUISSE FIRST BOSTON
----------------------
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
JEFFERIES & COMPANY, INC.
----------------------
The date of this prospectus supplement is , 2000.
<PAGE> 2
[Series of photographs of operations with the captions "Comprehensive Provider
to the Power Industry" and "Capabilities" including pictures or schematics of
"Combined-Cycle Power Plant", "Engineering", "Procurement", "Pipe Fabrication"
and "Construction Services" with The Shaw Group corporate logo]
<PAGE> 3
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-7
Special Note Regarding Forward-Looking Statements........... S-15
Use of Proceeds............................................. S-16
Dividend Policy............................................. S-16
Capitalization.............................................. S-17
Price Range of Common Stock................................. S-18
Unaudited Pro Forma Combined Condensed Financial
Information............................................... S-19
Selected Consolidated Financial Data........................ S-26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-28
Business.................................................... S-37
Management.................................................. S-47
Principal Shareholders...................................... S-50
Material United States Federal Tax Consequences to
Non-United States Holders of Common Stock................. S-52
Underwriting................................................ S-55
Notice to Canadian Residents................................ S-58
Legal Matters............................................... S-59
Experts..................................................... S-59
PROSPECTUS
About This Prospectus....................................... 2
Where You Can Find More Information......................... 2
Forward-Looking Statements.................................. 3
The Company................................................. 3
Use of Proceeds............................................. 4
Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges Plus Dividends.................................... 4
Description of Debt Securities.............................. 4
Description of Capital Stock................................ 16
Depositary Shares........................................... 22
Description of Warrants..................................... 23
Selling Shareholders........................................ 24
Plan of Distribution........................................ 25
Legal Matters............................................... 26
Experts..................................................... 26
</TABLE>
---------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of operations
and prospects may have changed since those dates.
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus supplement and the accompanying
prospectus and the documents incorporated and deemed to be incorporated by
reference therein, including the financial data and related notes, before making
an investment decision.
Unless this prospectus supplement indicates otherwise or the context
otherwise requires, the terms "we," "our," "us" or "Shaw" as used in this
prospectus supplement refers to The Shaw Group Inc., its subsidiaries and their
predecessors.
THE SHAW GROUP INC.
We are the world's only vertically-integrated provider of complete piping
systems and comprehensive engineering, procurement and construction services to
the power generation industry. We are the largest supplier of fabricated piping
systems in the United States and a leading supplier worldwide, having installed
piping systems in over 375 power plants with an aggregate generation capacity in
excess of 200,000 megawatts. While approximately 65% of our backlog at August
31, 2000 was attributable to the power generation industry, we also do work in
the process industries, including petrochemical, chemical and refining, and the
environmental and infrastructure sectors.
We have taken several important steps to capitalize on the growing demand
for new power generation capacity. These steps include:
- partnering with Entergy Corporation to create EntergyShaw, a new company
that will develop cost-effective, combined-cycle power plants for Entergy
Corporation and other customers in the unregulated power market;
- the acquisition of most of the operating assets of Stone & Webster,
Incorporated, a leading provider of engineering, procurement and
construction services to the power generation industry for over 100
years; and
- an agreement with General Electric to supply at least 90% of the pipe
fabrication requirements related to its gas turbine sales through 2004;
we have provided piping systems for over 200 turbines under this
agreement to date.
We were founded in 1987 and have expanded rapidly through internal growth
and the completion and integration of a series of strategic acquisitions. After
giving effect to the Stone & Webster acquisition, our fiscal 1999 pro forma
revenues were approximately $1.4 billion and our backlog at August 31, 2000 was
approximately $1.9 billion. We currently have offices and operations in North
America, South America, Europe, the Middle East and Asia-Pacific and have more
than 13,000 employees.
RECENT DEVELOPMENTS
EntergyShaw. On June 2, 2000, we announced plans to create a new,
equally-owned and jointly-managed company with Entergy Corporation. Subsequent
to this announcement, Entergy and FPL Group, Inc., the parent of Florida Power &
Light, announced a merger which will create the largest U.S. power producer with
generating capacity in excess of 48,000 megawatts. EntergyShaw's initial focus
will be the construction of power plants in North America and Europe for
Entergy's and Florida Power & Light's unregulated wholesale operations. On a
combined basis, Entergy and Florida Power & Light have approximately 70 turbines
on order for their unregulated operations. We expect that the installation of
most of these turbines will be managed by EntergyShaw, subject to the approval
of its joint-management committee. We estimate that EntergyShaw will generate
approximately $100 million in revenues per turbine installed. We expect to
provide the engineering, procurement, fabrication and construction requirements
to EntergyShaw for these plants. Under the terms of the arrangement, we will
present
S-1
<PAGE> 5
engineering, procurement and construction opportunities that we receive after
December 31, 2000 for power generation projects to the new company.
Stone & Webster Acquisition. Effective July 14, 2000, we purchased most of
the operating assets of Stone & Webster, a leading engineering and construction
company, for $37.6 million in cash, 2,231,773 shares of our common stock (valued
at approximately $105 million at closing and which are being offered by this
prospectus supplement) and the assumption of approximately $585 million of
liabilities. Our pro forma financial statements reflect the fair value of the
assets acquired to be approximately $734 million, including $143 million of
goodwill. Stone & Webster is a leading global provider of engineering,
procurement, construction, consulting and environmental services to the power,
process, environmental and infrastructure markets. Stone & Webster was formed in
1889 and has focused on the power generation industry for most of its existence.
Stone & Webster's capabilities complement and enhance our traditional strengths
in project execution and pipe fabrication and enable us to deliver a more
complete, cost-effective package of products and services to our power and
process customers. We believe our combined capabilities will significantly
increase the amount of work we can do for EntergyShaw. In addition, we believe
we may achieve as much as $35 million in annual cost savings in Stone &
Webster's operations through reductions in personnel, office lease and business
development expenses. However, there can be no assurance as to the actual cost
savings we may realize. The asset purchase was concluded as part of a proceeding
under Chapter 11 of the U.S. Bankruptcy Code.
Nanjing, China Ethylene Plant Project. On August 28, 2000, we announced the
execution of a letter of intent for the construction of a 600,000 metric
ton-per-year ethylene plant in China which will allow us to utilize
substantially completed engineering and equipment which we acquired from Stone &
Webster and were previously slated for use on a similar project. The other
parties to the agreement are BASF AG and China Petroleum & Chemical Corporation.
OUR BUSINESS STRATEGY
Our business strategy is to increase shareholder value by capitalizing on
the significant opportunities in the high-growth power sector and other select
markets. We intend to achieve this goal by:
Capitalizing on the complementary strengths Stone & Webster brings to our
company. As a result of the Stone & Webster acquisition, we are uniquely
positioned as the world's only vertically-integrated provider of complete piping
systems and comprehensive engineering, procurement and construction services to
the power generation industry. We believe that this combination of abilities
will reduce lead times and costs to our customers.
Utilizing disciplined project acquisition and management. We intend to
focus our activities on cost reimbursable and negotiated lump-sum work with
well-established clients. We believe these types of contracts reduce our
exposure to unanticipated and unrecoverable cost overruns. Negotiated lump-sum
contracts are obtained by direct negotiation rather than on a competitive bid
basis. In instances where we enter into fixed-price, lump-sum contracts, we will
rely on our management team's long history of executing erection and
installation projects on time and within budget as well as our disciplined
bidding practices to limit our exposure. In addition, we intend to employ
rigorous contract management controls to identify and reduce the risk of cost
overruns.
Leveraging our technology and intellectual property advantage. We will
continue to employ our technology and intellectual property to further reduce
costs and to better serve our customers. These technologies include:
- Induction pipe bending technology. We believe our induction pipe bending
technology is the most sophisticated, efficient technology available.
Induction bending is a technique using simultaneous super-heating and
compression of pipe to produce tight-radius bends to our customers'
specifications. When compared to the traditional cut and weld method, our
technology provides a more uniform and cost-effective product that is
generally considered to be stronger and less prone to structural fatigue.
S-2
<PAGE> 6
- Proprietary ethylene technology. We believe we have a leading position in
technology associated with the process design of plants that produce
ethylene. We have supplied process technology for approximately 35% of
the world's ethylene capacity constructed since 1995.
- Reference plant design. We are developing a standardized "reference
plant," for use by EntergyShaw. This standardized design can be used on
multiple installations and should produce significant cost savings for
EntergyShaw's customers.
- Proprietary customer-focused software. We have developed proprietary
software to aid in project and process management and the analysis of
power delivery. This software includes:
- proprietary SHAW-DRAW(TM) and SHAW-MAN(TM) software programs which
enhance our customers' ability to plan, engineer, schedule and track
their projects and reduce installation costs and cycle times; and
- proprietary software products which aid in the effective analysis of the
electric power delivery business.
Pursuing strategic relationships and maintaining diverse customer base. We
intend to continue to enter into alliance agreements and strategic partnerships
with current and future customers. Our piping alliance partners include AAL Borg
Industries, Air Products and Chemicals, Inc., Alstom Power, BASF AG, Bechtel
Corporation, The Dow Chemical Company, General Electric, Hitachi, J. Ray
McDermott, Orion Refining Corporation and Praxair, Inc. Because many of our
customers are active in more than one of the industries we serve, they have
historically remained significant purchasers of our piping systems and
engineering, procurement and construction services despite fluctuations in
activity within any one particular industry. Our alliance agreements enhance our
ability to obtain contracts for individual projects by eliminating formal bid
preparation. These agreements have tended to provide us with a steady source of
projects, minimize the impact of short-term pricing volatility and enable us to
anticipate a larger portion of future revenues. EntergyShaw and our agreement
with General Electric are examples of strategic relationships which we believe
will provide significant future revenues and new business opportunities.
Pursuing selective acquisitions. We intend to continue to pursue selective
acquisitions of businesses or assets that will expand or complement our current
portfolio of products and services. We have established a successful track
record of quickly and efficiently integrating our acquisitions. In most cases,
we established integration teams led by our senior executives. As an example, we
are utilizing a team led by our executive vice president and chief operating
officer to successfully integrate the assets acquired from Stone & Webster.
We are a Louisiana corporation. Our principal offices are located at 8545
United Plaza Boulevard, Baton Rouge, Louisiana 70809, and our telephone number
is (225) 932-2500.
S-3
<PAGE> 7
THE OFFERING
Common stock offered:
By Shaw............... 1,768,227 shares
By the selling
shareholders........ 2,231,773 shares
----------------
Total............ 4,000,000 shares
Common stock outstanding
after the offering....... 19,469,431 shares
Use of proceeds............ We estimate that our net proceeds from this
offering will be $108.2 million. We intend to use
these net proceeds to repay borrowings under our
revolving credit facility. Following this
repayment, we expect to have approximately $170
million of borrowing capacity under this facility,
which we will use for general corporate purposes
including working capital and possible future
acquisitions.
We will not receive any proceeds from the sale of
our common stock by the selling shareholders.
Risk factors............... See "Risk Factors" and other information included
in this prospectus supplement for a discussion of
factors you should carefully consider before
deciding to invest in shares of the common stock.
NYSE symbol................ SGR
The shares offered by the selling shareholders include 527,357 shares which
were issued into escrow as part of our acquisition of Stone & Webster. This
escrow account was established to secure Stone & Webster's obligations to us
under the purchase agreement. To the extent shares of our stock which were
issued into escrow are returned to us, the number of shares offered by selling
shareholders will be reduced and the number of shares offered by Shaw will be
increased by the same amount.
The number of shares of common stock outstanding after the offering
excludes 1,350,868 shares reserved for issuance under our stock option plans, of
which options to purchase 1,067,368 shares at a weighted average exercise price
of $12.77 had been issued as of August 31, 2000. The numbers above assume that
the over-allotment option is not exercised. If the over-allotment option is
exercised in full, we will issue and sell an additional 600,000 shares.
S-4
<PAGE> 8
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents, for the periods and as of the dates
indicated, our summary statements of income data, other financial data and
balance sheet data on a consolidated basis. The summary selected consolidated
financial data for each of the three fiscal years in the period ended August 31,
1999 presented below have been derived from our audited consolidated financial
statements. The financial data includes results of our acquisitions after the
dates on which they were completed. The financial information for the nine
months ended May 31, 1999 and 2000 has been derived from our unaudited financial
statements, and contains adjustments (consisting solely of normal recurring
adjustments) that are necessary to present fairly the results of operations for
such periods. The pro forma as adjusted information for the year ended August
31, 1999 and nine months ended May 31, 2000 give effect to the Stone & Webster
acquisition and this offering as if those transactions had occurred on September
1, 1998 for the statements of income data and on May 31, 2000 for the balance
sheet data, as more fully set forth in the "Unaudited Pro Forma Combined
Condensed Financial Information" presented in this prospectus supplement. In
addition, this summary financial data should be read in conjunction with our
consolidated financial statements and related notes, "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
ACTUAL PRO FORMA AS ADJUSTED(1)
---------------------------------------------------- ----------------------------
NINE MONTHS ENDED NINE MONTHS
YEAR ENDED AUGUST 31, MAY 31, YEAR ENDED ENDED
------------------------------ ------------------- AUGUST 31, MAY 31,
1997(2) 1998 1999 1999 2000 1999 2000
-------- -------- -------- -------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Sales......................... $335,734 $501,638 $494,014 $353,903 $498,817 $1,415,711 $1,306,528
Cost of sales................. 271,759 422,057 400,186 286,700 416,796 1,314,085 1,235,917
-------- -------- -------- -------- -------- ---------- ----------
Gross profit................ 63,975 79,581 93,828 67,203 82,021 101,626 70,611
General and administrative
expenses.................... 37,377 48,503 60,082 42,998 49,094 140,274 108,965
-------- -------- -------- -------- -------- ---------- ----------
Operating income............ 26,598 31,078 33,746 24,205 32,927 (38,648) (38,354)
Interest expense.............. (6,778) (8,471) (8,649) (6,973) (4,933) (12,097) (10,107)
Other income, net............. 155 698 978 657 584 3,964 153,855
-------- -------- -------- -------- -------- ---------- ----------
Income before income
taxes..................... 19,975 23,305 26,075 17,889 28,578 (46,781) 105,394
Provision for income taxes.... 6,112 7,033 8,635 5,926 9,329 (18,827) 41,316
Earnings (losses) from
unconsolidated entity(3).... 437 (40) 681 408 979 681 979
-------- -------- -------- -------- -------- ---------- ----------
Income from continuing
operations.................. $ 14,300 $ 16,232 $ 18,121 $ 12,371 $ 20,228 $ (27,273) $ 65,057
======== ======== ======== ======== ======== ========== ==========
Income from continuing
operations per share(4):
Basic....................... $ 1.23 $ 1.29 $ 1.52 $ 1.03 $ 1.41 $ 1.77 $ 3.65
Diluted..................... 1.20 1.26 1.47 1.00 1.33 1.77 3.40
Weighted average common shares
outstanding:
Basic....................... 11,632 12,617 11,935 12,001 14,361 15,403 17,830
Diluted..................... 11,901 12,832 12,355 12,329 15,148 15,403 19,148
OTHER FINANCIAL DATA:
EBITDA(5)..................... $ 34,111 $ 42,056 $ 47,995 $ 34,629 $ 43,758 $ 3,129 $ (18,217)
Depreciation and
amortization................ 7,358 10,280 13,271 9,767 10,247 37,813 17,533
Capital expenditures.......... 15,832 14,616 17,967 15,931 12,057 10,684 14,179
</TABLE>
(footnotes on following page)
S-5
<PAGE> 9
<TABLE>
<CAPTION>
AS OF MAY 31, 2000
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $186,430 $ 54,745
Total assets.............................................. 485,466 1,229,872
Short-term debt and current maturities of long-term
debt.................................................... 46,617 14,032
Long-term debt obligations, net of current maturities..... 76,341 100,609
Shareholders' equity...................................... 261,144 474,364
</TABLE>
---------------
(1) We believe that there are significant cost savings which can be achieved in
Stone & Webster's operations which are not reflected in the adjustments in
the pro forma financial statements. We believe these savings could be as
much as $35.0 million on a pre-tax annual basis and would be achieved
through reductions in personnel, office lease and business development
expenses. There can be no assurance as to the actual cost savings we may
realize. Included in Stone & Webster's historical results of operations are
several nonrecurring items including provisions to record losses on lump sum
contracts, which have been completed as of July 14, 2000, and a gain
recognized on the sale of an office building. The nonrecurring contract
losses total $14.2 million for the twelve months ended September 30, 1999
and $60.2 million for the nine months ended March 31, 2000. The gain from
the building sale of $151.3 million is included in the pro forma statements
of operations for the nine months ended May 31, 2000. See "Unaudited Pro
Forma Combined Condensed Financial Information."
(2) We restated fiscal 1997 to exclude the discontinued operations that we
disposed of in fiscal 1998.
(3) We own a 49% interest in Shaw-Nass, our Bahrain joint venture, and we
account for this investment on the equity basis.
(4) Earnings per share amounts for fiscal 1997 have been restated to reflect the
adoption of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."
(5) EBITDA is net income before interest expense, income tax and depreciation
and amortization. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating profit, as an indicator of liquidity or as a
substitute for net cash provided by operating activities. The way we
calculate EBITDA may not be comparable to the EBITDA calculations of other
entities. Pro forma as adjusted EBITDA for the nine months ended May 31,
2000 excludes gain on the sale of a building of $151.3 million.
S-6
<PAGE> 10
RISK FACTORS
You should carefully consider and evaluate all of the information in this
prospectus supplement and the accompanying prospectus, including the risk
factors set forth below before investing.
RISK FACTORS RELATING TO OUR BUSINESS
DEMAND FOR OUR PRODUCTS AND SERVICES IS CYCLICAL AND VULNERABLE TO
DOWNTURNS IN THE POWER GENERATION AND OTHER INDUSTRIES TO WHICH WE MARKET OUR
PRODUCTS AND SERVICES.
The demand for our products and services depends on the existence of
engineering, construction and maintenance projects, particularly in the power
generation industry, which accounted for 65% of our backlog as of August 31,
2000. We also depend to a lesser extent on conditions in the petrochemical,
chemical, environmental, infrastructure and refining industries. These
industries historically have been, and will likely continue to be, cyclical in
nature and vulnerable to general downturns in the domestic and international
economies. Our results of operations have varied and may continue to vary
depending on the demand for future projects from these industries.
THE ACQUISITION OF STONE & WEBSTER MAY RESULT IN WORKING CAPITAL
REQUIREMENTS IN EXCESS OF BORROWING CAPACITY.
As of August 31, 2000, we had approximately $262.5 million of debt
outstanding, including $235.2 million outstanding under our revolving credit
facility. We expect to have approximately $130 million of outstanding borrowings
and approximately $170 million in available borrowing capacity under our
revolving credit facility upon completion of this offering. Amounts received
from the proposed sale of our cold storage business will reduce the capacity
under this facility by a maximum of $50 million. Amounts received from other
assets sales may result in additional reductions. We cannot assure you that our
credit facility capacity will be sufficient to meet our needs in the event we
encounter significant unforeseen working capital requirements following our
acquisition of Stone & Webster. In addition, our ability to meet our current
debt service obligations depends on our future performance. This debt level
requires us to use a material portion of operating cash flow to pay interest on
debt.
On a historical basis at May 31, 2000, we had a working capital balance of
approximately $186.4 million. In connection with our acquisition of Stone &
Webster, we assumed a working capital deficit of approximately $131.7 million
which excludes assets held for sale of approximately $85 million related to the
proposed sale of our cold storage business. The majority of this deficit was
attributable to advanced billings and billings in excess of cost which generally
represent work we have billed but not yet performed and accruals for contracts
on which we expect losses. As a result, on a pro forma basis as of May 31, 2000,
we had a positive working capital balance of approximately $54.7 million. This
balance excludes approximately $59 million of short-term obligations that were
refinanced into our new revolving credit facility and are now reflected in
long-term debt. Because the Stone & Webster acquisition has more than doubled
the size of our operations and because a number of the contracts assumed in the
acquisition will result in negative cash flow in the near term, we cannot assure
you that our working capital requirements associated with our ongoing projects
at any given point in time will not exceed our available borrowing capacity. To
the extent our working capital requirements exceed our borrowing capacity, our
operations could be significantly adversely affected.
Additional borrowings to meet ongoing liquidity needs could significantly
increase our debt service obligations. These obligations could have important
consequences to you. For example, they could:
- make it more difficult for us to obtain additional financing in the
future for our acquisitions and operations;
- require us to dedicate a substantial portion of our cash flows from
operations to the repayment of our debt and the interest associated with
our debt;
S-7
<PAGE> 11
- limit our operating flexibility due to financial and other restrictive
covenants, including restrictions on incurring additional debt, creating
liens on our properties and paying dividends;
- subject us to risks that interest rates and our interest expense will
increase;
- place us at a competitive disadvantage compared to our competitors with
less debt; and
- make us more vulnerable in the event of a downturn in our business.
THE DOLLAR AMOUNT OF OUR BACKLOG, AS STATED AT ANY GIVEN TIME, IS NOT
NECESSARILY INDICATIVE OF OUR FUTURE EARNINGS.
We cannot assure you that the revenues projected in our backlog will be
realized, or if realized, will result in profits. To the extent that we
experience significant terminations, suspensions or adjustments in the scope of
our projects as reflected in our backlog contracts, we could be materially
adversely affected.
We define our backlog as a "working backlog" which includes projects for
which we have received a commitment from our customers. This commitment takes
the form of a written contract for a specific project, a purchase order or an
indication of the amount of time or material we need to make available for a
customer's anticipated project. In certain instances, the engagement is for a
particular product or project for which we estimate anticipated revenue, often
based on engineering and design specifications that have not been finalized and
may be revised over time. Our backlog for maintenance work is derived from
maintenance contracts and our customers' historic maintenance requirements.
Approximately $350 million, or 18%, of our backlog at August 31, 2000 is
attributable to a contract with General Electric, which requires us to fabricate
at least 90% of the pipe necessary to install the combined-cycle gas turbines to
be built by General Electric domestically through 2004. Approximately 40% of
this backlog is for power generation projects for which General Electric has
been engaged and is in various stages of design, engineering and construction,
and for which we have received a work release or have been notified that a work
release is pending. The balance is for work for which General Electric has
requested that we reserve capacity. We cannot be assured that all of these
projects will be constructed or that they will be completed in our currently
anticipated time-frame.
On occasion, customers will cancel or delay projects for reasons beyond our
control. In the event of project cancellation, we may be reimbursed for certain
costs but typically have no contractual right to the total revenues reflected in
our backlog. In addition, projects may remain in our backlog for extended
periods of time. If we were to experience significant cancellations or delays of
projects in our backlog, our financial condition would be significantly
adversely affected.
DIFFICULTIES INTEGRATING OUR ACQUISITION OF STONE & WEBSTER AND OTHER
ACQUISITIONS COULD ADVERSELY AFFECT US.
The Stone & Webster acquisition more than doubled the size of our company,
and many of the assets acquired represent a significant expansion of what were
formerly smaller pieces of our traditional lines of business. In addition, we
have acquired some businesses which are new to us. As a result, we may encounter
difficulties integrating this acquisition and successfully managing the rapid
growth we expect to experience from it. We and Stone & Webster utilize different
information technology systems. If we decide to integrate these systems, we may
have difficulty in doing so. To the extent we encounter problems in integrating
the Stone & Webster acquisition and any other acquisitions, we could be
materially adversely affected. In addition, we plan to pursue select
acquisitions in the future. Because we may pursue these acquisitions around the
world and may actively pursue a number of opportunities simultaneously, we may
encounter unforeseen expenses, complications and delays, including difficulties
in staffing and providing operational and management oversight.
S-8
<PAGE> 12
WE MAY NOT REALIZE OUR ESTIMATED COST SAVINGS FROM THE STONE & WEBSTER
ACQUISITION.
We believe that annual cost savings in our recently acquired Stone &
Webster operations could be as much as $35 million on a pre-tax basis. We intend
to achieve such savings through reductions in personnel, office lease and
business development expenses. However, we cannot provide assurances that these
cost savings will be realized.
WE MAY NOT RECEIVE THE ECONOMIC BENEFITS EXPECTED FROM ENTERGYSHAW.
On June 2, 2000, we announced plans to create a new company with Entergy
Corporation. Under the terms of this arrangement, we will present engineering,
procurement and construction opportunities that we receive after December 31,
2000 for power generation projects to the new company. Subsequent to this
announcement, Entergy and FPL Group, Inc., the parent of Florida Power & Light,
announced a merger. On a combined basis, Entergy and Florida Power & Light have
on order approximately 70 turbines for their unregulated operations. The
management committee of EntergyShaw has the right to determine whether or not a
project will be approved for installation by the company. We can provide no
assurance that all or any portion of the installation of these turbines will be
committed to EntergyShaw. Further, we provide no assurances that EntergyShaw
will contract with us for the installation of all of these turbines.
THE NATURE OF OUR CONTRACTS COULD ADVERSELY AFFECT US.
We have entered into fixed price, lump-sum or unit price contracts on a
significant number of our domestic piping contracts and substantially all of our
international piping projects. In addition, a number of the contracts we assumed
in the Stone & Webster acquisition are fixed price or lump-sum contracts. Under
fixed, maximum or unit price contracts, we agree to perform the contract for a
fixed price and as a result, benefit from costs savings, but are unable to
recover for any cost overruns. Under fixed price incentive contracts, we share
with the customer any savings up to a negotiated ceiling price and carry some or
all of the burden of costs exceeding the negotiated ceiling price. Contract
prices are established based in part on cost estimates which are subject to a
number of assumptions, such as assumptions regarding future economic conditions.
If in the future these estimates prove inaccurate, or circumstances change, cost
overruns can occur which could have a material adverse effect on our business
and results of our operations. Our profit for these projects could decrease, or
we could experience losses, if we are unable to secure fixed pricing commitments
from our suppliers at the time the contracts are entered into or if we
experience cost increases for material or labor during the performance of the
contracts.
We enter into contractual agreements with customers for some of our
engineering, procurement and construction services to be performed based on
agreed upon reimbursable costs and labor rates. In some instances, the terms of
these contracts provide for the customer's review of the accounting and cost
control systems to verify the completeness and accuracy of the reimbursable
costs invoiced. These reviews could result in proposed reductions in
reimbursable costs and labor rates previously billed to the customer.
In addition, we have several significant projects for agencies of the U.S.
Government. Generally, U.S. Government contracts are subject to oversight audits
by government representatives, to profit and cost controls and limitations, and
to provisions permitting modification or termination, in whole or in part,
without prior notice, at the government's convenience and with payment of
compensation only for work done and commitments made at the time of termination.
In the event of termination, we generally receive some allowance for profit on
the work performed. In some cases, government contracts are subject to the
uncertainties surrounding congressional appropriations or agency funding.
Government business is subject to specific procurement regulations and a variety
of socio-economic and other requirements. Failure to comply with such
regulations and requirements could lead to suspension or debarment, for cause,
from future government contracting or subcontracting for a period of time. Among
the causes for debarment are violations of various statutes, including those
related to employment practices, the protection of the environment, the accuracy
of records and the recording of costs.
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<PAGE> 13
OUR RESULTS OF OPERATIONS DEPEND ON OUR ABILITY TO OBTAIN FUTURE CONTRACTS.
In the case of large-scale domestic and international projects where timing
is often uncertain, it is particularly difficult to predict whether and when we
will receive a contract award. In addition, timing of receipt of revenues from
our projects can be affected by a number of factors beyond our control,
including unavoidable delays from weather conditions, unavailability of material
and equipment from vendors, changes in the scope of services requested by
clients, or labor disruptions. The uncertainty of our contract award timing can
also present difficulties in matching workforce size with contract needs. In
some cases, we maintain and bear the cost of a ready workforce that is larger
than called for under existing contracts in anticipation of future workforce
needs under expected contract awards. If an expected contract award is delayed
or not received, we would incur costs that could have a material adverse effect
on us.
Projects in the industries in which we provide products and services
frequently involve a lengthy and complex bidding and selection process. Because
a significant portion of our sales are generated from large projects, our
results of operations can fluctuate from quarter to quarter. Our significant
customers vary between years. The loss of any one or more of our key customers
could have a material adverse impact on us.
POLITICAL AND ECONOMIC CONDITIONS IN FOREIGN COUNTRIES IN WHICH WE OPERATE
COULD ADVERSELY AFFECT US.
A significant portion of our sales is attributable to projects in
international markets. We expect international sales and operations to continue
to contribute materially to our growth and earnings for the foreseeable future.
International contracts, operations and expansion expose us to risks inherent in
doing business outside the United States, including:
- uncertain economic conditions in the foreign countries in which we make
capital investments, operate and sell products and services;
- the lack of well-developed legal systems in some countries in which we
operate and sell products and services, which could make it difficult for
us to enforce our contractual rights;
- expropriation of property;
- restrictions on the right to convert or repatriate currency; and
- political risks, including risks of loss due to civil strife, acts of
war, guerrilla activities and insurrection.
For example, in fiscal 1999, our international sales declined due to
economic downturn in the Asia-Pacific, resulting in fewer power generation
projects, and general economic conditions and political events in South America,
causing a reduction in sales to the petrochemical processing sector.
FOREIGN EXCHANGE RISKS MAY AFFECT OUR ABILITY TO REALIZE A PROFIT FROM
CERTAIN PROJECTS.
While we attempt to denominate our contracts in United States dollars, from
time to time we enter into contracts denominated in a foreign currency without
escalation provisions. This practice subjects us to foreign exchange risks.
Foreign exchange controls may also adversely affect us. For instance, prior to
the lifting of foreign exchange controls in Venezuela in November 1995, foreign
exchange controls adversely affected our ability to repatriate profits from our
Venezuelan subsidiary or otherwise convert local currency into United States
dollars. We generally do not obtain insurance for or hedge against foreign
exchange risks. In addition, our ability to obtain international contracts is
impacted by the relative strength or weakness of the United States dollar
relative to foreign currencies.
FAILURE TO MEET SCHEDULE OR PERFORMANCE REQUIREMENTS OF OUR CONTRACTS COULD
ADVERSELY AFFECT US.
In certain circumstances, we guarantee facility completion by a scheduled
acceptance date or achievement of certain acceptance and performance testing
levels. Failure to meet any such schedule or performance requirements could
result in additional costs and the amount of such additional costs could
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<PAGE> 14
exceed project profit margins. Performance problems for existing and future
contracts, whether fixed, maximum or unit priced, could cause actual results of
operations to differ materially from those anticipated by us.
A DEPENDENCE ON ONE OR A FEW CLIENTS COULD ADVERSELY AFFECT US.
Due to the size of many engineering and construction projects, one or a few
clients have in the past and may in the future contribute a substantial portion
of our consolidated revenues in any one year, or over a period of several
consecutive years. Approximately $350 million, or 18%, of our backlog is
attributable to a contract with General Electric, which requires us to fabricate
at least 90% of the pipe necessary to install the combined-cycle gas turbines to
be built by General Electric domestically through 2004. We have had
long-standing relationships with many of our significant customers, including
customers with which we have entered into alliance agreements, that have
preferred pricing arrangements; however, our contracts with them are on a
project by project basis and they may unilaterally reduce or discontinue their
purchases at any time. In fiscal 1999, approximately 35% of our revenues were
generated under our alliance agreements. The loss of business from any one of
such customers could have a material adverse effect on our business or results
of operations.
OUR DEPENDENCE ON A FEW SUPPLIERS AND SUBCONTRACTORS COULD ADVERSELY AFFECT
US.
The principal raw materials in our piping systems business are carbon
steel, stainless steel and other alloy piping, which we obtain from a number of
domestic and foreign primary steel producers. In our engineering, procurement
and construction services we rely on third-party equipment manufacturers as well
as third-party sub-contractors to complete our projects. To the extent that we
cannot engage sub-contractors or acquire equipment or raw materials, our ability
to complete a project in a timely fashion or at a profit may be impaired. To the
extent the amount we are required to pay for these goods and services exceeds
the amount we have estimated in bidding for lump-sum work, we could experience
losses in the performance of these contracts. In addition, if a manufacturer is
unable to deliver the materials according to the negotiated terms, we may be
required to purchase the materials from another source at a higher price. This
may reduce the profit to be realized or result in a loss on a project for which
the materials were needed.
OUR PROJECTS EXPOSE US TO POTENTIAL PROFESSIONAL LIABILITY, PRODUCT
LIABILITY, OR WARRANTY AND OTHER CLAIMS.
We engineer and construct (and our products typically are installed in)
large industrial facilities in which system failures can be disastrous. Any
catastrophic occurrences in excess of insurance limits at locations engineered
or constructed by us or where our products are installed could result in
significant professional liability, product liability or warranty and other
claims against us. In addition, under some of our contracts, we must use new
metals or processes for producing or fabricating pipe for our customers. The
failure of any of these metals or processes could result in warranty claims
against us for significant replacement or reworking costs.
Further, the engineering and construction projects we are performing expose
us to additional risks including cost overruns, equipment failures, personal
injuries, property damage, shortages of materials and labor, work stoppages,
labor disputes, weather problems and unforeseen engineering, architectural,
environmental and geological problems. In addition, once our construction is
complete, we may face claims with respect to the performance of these
facilities.
THE INDEMNIFICATION PROVISIONS OF OUR ACQUISITION AGREEMENTS MAY NOT FULLY
PROTECT US AND MAY RESULT IN UNEXPECTED LIABILITIES.
Some of the former owners of companies we have acquired are contractually
required to indemnify us against liabilities related to the operation of their
company before we acquired it and for misrepresentations made by them in
connection with the acquisition. In some cases, these former owners may not have
the
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financial ability to meet their indemnification responsibilities. If this
occurs, we may incur unexpected liabilities.
OUR COMPETITORS MAY HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO.
In our engineering, procurement and construction business, we have numerous
regional, national, and international competitors, many of which have greater
financial and other resources than we do. Our competitors include
well-established, well-financed concerns, both privately and publicly held,
including many major power equipment manufacturers and engineering and
construction companies, some engineering companies, internal engineering
departments at utilities and certain of our customers. Because we are primarily
a service organization, we compete by providing services of the highest quality.
The markets we serve require substantial resources and particularly highly
skilled and experienced technical personnel.
In pipe engineering and fabrication, competition on a domestic and
international level is substantial. In the United States, there are a number of
smaller pipe fabricators. Internationally, our principal competitors are
divisions of large industrial firms. Some of our competitors, primarily in the
international sector, have greater financial and other resources than we do.
A FAILURE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD HAVE AN ADVERSE
EFFECT ON US.
Our ability to attract and retain qualified engineers, scientists and other
professional personnel, either through direct hiring or acquisition of other
firms employing such professionals, will be an important factor in determining
our future success. The market for these professionals is competitive, and there
can be no assurance that we will be successful in our efforts to attract and
retain such professionals. In addition, our ability to be successful depends in
part on our ability to attract and retain skilled laborers in our pipe
fabrication business. Demand for these workers is currently high and the supply
is extremely limited.
ENVIRONMENTAL FACTORS AND CHANGES IN LAWS AND REGULATIONS COULD INCREASE
OUR COSTS AND LIABILITIES.
We are subject to environmental laws and regulations, including those
concerning:
- emissions into the air;
- discharges into waterways;
- generation, storage, handling, treatment and disposal of waste materials;
and
- health and safety.
Our projects often involve nuclear, hazardous and other highly regulated
materials, the improper characterization, handling or disposal of which could
constitute violations of federal, state or local statutes, and result in
criminal and civil liabilities. Environmental laws and regulations generally
impose limitations and standards for certain pollutants or waste materials and
require us to obtain a permit and comply with various other requirements.
Governmental authorities may seek to impose fines and penalties on us, or revoke
or deny the issuance or renewal of operating permits, for failure to comply with
applicable laws and regulations.
In addition, under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), as amended and comparable state laws, we
may be required to investigate and remediate hazardous substances. CERCLA and
these comparable state laws typically impose liability without regard to whether
a company knew of or caused the release, and liability has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis of allocation. The principal federal environmental legislation affecting
our environmental/infrastructure division of our principal engineering
subsidiary and its clients include: the National Environmental Policy Act of
1969 ("NEPA"), the Resource Conservation and Recovery Act of 1976 ("RCRA"), the
Clean Air Act, the Federal Water Pollution Control Act and the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"). Our foreign operations are
also subject to various requirements governing environmental protection.
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The environmental health and safety laws and regulations to which we are
subject are constantly changing, and it is impossible to predict the effect of
such laws and regulations on us in the future. We have not conducted
environmental audits of many of our properties, including the assets we acquired
from Stone & Webster. We cannot give any assurance that our operations will
continue to comply with future laws and regulations or that these laws and
regulations will not significantly adversely affect us.
IF WE HAVE TO WRITE-OFF A SIGNIFICANT AMOUNT OF INTANGIBLE ASSETS, OUR
EARNINGS WILL BE NEGATIVELY IMPACTED.
Because we have grown in part through acquisitions, goodwill and other
acquired intangible assets represent a substantial portion of our assets.
Intangible assets were approximately $219 million as of May 31, 2000 on a pro
forma basis giving effect to the Stone & Webster acquisition. If we make
additional acquisitions, it is likely that additional intangible assets will be
recorded on our books. A determination that a significant impairment in value of
our unamortized intangible assets has occurred would require us to write-off a
substantial portion of our assets. This write-off would negatively affect our
earnings.
WE ARE AND WILL CONTINUE TO BE INVOLVED IN LITIGATION.
We have been and may from time to time be named as defendants in legal
actions claiming damages in connection with engineering and construction
projects and other matters. These are typically claims for personal injury or
property damage which occur in connection with services performed relating to
project or construction sites and other actions that arise in the normal course
of business, including employment-related claims and contractual disputes. Such
contractual disputes normally involve claims relating to the performance of
equipment design or other engineering services or project construction services
provided by our subsidiaries.
Certain of our Stone & Webster subsidiaries have possible liabilities
relating to environmental pollution. While we did not assume these liabilities
in connection with our acquisition and have the benefit of contractual
indemnification and a significant escrow, a federal, state or local governmental
authority may seek redress from us or our subsidiaries and we may be named as a
Potentially Responsible Party in an action by such governmental authority. While
we would vigorously contest any attempt to make us responsible for unassumed
environmental liabilities, there can be no assurance that we will not be held
liable in connection with such matters in amounts that would have a material
adverse effect on our business and results of operations.
WORK STOPPAGES AND OTHER LABOR PROBLEMS COULD ADVERSELY AFFECT US.
Some of our employees in the United States and abroad may be represented by
labor unions. We experienced a strike, without material impact on pipe
production, by union members in February 1997 relating to the termination of
collective bargaining agreements covering our pipe facilities in Walker and
Prairieville, Louisiana. A lengthy strike or other work stoppage at any of our
facilities could have a material adverse effect on us. From time to time we have
also experienced attempts to unionize our non-union shops. While these efforts
have achieved limited success to date, we cannot give any assurance that we will
not experience additional union activity in the future.
CHANGES IN TECHNOLOGY COULD ADVERSELY AFFECT US AND OUR COMPETITORS MAY
DEVELOP OR OTHERWISE ACQUIRE EQUIVALENT OR SUPERIOR TECHNOLOGY.
We believe that we have a leading position in technology associated with
the design and construction of plants which produce ethylene, which we protect
and develop with patent registrations, license restrictions, and a research and
development program. This technology position is subject to the risk that others
may develop competing processes, which could affect our market position. In
addition, our strengths in design and construction software as well as power
generation software may be at risk from competitive technologies.
S-13
<PAGE> 17
Our induction pipe bending technology and capabilities influence our
ability to compete successfully. However, this technology and our proprietary
software are not currently patented. While we may have some legal protections,
litigation brought by us in this regard could be time-consuming and expensive
and could prove unsuccessful. Likewise, although we protect some proprietary
materials and processes through non-disclosure and confidentiality agreements,
we cannot give any assurance that these agreements will not be breached.
Finally, there is nothing to prevent our competitors from independently
attempting to develop or obtain access to technologies that are similar or
superior to our technology.
OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, INCLUDING J. M.
BERNHARD, JR.
Our success is dependent upon the continued services of J. M. Bernhard,
Jr., our founder, Chairman, President and Chief Executive Officer, and other key
officers. The loss of Mr. Bernhard or other key officers could adversely affect
us. We do not maintain key employee insurance on any of our executive officers.
RISK FACTORS RELATING TO OUR EQUITY SECURITIES
MARKET PRICES OF OUR EQUITY SECURITIES COULD CHANGE SIGNIFICANTLY.
The market prices of our common stock, preferred stock or warrants may
change significantly in response to various factors and events, including the
following:
- the other risk factors described in this prospectus supplement, including
changing demand for our products and services;
- a shortfall in operating revenue or net income from that expected by
securities analysts and investors;
- changes in securities analysts' estimates of the financial performance of
ourself or our competitors or the financial performance of companies in
our industry generally;
- general conditions in our industry; and
- general conditions in the securities markets.
Many of these factors are beyond our control.
OUR ARTICLES OF INCORPORATION AND BY-LAWS AND LOUISIANA LAW CONTAIN
PROVISIONS THAT CONCENTRATE VOTING POWER IN MANAGEMENT AND COULD DISCOURAGE A
TAKEOVER.
Because of special voting power carried by stock owned by our officers and
directors, our officers and directors control approximately 33% of the voting
power of all of our outstanding stock after giving effect to the offering.
Consequently, these persons, in particular Mr. Bernhard, will be able to
exercise significant influence over corporate actions and the outcome of matters
requiring a shareholder vote, including the election of directors.
Our articles of incorporation provide that each share of common stock that
has been held by the same person for at least four consecutive years is entitled
to five votes on each matter to be voted upon at shareholders' meetings, and all
shares held for less than four years are entitled to one vote per share for each
matter. This charter provision concentrates control in current management and
could:
- increase the difficulty of removing the incumbent board of directors or
management;
- diminish the likelihood that a potential buyer would make an offer for
the common stock; and
- impede a transaction favorable to the interests of shareholders.
In addition, certain provisions of our articles of incorporation and
by-laws and Louisiana law may tend to deter potential unsolicited offers or
other efforts to obtain control of us that are not approved by our
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board of directors. The provisions may deprive our shareholders of opportunities
to sell shares of common stock at prices higher than prevailing market prices.
OUR ISSUANCE OF PREFERRED STOCK COULD ADVERSELY AFFECT SHAREHOLDER RIGHTS
OF A HOLDER OF COMMON STOCK AND COULD DISCOURAGE A TAKEOVER.
Our board of directors is authorized to issue up to 5,000,000 shares of
preferred stock without any further action on the part of our shareholders. In
the event that we issue preferred stock in the future that has preference over
the common stock with respect to payment of dividends or upon our liquidation,
dissolution or winding up, rights as holders of common stock could be adversely
affected. In addition, the ability of our board of directors to issue shares of
preferred stock without any further action on the part of our shareholders may
impede a takeover of us and prevent a transaction favorable to our shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus, and the documents
incorporated herein and therein by reference contain statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements other than statements of historical facts contained in this
prospectus supplement and the accompanying prospectus, including statements
regarding our future financial position, business strategy, budgets, projected
costs and plans and objectives of management for future operations, are
forward-looking statements. Although we believe our expectations reflected in
these forward-looking statements are based on reasonable assumptions, we cannot
assure you that these expectations will prove to have been correct. Risks,
uncertainties and assumptions that could cause actual results to differ
materially from the expectations reflected in the forward-looking statements
include, among other things:
- the demand for additional power generation capacity and services is
vulnerable to changes in the economy;
- the acquisition of Stone & Webster may result in working capital
requirements in excess of borrowing capacity;
- the dollar amount of our backlog, as stated at any given time, is not
necessarily indicative of our future revenues or earnings;
- the amount of business which will be awarded to us as a result of our
relationships with General Electric and EntergyShaw;
- our estimated cost savings associated with the Stone & Webster
acquisition may not be achieved;
- political and economic conditions in countries in which we operate could
adversely affect us; and
- our projects expose us to potential product liability and warranty
claims, including liability for design failures and related environmental
damages.
We undertake no obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus supplement and the accompanying prospectus
might not occur. See "Risk Factors."
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<PAGE> 19
USE OF PROCEEDS
We estimate that we will receive $108.2 million from this offering, after
deducting the underwriting discount and estimated expenses of the offering. If
the underwriters' over-allotment option is fully exercised, we estimate that we
will receive an aggregate of $145.2 million in net proceeds. We intend to use
these proceeds to repay borrowings under our revolving credit facility.
Following this repayment, we expect to have approximately $170 million of
borrowing capacity under this facility, which we will use for general corporate
purposes including working capital and possible future acquisitions.
In July 2000, we entered into a new working capital facility with Bank One,
NA, which bears interest at an annual rate of LIBOR plus 2.75% and matures on
May 31, 2002. This facility provides for revolving borrowings of up to $300
million and up to $100 million available for letters of credit. The facility
permits us to establish up to $150 million in letters of credit, but reduces the
revolver in such an event to $250 million. Amounts received from the proposed
sale of our cold storage business will reduce the capacity under this facility
by up to $50 million. Amounts from other asset sales may result in additional
reductions. At August 31, 2000, approximately $235.2 million was outstanding
under the revolving credit facility and approximately $80 million in letters of
credit were outstanding.
The shares offered by the selling shareholders include 527,357 shares which
were issued into escrow as part of our acquisition of Stone & Webster. This
escrow account was established to secure Stone & Webster's obligations to us
under the purchase agreement. To the extent shares of our stock which were
issued into escrow are returned to us, the number of shares offered by selling
shareholders will be reduced and the number of shares offered by Shaw will be
increased by the same amount.
We do not expect to receive any proceeds from the sale of our common stock
by the selling shareholders. However, a portion of the proceeds of the sales by
the selling shareholders will be paid into an escrow for our benefit in
accordance with our purchase agreement with Stone & Webster.
DIVIDEND POLICY
We have not paid any dividends on the common stock to date and currently
anticipate that any earnings will be retained for the development of our
business. Accordingly, no dividends are expected to be declared or paid on the
common stock for the foreseeable future. The declaration of dividends is at the
discretion of our board of directors. Our dividend policy will be reviewed by
our board of directors as may be appropriate in light of relevant factors at the
time. We are, however, subject to limitations on the payment of dividends under
the terms of our revolving credit facility.
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CAPITALIZATION
The following table sets forth our capitalization at May 31, 2000 on a
historical basis, pro forma for the acquisition of Stone & Webster and pro forma
as adjusted to give effect to the application of the net proceeds from the
offering assuming the Underwriters' overallotment is not exercised. The table
should be read in conjunction with our consolidated financial statements and
related notes, "Unaudited Pro Forma Combined Condensed Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds."
<TABLE>
<CAPTION>
AT MAY 31, 2000
------------------------------
PRO
PRO FORMA AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 6,240 $ 43,151 $ 43,151
======== ======== ========
Short-term borrowings and current maturities of long-term
debt:
Short-term borrowings (revolving lines of credit)(1)...... $ 38,516 $ 3,604 $ 3,604
Current maturities of long-term debt(2)................... 8,101 10,428 10,428
-------- -------- --------
Total short-term borrowings and current maturities
of long-term debt............................... $ 46,617 $ 14,032 $ 14,032
======== ======== ========
Long-term debt, excluding current portion(2):
New revolving credit facility............................. -- $167,721 $ 59,533
Other long-term debt...................................... $ 76,341 41,076 41,076
-------- -------- --------
Total long-term debt.............................. 76,341 208,797 100,609
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized; no shares issued and outstanding........... -- -- --
Common stock, no par value; 50,000,000 shares authorized;
23,580,945 shares issued and 15,356,709 shares
outstanding; 25,812,718 shares issued and 17,588,482
shares outstanding, pro forma; and 27,580,945 shares
issued and 19,356,709 shares outstanding, pro forma as
adjusted(3)............................................ 189,276 294,308 402,496
Retained earnings........................................... 96,979 96,979 96,979
Accumulated other comprehensive income (loss)............... (4,510) (4,510) (4,510)
Unearned restricted stock compensation...................... (76) (76) (76)
Less: 8,224,236 shares held in treasury, at cost............ (20,525) (20,525) (20,525)
-------- -------- --------
Total shareholders' equity........................ 261,144 366,176 474,364
-------- -------- --------
Total capitalization.............................. $337,485 $574,973 $574,973
======== ======== ========
</TABLE>
---------------
(1) At August 31, 2000, we had approximately $262.5 million of debt outstanding,
including $235.2 million outstanding under our revolving credit facility,
and approximately $80 million in letters of credit outstanding.
(2) Includes obligations under capital leases.
(3) Does not include 1,350,868 shares reserved for issuance under our stock
option plans, of which options to purchase 1,067,368 shares at a weighted
average exercise price of $12.77 had been issued as of August 31, 2000. The
numbers above assume that the over-allotment option is not exercised. If the
over-allotment option is exercised in full, we will issue and sell an
additional 600,000 shares.
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PRICE RANGE OF COMMON STOCK
The common stock is traded on the New York Stock Exchange under the symbol
"SGR." The following table sets forth the high and low sales prices per share of
the common stock as reported on the New York Stock Exchange for the periods
shown.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended August 31, 1998
First quarter............................................. $24 $17 3/4
Second quarter............................................ 26 18 1/2
Third quarter............................................. 25 22
Fourth quarter............................................ 27 15/16 8 1/16
Fiscal year ended August 31, 1999
First quarter............................................. 10 15/16 6
Second quarter............................................ 16 3/16 7 3/16
Third quarter............................................. 14 11
Fourth quarter............................................ 22 1/2 12
Fiscal year ended August 31, 2000
First quarter............................................. 24 19
Second quarter............................................ 27 15/16 20
Third quarter............................................. 44 15/16 24
Fourth quarter............................................ 55 11/16 37
Fiscal year ended August 31, 2001
First quarter (through September 13, 2000)................ 69 15/16 54 1/2
</TABLE>
On September 13, 2000, the closing sales price of the common stock on the
New York Stock Exchange was $65 per share. As of August 31, 2000, we had
approximately 117 shareholders of record.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(IN THOUSANDS)
The following unaudited pro forma combined condensed balance sheet of The
Shaw Group Inc. as of May 31, 2000 and unaudited pro forma combined condensed
statements of income of Shaw for the nine months ended May 31, 2000 and twelve
months ended August 31, 1999, give effect to the acquisition of certain assets
and liabilities of Stone & Webster, Incorporated. The statements reflect that
the business combination is accounted for as a purchase. The pro forma combined
balance sheet treats the business combination as if it occurred on May 31, 2000;
the pro forma combined statements of income treat the business combination as if
it had occurred on September 1, 1998.
We believe that there are significant cost savings which can be achieved in
Stone & Webster's operations which are not reflected in the adjustments in the
pro forma financial statements. We believe these savings could be as much as
$35,000 on a pre-tax annual basis and would be achieved through reductions in
personnel, office lease and business development expenses. However, there can be
no assurance as to the actual cost savings which we may realize. In addition,
included in Stone & Webster's historical results of operations are several
nonrecurring items, including provisions to record losses on lump-sum contracts,
which contracts were completed by Stone & Webster by July 14, 2000, and a gain
on the sale of an office building. The nonrecurring contract losses total
$14,200 for the twelve months ended September 30, 1999 and $60,200 for the nine
months ended March 31, 2000. The gain on the building sale of $151,251 is
included in the pro forma statements of income for the nine months ended March
31, 2000.
The Shaw information as of May 31, 2000 and for the periods ended August
31, 1999 and May 31, 2000 is summarized from the consolidated financial
statements contained in Shaw's Annual Report on Form 10-K for the fiscal year
ended August 31, 1999 and its Quarterly Report on Form 10-Q for the quarter
ended May 31, 2000.
The information for Stone & Webster's trailing twelve-month period ended
September 30, 1999 is derived from its Quarterly Reports on Form 10-Q and Annual
Report on Form 10-K for the nine-month period ended September 30, 1999 and the
three-month period ended December 31, 1998. The Stone & Webster trailing
nine-month period ended March 31, 2000 is summarized from the Quarterly Reports
on Form 10-Q and Annual Report on Form 10-K of Stone & Webster for the three
month period ended March 31, 2000 and the year ended December 31, 1999. The pro
forma statements of income include the results of the three-month period ended
September 30, 1999 for both the trailing twelve- and nine-month periods
(sales -- $286,071; gross profit -- $7,017; loss from continuing
operations -- ($6,854)).
The following pro forma financial statements are presented for information
purposes only. The results shown in the statements are not necessarily
indicative of the actual results that might have occurred if the business
combination had been completed on September 1, 1998. Also, they are not
necessarily indicative of results that might be achieved in the future.
These pro forma financial statements should be read in conjunction with the
consolidated financial statements and related notes of Shaw contained in its
Annual Report on Form 10-K for the fiscal year ended August 31, 1999 and
contained in its Form 10-Q for the nine months ended May 31, 2000, and in
conjunction with the consolidated financial statements of Stone & Webster
contained in its Annual Report on Form 10-K for the year ended December 31, 1999
and contained in its Quarterly Report on Form 10-Q for the three months ended
March 31, 2000.
S-19
<PAGE> 23
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
AUGUST 31, 1999 SEPTEMBER 30, 1999 EXCLUDED ACQUISITION PRO FORMA
HISTORICAL HISTORICAL ASSETS AND PRO FORMA FOR THE
THE SHAW GROUP STONE & WEBSTER LIABILITIES ADJUSTMENTS(d) ACQUISITION
------------------- ------------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Sales........................ $494,014 $1,113,979 $(192,282)(a) $ -- $1,415,711
Cost of sales................ 400,186 1,205,485 (291,586)(b) -- 1,314,085
-------- ---------- --------- -------- ----------
Gross profit (loss).......... 93,828 (91,506) 99,304 -- 101,626
Amortization of goodwill and
intangibles................ 1,910 -- -- 9,422(e) 11,332
General and administrative
expenses................... 58,172 70,770 -- -- 128,942
-------- ---------- --------- -------- ----------
Operating income (loss)...... 33,746 (162,276) 99,304 (9,422) (38,648)
Interest expense............. (8,649) (8,539) -- (3,344)(f) (20,532)
Other Income, net............ 978 2,986 -- -- 3,964
-------- ---------- --------- -------- ----------
Income (loss) from continuing
operations before income
taxes...................... 26,075 (167,829) 99,304 (12,766) (55,216)
Provision (benefit) for
income tax................. 8,635 (43,528) 39,722(c) (27,030)(g) (22,201)
-------- ---------- --------- -------- ----------
Income (loss) from continuing
operations before earnings
from unconsolidated
entity..................... 17,440 (124,301) 59,582 14,264 (33,015)
Earnings from unconsolidated
entity..................... 681 -- -- -- 681
-------- ---------- --------- -------- ----------
Income (loss) from continuing
operations................. $ 18,121 $ (124,301) $ 59,582 $ 14,264 $ (32,334)
======== ========== ========= ======== ==========
Earnings per share:
Basic...................... $ 1.52 $ (2.37)
Diluted.................... 1.47 (2.37)
Weighted average number of
shares:
Basic...................... 11,935 1,701(h) 13,635(h)
Diluted.................... 12,355 1,701(h) 13,635(h)
<CAPTION>
OFFERING
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
Sales........................ $ -- $1,415,711
Cost of sales................ -- 1,314,085
---------- ----------
Gross profit (loss).......... -- 101,626
Amortization of goodwill and
intangibles................ -- 11,332
General and administrative
expenses................... -- 128,942
---------- ----------
Operating income (loss)...... -- (38,648)
Interest expense............. 8,435(i) (12,097)
Other Income, net............ -- 3,964
---------- ----------
Income (loss) from continuing
operations before income
taxes...................... 8,435 (46,781)
Provision (benefit) for
income tax................. 3,374(j) (18,827)
---------- ----------
Income (loss) from continuing
operations before earnings
from unconsolidated
entity..................... 5,061 (27,954)
Earnings from unconsolidated
entity..................... -- 681
---------- ----------
Income (loss) from continuing
operations................. $ 5,061 $ (27,273)
========== ==========
Earnings per share:
Basic...................... $ (1.77)
Diluted.................... (1.77)
Weighted average number of
shares:
Basic...................... 1,768 15,403
Diluted.................... 1,768 15,403
</TABLE>
S-20
<PAGE> 24
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MAY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED EXCLUDED
MAY 31, 2000 MARCH 31, 2000 ASSETS ACQUISITION PRO FORMA OFFERING
HISTORICAL HISTORICAL AND PRO FORMA FOR THE PRO FORMA PRO FORMA
THE SHAW GROUP STONE & WEBSTER LIABILITIES ADJUSTMENTS(d) ACQUISITION ADJUSTMENTS AS ADJUSTED
-------------- --------------- ----------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................. $498,817 $1,001,595 $(193,884)(a) $ -- $1,306,528 $ -- $1,306,528
Cost of sales......... 416,796 1,016,497 (197,376)(b) -- 1,235,917 -- 1,235,917
-------- ---------- --------- -------- ---------- ------- ----------
Gross profit (loss)... 82,021 (14,902) 3,492 -- 70,611 -- 70,611
Amortization of
goodwill and
intangibles......... 1,402 -- -- 7,067(e) 8,469 -- 8,469
General and
administrative
expenses............ 47,692 52,804 -- -- 100,496 -- 100,496
-------- ---------- --------- -------- ---------- ------- ----------
Operating income
(loss).............. 32,927 (67,706) 3,492 (7,067) (38,354) -- (38,354)
Interest expense...... (4,933) (10,079) -- (2,507)(f) (17,519) 7,412(i) (10,107)
Gain on sale of
building............ -- 151,251 -- -- 151,251 -- 151,251
Other Income, net..... 584 2,020 -- -- 2,604 -- 2,604
-------- ---------- --------- -------- ---------- ------- ----------
Income from continuing
operations before
income taxes........ 28,578 75,486 3,492 (9,574) 97,982 7,412 105,394
Provision for income
tax................. 9,329 18,039 1,397(c) 9,586(g) 38,351 2,965(j) 41,316
-------- ---------- --------- -------- ---------- ------- ----------
Income from continuing
operations before
earnings from
unconsolidated
entity.............. 19,249 57,447 2,095 (19,160) 59,631 4,447 64,078
Earnings from
unconsolidated
entity.............. 979 -- -- -- 979 -- 979
-------- ---------- --------- -------- ---------- ------- ----------
Income from continuing
operations.......... $ 20,228 $ 57,447 $ 2,095 $(19,160) $ 60,610 $ 4,447 $ 65,057
======== ========== ========= ======== ========== ======= ==========
Earnings per share:
Basic............... $ 1.41 $ 3.77 $ 3.65
Diluted............. 1.33 3.49 3.40
Weighted average
number of shares:
Basic............... 14,361 1,701(h) 16,062 1,768 17,830
Diluted............. 15,148 2,232(h) 17,380 1,768 19,148
</TABLE>
S-21
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS)
(a) To eliminate sales associated with Stone & Webster contracts in progress
not assumed by Shaw.
(b) To eliminate income from the Stone & Webster overfunded pension plan and
cost of sales associated with contracts in progress not assumed by Shaw.
(c) To adjust the income tax benefit for the elimination of items not assumed
by Shaw.
(d) We believe that there are significant cost savings which can be achieved in
Stone & Webster's operations which are not reflected in the adjustments in
the pro forma financial statements. We believe these savings could be as
much as $35,000 on a pre-tax annual basis and would be achieved through
reductions in personnel, office lease and business development expenses.
There can be no assurance as to the actual cost savings we may realize.
Included in Stone & Webster's historical results of operations are several
nonrecurring items including provisions to record losses on lump sum
contracts, which have been completed as of July 14, 2000, and a gain
recognized on the sale of an office building. The nonrecurring contract
losses total $14,200 for the twelve months ended September 30, 1999 and
$60,200 for the nine months ended March 31, 2000. The gain on the building
sale of $151,251 is included in the pro forma statements of operations for
the nine months ended May 31, 2000.
(e) To record the amortization of goodwill recognized in connection with the
Stone & Webster acquisition over 20 years.
(f) To record additional interest expense on amounts borrowed under our new
credit facility in connection with the Stone & Webster acquisition and the
related amortization expense of the bank commitment fee which will be
amortized over three years. In addition, interest expense has been reduced
for the estimated incremental interest cost of carrying the net assets of
the Nordic Refrigerated Services business unit which is held for sale.
(g) To adjust the income tax provision to reverse the valuation allowance
included in Stone & Webster's historical provision for income taxes and to
adjust the income tax provision for the impact of the pro forma acquisition
adjustments.
(h) Shaw issued 2,231,773 shares of Shaw's common stock in connection with the
acquisition of Stone & Webster. On a historical basis, Shaw reported
positive income from continuing operations. Diluted earnings per share is
calculated as if securities convertible into common shares have been
converted if the inclusion of these shares is dilutive. After giving effect
to the Stone & Webster acquisition, we have a pro forma loss on continuing
operations. The accounting rules require that when there is a loss,
convertible securities are treated as if they have not been converted. This
is because if the convertible shares are treated as outstanding the loss
per share would be reduced. Similarly, 527,357 shares issued in connection
with the Stone & Webster acquisition were issued into escrow for purposes
of indemnification. These excluded shares were excluded from weighted
average outstanding shares to calculate basic earnings per share for the
pro forma nine months ended May 31, 2000, and these shares are excluded
from both basic and diluted earnings per share for the pro forma twelve
months ended August 31, 1999.
(i) To reduce interest expense for amounts repaid on the line of credit from
the net proceeds of this offering.
(j) To adjust the income tax provision for the reduction in interest expense.
S-22
<PAGE> 26
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MAY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, 2000 MARCH 31, 2000 EXCLUDED ACQUISITION PRO FORMA OFFERING
HISTORICAL HISTORICAL ASSETS AND PRO FORMA FOR THE PRO FORMA
THE SHAW GROUP STONE & WEBSTER LIABILITIES ADJUSTMENTS ACQUISITION ADJUSTMENTS
-------------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ 6,240 $ 36,911 $ -- $ -- $ 43,151 $ --
Accounts receivable, net............ 183,035 280,610 (53,125)(a) (10,000)(g) 306,656 --
(93,864)(b)
Receivables from unconsolidated
entity, net....................... 4,382 -- -- 4,382 --
Inventories......................... 84,361 -- 114,124(b) (54,124)(h) 144,361 --
Cost and estimated earnings in
excess of billings on uncompleted
contracts......................... 31,522 121,043 (37,641)(a) 109,664 --
(5,260)(b)
Prepaid expenses.................... 8,074 7,087 -- 15,161 --
Deferred income taxes............... -- 20,540 (20,540)(c) 56,000(i) 56,000 --
Other current assets................ 9,906 402 -- 10,308 --
-------- -------- --------- -------- ---------- --------
Total current assets.......... 327,520 466,593 (96,306) (8,124) 689,683
Investment in unconsolidated
entity............................ 5,625 -- -- 5,625 --
Domestic prepaid pension cost....... -- 167,365 (167,365)(d) -- -- --
Investments in securities available
for sale.......................... 14,922 -- -- 14,922 --
Property and equipment, less
accumulated depreciation.......... 96,610 84,967 -- 181,577 --
Net assets of discontinued
operations........................ -- 116,424 -- (31,424)(j) 85,000 --
Goodwill, net of accumulated
amortization...................... 30,152 5,502 (5,502)(e) 143,442(k) 173,594 --
Other assets........................ 10,637 25,778 -- 43,056(l) 79,471 --
-------- -------- --------- -------- ---------- --------
Total assets.................. $485,466 $866,629 $(269,173) $146,950 $1,229,872 $ --
======== ======== ========= ======== ========== ========
Current liabilities:
Accounts payable.................... $ 47,761 $136,436 $ (13,458)(a) $ -- $ 155,739 $ --
(15,000)(b)
Accrued liabilities................. 23,806 81,645 (31,359)(f) 20,000(m) 124,092 --
30,000(b)
Current maturities of long term
debt.............................. 8,101 2,327 -- -- 10,428 --
Revolving lines of credit........... 38,516 24,359 -- (59,271)(n) 3,604 --
Deferred revenue -- prebilled....... 7,570 -- -- -- 7,570 --
Advanced billings and billings in
excess of cost and estimated
earnings on uncompleted
contracts......................... 15,336 252,532 (44,363)(a) 110,000(o) 333,505 --
-------- -------- --------- -------- ---------- --------
Total current liabilities..... 141,090 497,299 (74,180) 70,729 634,938
Long-term debt, less current
maturities........................ 76,341 19,035 -- (54,300)(p) 41,076 --
Revolving lines of credit........... -- -- -- 167,721(q) 167,721 (108,188)(s)
Deferred income taxes............... 6,891 24,148 (24,148)(c) -- 6,891 --
Commitments and contingencies....... -- -- -- -- -- --
Other liabilities................... -- 13,070 -- -- 13,070 --
Total shareholders' equity.... 261,144 313,077 (170,845) (37,200)(r) 366,176 108,188(t)
-------- -------- --------- -------- ---------- --------
Total liabilities &
shareholders' equity........ $485,466 $866,629 $(269,173) $146,950 $1,229,872 $ --
======== ======== ========= ======== ========== ========
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Current assets:
Cash and cash equivalents........... $ 43,151
Accounts receivable, net............ 306,656
Receivables from unconsolidated
entity, net....................... 4,382
Inventories......................... 144,361
Cost and estimated earnings in
excess of billings on uncompleted
contracts......................... 109,664
Prepaid expenses.................... 15,161
Deferred income taxes............... 56,000
Other current assets................ 10,308
----------
Total current assets.......... 689,683
Investment in unconsolidated
entity............................ 5,625
Domestic prepaid pension cost....... --
Investments in securities available
for sale.......................... 14,922
Property and equipment, less
accumulated depreciation.......... 181,577
Net assets of discontinued
operations........................ 85,000
Goodwill, net of accumulated
amortization...................... 173,594
Other assets........................ 79,471
----------
Total assets.................. $1,229,872
==========
Current liabilities:
Accounts payable.................... $ 155,739
Accrued liabilities................. 124,092
Current maturities of long term
debt.............................. 10,428
Revolving lines of credit........... 3,604
Deferred revenue -- prebilled....... 7,570
Advanced billings and billings in
excess of cost and estimated
earnings on uncompleted
contracts......................... 333,505
----------
Total current liabilities..... 634,938
Long-term debt, less current
maturities........................ 41,076
Revolving lines of credit........... 59,533
Deferred income taxes............... 6,891
Commitments and contingencies....... --
Other liabilities................... 13,070
Total shareholders' equity.... 474,364
----------
Total liabilities &
shareholders' equity........ $1,229,872
==========
</TABLE>
S-23
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(a) To eliminate the working capital balances (trade receivables, trade
payables, cost and earnings in excess of billings on uncompleted contracts
and advanced billings and billings in excess of cost and estimated earnings
on uncompleted contracts), associated with Stone & Webster contracts which
were not assumed by Shaw. "Costs and earnings in excess of billings" is an
asset and generally represents work we have completed but for which we have
not yet billed our customers. "Advanced billings and billings in excess of
cost" is a liability and generally represents work we have billed but not
yet performed and accruals for contracts on which we expect losses.
(b) To reclassify the recorded amounts for certain ethylene equipment
associated with the canceled Trans-Pacific Petrochemical Indotama (TPPI)
project in Indonesia to inventory and accrued liabilities. This contract
was not assumed by Shaw.
(c) To exclude deferred taxes (both assets and liabilities) generated by Stone
& Webster activities not assumed by Shaw.
(d) To eliminate the overfunded Stone & Webster pension plan not acquired by
Shaw.
(e) To eliminate the historical goodwill recorded on Stone & Webster's books.
(f) To eliminate Stone & Webster's liabilities not assumed by Shaw including
litigation and workers' compensation accruals.
(g) To record a $10,000 reduction in accounts receivable to our estimated fair
value.
(h) To adjust the TPPI equipment to its estimated fair value.
(i) To adjust deferred tax assets as a result of the book/tax basis
differentials resulting from our acquisition of Stone & Webster.
Adjustments included the following:
<TABLE>
<S> <C>
Contracts in progress.................................... $110,000
Relocation and severance................................. 20,000
Accounts receivable...................................... 10,000
--------
Total temporary differences.............................. 140,000
--------
Tax rate (40%)........................................... $ 56,000
========
</TABLE>
(j) To adjust the Nordic Refrigerated Services business unit to estimated fair
value. We classify this as a discontinued operation because we are actively
seeking a buyer for this segment. The actual fair value may differ from the
estimated fair value used in this pro forma presentation. Any difference
from the fair value we have estimated will result in an adjustment to the
purchase price for the Stone & Webster acquisition.
(k) The amount represents purchase price in excess of assets acquired, based
upon preliminary estimates of fair market values. Given the nature of these
estimates and assumptions, the final allocation of the
S-24
<PAGE> 28
purchase price will be performed when additional information concerning
asset and liability valuations becomes available. A reconciliation of the
allocation of purchase price is as follows:
<TABLE>
<S> <C>
Purchase price:
Cash.................................................. $ 37,600
Common Stock.......................................... 105,032
Transaction costs..................................... 6,000
---------
Total......................................... $ 148,632
=========
Allocation of purchase price:
Net tangible assets acquired.......................... $ 142,232
Net intangible assets acquired........................ 45,000
Fair value adjustments to assets acquired............. (182,042)
Goodwill.............................................. 143,442
---------
Total purchase price.......................... $ 148,632
=========
</TABLE>
(l) To record a ($12,494) reduction in our estimate of the value of certain
assets, $10,550 representing bank commitment fees for financing required to
complete the Stone & Webster acquisition and $45,000 representing our
estimate of the fair value of certain process technologies acquired from
Stone & Webster.
(m) To provide for $20,000 of relocation and severance costs for certain
employees.
(n) To record the repayment of each of Shaw's and Stone & Webster's outstanding
balances under certain revolving lines of credit at the time of our
acquisition. These amounts were repaid with borrowings under our new
revolving credit facility. Borrowings included in the balance outstanding
under our new facility are discussed in note (q) below.
(o) To record an estimated $73 million in additional costs to complete the
contracts we have assumed from Stone & Webster and $37 million to adjust
margins on these contracts to fair value. We can provide no assurances that
our actual costs will not exceed those which we have estimated.
(p) To record the repayment of the Shaw senior notes. These notes were repaid
with borrowings incurred under our new revolving credit facility.
(q) Revolving lines of credit -- long term debt includes additional borrowings
comprised of (i) $59,271 for the repayment of Shaw's previous primary
revolving line of credit and Stone & Webster's existing lines of credit;
(ii) $37,600 for the cash portion of the purchase price for Stone &
Webster; (iii) $10,550 for the bank commitment fees; (iv) $6,000 for
estimated transaction costs and fees; and (v) $54,300 for the repayment of
the Shaw senior notes.
(r) To adjust Shaw's shareholders' equity for the fair value of the common
stock issued to acquire Stone & Webster.
(s) To record the repayment of our revolving credit facility from the net
proceeds of this offering.
(t) To record the net proceeds of this offering.
S-25
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents, for the periods and as of the dates
indicated, our selected statements of income data, other financial data and
balance sheet data on a consolidated basis. The selected historical consolidated
financial data for each of the five fiscal years in the period ended August 31,
1999 presented below have been derived from our audited consolidated financial
statements. The financial information for the nine months ended May 31, 1999 and
2000 has been derived from our unaudited financial statements and contains
adjustments (consisting solely of normal recurring adjustments) that are
necessary to present fairly the results of operations for such periods. The
financial data includes results of our acquisitions which have been accounted
for as purchases after the dates on which they were completed, except for the
1997 acquisition of NAPTech, Inc., which was accounted for as a pooling of
interests. The financial data presented below does not reflect our acquisition
of Stone & Webster. This selected financial data should be read in conjunction
with our consolidated financial statements and related notes, "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AUGUST 31, MAY 31,
---------------------------------------------------- -------------------
1995(1) 1996(1) 1997(1) 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Sales................................... $156,921 $248,969 $335,734 $501,638 $494,014 $353,903 $498,817
Cost of sales........................... 130,714 208,473 271,759 422,057 400,186 286,700 416,796
-------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 26,207 40,496 63,975 79,581 93,828 67,203 82,021
General and administrative expenses..... 16,460 26,569 37,377 48,503 60,082 42,998 49,094
-------- -------- -------- -------- -------- -------- --------
Operating income...................... 9,747 13,927 26,598 31,078 33,746 24,205 32,927
Interest expense........................ (3,465) (4,823) (6,778) (8,471) (8,649) (6,973) (4,933)
Other income, net....................... 244 923 155 698 978 657 584
-------- -------- -------- -------- -------- -------- --------
Income before income taxes............ 6,526 10,027 19,975 23,305 26,075 17,889 28,578
Provision for income taxes.............. 2,027 3,215 6,112 7,033 8,635 5,926 9,329
-------- -------- -------- -------- -------- -------- --------
Income before earnings (losses) from
unconsolidated entity................. 4,499 6,812 13,863 16,272 17,440 11,963 19,249
Earnings (losses) from unconsolidated
entity(2)............................. (588) 103 437 (40) 681 408 979
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations..... 3,911 6,915 14,300 16,232 18,121 12,371 20,228
Discontinued operations, net of taxes:
Operating results..................... -- (298) (252) 298 -- -- --
Net gain on disposals................. -- -- -- 2,647 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item and
cumulative effect of change in
accounting principle................ 3,911 6,617 14,048 19,177 18,121 12,371 20,228
Extraordinary item, net of taxes........ 491 -- -- -- -- -- --
Cumulative effect of change in
accounting principles, net of taxes... -- -- -- -- -- -- (320)
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 4,402 $ 6,617 $ 14,048 $ 19,177 $ 18,121 $ 12,371 $ 19,908
======== ======== ======== ======== ======== ======== ========
Basic income per common share(3):
Continuing operations................. $ .44 $ .71 $ 1.23 $ 1.29 $ 1.52 $ 1.03 $ 1.41
Discontinued operations............... -- (.03) (.02) .23 -- -- --
Extraordinary item.................... .06 -- -- -- -- -- --
Change in accounting principle........ -- -- -- -- -- -- (.02)
-------- -------- -------- -------- -------- -------- --------
Net income per common share........... $ .49 $ .68 $ 1.21 $ 1.52 $ 1.52 $ 1.03 $ 1.39
======== ======== ======== ======== ======== ======== ========
(footnotes on following page)
</TABLE>
S-26
<PAGE> 30
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AUGUST 31, MAY 31,
---------------------------------------------------- -------------------
1995(1) 1996(1) 1997(1) 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Diluted income per common share(3):
Continuing operations................. $ .44 $ .69 $ 1.20 $ 1.26 $ 1.47 $ 1.00 $ 1.33
Discontinued operations............... -- (.03) (.02) .23 -- -- --
Extraordinary item.................... .05 -- -- -- -- -- --
Change in accounting principle........ -- -- -- -- -- -- (.02)
-------- -------- -------- -------- -------- -------- --------
Net income per common share........... $ .49 $ .66 $ 1.18 $ 1.49 $ 1.47 $ 1.00 $ 1.31
======== ======== ======== ======== ======== ======== ========
Weighted average common shares outstanding:
Basic(3).............................. 8,916 9,758 11,632 12,617 11,935 12,001 14,361
Diluted(3)............................ 8,959 10,013 11,901 12,832 12,355 12,329 15,148
OTHER FINANCIAL DATA:
EBITDA(4)............................... $ 12,973 $ 19,842 $ 34,111 $ 42,056 $ 47,995 $ 34,629 $ 43,758
Depreciation and amortization........... 2,982 4,992 7,358 10,280 13,271 9,767 10,247
Capital expenditures.................... 5,810 18,478 15,832 14,616 17,967 15,931 12,057
</TABLE>
---------------
(1) We restated fiscal 1996 and 1997 to exclude the discontinued operations that
we disposed of in fiscal 1998. The effect of the disposition in fiscal 1995
is immaterial. See note 18 of our consolidated financial statements.
(2) We own a 49% interest in Shaw-Nass, our Bahrain joint venture, and we
account for this investment on the equity basis.
(3) Earnings per share amounts for fiscal 1995, 1996 and 1997 have been restated
to reflect the adoption of Statement of Financial Accounting Standards No.
128, "Earnings Per Share."
(4) EBITDA is net income before interest expense, income tax and depreciation
and amortization. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating profit, as an indicator of liquidity or as a
substitute for net cash provided by operating activities. The way we
calculate EBITDA may not be comparable to the EBITDA calculations of other
entities.
S-27
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the related notes incorporated by reference into the Registration Statement
of which this prospectus supplement and the accompanying prospectus forms a
part.
GENERAL
We are the world's only vertically-integrated provider of complete piping
systems and comprehensive engineering, procurement and construction services to
the power generation industry. While approximately 65% of our backlog at August
31, 2000 was attributable to the power generation industry, we also do work in
the process industries and the environmental and infrastructure sectors. Our
financial performance is impacted by the broader economic trends affecting our
customers. All of the major industries in which we operate are cyclical. Because
our customers participate in a broad portfolio of industries, our experience has
been that downturns in one of our sectors may be mitigated by opportunities in
others.
On July 14, 2000, we purchased most of the operating assets of Stone &
Webster for $37.6 million in cash, 2,231,773 shares of our common stock (valued
at approximately $105 million at closing) and the assumption of approximately
$585 million of liabilities. Our pro forma financial statements reflect the fair
value of the assets acquired to be approximately $734 million, including $143
million of goodwill. This acquisition has more than doubled the size of our
company, increasing significantly our engineering, procurement and construction
businesses, and will significantly impact our operations and our working capital
requirements. For additional information regarding the Stone & Webster
acquisition, please see "Unaudited Pro Forma Combined Condensed Financial
Information," "Business" and "-- Liquidity and Capital Resources."
As of August 31, 2000 and giving effect to the Stone & Webster acquisition,
our backlog was approximately $1.9 billion, of which 65% was attributable to
power generation, 19% was attributable to processing and 13% was attributable to
our environmental and infrastructure work. We estimate that $836 million, or
44%, of our backlog at August 31, 2000 will be completed in fiscal year 2001.
Our backlog is largely a reflection of the broader economic trends being
experienced by our customers and is important to us in anticipating our
operational needs. Backlog is not a measure defined in generally accepted
accounting principles and our backlog may not be comparable to backlog of other
companies. We cannot assure you that revenues projected in our backlog will be
realized, or if realized, will result in profits. See "Risk Factors" and
"Business -- Backlog."
S-28
<PAGE> 32
RESULTS OF OPERATIONS
Nine months ended May 31, 1999 compared to nine months ended May 31, 2000
The following table sets forth, for the periods indicated, the percentages
of our net sales that certain income and expense items represent:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
------------------
2000 1999
------ ------
<S> <C> <C>
Sales....................................................... 100.0% 100.0%
Cost of sales............................................... 81.0 83.6
----- -----
Gross profit.............................................. 19.0 16.4
General and administrative expenses......................... 12.2 9.8
----- -----
Operating income.......................................... 6.8 6.6
Interest expense............................................ (1.9) (1.0)
Other income, net........................................... .2 .1
----- -----
(1.7) (.9)
Income before income taxes, earnings from unconsolidated
entity and cumulative effect of change in accounting
principle................................................. 5.1 5.7
Provision for income taxes.................................. 1.7 1.8
----- -----
Income before earnings from unconsolidated entity and
cumulative effect of change in accounting principle....... 3.4 3.9
Earnings from unconsolidated entity......................... .1 .2
----- -----
Income before cumulative effect of change in accounting
principle................................................. 3.5 4.1
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes.............................. -- (.1)
----- -----
Net income.................................................. 3.5% 4.0%
===== =====
</TABLE>
Sales increased approximately 41% to $498.8 million for the nine months
ended May 31, 2000, compared to $353.9 million for the same period in the prior
year.
The Company's sales to customers in the following geographic regions
approximated the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-------------------------------------
1999 2000
----------------- -----------------
GEOGRAPHIC REGION IN MILLIONS % IN MILLIONS %
----------------- ----------- --- ----------- ---
<S> <C> <C> <C> <C>
North America...................................... $261.2 74% $391.5 78%
Europe............................................. 33.5 10 45.0 9
Asia-Pacific....................................... 32.4 9 23.4 5
South America...................................... 10.8 3 22.2 4
Middle East........................................ 8.7 2 3.8 1
Other.............................................. 7.3 2 12.9 3
------ --- ------ ---
$353.9 100% $498.8 100%
====== === ====== ===
</TABLE>
Sales for domestic projects increased to $391.5 million for the nine months
ended May 31, 2000, from $261.2 million for the nine months ended May 31, 1999.
Sales to all domestic industry sectors increased, except for a 10% decrease in
the chemical and petrochemical sector, with the primary increases being to the
power generation and crude oil refining sectors. Sales for international
projects increased $14.6 million or 16%, to $107.3 million for the nine months
ended May 31, 2000, from $92.7 million for the same period of the prior year.
Sales remain sluggish in the Asia-Pacific region, but inquiry activity is
starting to pickup. Even though sales in the South American region for the nine
months ended May 31, 2000, show some improvements and inquiries are active, our
short-term outlook is uncertain in this region due to general
S-29
<PAGE> 33
economic conditions and particularly, with respect to Venezuela, political
conditions. For the nine months ended May 31, 2000, virtually all European
sector sales were to the United Kingdom. European inquiries remain strong,
particularly in Spain. We continue to believe that the Asia-Pacific, Middle
East, South American and European markets present significant long-term
opportunities for us.
The Company's sales to customers in the following industry sectors
approximated the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-----------------------------------------
INDUSTRY SECTOR 1999 2000
--------------- ------------------- -------------------
IN MILLIONS % IN MILLIONS %
------------- --- ------------- ---
<S> <C> <C> <C> <C>
Power Generation........................................ $107.8 30% $197.4 40%
Chemical and Petrochemical Processing................... 129.3 37 116.9 23
Crude Oil Refining...................................... 70.2 20 127.3 26
Oil and Gas Exploration and Production.................. 21.3 6 22.2 4
Other................................................... 25.3 7 35.0 7
------ --- ------ ---
$353.9 100% $498.8 100%
====== === ====== ===
</TABLE>
The power generation sector had an increase in domestic projects, which was
offset by small decreases in international projects. For the nine months ended
May 31, 2000 sales in the chemical and petrochemical processing sector were
$116.9 million compared to $129.3 million for the prior comparable period. Due
to the relatively minor amounts of petrochemical processing sales, sales to this
industry (which in past periods have been reported separately) have been
combined with chemical processing sales. Sales related to domestic power
generation projects increased due to new power generation projects, including
the previously announced $300 million five-year contract with General Electric.
Crude oil refining industry sales had increases in both the domestic and
international markets. Oil and gas exploration and production sales, which are
almost exclusively domestic, remain sluggish.
The gross profit margin for the nine months period ended May 31, 2000
decreased to 16.4% from 19.0% for the same period in the prior year. We are
involved in numerous projects, all of which affect gross profit in various ways,
such as product mix, pricing strategies, foreign versus domestic work (profit
margins differ, sometimes substantially, depending on where the work is
performed), and constant monitoring of percentage of completion calculations.
Gross profit margin was negatively impacted by our revenues related to erection
and maintenance services, which generally carry lower margins than fabrication
work.
General and administrative expenses increased to $49.1 million from $43.0
million for the nine months ended May 31, 2000 compared to the nine months ended
May 31, 1999. This increase resulted primarily from increases in expenses
related to increased sales and other normal business expenses. As a percentage
of sales, however, general and administrative expenses decreased to 9.8% for the
nine months ended May 31, 2000 from 12.2% for the comparable prior period.
Interest expense varies from period to period due to several factors,
including the level of borrowings and interest rate fluctuations on variable
rate loans. Even though interest rates increased on our primary revolving line
of credit facility over the prior year's rates, interest expense on that line of
credit facility decreased $1.3 million due to lower borrowings, resulting from
paydowns utilizing the proceeds from our November 1999 public stock offering.
The effective tax rates for the nine months periods ended May 31, 2000 and
1999 were 32.6% and 33.1%, respectively. The tax rates for each period relate
primarily to the projected mix of foreign (including foreign export sales)
versus domestic work and the constant review of year-end estimates for each
fiscal year.
S-30
<PAGE> 34
Fiscal years 1997, 1998 and 1999
The following table presents certain income and expense items as a
percentage of our sales for the years ended August 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Sales....................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 80.9 84.1 81.0
----- ----- -----
Gross profit.............................................. 19.1 15.9 19.0
General and administrative expenses......................... 11.2 9.7 12.2
----- ----- -----
Operating income.......................................... 7.9 6.2 6.8
Interest expense............................................ (2.0) (1.7) (1.8)
Other income, net........................................... -- 0.1 0.3
----- ----- -----
Income before income taxes................................ 5.9 4.6 5.3
Provision for income taxes.................................. 1.8 1.4 1.8
----- ----- -----
Income from continuing operations before earnings (losses)
from unconsolidated entity................................ 4.1 3.2 3.5
Earnings (losses) from unconsolidated entity................ 0.2 -- 0.2
----- ----- -----
Income from continuing operations......................... 4.3 3.2 3.7
Discontinued operations, net of tax:
Operating results......................................... (0.1) 0.1 --
Net gain on disposals..................................... -- 0.5 --
----- ----- -----
Net income.................................................. 4.2% 3.8% 3.7%
===== ===== =====
</TABLE>
Fiscal 1999 compared to fiscal 1998
Revenues decreased slightly to $494.0 million in fiscal 1999 from $501.6
million in fiscal 1998. Gross profit increased 17.8% to $93.8 million in fiscal
1999 from $79.6 million in fiscal 1998. These variances are discussed below.
Our sales to customers in the following geographic regions approximated the
following amounts and percentages:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------
GEOGRAPHIC REGION 1998 1999
----------------- --------------------- ---------------------
IN MILLIONS % IN MILLIONS %
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
North America................................. $286.5 57.1% $366.2 74.1%
Asia-Pacific.................................. 100.6 20.0 41.1 8.3
Europe........................................ 55.8 11.1 49.7 10.1
South America................................. 31.9 6.4 18.7 3.8
Middle East................................... 18.4 3.7 10.2 2.1
Other......................................... 8.4 1.7 8.1 1.6
------ ----- ------ -----
$501.6 100.0% $494.0 100.0%
====== ===== ====== =====
</TABLE>
Revenues from domestic projects increased $79.7 million, or 28%, from
$286.5 million for fiscal 1998 to $366.2 million for fiscal 1999. Increases were
experienced in all domestic industry sectors except petrochemical processing.
Revenues from international projects decreased $87.3 million, or 41%, from
$215.1 million for fiscal 1998 to $127.8 million for fiscal 1999. The decline in
international sales was primarily attributable to decreases in activity in the
power generation sector in the Asia-Pacific region, in the crude oil refining
sector in South America and the Middle East and in the chemical processing
sector in South America.
S-31
<PAGE> 35
Our sales to customers in the following industries approximated the
following amounts and percentages:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------
INDUSTRY SECTOR 1998 1999
--------------- --------------------- ---------------------
IN MILLIONS % IN MILLIONS %
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Power Generation.............................. $193.5 38.6% $161.8 32.8%
Chemical Processing........................... 132.6 26.4 141.0 28.5
Crude Oil Refining............................ 83.9 16.7 109.3 22.1
Petrochemical Processing...................... 42.4 8.5 20.8 4.2
Oil and Gas Exploration and Production........ 23.1 4.6 29.0 5.9
Other......................................... 26.1 5.2 32.1 6.5
------ ----- ------ -----
$501.6 100.0% $494.0 100.0%
====== ===== ====== =====
</TABLE>
Although our total revenues from power generation projects declined in
fiscal 1999 compared to fiscal 1998, revenues from domestic power generation
projects increased nearly 51% for fiscal 1999 compared to fiscal 1998 due to new
domestic power generation projects, including the start-up of our announced $300
million, five-year contract for General Electric in August 1999. In fiscal 1999,
we experienced a decline in international power generation project revenues,
particularly in the Asia-Pacific market due to general economic conditions.
Revenues associated with international power generation projects declined 33% in
fiscal 1999 compared to fiscal 1998.
Revenues from the chemical processing industry increased in fiscal 1999
over the prior year due to increased domestic activity offset in part by
decreased international activity. The decrease in international chemical
processing revenues was due primarily to weak activity in the South American
region as a result of general economic conditions.
Revenues from the crude oil refining industry for fiscal 1999 increased
over the prior year due to increases in domestic project activity exceeding
declines in international project activity. Domestically, our activity was
positively impacted by a large construction project for a refinery in Norco,
Louisiana that accounted for approximately 14% of our revenues in fiscal 1999.
We experienced a decrease in revenues from international crude oil refining
primarily due to weak activity in South America (resulting from general economic
conditions and recent political events, particularly in Venezuela) and the
Middle East.
Revenues from the petrochemical processing industry decreased significantly
in both the domestic and international markets during fiscal 1999 compared to
the prior year. The decrease in revenues from petrochemical processing was
primarily attributable to weak global demand.
Revenues from the oil and gas exploration and production industry increased
in fiscal 1999 over fiscal 1998 due to the results of a subsidiary that we
acquired in July 1998 and were partially offset by reductions in oil and gas
project work performed by our other subsidiaries. Most of our revenues from this
sector are domestic.
Our gross profit margin for fiscal 1999 increased to 19.0% from 15.9% for
the prior year. The gross profit margin was positively impacted by increased
revenues from higher-margin projects in the domestic power generation, chemical
processing and crude oil refining industries. The overall increase in demand for
domestic power generation related projects has had a favorable impact on margins
for those projects. During fiscal 1999, we entered into a contract for the
expansion of a refinery in Norco, Louisiana which excluded materials and
subcontractor costs from the scope of our services. The increase in the gross
profit margin was partially offset by continued lower margins on our
manufactured products due to pricing pressures from foreign imports and lower
margins from our foreign operations due to reduced activity in the foreign power
generation and petrochemical processing industries. During the second half of
fiscal 1999, we began to experience easing of pricing pressures for foreign
imports.
S-32
<PAGE> 36
General and administrative expenses were $60.1 million for fiscal 1999, up
24% from $48.5 million for fiscal 1998. The increase primarily related to growth
of our erection and construction services and the integration of Shaw Bagwell,
Inc., our oil and gas services subsidiary, and Shaw Lancas, C.A., our Venezuelan
construction subsidiary, into our business for all of fiscal 1999.
For fiscal 1999, interest expense was $8.6 million, up $0.1 million from
$8.5 million in the previous year. Interest expense varies in relation to the
balances in, and variable interest rates under, our principal revolving line of
credit facility, which has generally been used to provide working capital and
fund fixed asset purchases and subsidiary acquisitions. Additionally, during
fiscal 1999, we used our line of credit facility to purchase treasury stock
totaling $13.7 million.
Our effective tax rates for fiscal 1998 and fiscal 1999 were 30.2% and
33.1%, respectively. The increase in our effective tax rate from fiscal 1998 to
fiscal 1999 was due to the reduced amount of foreign export sales and a reduced
amount of income earned in foreign jurisdictions with lower tax rates than the
United States Federal rate.
Fiscal 1998 compared to fiscal 1997
Revenues increased 49.4% for fiscal 1998 to $501.6 million from $335.7
million for fiscal 1997. Gross profit increased 24.4% to $79.6 million for
fiscal 1998 from $64.0 million for fiscal 1997. Approximately $112 million of
the increase in revenues related to sales of subsidiaries that we acquired
during fiscal 1998.
Our sales to customers in the following geographic regions approximated the
following amounts and percentages:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------
GEOGRAPHIC REGION 1997 1998
----------------- ------------------- -------------------
IN MILLIONS % IN MILLIONS %
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
North America.................................... $232.5 69.3% $286.5 57.1%
Asia-Pacific..................................... 62.6 18.6 100.6 20.0
Europe........................................... 4.8 1.4 55.8 11.1
South America.................................... 18.4 5.5 31.9 6.4
Middle East...................................... 12.8 3.8 18.4 3.7
Other............................................ 4.6 1.4 8.4 1.7
------ ----- ------ -----
$335.7 100.0% $501.6 100.0%
====== ===== ====== =====
</TABLE>
Revenues from domestic projects increased $54.0 million, or 23%, from
$232.5 million for fiscal 1997 to $286.5 million for fiscal 1998. Revenues in
fiscal 1998 from all geographic areas increased over fiscal 1997 levels
primarily due to our continued expansion through acquisitions. The increase in
revenues from Europe in fiscal 1998, compared to the prior year, was primarily
due to the acquisition of our United Kingdom operations (Pipework Engineering
and Development and Prospect) in the first quarter of fiscal 1998. During fiscal
1998, we began streamlining our United Kingdom operations.
Our sales to customers in the following industry sectors approximated the
following amounts and percentages:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------
INDUSTRY SECTOR 1997 1998
--------------- ------------------- -------------------
IN MILLIONS % IN MILLIONS %
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Power Generation................................. $101.2 30.1% $193.5 38.6%
Chemical Processing.............................. 130.4 38.9 132.6 26.4
Crude Oil Refining............................... 47.8 14.2 83.9 16.7
Petrochemical Processing......................... * * 42.4 8.5
Oil and Gas Exploration and Production........... * * 23.1 4.6
Other............................................ 56.3 16.8 26.1 5.2
------ ----- ------ -----
$335.7 100.0% 501.6 100.0%
====== ===== ====== =====
</TABLE>
---------------
* Sales for our petrochemical processing and oil and gas exploration and
production sectors are not segregated and are included in the other sectors
in the above chart for fiscal 1997.
S-33
<PAGE> 37
Revenues from the power generation sector in fiscal 1998 increased over the
prior year primarily due to increased revenues from the international power
generation market. Revenues from the international power generation market
increased primarily as a result of the acquisitions of Pipework Engineering and
Development and Prospect. Domestic power generation revenues also increased
primarily due to the expansion of construction services performed by our
subsidiaries that were acquired in February and March of 1997.
Revenues from the chemical processing sector increased slightly over fiscal
1997 as a result of increased activity in both the domestic and international
markets.
Revenues from the crude oil refining sector for fiscal 1998 increased over
fiscal 1997 due to increased activity in the international markets.
Revenues from the petrochemical processing and oil and gas exploration and
production sectors were not segregated during fiscal 1997; therefore,
explanations of variances are not available. The decline in other sector
revenues in fiscal 1998 is the result of a decline in revenues from our pipe
fabrication and bending operations in 1998 due to the substantial completion of
a large mining contract in fiscal 1997.
Gross profit margins in fiscal 1998 decreased to 15.9% from 19.1% for
fiscal 1997 due primarily to the following factors:
- a higher volume of pipe erection, maintenance and related construction
services work in fiscal 1998, which typically produces a lower gross
profit margin;
- reduced gross profit margins on our manufactured products due to pricing
pressure from foreign imports in fiscal 1998; and
- lower profit margins realized from our United Kingdom operations since
the acquisition of Pipework Engineering and Development and Prospect.
General and administrative expenses were $48.5 million for fiscal 1998, up
29.7% from $37.4 million for fiscal 1997. Approximately $9 million of the
increase relates to general and administrative expenses of newly acquired
subsidiaries, including those owned for only part of fiscal 1997. The remaining
increase is related to increased corporate overhead costs due to the general
expansion of our operations. However, as a percentage of revenues, general and
administrative expenses decreased from 11.2% in fiscal 1997 to 9.7% in fiscal
1998.
Interest expense for fiscal 1998 was $8.5 million, up 25.0% from $6.8
million in fiscal 1997, primarily due to increased borrowings to expand our
business and to complete the acquisitions of Prospect, Cojafex, Pipework
Engineering and Development and Lancas in 1998.
Our effective tax rates for fiscal 1997 and fiscal 1998 were 30.6% and
30.2%, respectively. The decrease in the fiscal 1998 rates from fiscal 1997 was
primarily due to additional tax savings from higher foreign export sales and
foreign sourced income taxed at lower rates, partially offset by lower state
income tax incentives and refunds.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $40.9 million for the nine months ended May
31, 2000, compared to $11.7 million provided by operations for the same period
of the previous fiscal year. For the nine months ended May 31, 2000, cash from
operating activities was favorably impacted by net income of $19.9 million and
depreciation and amortization of $10.2 million. Offsetting these positive
factors were changes in certain assets and liabilities of $68.5 million and
other non-cash items of $2.6 million. Increases in accounts receivables and cost
and estimated earnings in excess of billings on uncompleted contracts of
approximately $71.3 million were offset by other net changes of approximately
$2.8 million, resulting in the $68.5 million change in certain assets and
liabilities.
S-34
<PAGE> 38
Net cash used in investing activities was $10.6 million for the nine months
ended May 31, 2000, compared to $27.2 million for the same period of the last
fiscal year. During the nine months ended May 31, 2000, the Company purchased
approximately $12.1 million of property and equipment compared to $15.9 million
for the nine months ended May 31, 1999. During the nine months ended May 31,
2000, the Company also received $1.4 million from the sale of property and
equipment.
Net cash provided by financing activities was $51.1 million for the
nine-month period ended May 31, 2000, compared to $16.0 million provided for the
nine months ended May 31, 1999. The primary source of cash for the nine months
ended May 31, 2000 was the sale of 3,450,000 shares of our common stock. The net
proceeds of $67.5 million were used to pay down amounts outstanding under our
primary revolving line of credit facility and certain other long-term debt. The
Company's primary revolving line of credit facility has been used by us to
provide working capital, as well as to fund fixed asset purchases and subsidiary
acquisitions. We also received $1.2 million from the exercise of stock options
during the nine months ended May 31, 2000.
In July 2000, we entered into a new working capital facility with Bank One,
NA, which bears interest at an annual rate of LIBOR plus 2.75% at August 31,
2000 and matures on May 31, 2002. This facility provides for revolving
borrowings of up to $300 million and up to $100 million available for letters of
credit. The facility permits us to establish up to $150 million in letters of
credit, but reduces the revolver in such an event to $250 million. Amounts
received from the proposed sale of our cold storage business will reduce the
capacity under this facility by up to $50 million. Amounts received from other
asset sales may result in additional reductions. At August 31, 2000,
approximately $235.2 million was outstanding under the revolving credit facility
and approximately $80 million in letters of credit were outstanding. We expect
to have approximately $170 million of borrowing capacity under our revolving
credit facility upon completion of this offering.
On a historical basis at May 31, 2000, we had a working capital balance of
approximately $186.4 million. In connection with our acquisition of Stone &
Webster, we assumed a working capital deficit of approximately $131.7 million
which excludes assets held for sale of approximately $85 million related to the
proposed sale of our cold storage business. The majority of this deficit was
attributable to advanced billings and billings in excess of cost which generally
represent work we have billed but not yet performed and accruals for contracts
on which we expect losses. As a result, on a pro forma basis as of May 31, 2000,
we had a positive working capital balance of approximately $54.7 million. This
balance excludes approximately $59 million of short-term obligations that were
refinanced into our new revolving credit facility and are now reflected in
long-term debt. Because the Stone & Webster acquisition has more than doubled
the size of our operations and because a number of the contracts assumed in the
acquisition will result in negative cash flow in the near term, we cannot assure
you that our working capital requirements associated with our ongoing projects
at any given point in time will not exceed our available borrowing capacity. To
the extent our working capital requirements exceed our borrowing capacity, our
operations could be significantly adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 131 -- "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS 131 requires us to report financial
and descriptive information about our operating segments in our financial
statements.
In early 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." The statement is effective for fiscal years beginning after
December 15, 1998 and will require costs of start-up activities and organization
costs to be expensed as incurred. Any unamortized costs on the date of adoption
of the new standard will be written off and reflected as a cumulative effect of
a change in accounting principle. We adopted this new requirement in fiscal 2000
which resulted in a change in amounts for start-up costs. We expensed previously
unamortized deferred start-up costs of approximately $320,000, net of taxes.
This change is reported as cumulative effect of a change in accounting
principle.
S-35
<PAGE> 39
During fiscal 1999, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Changes in a derivative's
fair value are to be recognized currently in earnings unless specific hedge
accounting criteria are met. We will be required to adopt SFAS No. 133, as
amended by SFAS No. 137 which defers the effective date, on September 1, 2000.
We have not yet quantified the impact on our financial statements that may
result from adoption of SFAS No. 133; however, we do not use derivative
instruments or hedging activities extensively in our business.
S-36
<PAGE> 40
BUSINESS
OVERVIEW
We are the world's only vertically-integrated provider of complete piping
systems and comprehensive engineering, procurement and construction services to
the power generation industry. We are the largest supplier of fabricated piping
systems in the United States and a leading supplier worldwide, having installed
piping systems in over 375 power plants with an aggregate generation capacity in
excess of 200,000 megawatts. While approximately 65% of our backlog at August
31, 2000 was attributable to the power generation industry, we also do work in
the process industries, including petrochemical, chemical and refining, and the
environmental and infrastructure sectors.
We have taken several important steps to capitalize on the growing demand
for new power generation capacity. These steps include:
- partnering with Entergy Corporation to create EntergyShaw, a new company
that will develop cost-effective, combined-cycle power plants for Entergy
Corporation and other customers in the unregulated power market;
- the acquisition of most of the operating assets of Stone & Webster,
Incorporated, a leading provider of engineering, procurement and
construction services to the power generation industry for over 100
years; and
- an agreement with General Electric to supply at least 90% of the pipe
fabrication requirements related to its gas turbine sales through 2004;
we have provided piping systems for over 200 turbines under this
agreement to date.
We were founded in 1987 and have expanded rapidly through internal growth
and the completion and integration of a series of strategic acquisitions. After
giving effect to the Stone & Webster acquisition, our fiscal 1999 pro forma
revenues were approximately $1.4 billion and our backlog at August 31, 2000 was
approximately $1.9 billion. We currently have offices and operations in North
America, South America, Europe, the Middle East and Asia-Pacific and have more
than 13,000 employees.
RECENT DEVELOPMENTS
EntergyShaw. On June 2, 2000, we announced plans to create a new,
equally-owned and jointly-managed company with Entergy Corporation. Subsequent
to this announcement, Entergy and FPL Group, Inc., the parent of Florida Power &
Light, announced a merger which will create the largest U.S. power producer with
generating capacity in excess of 48,000 megawatts. EntergyShaw's initial focus
will be the construction of power plants in North America and Europe for
Entergy's and Florida Power & Light's unregulated wholesale operations. On a
combined basis, Entergy and Florida Power & Light have approximately 70 turbines
on order for their unregulated operations. We expect that the installation of
most of these turbines will be managed by EntergyShaw, subject to the approval
of its joint-management committee. We estimate that EntergyShaw will generate
approximately $100 million in revenues per turbine installed. We expect to
provide the engineering, procurement, fabrication and construction requirements
to EntergyShaw for these plants. Under the terms of the arrangement, we will
present engineering, procurement and construction opportunities that we receive
after December 31, 2000 for power generation projects to the new company.
Stone & Webster Acquisition. Effective July 14, 2000, we purchased most of
the operating assets of Stone & Webster, a leading engineering and construction
company, for $37.6 million in cash, 2,231,773 shares of our common stock (valued
at approximately $105 million at closing and which are being offered by this
prospectus supplement) and the assumption of approximately $585 million of
liabilities. Our pro forma financial statements reflect the fair value of the
assets acquired to be approximately $734 million, including $143 million of
goodwill. Stone & Webster is a leading global provider of engineering,
procurement, construction, consulting and environmental services to the power,
process, environmental and infrastructure markets. Stone & Webster was formed in
1889 and has focused
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on the power generation industry for most of its existence. Stone & Webster's
capabilities complement and enhance our traditional strengths in project
execution and pipe fabrication and enable us to deliver a more complete,
cost-effective package of products and services to our power and process
customers. We believe our combined capabilities will significantly increase the
amount of work we can do for EntergyShaw. In addition, we believe we may achieve
as much as $35 million in annual cost savings in Stone & Webster's operations
through reductions in personnel, office lease and business development expenses.
However, there can be no assurance as to the actual cost savings we may realize.
The asset purchase was concluded as part of a proceeding under Chapter 11 of the
U.S. Bankruptcy Code.
Nanjing, China Ethylene Plant Project. On August 28, 2000, we announced the
execution of a letter of intent for the construction of a 600,000 metric
ton-per-year ethylene plant in China which will allow us to utilize
substantially completed engineering and equipment which we acquired from Stone &
Webster and were previously slated for use on a similar project. The other
parties to the agreement are BASF AG and China Petroleum & Chemical Corporation.
OUR BUSINESS STRATEGY
Our business strategy is to increase shareholder value by capitalizing on
the significant opportunities in the high-growth power sector and other select
markets. We intend to achieve this goal by:
Capitalizing on the complementary strengths Stone & Webster brings to our
company. As a result of the Stone & Webster acquisition, we are uniquely
positioned as the world's only vertically-integrated provider of complete piping
systems and comprehensive engineering, procurement and construction services to
the power generation industry. We believe that this combination of abilities
will reduce lead times and costs to our customers.
Utilizing disciplined project acquisition and management. We intend to
focus our activities on cost reimbursable and negotiated lump-sum work with
well-established clients. We believe these types of contracts reduce our
exposure to unanticipated and unrecoverable cost overruns. Negotiated lump-sum
contracts are obtained by direct negotiation rather than on a competitively bid
basis. In instances where we enter into fixed-price, lump-sum contracts, we will
rely on our management team's long history of executing erection and
installation projects on time and within budget as well as our disciplined
bidding practices to limit our exposure. In addition, we intend to employ
rigorous contract management controls to identify and reduce the risk of cost
overruns.
Leveraging our technology and intellectual property advantage. We will
continue to employ our technology and intellectual property to further reduce
costs and to better serve our customers. These technologies include:
- Induction pipe bending technology. We believe our induction pipe bending
technology is the most sophisticated, efficient technology available.
Induction bending is a technique using simultaneous super-heating and
compression of pipe to produce tight-radius bends to our customers'
specifications. When compared to the traditional cut and weld method, our
technology provides a more uniform and cost-effective product that is
generally considered to be stronger and less prone to structural fatigue.
- Proprietary ethylene technology. We believe we have a leading position in
technology associated with the process design of plants that produce
ethylene. We have supplied process technology for approximately 35% of
the world's ethylene capacity constructed since 1995.
- Reference plant design. We are developing a standardized "reference
plant," for use by EntergyShaw. This standardized design can be used on
multiple installations and should produce significant cost savings for
EntergyShaw's customers.
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- Proprietary customer-focused software. We have developed proprietary
software to aid in project and process management and the analysis of
power delivery. This software includes:
- proprietary SHAW-DRAW(TM) and SHAW-MAN(TM) software programs which
enhance our customers' ability to plan, engineer, schedule and track
their projects and reduce installation costs and cycle times; and
- proprietary software products which aid in the effective analysis of the
electric power delivery business.
Pursuing strategic relationships and maintaining diverse customer base. We
intend to continue to enter into alliance agreements and strategic partnerships
with current and future customers. Our piping alliance partners include AAL Borg
Industries, Air Products and Chemicals, Inc., Alstom Power, BASF AG, Bechtel
Corporation, The Dow Chemical Company, General Electric, Hitachi, J. Ray
McDermott, Orion Refining Corporation and Praxair, Inc. Because many of our
customers are active in more than one of the industries we serve, they have
historically remained significant purchasers of our piping systems and
engineering, procurement and construction services despite fluctuations in
activity within any one particular industry. Our alliance agreements enhance our
ability to obtain contracts for individual projects by eliminating formal bid
preparation. These agreements have tended to provide us with a steady source of
projects, minimize the impact of short-term pricing volatility and enable us to
anticipate a larger portion of future revenues. EntergyShaw and our agreement
with General Electric are examples of strategic relationships which we believe
will provide significant future revenues and new business opportunities.
Pursuing selective acquisitions. We intend to continue to pursue selective
acquisitions of businesses or assets that will expand or complement our current
portfolio of products and services. We have established a successful track
record of quickly and efficiently integrating our acquisitions. In most cases,
we established integration teams led by our senior executives. As an example, we
are utilizing a team led by our executive vice president and chief operating
officer to successfully integrate the assets acquired from Stone & Webster.
VERTICALLY-INTEGRATED PRODUCTS AND SERVICES
We provide complete piping systems as well as comprehensive engineering,
procurement and construction services for projects in the power generation,
process and environmental and infrastructure industries.
Piping Systems Fabrication
We provide integrated piping systems and services for new construction,
site expansion and retrofit projects. Piping system integration can account for
as much as 40% of the total man-hours associated with constructing a power
generation or materials processing facility. We provide fabrication of complex
piping systems from raw materials including carbon steel, stainless steel and
other alloys, nickel, titanium and aluminum. We fabricate pipe by cutting it to
length, welding fittings on the pipe and bending the pipe, each to precise
customer specifications. We currently operate pipe fabrication facilities in
Louisiana, Oklahoma, South Carolina, Texas, Utah, Virginia, the United Kingdom,
Venezuela and Bahrain, where we have a 49% interest in a joint venture. Our
fabrication facilities are capable of fabricating pipe ranging in diameter from
1/2 inch to 72 inches, with overall wall thicknesses from 1/8 inch to 7 inches.
We can fabricate pipe assemblies up to 100 feet in length and weighing up to 45
tons.
A significant portion of our work consists of the fabrication of piping
systems for use in high pressure, high temperature or corrosive applications,
including systems designed to withstand pressures of up to 2,700 pounds per
square inch and temperatures of up to 1,020 degrees Fahrenheit. In order to
ensure that our products can withstand these types of extreme conditions, we
have set rigid quality control standards for all of our products. In addition to
visual inspection, we use other advanced methods to confirm that our
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products meet specifications such as radiography, hydro-testing, dye penetration
and ultrasonic flaw detection.
In fiscal 1994, we began purchasing sophisticated induction pipe bending
equipment, which significantly increased our capacity to fabricate piping
systems in both volume and complexity. In addition, this equipment enables us to
substitute pipe bending for the more traditional cutting and welding techniques
on certain projects, resulting in labor, time and raw material savings. In
January 1998, we acquired Cojafex B.V. of Rotterdam, including the technology
for certain induction pipe bending machines used for bending pipe and other
carbon steel and alloy items for industrial, commercial and architectural
applications.
Primarily because of the significant reductions in labor, time and material
costs associated with pipe bending techniques, the market for pipe fabrication
is increasingly moving in the direction of bending according to customer
specifications. We believe that our technology is the most advanced of its kind
in the world and gives us a technological advantage in this growing segment of
the market.
We currently have eight induction pipe bending machines in operation
capable of bending pipe up to 66 inches in diameter with wall thicknesses of up
to five inches. The machine model numbers, locations and pipe bending
capabilities are presented in the following table:
<TABLE>
<CAPTION>
PIPE BENDING
CAPABILITIES
---------------------
MAXIMUM MAXIMUM
PIPE PIPE WALL
MODEL LOCATION DIAMETER THICKNESS
----- -------- --------- ---------
(IN INCHES)
<S> <C> <C> <C>
Cojafex PB Special 16............................. Walker, Louisiana 16 2.5
Cojafex PB Special 16............................. Laurens, South Carolina 16 2.5
Cojafex PB Special 16............................. Tulsa, Oklahoma 16 2.5
Cojafex PB Special 16............................. Manama, Bahrain 16 2.5
Cojafex PB-1200................................... Walker, Louisiana 48 4.0
Cojafex PB-1600................................... Clearfield, Utah 66 5.0
Cojafex PB-850.................................... Clearfield, Utah 34 3.0
Cojafex PB Special 12............................. Clearfield, Utah 12 .75
</TABLE>
Geographical sourcing requirements, local labor rates and transportation
considerations may make it difficult for us to use our domestic facilities to
compete on many international projects. Accordingly, we have established
facilities abroad to allow us to bid more competitively for international
projects. We currently operate fabrication facilities in Venezuela, the United
Kingdom and Bahrain. In November 1993, we entered into a joint-venture agreement
to construct and operate a fabrication facility in Bahrain. Our Bahrainian
joint-venture facility is one of the first modern pipe fabrication facilities in
the Middle East.
Engineering and Design
Our professionals provide a broad range of engineering, design and
design-related services. Our engineering capabilities include civil, structural,
mechanical, electrical, environmental and water resources. For each project, we
identify the project requirements and then integrate and coordinate the various
design elements. Other critical tasks in the design process may include value
analysis and the assessment of construction and maintenance requirements.
Our engineering capabilities for piping systems are directly linked to our
fabrication shops and our proprietary computer aided design system,
SHAW-DRAW(TM). SHAW-DRAW(TM) converts customer design drawings into our detailed
production drawings in seconds, significantly reducing the lead-time required
before fabrication can begin and substantially eliminating detailing errors. We
have also implemented SHAW-MAN(TM), which utilizes bar code technology to
efficiently manage and control the movement of all required materials through
each stage of the fabrication process. These proprietary programs enhance our
customers' planning and scheduling, reducing total installed costs and project
cycle times.
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Construction, Procurement and Maintenance
We provide construction and construction management services. We often
manage the procurement of materials, subcontractors and craft labor. We believe
we have significant expertise in effectively and efficiently managing this
process. Depending on the project, we may function as the primary contractor or
as a subcontractor to another firm. On some projects, we function as a
construction manager, engaged by the customer to oversee another contractor's
compliance with design specifications and contracting terms. Under operations
and maintenance contracts, we conduct repair, renovation, predictive and
preventative services to customer facilities worldwide.
Specialty Fittings Manufacturing and Distribution
We manufacture specialty stainless, alloy and carbon steel pipe fittings
for use in pipe fabrication. These pipe fittings include stainless and other
alloy elbows, tees, reducers and stub ends ranging in size from 1/2 inch to 48
inches and heavy wall carbon and chrome elbows, tees, caps and reducers with
wall thicknesses of up to 3 1/2 inches. We operate a manufacturing facility in
Shreveport, Louisiana, which distributes our fittings to our pipe services
operations and to third parties. We also operate several distribution centers in
the United States, which distribute our products as well as products
manufactured by third parties. Manufacturing pipe fittings enables us to realize
greater efficiencies in the purchase of raw materials, reduces overall lead
times and lowers total installed costs.
Consulting
We provide technical and economic analysis and recommendations to owners,
investors, developers, operators, and governments in the global power generation
industry. Our services include, among others, competitive market valuations,
asset valuations, assessment of stranded costs, plant technical descriptions and
energy demand modeling. We have particular expertise in the electronic
simulation and analysis of power transmission and distribution systems. We have
also developed software, educational programs and customized hardware solutions
to the electric power industry. Our activity in this area has grown
substantially over the past several years in response to deregulation of the
power industry domestically and privatization and deregulation initiatives
abroad.
MARKETS SERVED
Power Generation
Industry Overview. According to the Department of Energy, demand for
domestic electricity generation has increased substantially since 1990 while
capacity has remained relatively flat. This imbalance, coupled with deregulation
of the power industry and decommissioning of nuclear plants, has resulted in a
surge in domestic construction of power plants. According to the Energy
Information Administration, or EIA, a projected 1,000 new plants with a total of
300 gigawatts of capacity will be needed by 2020 to meet growing demand and to
offset retirements of nuclear and fossil fuel plants. Approximately 90% of new
capacity is projected to be combined-cycle or combustion turbine technology
fueled by natural gas or both oil and gas. The EIA estimates that by 2020,
approximately $30 billion will be expended annually on electricity generation
investments worldwide. The EIA further estimates that between 1998 and 2020
generating capacity from gas turbines and internal combustion engines is
expected to more than triple. Our backlog has increased significantly as a
result of this demand. In addition to significant capacity demand, much of the
U.S. is in the process of deregulating the production and sale of electricity.
To date, 24 states and the District of Columbia have adopted legislation or
regulations to deregulate and an additional 18 states are considering such
actions. Independent power producers and merchant power plants have and continue
to develop additional generation capacity, typically new plants which compete
directly with existing utilities, in response to the opportunity presented by
deregulation. Deregulation also creates demand for us from existing utilities
that must upgrade or develop new power plants to remain competitive. We expect
many existing plants to be "repowered" or substantially upgraded
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by replacing all or most of the plant with more efficient systems that can
profitably sell power into competitive markets.
The decommissioning and decontamination of nuclear power plants is a
growing business that we believe will see significant additional demand in the
future. This business segment consists of shutting down and safely removing a
facility from service while reducing the residual radioactivity to a level that
permits release of the property for unrestricted use and termination of the
license. The recent trend appears to be toward shutdown. The EIA estimates that
of the 97 gigawatts of domestic nuclear capacity available in 1998, 40 gigawatts
are projected to be retired by 2020, and no new plants are expected to be
constructed. We believe this trend toward shutdown is being driven by
deregulation (many nuclear plants are not cost-competitive in a deregulated
market), negative public perception of nuclear plants and limited storage space
for spent nuclear fuel. According to the U.S. Nuclear Regulatory Commission,
decontamination and decommissioning work is ongoing at six plants and is planned
for an additional 12 plants. We believe that decommissioning and decontamination
costs can be as high as $500 million per facility.
Our Services. Approximately $1.2 billion, or 65%, of our backlog as of
August 31, 2000, consists of work in the power generation industry. We are the
largest supplier of fabricated piping systems for power generation facilities in
the United States and a leading supplier worldwide, having installed piping
systems in over 375 power plants with an aggregate generation capacity in excess
of 200,000 megawatts. Piping system integration can account for as much as 40%
of the total man-hours associated with constructing a power generation or
materials processing facility. As a result of our acquisition of Stone &
Webster, a company which has concentrated on the power sector since its
formation in 1889, we also provide a full range of engineering, procurement and
construction services to power projects on a global basis. In addition, we
provide system-wide maintenance and modification services to existing power
plants. These projects can include upgrading emission control systems and
redesigning facilities to allow use of alternative fuels. We attempt to
concentrate on more complicated, non-commodity type projects, where our
technology, historical know-how and project management skills can add value to
the project.
We have a leading position in the growing decommissioning and
decontamination business for nuclear power plants. We are particularly well
positioned to participate in this market given our expertise in the nuclear
arena. Stone & Webster built 17 nuclear facilities in the 1970s and 1980s and
has performed work in 99 of the 104 nuclear power plants located in the U.S. We
have performed decommissioning and decontamination services for the Maine Yankee
Power Plant, Connecticut Yankee Haddam Neck Station, Dresden No. 1, Yankee Rowe,
Shoreham Nuclear, U.S. Army Materials Laboratory Research Reactor and various
facilities at the Savannah River Site.
Process
Industry Overview. Our process work includes work for customers primarily
in the chemical, petrochemical and refining industries. Demand in processing
industries has declined in recent years as a result of decreased spending by
chemical, petrochemical and refining companies and a downturn in the Asian
economy. To the extent the outlook for this sector improves, we expect to see
increased activity in our processing work. In the petrochemical field, we have
particular expertise in the construction of ethylene plants which convert gas
and/or liquid hydrocarbon feedstocks into ethylene, the source of many
higher-value chemical products, including packaging, pipes, polyester,
antifreeze, electronics, tires and tubes. The demand for our services in the
refining industry has been driven by refiners' need to process a broader
spectrum of crude and to produce a greater number of products. While the
refining process is largely a commodity activity, the configuration of each
refinery depends on the grade of crude feedstock available, desired mix of end
products and trade-offs between capital costs and operating costs. In addition,
increasingly stringent environmental regulations, including significantly
reduced emissions allowances required by the Clean Air Act, have increased
retrofit activity. Demand for our process services in the U.S. consists
primarily of maintenance and retrofit work, with the possibility for new
construction as demand increases.
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Our Services. Approximately $364 million, or 19%, of our backlog at August
31, 2000 consisted of work for chemical, petrochemical and refining customers.
In process facilities, piping systems are the critical path through which raw or
feedstock materials travel to be converted from one form of matter to another.
We fabricate fully-integrated piping systems as well as provide a complete suite
of engineering, procurement and construction services for these customers around
the world. Our chemical customers include BASF, Air Products & Chemicals,
Albemarle, Bayer and Dow Chemical. Our primary work in the petrochemical
industry involves the construction of plants which produce ethylene. Through our
acquisition of Stone & Webster, we are one of the leading companies in the
ethylene segment of the petrochemical processing industry and have supplied
process technology for 35% of the world's ethylene capacity constructed since
1995. While a number of our competitors in the refining sector own competitive
process technologies, our strength is in proprietary technologies which convert
low-value, heavy crude into more value added products. Our technology has been
used in over 80 refineries around the world. We also undertake related work in
the gas processing field, including propane dehydrogenation facilities, gas
treatment facilities, liquified natural gas plants and cryogenic processes.
Environmental and Infrastructure
Industry Overview. Federal, state and local governmental entities are the
primary customers for our engineering, procurement and construction services for
the environmental and infrastructure sectors. Within these sectors, we perform
environmental remediation services and work on, transportation and water and
wastewater facilities projects. Demand for our environmental remediation
services is driven by federal, state and local laws and regulations and
enforcement activity. Similarly, demand for our services in the water and
wastewater business is driven largely by local government spending to maintain,
upgrade or expand water and wastewater processing capacity.
Demand in the transportation infrastructure sector is driven by
governmental appropriation programs which are typically multi-year in scope. The
Transportation Equity Act for the 21(st) Century is an infrastructure investment
appropriations bill enacted by the U.S. Congress that earmarks $177 billion for
highway construction and $41 billion for transit spending over the fiscal
1998-2003 period. In addition, Congress passed the Aviation Investment and
Reform Act for the 21(st) Century, which provides for $12 billion in
construction spending over four years to support the FAA's Airport Improvement
Program.
Our Services. Approximately $249 million, or 13%, of our backlog at August
31, 2000 consisted of projects in the environmental and infrastructure markets.
Our environmental projects are largely for governmental entities. Typical
projects include work for the U.S. Department of Energy (DOE) and Department of
Defense (DOD). For the DOE, we are working on several former nuclear-weapons
production facilities where we provide engineering, construction and
construction management for environmental remediation activities. For the DOD,
we are involved in projects at several superfund sites under programs managed by
the U.S. Army Corps of Engineers. We are also continuing work for the DOD under
a five-year chemical weapons demilitarization contract with the U.S. Army. This
work includes designing several neutralization facilities, as well as evaluating
new technologies for the destruction of weapons stockpiles.
In the infrastructure arena, our work consists of transportation and water
projects. We have particular expertise in rail transit systems, including
subways, and also participate in selected tunnel, bridge, airport and highway
projects. In the water sector, we provide engineering and construction
management services to local government agencies, often in alliances with other
firms. Recent projects include: construction management for the Metro West Water
Supply Tunnel in Massachusetts; construction management for a leachate migration
system at the Fresh Kills landfill in New York; and engineering and construction
for a membrane water treatment plant in Florida.
ASSETS HELD FOR DISPOSITION
Our cold storage division, which was acquired in our Stone & Webster
acquisition, provides storage and frozen-food handling services from 25 cold
storage warehouses in Georgia, North Carolina,
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South Carolina, Alabama, Mississippi and Ohio. We are actively marketing these
assets for sale. These assets are valued at approximately $85 million on our pro
forma balance sheet at May 31, 2000. However, the operating results of this
division are not included in our pro forma statements of income. See "Unaudited
Pro Forma Combined Condensed Financial Information."
BACKLOG
We define our backlog as a "working backlog," which includes projects for
which we have received a commitment from our customers. This commitment
typically takes the form of a written contract for a specific project, a
purchase order or a specific indication of the amount of time or material we
need to make available for a customer's anticipated project. In certain
instances the engagement is for a particular product or project for which we
estimate anticipated revenue, often based on engineering and design
specifications that have not been finalized and may be revised over time. Our
backlog for maintenance work is derived from maintenance contracts and our
customers' historic maintenance requirements. We estimate that our backlog was
approximately $1.9 billion at August 31, 2000. Our backlog does not include
revenues we may earn through EntergyShaw or the ethylene project in Nanjing,
China. We estimate that $836 million, or 44%, of our backlog at August 31, 2000
will be completed in fiscal 2001.
Approximately $350 million, or 18%, of our backlog at August 31, 2000 was
attributable to a contract with General Electric that requires us to fabricate
at least 90% of the pipe necessary to install the combined-cycle gas turbines to
be built by General Electric domestically through 2004. Approximately 40% of the
backlog related to the General Electric contract is for power generation
projects for which General Electric has been engaged and for which we have
received a work release or have been notified that a work release is pending.
The balance is for work for which General Electric has requested that we reserve
capacity. We cannot assure you that all of these projects will be constructed or
that they will be completed in our currently anticipated time frame.
Many of our contracts provide for cancellation fees in the event projects
in backlog are canceled by customers. However, we typically have no contractual
right to the total revenues reflected in our backlog. These cancellation fees
usually provide for reimbursement of our out-of-pocket costs, revenue associated
with work performed to date and a varying percentage of the profits we would
have realized had the contract been completed. In addition to cancellation
risks, projects may remain in our backlog for extended periods of time.
The following table breaks out the percentage of our backlog in the
following industry sectors and geographic regions for the periods indicated and
includes backlog associated with our acquisition of Stone & Webster:
<TABLE>
<CAPTION>
AT AUGUST 31, 2000
------------------
IN MILLIONS %
----------- ---
<S> <C> <C>
INDUSTRY SECTOR
------------------------------------------------------------
Power Generation............................................ $1,244 65%
Process..................................................... 364 19
Environmental and Infrastructure............................ 249 13
Other....................................................... 57 3
------ ---
$1,914 100%
====== ===
GEOGRAPHIC REGION
------------------------------------------------------------
Domestic.................................................... $1,531 80%
International............................................... 383 20
------ ---
$1,914 100%
====== ===
</TABLE>
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Our backlog is largely a reflection of the broader economic trends being
experienced by our customers and is important to us in anticipating our
operational needs. Backlog is not a measure defined in generally accepted
accounting principles and our backlog may not be comparable to backlog of other
companies. We cannot assure you that revenues projected in our backlog will be
realized, or if realized, will result in profits. See "Risk Factors."
TYPES OF CONTRACTS
We intend to focus our activities on cost reimbursable and negotiated
lump-sum work with well-established clients. We believe these types of contracts
reduce our exposure to unanticipated and unrecoverable cost overruns. Negotiated
lump-sum contracts are obtained by direct negotiation rather than on a
competitive bid basis. We have entered into fixed price, lump-sum or unit price
contracts on a significant number of our domestic piping contracts and
substantially all of our international piping projects. In addition,
approximately 35% of the contract value we assumed in the Stone & Webster
acquisition relates to fixed price or lump-sum contracts. Under fixed, maximum
or unit price contracts, we agree to perform the contract for a fixed price and
as a result, benefit from costs savings, but are unable to recover for any cost
overruns. Under certain negotiated lump-sum contracts, we share with the
customer any savings up to a negotiated ceiling price and carry some or all of
the burden of costs exceeding the negotiated ceiling price. Contract prices are
established based in part on cost estimates which are subject to a number of
assumptions, such as assumptions regarding future economic conditions. If in the
future these estimates prove inaccurate, or circumstances change, cost overruns
can occur which could have a material adverse effect on our business and results
of our operations. Our profit for these projects could decrease, or we could
experience losses, if we are unable to secure fixed pricing commitments from our
suppliers at the time the contracts are entered into or if we experience cost
increases for material or labor during the performance of the contracts.
In addition, we have several significant projects for agencies of the U.S.
Government. Generally, U.S. Government contracts are subject to oversight audits
by government representatives, to profit and cost controls and limitations, and
to provisions permitting modification or termination, in whole or in part,
without prior notice, at the government's convenience and with payment of
compensation only for work done and commitments made at the time of termination.
In the event of termination, we generally receive some allowance for profit on
the work performed. In some cases, government contracts are subject to the
uncertainties surrounding congressional appropriations or agency funding.
Government business is subject to specific procurement regulations and a variety
of socio-economic and other requirements. Failure to comply with such
regulations and requirements could lead to suspension or debarment, for cause,
from future government contracting or subcontracting for a period of time. Among
the causes for debarment are violations of various statutes, including those
related to employment practices, the protection of the environment, the accuracy
of records and the recording of costs.
Our alliance agreements expedite individual project contract negotiations
through means other than the formal bidding process. These agreements typically
contain a standardized set of purchasing terms and pre-negotiated pricing
provisions and often provide for annual price adjustments. Alliance agreements
allow our customers to achieve greater cost efficiencies and reduced cycle times
in the design and fabrication of complex piping systems for power, chemical and
refinery projects. In addition, while these agreements do not typically contain
committed volumes, we believe that these agreements provide us with a steady
source of new projects and help minimize the impact of short-term pricing
volatility. In fiscal 1999, approximately 35% of our revenues were generated
under our alliance agreements.
CUSTOMERS AND MARKETING
Our customers are principally major multi-national industrial corporations,
independent and merchant power providers, governmental agencies and equipment
manufacturers. Giving effect to our acquisition of Stone & Webster, we do not
believe that any single customer will be responsible for more than 10% or our
revenues in fiscal 2000. For fiscal 1999, Orion Refining Corporation represented
14% of our sales while no other customer represented more than 10% of our sales.
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We conduct our marketing efforts principally through a sales force
comprised of 48 employees at August 31, 2000. In addition, we engage independent
contractors to cover certain customers and territories. We pay our sales force a
base salary plus, when applicable, an annual bonus, while we pay independent
contractors commissions.
RAW MATERIALS AND SUPPLIERS
Our principal raw materials for our pipe fabrication operations are carbon
steel, stainless steel and other alloy piping, which we obtain from a number of
domestic and foreign primary steel producers. The market for most raw materials
is extremely competitive and our relationships with our suppliers are good.
Certain types of raw materials, however, are available from only one or a few
specialized suppliers. Our inability to obtain materials from these suppliers
could jeopardize our ability to timely complete a project or realize a profit.
We purchase directly from manufacturers, or manufacture ourselves, a
majority of our pipe fittings. This generally lowers our pipe fabrication costs.
Because of the volume of piping we purchase, we are often able to negotiate
advantageous purchase prices. If a manufacturer is unable to deliver the
materials according to the negotiated terms, we may be required to purchase the
materials from another source at a higher price. We keep items in stock at each
of our facilities and transport items between our facilities as required. We
obtain more specialized materials from suppliers when required for a project.
For our engineering, procurement and construction services, we often rely
on third party equipment manufacturers as well as third-party subcontractors to
complete our projects. We are not substantially dependent on any individual
third party for these operations.
COMPETITION
In pursuing piping engineering and fabrication projects, we experience
significant competition from competitors in both international and domestic
markets. In the United States, there are a number of smaller pipe fabricators
while, internationally, our principal competitors are divisions of large
industrial firms. Some of our competitors, primarily in the international
sector, have greater financial and other resources than we do.
In our engineering, procurement and construction operations, we have
numerous regional, national and international competitors, many of which have
greater financial and other resources than we do. Moreover, we are a recent
entrant into this business, and many of our competitors also possess
substantially greater experience, market knowledge and customer relationships
than we do.
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<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding our executive officers
and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J. M. Bernhard, Jr. ... 46 Chairman of the Board of Directors, President and Chief
Executive Officer
Richard F. Gill........ 57 Executive Vice President and Chief Operating Officer;
President, Stone & Webster, Inc.
Robert L. Belk......... 51 Executive Vice President, Chief Financial Officer and
Treasurer
N. Andrew Dupuy, 45 Senior Vice President -- Construction and Maintenance
Jr. .................
Mitch Rayner........... 45 Senior Vice President -- Fabrication and Manufacturing
Gary P. Graphia........ 38 Secretary and General Counsel
Albert McAlister....... 49 Director
L. Lane Grigsby........ 58 Director
David W. Hoyle......... 61 Director
John W. Sinders, 46 Director
Jr. .................
William H. Grigg....... 67 Director
</TABLE>
J. M. Bernhard, Jr., our founder, has been our President and Chief
Executive Officer since our inception in September 1987. He has also been one of
our directors since our inception. Mr. Bernhard has been Chairman of the Board
since August 1990. Mr. Bernhard has spent over 20 years in the pipe fabrication
business. Immediately prior to his position with us, Mr. Bernhard was Vice
President and General Manager of Sunland Services, a pipe fabrication company,
and served on the board of directors of Barnard and Burk Engineers &
Constructors.
Richard F. Gill has been employed by us since 1997, when we acquired
certain assets of MERIT Industrial Constructors, Inc. and other affiliated
entities. Mr. Gill served as the President of Shaw Process and Industrial Group,
Inc., a wholly-owned subsidiary of ours, from March 1997 until August 1998, and
as Senior Vice President in charge of Construction and International Operations,
one of our two principal operating divisions, from September 1998 to May 1999.
In May 1999, Mr. Gill was appointed Executive Vice President and Chief Operating
Officer. In August 2000, Mr. Gill was appointed President of Stone & Webster.
Mr. Gill served as President of MERIT from its founding in January 1982 until
its sale to us in 1997. MERIT was an industrial construction and maintenance
firm based in Baton Rouge, Louisiana. Mr. Gill has over 30 years of experience
in the industrial construction and maintenance industry.
Robert L. Belk joined us in October 1998 as Executive Vice President, Chief
Financial Officer and Treasurer. Prior to joining us, Mr. Belk served Ocean
Energy, Inc. as its Executive Vice President of Administration from March 1998
until October 1998, as its Executive Vice President and Chief Financial Officer
from June 1997 until March 1998, and as its Senior Vice President, Chief
Financial Officer and Treasurer from 1993 until 1997. Prior to joining Ocean
Energy, Inc., Mr. Belk was engaged in public accounting with national and local
firms and as a sole-practitioner.
N. Andrew Dupuy, Jr. has been employed by us since February 1997 when we
acquired United Crafts, Inc. and served as its President until December 1997.
Mr. Dupuy served as President of Shaw Power Services, Inc., one of our
subsidiaries, from December 1997 until August 1998 and as Vice President of our
international and construction operations from August 1998 until May 1999. In
May 1999, Mr. Dupuy was appointed Senior Vice President of International and
Construction Operations. Mr. Dupuy co-founded United Crafts, Inc. in 1978 and
was its President from 1986 until its sale to us. Mr. Dupuy has over 25 years of
experience in the industrial construction and maintenance industry.
Mitch Rayner has been employed by us since February and served as Vice
President of Shaw Power Services, one of our subsidiaries from 1997 until 1998
and Vice President of US Operations from 1998 to 2000. In August 2000, we
appointed Mr. Rayner as our Senior Vice President of Fabrication and
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<PAGE> 51
Manufacturing. Prior to joining us, Mr. Rayner served as one of the principal
owners of Pipeline Technology since 1994 and an owner of Performance Contractors
from 1980 until 1994. Mr. Rayner has over 23 years of experience in the
construction, fabrication and maintenance industry.
Gary P. Graphia has been employed by us since July 1999 as Secretary and
General Counsel. Prior to joining us, Mr. Graphia practiced law since 1994 with
Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, L.L.P. where he was a
partner. Mr. Graphia entered the practice of law in 1991 after four years with
the Texas Commerce Bank, Houston, Texas where he became an Assistant Vice
President.
Albert McAlister has been one of our directors since April 1990. Since
1975, Mr. McAlister has been a partner in the law firm of McAlister & McAlister,
P.A. in Laurens, South Carolina. He also served as Chairman of the Democratic
Party in South Carolina from 1990 until 1994.
L. Lane Grigsby has served as one of our directors since January 1995. Mr.
Grigsby is also Chairman of the Board of Cajun Constructors, Inc., for which he
also served as President and Chief Executive Officer from April 1973 to June
1994. He has 30 years of experience in the industrial construction industry. He
also serves as an officer or director for several industry and charitable
organizations, including the Associated Builders and Contractors and the
Louisiana Association of Business and Industry.
David W. Hoyle has served on our board of directors since January 1995. For
the past 12 years, he has been self-employed, primarily as a real estate
developer. He has been a member of the Senate Chamber of the North Carolina
General Assembly since 1992. Senator Hoyle serves as a director of several
private corporations, including as Chairman of the Board of Gaston Federal Bank,
as well as several civic, educational and charitable organizations.
John W. Sinders, Jr. has served on our board of directors since March 1995.
He has served as Managing Director of RBC Dominion Securities Corporation, an
investment banking firm, since August 1999. From 1993 to 1999, Mr. Sinders
served as an Executive Vice President and as a managing director of Jefferies &
Company, Inc., an investment banking firm. Mr. Sinders served as a Managing
Director of Howard Weil Labouisse Friedrichs Incorporated, an investment banking
firm, from 1987 to 1993. He was a member of the board of directors of Howard
Weil from 1990 to 1993. Prior to joining Howard Weil, he was a partner with the
law firm of McGlinchey, Stafford, Mintz, Cellini & Lang in New Orleans.
William H. Grigg has served on our board of directors since January 1998.
He is the retired Chairman and Chief Executive Officer of Duke Power Company,
now Duke Energy Corporation. Mr. Grigg began his career at Duke Power in 1963.
He served as Chairman and Chief Executive Officer from April 1994 to June 1997.
Prior to being elected chairman, he served as Vice Chairman for three years. Mr.
Grigg is on the board of directors of Hatteras Income Securities, Inc., a mutual
fund company, Nations Fund, Inc., a mutual fund company, Associated Electric and
Gas Insurance Services Ltd., a mutual casualty insurance company, and the
Charlotte-Mecklenburg Hospital Authority, a local hospital. He is a member of
several civic and charitable organizations, serving as Chairman of the Board of
Foundation for the Carolinas.
BOARD OF DIRECTORS
All of the members of our board of directors are elected each year. Our
articles of incorporation provide that if the number of our directors is
increased to twelve or more members, then at the next meeting of our
shareholders at which directors are to be elected, the board of directors will
be divided into three classes, the members of which will serve staggered
three-year terms, with four directors being elected each year.
COMMITTEES OF THE BOARD
Our board of directors has established an audit committee and a
compensation committee. Our board has no nominating committee or other committee
performing similar functions at this time.
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<PAGE> 52
Audit Committee. The audit committee is composed of Messrs. Grigg and
Grigsby. The audit committee reports on its activities to the board of directors
and is responsible for reviewing:
- the scope and timing of the audit and non-audit services performed by our
independent accountants;
- the appropriateness of our accounting policies;
- the adequacy of our financial controls; and
- the reliability of the financial information we report to the public.
Compensation Committee. The compensation committee is composed of Messrs.
Hoyle and Sinders. The primary functions of the compensation committee are to:
- provide a general review of our compensation and benefit plans to
determine if they meet corporate objectives;
- evaluate and make recommendations regarding the chief executive officer's
compensation; and
- review our chief executive officer's recommendations on:
- compensation of all of our officers;
- granting of awards under our benefit plans; and
- the adoption of, and changes to, our major compensation policies and
practices.
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<PAGE> 53
PRINCIPAL SHAREHOLDERS
The following table presents the beneficial ownership of our common stock,
and the number of votes relating to the common stock, as of August 31, 2000, and
as adjusted to reflect the sale of the common stock being offered hereby, by (1)
each person, or group of affiliated persons, known by us to own beneficially
more than five percent of our common stock, (2) each of our directors, (3) each
of our named executive officers, and (4) all of our directors and executive
officers as a group. Unless stated otherwise, the persons or entities in this
table have sole voting and investment power with respect to all the shares of
common stock owned by them. Our articles of incorporation provide that each
share of common stock that has been held by the same person for at least four
consecutive years is entitled to five votes on each matter to be voted on at
shareholders' meetings, and all shares held for less than four years are
entitled to one vote per share for each matter. See "Description of Capital
Stock -- Common Stock." Accordingly, some of our directors and officers possess
a number of votes in excess of their number of shares owned.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
------------------ ------------------
NUMBER OF PERCENT VOTING PERCENT VOTING
SHARES OWNERSHIP POWER OWNERSHIP POWER
--------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Stone & Webster, Incorporated and
subsidiaries(1)............................. 2,231,773 12.6% 9.1% -- --
J.M. Bernhard, Jr.(2)......................... 1,360,566 7.6 26.0 6.9% 24.3%
G. Ray Wilkie, Jr.(3)......................... 202,988 1.1 3.1 1.0 *
Albert McAlister(4)........................... 78,552 * 1.4 * 1.3
Richard F. Gill(5)............................ 35,938 * * * *
Robert L. Belk(6)............................. 30,500 * * * *
David W. Hoyle(7)............................. 22,000 * * * *
L. Lane Grigsby(8)............................ 14,350 * * * *
N. Andrew Dupuy, Jr.(9)....................... 12,500 * * * *
John W. Sinders, Jr.(10)...................... 11,198 * * * *
William H. Grigg(11).......................... 5,000 * * * *
All directors and executive officers(12)...... 1,578,718 8.8 28.1 8.0 26.2
</TABLE>
---------------
* less than 1%
(1) Consists of 1,707,298 shares held of record by Stone & Webster,
Incorporated, 369,837 shares held of record by Stone & Webster Group
Limited and 154,638 shares held of record by Stone & Webster Canada
Limited. These shares will be sold in the offering. The address of these
shareholders is c/o Stone & Webster, Incorporated, 245 Summer Street,
Boston, Massachusetts 02210.
(2) Includes 100,000 shares of which Mr. Bernhard may be deemed to be
beneficial owner as a result of rights that he may exercise to acquire
ownership within 60 days. On July 27, 2000, Mr. Bernhard entered into a
one-year collar arrangement with respect to 500,000 shares of our common
stock to effectively lock in a value of between $36.74 and $49.19 per
share. Upon its expiration in July 2001, this arrangement will be settled
for cash if the share price is outside the collared range. Mr. Bernhard's
address is 8545 United Plaza Boulevard, Baton Rouge, Louisiana 70809.
(3) Includes 51,250 shares of which Mr. Wilkie may be deemed owner as a result
of rights that he may exercise to acquire ownership within 60 days.
(4) Includes 9,500 shares of which Mr. McAlister may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.
(5) Includes 12,500 shares of which Mr. Gill may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.
(6) Includes 22,500 shares of which Mr. Belk may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.
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<PAGE> 54
(7) Includes 3,000 shares owned of record by Mr. Hoyle's spouse and 9,500
shares of which Mr. Hoyle may be deemed to be beneficial owner as a result
of rights that he may exercise to acquire ownership within 60 days.
(8) Includes 9,500 shares of which Mr. Grigsby may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.
(9) Represents shares of which Mr. Dupuy may be deemed to be beneficial owner
as a result of rights that he may exercise to acquire ownership within 60
days.
(10) Includes 9,500 shares of which Mr. Sinders may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.
(11) Includes 3,000 shares of which Mr. Grigg may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.
(12) Includes 3,000 shares owned of record by spouses of executive officers and
directors and 201,312 shares of which executive officers and directors may
be deemed to be the beneficial owners as a result of rights they may
exercise to acquire ownership within 60 days.
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<PAGE> 55
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a summary of material U.S. federal income and estate tax
consequences expected to result under current law from the purchase, ownership
and taxable disposition of common stock by non-U.S. holders of common stock. A
"non-U.S. holder" is any person or entity other than:
- a citizen or resident of the United States;
- S corporation, partnership or other entity created or organized in or
under the laws of the United States or any state thereof;
- an estate, the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
United States court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.
This summary does not address all of the U.S. federal income and estate tax
considerations that may be relevant to non-U.S. holders in light of their
particular circumstances, such as a valid election to be treated as a U.S.
person, or to non-U.S. holders that may be subject to special treatment under
United States federal income tax laws. This summary does not discuss any aspect
of state, local or foreign taxation. This summary is based on current provisions
of the Internal Revenue Code of 1986, as amended, Treasury regulations, judicial
opinions, published positions of the U.S. Internal Revenue Service and other
applicable authorities, all of which are subject to change, possibly with
retroactive effect. In this prospectus supplement, the Internal Revenue Code of
1986, as amended, is called the "Code." Prospective purchasers of common stock
are advised to consult their tax advisors regarding the U.S. federal, state and
local, and non-U.S. income and other tax consequences of acquiring, holding and
disposing of common stock.
DIVIDENDS
Shaw does not currently anticipate paying cash dividends on its common
stock. Any dividends paid to a non-U.S. holder on shares of common stock will be
subject to withholding of U.S. federal income tax at a rate of 30 percent,
unless a lower rate is prescribed under an applicable tax treaty. U.S. federal
income tax withholding will not be required, however, if the dividends are
effectively connected with the conduct of a trade or business of the non-U.S.
holder within the United States or, in the case of an applicable tax treaty, are
attributable to a U.S. permanent establishment maintained by the non-U.S.
holder. Dividends that are effectively connected with the conduct of a trade or
business within the United States, or are attributable to a U.S. permanent
establishment will be subject to U.S. federal income tax on a net income basis
which is not collected by withholding provided the non-U.S. holder files the
appropriate certification with Shaw or its agent. Any dividends received a
foreign corporation that are effectively connected with the conduct of a trade
or business within the United States may also be subject to a "branch profits
tax" at a rate of 30 percent or such lower rate as may be specified by an
applicable tax treaty.
For purposes of the withholding tax rules discussed above and for purposes
of determining the applicability of a tax treaty rate under current U.S.
Treasury Regulations, dividends paid to an address outside the United States
will be presumed to be paid to a resident of the country of address, unless the
payor has knowledge to the contrary. Under recently issued U.S. Treasury
Regulations (referred to as "final regulations") that are effective for payments
made after December 31, 2000, a non-U.S. holder of common stock who wishes to
claim the benefit of a tax treaty rate would be required to satisfy applicable
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<PAGE> 56
certification and other requirements. In addition, under the final regulations,
in the case of common stock held by a foreign partnership:
- the certification requirement generally would be applied to the partners
of the partnership; and
- the partnership would be required to provide certain information,
including a U.S. taxpayer identification number.
A non-U.S. holder of common stock that is eligible for a reduced rate of
U.S. federal income tax withholding pursuant to a tax treaty may obtain a refund
of any excess amounts currently withheld by filing an appropriate claim for
refund with the Internal Revenue Service.
SALE OR DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of any gain recognized on the sale or other taxable disposition of
common stock so long as:
- the gain is not effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States nor under an
applicable tax treaty, is attributable to a U.S. permanent establishment
maintained by the non-U.S. holder;
- in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, either:
- such holder is not present in the United States for 183 or more days
during the taxable year of the disposition; or
- such holder does not have a "tax home" in the United States for U.S.
federal income tax purposes nor does such holder maintain an office or
other fixed place of business in the United States to which such gain is
attributable;
- such non-U.S. holder is not subject to tax pursuant to the provisions of
U.S. federal income tax law applicable to certain U.S. expatriates; and
- the common stock continues to be "regularly traded on an established
securities market" for U.S. federal income tax purposes and the non-U.S.
holder has not held, directly or indirectly, at any time during the
five-year period ending on the date of disposition (or, if shorter, the
non-U.S. holder's holding period) more than five percent of the
outstanding common stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to, each non-U.S. holder. These reporting requirements apply regardless
of whether withholding was reduced by an applicable tax treaty. Copies of these
information returns may also be made available under the provisions of a treaty
or information exchange agreement with the tax authorities in the country in
which the non-U.S. holder resides or is established. Under current law, U.S.
backup withholding tax, which is a withholding tax currently imposed at the rate
of 31 percent on certain payments to persons who fail to furnish the information
required under U.S. information reporting requirements, generally will not apply
to dividends paid on common stock to a non-U.S. holder at an address outside the
United States unless the payor has knowledge that the payee is a U.S. person.
However, under the final regulations, dividends paid on common stock after
December 31, 2000 may be subject to backup withholding unless applicable
certification requirements are satisfied.
Payment of the proceeds from a sale of common stock to or through a U.S.
office of a broker will be subject to information reporting and backup
withholding unless the owner certifies as to its status as a non-U.S. holder
under penalties of perjury or otherwise establishes an exemption. Payment of the
proceeds from a sale of common stock to or through a non-U.S. office of a broker
generally will not be subject to information reporting or backup withholding.
However, if such broker is a U.S. person, a "controlled
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<PAGE> 57
foreign corporation" or a foreign person that derives 50 percent or more of its
gross income from the conduct of a trade or business in the United States, such
payment will be subject to information reporting, but currently not backup
withholding, unless such broker has documentary evidence in its records that the
owner is a non-U.S. holder and certain other conditions are met or the owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be credited
against the non-U.S. holder's federal income tax liability, if any, or refunded,
provided the required information is furnished to the Internal Revenue Service.
ESTATE TAX
The fair market value of common stock owned, or treated as owned, by an
individual at the time of his death will be includable in his gross estate for
U.S. federal estate tax purposes and thus may be subject to U.S. estate tax,
event though the individual at the time of death is neither a citizen of nor
domiciled in the United States, unless an applicable estate tax treaty provides
otherwise.
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<PAGE> 58
UNDERWRITING
Subject to the terms and conditions described in a purchase agreement among
us, the selling shareholders and each of the underwriters named below, we and
the selling shareholders have agreed to sell to the underwriters, and each of
the underwriters severally have agreed to purchase from us and the selling
shareholders, the number of shares listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Credit Suisse First Boston Corporation......................
Morgan Keegan & Company, Inc. ..............................
Raymond James & Associates, Inc. ...........................
Jefferies & Company, Inc. ..................................
---------
Total.......................................... 4,000,000
=========
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect of
those liabilities.
The underwriters are offering the shares subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The underwriters propose initially to offer the shares to the public at the
initial offering price on the cover page of this prospectus supplement and to
dealers at that price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may reallow, a discount not in excess of
$ per share to other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Shaw and the selling shareholders. This
information assumes either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price........................... $ $ $
Underwriting discount........................... $ $ $
Proceeds, before expenses, to Shaw.............. $ $ $
Proceeds, before expenses, to the selling
shareholders.................................. $ $ $
</TABLE>
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<PAGE> 59
The expenses of this offering, not including the underwriting discount, are
estimated at $1.0 million and are payable by Shaw.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters to purchase up to 600,000
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise this option for 30 days from the date of this
prospectus supplement solely to cover any over-allotments. If the underwriters
exercise this option, each will be obligated, subject to conditions contained in
the purchase agreement, to purchase a number of additional shares proportionate
to that underwriter's initial amount reflected in the above table.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus supplement without first obtaining the written consent of Merrill
Lynch and Credit Suisse First Boston. Specifically, we and these other
individuals have agreed not to directly or indirectly
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
NEW YORK STOCK EXCHANGE LISTING
The shares are listed on the New York Stock Exchange under the symbol
"SGR."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, the SEC rules may limit
the underwriters from bidding for or purchasing our common stock. However, the
representatives may engage in transactions that stabilize the price of the
common stock, such as bids or purchases to peg, fix or maintain that price.
The underwriters may purchase and sell the common shares in the open
market. These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment
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<PAGE> 60
option. "Naked" short sales are any sales in excess of such option. The
underwriters must close out any naked short position by purchasing shares in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the common shares in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of common shares made by underwriters in the open
market prior to the completion of the offering.
Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of the common shares or preventing or retarding a decline in
the market price of the common shares. As a result, the price of the common
shares may be higher than the price that might otherwise exist in the open
market.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
of the lead managers will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus
supplement and accompanying prospectus or any other material relating to our
company or shares of our common stock in any jurisdiction where action for that
purpose is required. Accordingly, the shares of our common stock may not be
offered or sold, directly or indirectly, and neither this prospectus supplement
and accompanying prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus supplement and
accompanying prospectus may be required to pay stamp taxes and other charges in
accordance with the laws and practices of the country of purchase in addition to
the offering price on the cover page of this prospectus supplement.
INTERNET DISTRIBUTION OF PROSPECTUS
Certain of the underwriters will be facilitating Internet distribution for
this offering to certain of their Internet subscription customers and may
allocate a number of shares for sale to its online brokerage customers. An
electronic prospectus may be available on the websites maintained by certain of
the underwriters. Other than the prospectus in electronic format, the
information contained on the websites maintained by any of the underwriters
relating to this offering is not a part of this prospectus supplement.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
S-57
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation
a purchaser is representing to us and the selling shareholders and the dealer
from whom the purchase confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws;
- where required by law, that the purchaser is purchasing as principal and
not as agent; and
- the purchaser has reviewed the text above under "-- Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named herein and
the selling shareholders may be located outside of Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process within
Canada upon us or such persons. All or a substantial portion of our assets or
the assets of such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against us or such persons in Canada
or to enforce a judgment obtained in Canadian courts against us or such persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
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LEGAL MATTERS
Legal matters in connection with this offering will be passed upon for us
by Vinson & Elkins L.L.P., Houston, Texas. The validity of the issuance of the
common stock under Louisiana law is being passed upon by Kantrow, Spaht, Weaver
& Blitzer (A Professional Law Corporation), Baton Rouge, Louisiana. Legal
matters in connection with this offering will be passed upon for the
underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The financial statements of The Shaw Group Inc. as of and for the year
ended August 31, 1999 included in and incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included in this prospectus in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The financial statements included in and incorporated by reference in this
prospectus and elsewhere in the registration statement to the extent and for the
periods indicated in their reports have been audited by Arthur Andersen LLP and
Hannis T. Bourgeois, LLP, independent public accountants, and are included in
this prospectus in reliance upon the authority of said firms as experts in
accounting and auditing in giving said reports. The single jointly signed
auditors' report is considered to be the equivalent of two separately signed
auditors' reports. Thus each firm represents that it has complied with generally
accepted auditing standards and is in a position that would justify being the
only signatory of the report.
The financial statements of Stone & Webster, Incorporated incorporated by
reference in this prospectus from our report on Form 8-K/A, filed with the SEC
on September 13, 2000, have been audited by PricewaterhouseCoopers, LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving such reports.
S-59
<PAGE> 63
PROSPECTUS
$400,000,000
[THE SHAW GROUP INC. LOGO]
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
----------------------
We may offer and sell the securities listed above with an aggregate
offering price up to $400.0 million in connection with this prospectus. We will
provide specific terms of these offerings and securities in supplements to this
prospectus, including whether the debt securities are guaranteed by all of our
subsidiaries.
The selling shareholders may offer and sell from time to time up to
2,231,773 shares of our common stock in connection with this prospectus. Unless
otherwise provided in a prospectus supplement, we do not expect to receive any
proceeds from the sale of shares by any selling shareholder.
----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement.
----------------------
This prospectus is dated September 14, 2000.
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<S> <C>
About This Prospectus....................................... 2
Where You Can Find More Information......................... 2
Forward-Looking Statements.................................. 3
The Company................................................. 3
Use of Proceeds............................................. 4
Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges Plus Dividends.................................... 4
Description of Debt Securities.............................. 4
Description of Capital Stock................................ 16
Depositary Shares........................................... 22
Description of Warrants..................................... 23
Selling Shareholders........................................ 24
Plan of Distribution........................................ 25
Legal Matters............................................... 26
Experts..................................................... 26
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission (the "SEC") utilizing a "shelf" registration
process. Under this shelf registration process, we may sell any combination of
the securities described in this prospectus in one or more offerings up to a
total dollar amount of $400.0 million. In addition, three selling shareholders
may sell a specified number of shares of our common stock as described elsewhere
in this prospectus. This prospectus provides you with a general description of
the securities we may offer. Each time we sell securities we will provide a
prospectus supplement that will contain specific information about the terms of
the offering and the offered securities. The prospectus supplement may also add,
update or change information contained in this prospectus. Any statement that we
make in this prospectus will be modified or superseded by any inconsistent
statement made by us in a prospectus supplement. You should read both this
prospectus and any prospectus supplement together with additional information
described under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at
7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain information
on the operation of the SEC's public reference room in Washington, D.C. by
calling the SEC at 1-800-SEC-0330. We also file such information with the New
York Stock Exchange. Such reports, proxy statements and other information may be
read and copied at 30 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any further filings made with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") until we sell all of the securities or we terminate
this offering:
- Our Annual Report on Form 10-K, as amended, for the year ended August 31,
1999;
- Our Quarterly Report on Form 10-Q for the quarter ended November 30,
1999;
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- Our Quarterly Report on Form 10-Q, as amended, for the quarter ended
February 29, 2000;
- Our Quarterly Report on Form 10-Q for the quarter ended May 31, 2000;
- Our Current Report on Form 8-K, filed with the SEC on September 22, 1999;
- Our Current Report on Form 8-K, filed with the SEC on July 28, 2000;
- Our Current Report on Form 8-K, filed with the SEC on September 13, 2000;
and
- The description of our common stock contained in our Form 8-A dated
September 26, 1996, including any amendment to that form that we may have
filed in the past, or may file in the future, for the purpose of updating
the description of our common stock.
You may request a copy of these filings at no cost by writing or
telephoning us at the following address:
The Shaw Group Inc.
8545 United Plaza Boulevard
Baton Rouge, Louisiana 70809
(225) 932-2500
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements other
than statements of historical facts contained in this prospectus, including
statements regarding our future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. Although we believe our expectations reflected
in these forward-looking statements are based on reasonable assumptions, we
cannot assure you that these expectations will prove to have been correct. These
forward-looking statements are subject to significant risks, uncertainties, and
assumptions, most of which are beyond our control.
We undertake no obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
THE COMPANY
We are the world's only engineering, procurement and construction provider
with fully integrated piping systems capabilities. As the largest supplier of
fabricated piping systems in the United States, we provide engineering and
design, pipe fabrication, construction and maintenance services, and manufacture
specialty pipe fittings and supports for the power generation, chemical
processing, crude oil refining, petrochemical processing and oil and gas
exploration and production industries. Additionally, Stone & Webster, Inc., a
Shaw Group company, is a leading global provider of engineering, procurement,
construction, consultation and environmental services for the power generation,
process, governmental, and industrial markets. We have offices and operations in
North America, South America, Europe, the Middle East and Asia-Pacific and
employ more than 13,000 engineers, project managers, technology professionals,
craft workers and other professionals.
Our principal executive offices are located at 8545 United Plaza Boulevard,
Baton Rouge, Louisiana 70809, and our telephone number there is (225) 932-2500.
Additional information concerning us and our subsidiaries is included in
our reports and other documents incorporated by reference in this prospectus.
See "Where You Can Find More Information."
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<PAGE> 66
USE OF PROCEEDS
Unless otherwise provided in a prospectus supplement, we will use the net
proceeds from the sale of the securities offered by us pursuant to this
prospectus and any prospectus supplement for our general corporate purposes,
which may include repayment of indebtedness, additions to our working capital,
capital expenditures and potential future acquisitions.
Unless otherwise provided in a prospectus supplement, we do not expect to
receive any proceeds from the sale of our common stock by the selling
shareholders. A portion of the proceeds of the sales by the selling
shareholders, however, will be paid into an escrow for our benefit in accordance
with the purchase agreement with Stone & Webster.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES PLUS DIVIDENDS
The following table contains our consolidated ratios of earnings to fixed
charges and earnings to fixed charges plus dividends for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
NINE MONTHS ENDED -------------------------
MAY 31, 2000 1999 1998 1997 1996
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................ 6.79 4.01 3.75 3.95 3.08
---- ---- ---- ---- ----
Ratio of earnings to fixed charges plus
dividends....................................... 6.79 4.01 3.75 3.95 3.08
---- ---- ---- ---- ----
</TABLE>
For purposes of computing the ratios of earnings to fixed charges and
earnings to fixed charges plus dividends:
(1) earnings consist of income before provision for income taxes, earnings
from unconsolidated entity and cumulative effect of change in
accounting principle plus fixed charges (excluding capitalized
interest) and
(2) "fixed charges" consist of interest expense and amortization of debt
discount and expense relating to indebtedness.
There were no dividends paid or accrued during the periods presented above.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be either our senior debt securities ("Senior Debt
Securities") or our subordinated debt securities ("Subordinated Debt
Securities"). The Senior Debt Securities and the Subordinated Debt Securities
will be issued under separate Indentures among us, our domestic subsidiaries, if
our domestic subsidiaries are guarantors of the Debt Securities, and a U.S.
banking institution (a "Trustee"). Senior Debt Securities will be issued under a
"Senior Indenture" and Subordinated Debt Securities will be issued under a
"Subordinated Indenture." Together the Senior Indenture and the Subordinated
Indenture are called "Indentures."
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series which are offered by a prospectus supplement
will be described in the prospectus supplement.
The Company primarily conducts its operations through subsidiaries. Unless
the Debt Securities are guaranteed by the Company's subsidiaries as described
below, the rights of the Company and its creditors, including holders of the
Debt Securities to participate in the assets of any subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of the
subsidiary's creditors, except to the extent that the Company may itself be a
creditor with recognized claims against such subsidiary.
We have summarized selected provisions of the Indentures below. The summary
is not complete. The form of each Indenture will be filed with the SEC via a
Current Report on Form 8-K prior to our initial
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offering of Debt Securities under that Indenture and you should read the
Indenture for provisions that may be important to you. In the summary below we
have included references to section numbers of the applicable Indentures so that
you can easily locate these provisions. Whenever we refer in this prospectus or
in the prospectus supplement to particular sections or defined terms of the
Indenture, such sections or defined terms are incorporated by reference herein
or therein, as applicable. Capitalized terms used in the summary have the
meanings specified in the Indentures.
GENERAL
The Indentures provide that Debt Securities in separate series may be
issued thereunder from time to time without limitation as to aggregate principal
amount. We may specify a maximum aggregate principal amount for the Debt
Securities of any series. (Section 301) We will determine the terms and
conditions of the Debt Securities, including the maturity, principal and
interest, but those terms must be consistent with the Indenture. The Debt
Securities will be our unsecured obligations.
The Subordinated Debt Securities will be subordinated in right of payment
to the prior payment in full of all of our Senior Debt (as defined) as described
under "-- Subordination of Subordinated Debt Securities" and in the prospectus
supplement applicable to any Subordinated Debt Securities. If the prospectus
supplement so indicates, the Subordinated Debt Securities will be convertible
into our common stock as described under "-- Conversion of Subordinated Debt
Securities."
If specified in the prospectus supplement, our domestic subsidiaries (the
"Subsidiary Guarantors") will unconditionally guarantee (the "Subsidiary
Guarantees") on a joint and several basis the Debt Securities as described under
"-- Subsidiary Guarantees" and in the prospectus supplement. The Subsidiary
Guarantees will be unsecured obligations of each Subsidiary Guarantor.
Subsidiary Guarantees of Subordinated Debt Securities will be subordinated to
the Senior Debt of the Subsidiary Guarantors on the same basis as the
Subordinated Debt Securities are subordinated to our Senior Debt.
The applicable prospectus supplement will set forth the price or prices at
which the Debt Securities to be offered will be issued and will describe the
following terms of such Debt Securities:
(1) the title of the Debt Securities;
(2) whether the Debt Securities are Senior Debt Securities or
Subordinated Debt Securities and, if Subordinated Debt Securities, the
related subordination terms;
(3) whether the Subsidiary Guarantors will provide Subsidiary
Guarantees of the Debt Securities;
(4) any limit on the aggregate principal amount of the Debt
Securities;
(5) the dates on which the principal of the Debt Securities will be
payable;
(6) the interest rate which the Debt Securities will bear and the
interest payment dates for the Debt Securities;
(7) the places where payments on the Debt Securities will be payable;
(8) any terms upon which the Debt Securities may be redeemed, in whole
or in part, at our option;
(9) any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the Debt Securities;
(10) the portion of the principal amount, if less than all, of the
Debt Securities that will be payable upon declaration of acceleration of
the Maturity of the Debt Securities;
(11) whether the Debt Securities are defeasible;
(12) any addition to or change in the Events of Default;
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(13) whether the Debt Securities that constitute Subordinated Debt
Securities are convertible into our common stock and, if so, the terms and
conditions upon which conversion will be effected, including the initial
conversion price or conversion rate ("the Conversion Price") and any
adjustments thereto in addition to or different from those described in
this prospectus, the conversion period and other conversion provisions in
addition to or in lieu of those described in this prospectus;
(14) any addition to or change in the covenants in the Indenture
applicable to any of the Debt Securities; and
(15) any other terms of the Debt Securities not inconsistent with the
provisions of the Indenture. (Section 301)
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Special United States
federal income tax considerations applicable to Debt Securities sold at an
original issue discount may be described in the applicable prospectus
supplement. In addition, special United States federal income tax or other
considerations applicable to any Debt Securities that are denominated in a
currency or currency unit other than United States dollars may be described in
the applicable prospectus supplement.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
The indebtedness evidenced by the Subordinated Debt Securities will, to the
extent set forth in the Subordinated Indenture with respect to each series of
Subordinated Debt Securities, be subordinate in right of payment to the prior
payment in full of all of our Senior Debt, including the Senior Debt Securities,
and it may also be senior in right of payment to all of our Subordinated Debt.
The prospectus supplement relating to any Subordinated Debt Securities will
summarize the subordination provisions of the Subordinated Indenture applicable
to that series including:
- the applicability and effect of such provisions upon any payment or
distribution of our assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors or marshaling of assets or any bankruptcy, insolvency or
similar proceedings;
- the applicability and effect of such provisions in the event of specified
defaults with respect to any Senior Debt, including the circumstances
under which and the periods in which we will be prohibited from making
payments on the Subordinated Debt Securities; and
- the definition of Senior Debt applicable to the Subordinated Debt
Securities of that series and, if the series is issued on a senior
subordinated basis, the definition of Subordinated Debt applicable to
that series.
The prospectus supplement will also describe as of a recent date the approximate
amount of Senior Debt to which the Subordinated Debt Securities of that series
will be subordinated.
The failure to make any payment on any of the Subordinated Debt Securities
by reason of the subordination provisions of the Subordinated Indenture
described in the prospectus supplement will not be construed as preventing the
occurrence of an Event of Default with respect to the Subordinated Debt
Securities arising from any such failure to make payment.
The subordination provisions described above will not be applicable to
payments in respect of the Subordinated Debt Securities from a defeasance trust
established in connection with any defeasance or covenant defeasance of the
Subordinated Debt Securities as described under "-- Defeasance and Covenant
Defeasance."
CONVERSION OF SUBORDINATED DEBT SECURITIES
The Subordinated Indenture may provide for a right of conversion of
Subordinated Debt Securities into our common stock (or cash in lieu thereof).
(Sections 301 and 1701 of the Subordinated Indenture).
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The following provisions will apply to Debt Securities that are convertible
Subordinated Debt Securities unless otherwise provided in the prospectus
supplement for such Debt Securities.
The Holder of any convertible Subordinated Debt Securities will have the
right exercisable at any time prior to the close of business on the second
Business Day prior to their Stated Maturity, unless previously redeemed or
otherwise purchased by us, to convert such Subordinated Debt Securities into
shares of common stock at the Conversion Price set forth in the prospectus
supplement, subject to adjustment. (Section 1702 of the Subordinated Indenture)
The Holder of convertible Subordinated Debt Securities may convert any portion
thereof which is $1,000 in principal amount or any multiple thereof. (Section
1702 of the Subordinated Indenture)
In certain events, the Conversion Price will be subject to adjustment as
set forth in the Subordinated Indenture. Such events include:
(a) any payment of a dividend (or other distribution) payable in
common stock on any class of our Capital Stock,
(b) any subdivision, combination or reclassification of common stock,
(c) any issuance to all holders of common stock of rights, options or
warrants entitling them to subscribe for or purchase common stock at less
than the then current market price (as determined in accordance with the
Subordinated Indenture) of common stock; provided, however, that if such
rights, options or warrants are only exercisable upon the occurrence of
certain triggering events relating to control and provided for in
shareholders' rights plans, then the Conversion Price will not be adjusted
until such triggering events occur,
(d) any distribution to all holders of common stock of evidences of
indebtedness, shares of our Capital Stock other than common stock, cash or
other assets (including securities, but excluding those dividends and
distributions referred to above for which an adjustment must be made and
excluding regular dividends and distributions paid exclusively in cash),
(e) any distribution consisting exclusively of cash (excluding any
cash portion of distributions referred to in (d) above, or cash distributed
upon a merger or consolidation to which the third succeeding paragraph
applies) to all holders of common stock in an aggregate amount that,
combined together with (1) all other such all-cash distributions made
within the then preceding 12 months in respect of which no adjustment has
been made and (2) any cash and the fair market value of other consideration
paid or payable in respect of any tender offer by us or any of our
Subsidiaries for common stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 15% of our company's
market capitalization (defined as being the product of the then current
market price of the common stock times the number of shares of common stock
then outstanding) on the record date of such distribution, and
(f) the completion of a tender or exchange offer made by us or any of
our Subsidiaries for common stock that involves an aggregate consideration
that, together with (1) any cash and the fair market value of other
consideration payable in a tender or exchange offer by us or any of our
Subsidiaries for common stock expiring within the 12 months preceding the
expiration of such tender or exchange offer in respect of which no
adjustment has been made and (2) the aggregate amount of any such all-cash
distributions referred to in (e) above to all holders of common stock
within the 12 months preceding the expiration of such tender or exchange
offer in respect of which no adjustments have been made, exceeds 15% of our
market capitalization on the expiration of such tender offer.
No adjustment of the Conversion Price will be required to be made until the
cumulative adjustments amount to 1.0% or more of the Conversion Price as last
adjusted. We reserve the right to make such reductions in the Conversion Price
in addition to those required in the preceding provisions as we consider to be
advisable in order that any event treated for federal income tax purposes as a
dividend of a stock or stock rights will not be taxable to the recipients.
Should we elect to make such a reduction in the
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Conversion Price, we will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder if and to
the extent that such laws and regulations are applicable in connection with the
reduction of the Conversion Price. (Section 1704 of the Subordinated Indenture)
If we distribute rights or warrants (other than those referred to in (c) in
the preceding paragraph) pro rata to holders of common stock, so long as any
such rights or warrants have not expired or been redeemed by us, the Holder of
any convertible Subordinated Debt Security surrendered for conversion will be
entitled to receive upon such conversion, in addition to the shares of common
stock issuable upon such conversion (the "Conversion Shares"), a number of
rights or warrants to be determined as follows:
(1) if such conversion occurs on or prior to the date for the
distribution to the holders of rights or warrants of separate certificates
evidencing such rights or warrants (the "Distribution Date"), the same
number of rights or warrants to which a holder of a number of shares of
common stock equal to the number of Conversion Shares is entitled at the
time of such conversion in accordance with the terms and provisions of and
applicable to the rights or warrants, and
(2) if such conversion occurs after such Distribution Date, the number
of rights or warrants to which a holder of the number of shares of common
stock into which such Subordinated Debt Security was convertible
immediately prior to such Distribution Date would have been entitled on
such Distribution Date in accordance with the terms and provisions of and
applicable to the rights or warrants.
The Conversion Price will not be subject to adjustment on account of any
declaration, distribution or exercise of such rights or warrants. (Section 1704
of the Subordinated Indenture)
Fractional shares of common stock will not be issued upon conversion, but,
instead, we will pay a cash adjustment based on the then current market price
for the common stock. (Section 1703 of the Subordinated Indenture) Upon
conversion, no adjustments will be made for accrued interest or dividends, and
therefore convertible Subordinated Debt Securities surrendered for conversion
between the record date for an interest payment and the Interest Payment Date
(except convertible Subordinated Debt Securities called for redemption on a
redemption date during such period) must be accompanied by payment of an amount
equal to the interest thereon which the Holder is to receive. (Sections 1704 and
1702 of the Subordinated Indenture)
In the case of any reclassification of the Conversion Shares, consolidation
or merger of our company with or into another Person or any merger of another
Person with or into us (with certain exceptions), or in case of any transfer or
other disposition of all or substantially all of our assets, each convertible
Subordinated Debt Security then outstanding will, without the consent of any
Holder, become convertible only into the kind and amount of securities, cash and
other property receivable upon such reclassification, consolidation, merger,
conveyance, transfer or lease by a holder of the number of shares of common
stock into which such Subordinated Debt Security was convertible immediately
prior thereto, after giving effect to any adjustment event, who failed to
exercise any rights of election and received per share the kind and amount
received per share by a plurality of non-electing shares. (Section 1705 of the
Subordinated Indenture)
SUBSIDIARY GUARANTEES
If specified in the prospectus supplement, the Subsidiary Guarantors will
guarantee the Debt Securities of a series. Unless otherwise indicated in the
prospectus supplement, the following provisions will apply to the Subsidiary
Guarantees of the Subsidiary Guarantors.
Subject to the limitations described below and in the prospectus
supplement, the Subsidiary Guarantors will, jointly and severally,
unconditionally guarantee the punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all our obligations under the
Indentures and the Debt Securities of a series, whether for principal of,
premium, if any, or interest on the Debt Securities or
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otherwise (all such obligations guaranteed by a Subsidiary Guarantor being
herein called the "Guaranteed Obligations"). The Subsidiary Guarantors will also
pay all expenses (including reasonable counsel fees and expenses) incurred by
the applicable Trustee in enforcing any rights under a Subsidiary Guarantee with
respect to a Subsidiary Guarantor.
In the case of Subordinated Debt Securities, a Subsidiary Guarantor's
Subsidiary Guarantee will be subordinated in right of payment to the Senior Debt
of such Subsidiary Guarantor on the same basis as the Subordinated Debt
Securities are subordinated to our Senior Debt. No payment will be made by any
Subsidiary Guarantor under its Subsidiary Guarantee during any period in which
payments by us on the Subordinated Debt Securities are suspended by the
subordination provisions of the Subordinated Indenture. (Article Fourteen of the
Subordinated Indenture)
Each Subsidiary Guarantee will be limited in amount to an amount not to
exceed the maximum amount that can be guaranteed by the relevant Subsidiary
Guarantor without rendering such Subsidiary Guarantee voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
Each Subsidiary Guarantee will be a continuing guarantee and will:
(1) remain in full force and effect until either (a) payment in full
of all the Guaranteed Obligations (or the applicable Debt Securities are
defeased and discharged in accordance with the defeasance provisions of the
Indentures) or (b) released as described in the following paragraph,
(2) be binding upon each Subsidiary Guarantor and
(3) inure to the benefit of and be enforceable by the applicable
Trustee, the Holders and their successors, transferees and assigns.
In the event that a Subsidiary Guarantor ceases to be a Subsidiary, whether
as a result of a disposition of all or substantially all of the assets or all of
the Capital Stock of such Subsidiary Guarantor, by way of sale, merger,
consolidation or otherwise, such Subsidiary Guarantor will be deemed released
and relieved of its obligations under its Subsidiary Guarantee without any
further action required on the part of the Trustee or any Holder, and no other
person acquiring or owning the assets or Capital Stock of such Subsidiary
Guarantor will be required to enter into a Subsidiary Guarantee; provided, in
each case, that the transaction or transactions resulting in such Subsidiary
Guarantor's ceasing to be a Subsidiary are carried out pursuant to and in
compliance with all of the applicable covenants in the Indenture. In addition,
the prospectus supplement may specify additional circumstances under which a
Subsidiary Guarantor can be released from its Subsidiary Guarantee.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in fully
registered form, without coupons, and, unless otherwise specified in the
applicable prospectus supplement, only in denominations of $1,000 and integral
multiples thereof. (Section 302)
At the option of the Holder, subject to the terms of the applicable
Indenture and the limitations applicable to Global Securities, Debt Securities
of each series will be exchangeable for other Debt Securities of the same series
of any authorized denomination and of a like tenor and aggregate principal
amount. (Section 305)
Subject to the terms of the applicable Indenture and the limitations
applicable to Global Securities, Debt Securities may be presented for exchange
as provided above or for registration of transfer (duly endorsed or with the
form of transfer endorsed thereon duly executed) at the office of the Security
Registrar or at the office of any transfer agent designated by us for such
purpose. No service charge will be made for any registration of transfer or
exchange of Debt Securities, but we may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith. Such
transfer or exchange will be effected upon the Security Registrar or such
transfer agent, as the case may
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be, being satisfied with the documents of title and identity of the person
making the request. The Security Registrar and any other transfer agent
initially designated by us for any Debt Securities will be named in the
applicable prospectus supplement. (Section 305) We may at any time designate
additional transfer agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent acts, except
that we will be required to maintain a transfer agent in each Place of Payment
for the Debt Securities of each series. (Section 1002).
If the Debt Securities of any series (or of any series and specified terms)
are to be redeemed in part, we will not be required to (i) issue, register the
transfer of or exchange any Debt Security of that series (or of that series and
specified terms, as the case may be) during a period beginning at the opening of
business 15 days before the day of mailing of a notice of redemption of any such
Debt Security that may be selected for redemption and ending at the close of
business on the day of such mailing or (ii) register the transfer of or exchange
any Debt Security so selected for redemption, in whole or in part, except the
unredeemed portion of any such Debt Security being redeemed in part. (Section
305)
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more Global Securities which will have an aggregate
principal amount equal to that of the Debt Securities represented thereby. Each
Global Security will be registered in the name of a Depositary or its nominee
identified in the applicable prospectus supplement, will be deposited with such
Depositary or nominee or its custodian and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to below
and any such other matters as may be provided for pursuant to the applicable
Indenture.
Notwithstanding any provision of the Indentures or any Debt Security
described in this prospectus, no Global Security may be exchanged in whole or in
part for Debt Securities registered, and no transfer of a Global Security in
whole or in part may be registered, in the name of any person other than the
Depositary for such Global Security or any nominee of such Depositary unless:
(1) the Depositary has notified us that it is unwilling or unable to
continue as Depositary for such Global Security or has ceased to be
qualified to act as such as required by the applicable Indenture,
(2) an Event of Default with respect to the Debt Securities
represented by such Global Security has occurred and is continuing and the
Security Registrar has received a written request from the Depositary to
issue certificated Debt Securities, or
(3) other circumstances exist, in addition to or in lieu of those
described above, as may be described in the applicable prospectus
supplement.
All Debt Securities issued in exchange for a Global Security or any portion
thereof will be registered in such names as the Depositary may direct. (Sections
205 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities that it represents for all purposes under the Debt Securities and the
applicable Indenture. Except in the limited circumstances referred to above,
owners of beneficial interests in a Global Security will not be entitled to have
such Global Security or any Debt Securities that it represents registered in
their names, will not receive or be entitled to receive physical delivery of
certificated Debt Securities in exchange therefor and will not be considered to
be the owners or Holders of such Global Security or any Debt Securities that is
represents for any purpose under the Debt Securities or the applicable
Indenture. All payments on a Global Security will be made to the Depositary or
its nominee, as the case may be, as the Holder of the security. The laws of some
jurisdictions require that some purchasers of Debt Securities take physical
delivery of such Debt Securities in definitive form. These laws may impair the
ability to transfer beneficial interests in a Global Security.
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Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participants on their behalf). Payments,
transfers, exchanges and other matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by the
Depositary from time to time. None of us, the Subsidiary Guarantors, the
Trustees or the agents of ourself, the Subsidiary Guarantors or the Trustees
will have any responsibility or liability for any aspect of the Depositary's or
any participant's records relating to, or for payments made on account of,
beneficial interests in a Global Security, or for maintaining, supervising or
reviewing any records relating to such beneficial interests.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable prospectus supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Unless otherwise indicated in the applicable prospectus supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as we
may designate for such purpose from time to time, except that at our option
payment of any interest may be made by check mailed to the address of the Person
entitled thereto as such address appears in the Security Register. Unless
otherwise indicated in the applicable prospectus supplement, the corporate trust
office of the Trustee under the Senior Indenture in The City of New York will be
designated as sole Paying Agent for payments with respect to Senior Debt
Securities of each series, and the corporate trust office of the Trustee under
the Subordinated Indenture in The City of New York will be designated as the
sole Paying Agent for payment with respect to Subordinated Debt Securities of
each series. Any other Paying Agents initially designated by us for the Debt
Securities of a particular series will be named in the applicable prospectus
supplement. We may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent or approve a change in the office through which
any Paying Agent acts, except that we will be required to maintain a Paying
Agent in each Place of Payment for the Debt Securities of a particular series.
(Section 1002)
All moneys paid by us to a Paying Agent for the payment of the principal of
or any premium or interest on any Debt Security which remain unclaimed at the
end of two years after such principal, premium or interest has become due and
payable will be repaid to us, and the Holder of such Debt Security thereafter
may look only to us for payment thereof. (Section 1003)
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may not consolidate with or merge into, or transfer, lease or otherwise
dispose of all or substantially all of our assets to, any Person (a "successor
Person"), and may not permit any Person to consolidate with or merge into us,
unless:
(1) the successor Person (if any) is a corporation, partnership, trust
or other entity organized and validly existing under the laws of any
domestic jurisdiction and assumes our obligations on the Debt Securities
and under the Indentures,
(2) immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing and
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(3) several other conditions, including any additional conditions with
respect to any particular Debt Securities specified in the applicable
prospectus supplement, are met. (Section 801)
EVENTS OF DEFAULT
Unless otherwise specified in the prospectus supplement, each of the
following will constitute an Event of Default under the applicable Indenture
with respect to Debt Securities of any series:
(1) failure to pay principal of or any premium on any Debt Security of
that series when due, whether or not, in the case of Subordinated Debt
Securities, such payment is prohibited by the subordination provisions of
the Subordinated Indenture;
(2) failure to pay any interest on any Debt Securities of that series
when due, continued for 30 days, whether or not, in the case of
Subordinated Debt Securities, such payment is prohibited by the
subordination provisions of the Subordinated Indenture;
(3) failure to deposit any sinking fund payment, when due, in respect
of any Debt Security of that series, whether or not, in the case of
Subordinated Debt Securities, such deposit is prohibited by the
subordination provisions of the Subordinated Indenture;
(4) failure to perform or comply with the provisions described under
"Consolidation, Merger and Sale of Assets";
(5) failure to perform any of our other covenants in such Indenture
(other than a covenant included in such Indenture solely for the benefit of
a series other than that series), continued for 60 days after written
notice has been given by the applicable Trustee, or the Holders of at least
25% in principal amount of the Outstanding Debt Securities of that series,
as provided in such Indenture;
(6) certain events of bankruptcy, insolvency or reorganization
affecting us, any Significant Subsidiary or any group of Subsidiaries that
together would constitute a Significant Subsidiary; and
(7) in the case of Debt Securities guaranteed by any Significant
Subsidiary or any group of Subsidiaries that together would constitute a
Significant Subsidiary, the Subsidiary Guarantee of any such Guarantor or
group of Guarantors is held by a final non-appealable order or judgment of
a court of competent jurisdiction to be unenforceable or invalid or ceases
for any reason to be in full force and effect (other than in accordance
with the terms of the applicable Indenture) or any Significant Subsidiary
or any group of Subsidiaries that together would constitute a Significant
Subsidiary or any Person acting on behalf of Guarantor or group of
Guarantors denies or disaffirms such Guarantor's obligations under its
Subsidiary Guarantee (other than by reason of a release of such Guarantor
from its Subsidiary Guarantee in accordance with the terms of the
applicable Indenture). (Section 501)
If an Event of Default (other than an Event of Default described in clause
(6) above) with respect to the Debt Securities of any series at the time
Outstanding shall occur and be continuing, either the applicable Trustee or the
Holders of at least 25% in principal amount of the Outstanding Debt Securities
of that series by notice as provided in the Indenture may declare the principal
amount of the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Debt Security or the principal
amount of which is not then determinable, such portion of the principal amount
of such Debt Security, or such other amount in lieu of such principal amount, as
may be specified in the terms of such Debt Security) to be due and payable
immediately. If an Event of Default described in clause (6) above with respect
to the Debt Securities of any series at the time Outstanding shall occur, the
principal amount of all the Debt Securities of that series (or, in the case of
any such Original Issue Discount Security or other Debt Security, such specified
amount) will automatically, and without any action by the applicable Trustee or
any Holder, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal (or
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other specified amount), have been cured or waived as provided in the applicable
Indenture. (Section 502) For information as to waiver of defaults, see
"-- Modification and Waiver" below.
Subject to the provisions of the Indentures relating to the duties of the
Trustees in case an Event of Default shall occur and be continuing, each Trustee
will be under no obligation to exercise any of its rights or powers under the
applicable Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to such Trustee reasonable indemnity. (Section
603) Subject to such provisions for the indemnification of the Trustees, the
Holders of a majority in principal amount of the Outstanding Debt Securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Debt Securities
of that series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the applicable Indenture, or for the appointment
of a receiver or a trustee, or for any other remedy thereunder, unless:
(1) such Holder has previously given to the Trustee under the
applicable Indenture written notice of a continuing Event of Default with
respect to the Debt Securities of that series,
(2) the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of that series have made written request, and such Holder
or Holders have offered reasonable indemnity, to the Trustee to institute
such proceeding as trustee and
(3) the Trustee has failed to institute such proceeding, and has not
received from the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with
such request, within 60 days after such notice, request and offer. (Section
507)
However, such limitations do not apply to a suit instituted by a Holder of a
Debt Security for the enforcement of payment of the principal of or any premium
or interest on such Debt Security on or after the applicable due date specified
in such Debt Security or, if applicable, to convert such Debt Security. (Section
508)
We will be required to furnish to each Trustee annually a statement by
certain of our officers as to whether or not we, to their knowledge, are in
default in the performance or observance of any of the terms, provisions and
conditions of the applicable Indenture and, if so, specifying all such known
defaults. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of an Indenture may be made by us, the
Subsidiary Guarantors, if applicable, and the applicable Trustee with the
consent of the Holders of a majority in principal amount of the Outstanding Debt
Securities of each series affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Debt Security,
(2) reduce the principal amount of, or any premium or interest on, any
Debt Security,
(3) reduce the amount of principal of an Original Issue Discount
Security or any other Debt Security payable upon acceleration of the
Maturity thereof,
(4) change the place or currency of payment of principal of, or any
premium or interest on, any Debt Security,
(5) impair the right to institute suit for the enforcement of any
payment on or any conversion right with respect to any Debt Security,
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(6) in the case of Subordinated Debt Securities, modify the
subordination or conversion provisions in a manner adverse to the Holders
of the Subordinated Debt Securities,
(7) except as provided in the applicable Indenture, release the
Subsidiary Guarantee of a Subsidiary Guarantor,
(8) reduce the percentage in principal amount of Outstanding Debt
Securities of any series, the consent of whose Holders is required for
modification or amendment of the Indenture,
(9) reduce the percentage in principal amount of Outstanding Debt
Securities of any series necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults or
(10) modify such provisions with respect to modification and waiver.
(Section 902)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series may waive compliance by us with certain restrictive
provisions of the applicable Indenture.(Section 1009) The Holders of a majority
in principal amount of the Outstanding Debt Securities of any series may waive
any past default under the applicable Indenture, except a default in the payment
of principal, premium or interest and certain covenants and provisions of the
Indenture which cannot be amended without the consent of the Holder of each
Outstanding Debt Security of such series affected. (Section 513)
The Indentures provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given or
taken any direction, notice, consent, waiver or other action under such
Indenture as of any date,
(1) the principal amount of an Original Issue Discount Security that
will be deemed to be Outstanding will be the amount of the principal
thereof that would be due and payable as of such date upon acceleration of
the Maturity thereof to such date,
(2) if, as of such date, the principal amount payable at the Stated
Maturity of a Debt Security is not determinable (for example, because it is
based on an index), the principal amount of such Debt Security deemed to be
Outstanding as of such date will be an amount determined in the manner
prescribed for such Debt Security and
(3) the principal amount of a Debt Security denominated in one or more
foreign currencies or currency units that will be deemed to be Outstanding
will be the U.S. dollar equivalent, determined as of such date in the
manner prescribed for such Debt Security, of the principal amount of such
Debt Security (or, in the case of a Debt Security described in clause (1)
or (2) above, of the amount described in such clause).
Certain Debt Securities, including those for whose payment or redemption money
has been deposited or set aside in trust for the Holders and those that have
been fully defeased pursuant to Section 1502, will not be deemed to be
Outstanding. (Section 101)
Except in certain limited circumstances, we will be entitled to set any day
as a record date for the purpose of determining the Holders of Outstanding Debt
Securities of any series entitled to give or take any direction, notice,
consent, waiver or other action under the applicable Indenture, in the manner
and subject to the limitations provided in the Indenture. In certain limited
circumstances, the Trustee will be entitled to set a record date for action by
Holders. If a record date is set for any action to be taken by Holders of a
particular series, such action may be taken only by persons who are Holders of
Outstanding Debt Securities of that series on the record date. To be effective,
such action must be taken by Holders of the requisite principal amount of such
Debt Securities within a specified period following the record date. For any
particular record date, this period will be 180 days or such other period as may
be specified by us (or the Trustee, if it set the record date), and may be
shortened or lengthened (but not beyond 180 days) from time to time. (Section
104)
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DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable prospectus supplement, we
may elect, at our option at any time, to have the provisions of Section 1502,
relating to defeasance and discharge of indebtedness, or Section 1503, relating
to defeasance of certain restrictive covenants applied to the Debt Securities of
any series, or to any specified part of a series. (Section 1501)
Defeasance and Discharge. The Indentures provide that, upon our exercise of
our option (if any) to have Section 1502 applied to any Debt Securities, we and,
if applicable, each Subsidiary Guarantor will be discharged from all our
obligations, and, if such Debt Securities are Subordinated Debt Securities, the
provisions of the Subordinated Indenture relating to subordination (but not to
conversion, if applicable) will cease to be effective, with respect to such Debt
Securities (except for certain obligations to exchange or register the transfer
of Debt Securities, to replace stolen, lost or mutilated Debt Securities, to
maintain paying agencies and to hold moneys for payment in trust) upon the
deposit in trust for the benefit of the Holders of such Debt Securities of money
or U.S. Government Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on such Debt Securities on the respective Stated Maturities in
accordance with the terms of the applicable Indenture and such Debt Securities.
Such defeasance or discharge may occur only if, among other things,
(1) we have delivered to the applicable Trustee an Opinion of Counsel
to the effect that we have received from, or there has been published by,
the United States Internal Revenue Service a ruling, or there has been a
change in tax law, in either case to the effect that Holders of such Debt
Securities will not recognize gain or loss for federal income tax purposes
as a result of such deposit, defeasance and discharge and will be subject
to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit, defeasance and
discharge were not to occur;
(2) no Event of Default or event that with the passing of time or the
giving of notice, or both, shall constitute an Event of Default shall have
occurred and be continuing;
(3) such deposit, defeasance and discharge will not result in a breach
or violation of, or constitute a default under, any agreement or instrument
to which we are a party or by which we are bound;
(4) in the case of Subordinated Debt Securities, at the time of such
deposit, no default in the payment of all or a portion of principal of (or
premium, if any) or interest on any of our Senior Debt shall have occurred
and be continuing, no event of default shall have resulted in the
acceleration of any of our Senior Debt and no other event of default with
respect to any of our Senior Debt shall have occurred and be continuing
permitting after notice or the lapse of time, or both, the acceleration
thereof; and
(5) we have delivered to the Trustee an Opinion of Counsel to the
effect that such deposit shall not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940. (Sections 1502
and 1504)
Defeasance of Certain Covenants. The Indentures provide that, upon our
exercise of our option (if any) to have Section 1503 applied to any Debt
Securities, we may omit to comply with certain restrictive covenants, including
those that may be described in the applicable prospectus supplement, the
occurrence of certain Events of Default, which are described above in clause (5)
(with respect to such restrictive covenants) and clauses (6) and (7) under
"Events of Default" and any that may be described in the applicable prospectus
supplement, will not be deemed to either be or result in an Event of Default
and, if such Debt Securities are Subordinated Debt Securities, the provisions of
the Subordinated Indenture relating to subordination (but not to conversion, if
applicable) will cease to be effective, in each case with respect to such Debt
Securities. In order to exercise such option, we must deposit, in trust for the
benefit of the Holders of such Debt Securities, money or U.S. Government
Obligations, or both, which, through
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the payment of principal and interest in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal of
and any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the applicable Indenture and such
Debt Securities. Such covenant defeasance may occur only if we have delivered to
the applicable Trustee an Opinion of Counsel that in effect says that Holders of
such Debt Securities will not recognize gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain obligations and
will be subject to federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit and defeasance
were not to occur, and the requirements set forth in clauses (2), (3), (4) and
(5) above are satisfied. If we exercise this option with respect to any Debt
Securities and such Debt Securities were declared due and payable because of the
occurrence of any Event of Default, the amount of money and U.S. Government
Obligations so deposited in trust would be sufficient to pay amounts due on such
Debt Securities at the time of their respective Stated Maturities but may not be
sufficient to pay amounts due on such Debt Securities upon any acceleration
resulting from such Event of Default. In such case, we would remain liable for
such payments. (Sections 1503 and 1504)
NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. (Sections
101 and 106)
TITLE
We, the Subsidiary Guarantors, the Trustees and any agent of us, the
Subsidiary Guarantors or a Trustee may treat the Person in whose name a Debt
Security is registered as the absolute owner of the Debt Security (whether or
not such Debt Security may be overdue) for the purpose of making payment and for
all other purposes. (Section 308)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the law of the State of New York. (Section 112)
DESCRIPTION OF CAPITAL STOCK
As of August 22, 2000, our authorized capital stock was 55,000,000 shares.
Those shares consisted of: (a) 5,000,000 shares of preferred stock, no par
value, none of which were outstanding; and (b) 50,000,000 shares of common
stock, no par value, of which 17,745,396 shares were outstanding. In addition,
at August 22, 2000, 1,645,000 shares of common stock were reserved for issuance
pursuant to our 1993 Employee Stock Option Plan and 50,000 shares of common
stock were reserved for issuance under our 1996 Non-Employee Director Stock
Option Plan. The following summary of certain provisions of our capital stock
does not purport to be complete and is subject to and is qualified in its
entirety by our articles of incorporation and by-laws, which are incorporated in
this prospectus by reference as exhibits to the registration statement of which
this prospectus forms a part, and by the provisions of applicable law.
COMMON STOCK
Cumulative voting is prohibited in the election of directors. Our common
stock is not redeemable, does not have any conversion rights and is not subject
to call by us. Holders of our common stock have no preemptive rights to maintain
their respective percentage of ownership in future offerings or sales of stock
by us. In addition to the voting rights described below, ownership of our common
stock entitles holders to the right:
- to receive ratably such dividends, if any, as may be declared from time
to time by our board of directors out of funds legally available for
dividends; and
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- in the event of our liquidation, dissolution or winding up, to share
equally and ratably in the assets available for distribution after
payment of all liabilities and subject to any prior rights of any holders
of preferred stock then outstanding.
The shares of our common stock presently outstanding are fully paid and
non-assessable. Our common stock trades on the New York Stock Exchange under the
symbol "SGR."
Each outstanding share of common stock for which there has been no change
in beneficial ownership during the four years preceding the record date will
entitle its holder to five votes on each matter properly submitted to our
shareholders for their vote, waiver, release or other action. Holders of shares
that have changed beneficial ownership within the four-year period will be
entitled to only one vote per share. A change in beneficial ownership of an
outstanding share of common stock is deemed to have occurred whenever a change
occurs in any person or persons who, directly or indirectly, through any
contract, agreement, arrangement, understanding, relationship or otherwise, has
or shares any of the following:
- voting power, which includes, without limitation, the right to vote or
the power to direct the voting power of the share of common stock;
- investment power, which includes, without limitation, the power to direct
the sale or other disposition of the share of common stock;
- the right to receive or to retain the proceeds of any sale or other
disposition of the share of common stock; or
- the right to receive or to retain any distributions, including, without
limitation, cash dividends, in respect of the share of common stock.
Applying the general rules set forth above, the following events or
conditions are specifically deemed to involve a change in beneficial ownership
of a share of common stock:
- in the absence of proof to the contrary provided in accordance with
procedures set forth below, an outstanding share of common stock is
transferred of record into the name of any other person, or upon the
issuance of shares in a public offering;
- in the case of an outstanding share of common stock held of record in the
name of a corporation, general partnership, limited partnership, voting
trustee, bank, trust company, broker, nominee or clearing agency, if it
has not been established according to the procedures set forth below that
there has been no change in the person or persons who direct the exercise
of the rights referred to in the preceding set of bullet points with
respect to the outstanding share of common stock during the four years
immediately preceding the record date;
- in the case of an outstanding share of common stock held of record in the
name of any person as a trustee, agent, guardian or custodian under the
Uniform Gifts to Minors Act as in effect in any jurisdiction, there is a
change in the beneficiary of the trust, the principal of the agent, the
ward of the guardian, the minor for whom the custodian is acting or a
change in the trustee, agent, guardian or custodian; or
- in the case of outstanding shares of common stock beneficially owned by a
person or group of persons, who, after acquiring, directly or indirectly,
the beneficial ownership of five percent of the outstanding shares of
common stock, fails to notify us of the person's or group's ownership
within ten days after the acquisition.
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<PAGE> 80
Contrary provisions in our articles of incorporation aside, no change in
beneficial ownership of an outstanding share of common stock will be deemed to
have occurred solely as a result of:
- any transfer without valuable consideration, including, without
limitation, transfers effected by:
- bequest or inheritance;
- operation of law upon the death of an individual; or
- other transfers without valuable consideration, such as gifts made in
good faith and not for the purpose of circumventing provisions of our
articles of incorporation;
- any changes in the beneficiary of a trust, or any distribution of an
outstanding share of common stock from the trust, by reason of the birth,
death, marriage or divorce of any natural person;
- the adoption of any natural person prior to the age of 18;
- the passage of a given period of time;
- the attainment by any natural person of a specific age;
- the creation or termination of any guardianship or custodial arrangement;
- any appointment of a successor trustee, agent, guardian or custodian with
respect to an outstanding share of common stock if neither the successor
has nor its predecessor had the power to vote or to dispose of the share
of common stock without further instructions from others;
- any change in the person to whom dividends or other distributions in
respect of an outstanding share of common stock are to be paid pursuant
to the issuance or modification of a revocable dividend payment order;
- any issuance of a share of common stock by us or any transfer by us of a
share of common stock held in treasury other than in a public offering of
the share, unless otherwise determined by the board of directors at the
time of authorizing the issuance or transfer;
- any giving of a proxy in connection with a solicitation of proxies
subject to the provisions of Section 14 of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder;
- any transfer, whether or not with consideration, among individuals
related or formerly related by blood, marriage or adoption, defined as
relatives, or between a relative and any person controlled by one or more
relatives where the principal purpose for the transfer is to further the
estate tax planning objectives of the transferor or of relatives of the
transferor;
- any appointment of a successor trustee as a result of the death of the
predecessor trustee who was a natural person;
- any appointment of a successor trustee who was specifically named in a
trust instrument prior to the effective date of this offering; or
- any appointment of a successor trustee as a result of the resignation,
removal or failure to qualify of a predecessor trustee or as a result of
mandatory retirement pursuant to the express terms of a trust instrument;
provided, that less than 50% of the trustees administering any single
trust will have changed, including in the percentage the appointment of
the successor trustee, during the four-year period preceding the
appointment of the successor trustee.
All determinations concerning changes in beneficial ownership, or the
absence of any change, are made by our board of directors or by a transfer agent
for our common stock at our request. Written procedures designated to facilitate
the determinations have been established and may be amended by our board of
directors. These procedures should provide the manner of proof of facts that
will be accepted and the frequency with which such proof may be required to be
renewed. We and any transfer agent will be
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<PAGE> 81
entitled to rely on any information concerning beneficial ownership of the
outstanding shares of our common stock coming to our attention from any source
and in any manner reasonably deemed by us to be reliable. However, neither we
nor any transfer agent will be charged with any other knowledge concerning the
beneficial ownership of outstanding shares of our common stock.
In the event of any stock split or stock dividend of our common stock, each
share acquired by reason of the split or dividend will be deemed to have been
beneficially owned by the same person from the acquisition date of the share
from which it originated.
Each outstanding share of our common stock, whether at any particular time
the holder thereof is entitled to exercise five votes or one vote, shall be
identical to all other shares of our common stock in all respects, and together
the outstanding shares of common stock will constitute a single class of our
shares.
PREFERRED STOCK
The description of the terms of the preferred stock set forth below and to
be set forth in an applicable prospectus supplement will not be complete and
will be subject to and qualified in its entirety by reference to our articles of
incorporation and the articles of amendment relating to the applicable series of
preferred stock. The registration statement of which this prospectus forms a
part will include the articles of amendment as an exhibit or incorporate it by
reference.
Pursuant to our articles of incorporation, our board of directors may, by
resolution and without further action or vote by our shareholders, provide for
the issuance of up to 5,000,000 shares of preferred stock in one or more series
having such voting powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations,
or restrictions thereof, as the board of directors may determine. The prospectus
supplement will specify any terms of any series of preferred stock offered by it
including:
- the series, the number of shares offered and the liquidation value of the
preferred stock,
- the price at which the preferred stock will be issued,
- the dividend rate, the dates on which the dividends will be payable and
other terms relating to the payment of dividends on the preferred stock,
- the liquidation preference of the preferred stock,
- whether the preferred stock is redeemable or subject to a sinking fund,
and the terms of any such redemption or sinking fund,
- the extent to which holders of the shares of the preferred stock shall be
entitled to vote,
- whether the preferred stock is convertible into or exchangeable for any
other securities, and the terms of any such conversion or exchange, and
- any additional rights, preferences, qualifications, limitations or
restrictions of the preferred stock.
Holders of the shares of preferred stock will have no preemptive rights.
Undesignated preferred stock may enable our Board of Directors to render
more difficult or to discourage an attempt to obtain control of us by means of a
tender offer, proxy contest, merger or otherwise, and to thereby protect the
continuity of our management. The issuance of shares of a new series of
preferred stock may adversely affect the rights of the holders of our common
stock. For example, unless otherwise provided in a prospectus supplement, any
new series of preferred stock issued will rank prior to our common stock as to
dividend rights, liquidation preference or both and may be convertible into
shares of common stock. As a result, the issuance of shares of a new series of
preferred stock may discourage bids for our common stock or may otherwise
adversely affect the market price of our common stock. Our board may issue
preferred stock without shareholder approval and with voting or conversion
rights that could adversely affect the voting power of holders of our common
stock.
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LOUISIANA FAIR PRICE AND CONTROL ACQUISITION STATUTES
Under Louisiana law, the acquisition of voting power, which is called a
"control share acquisition," of an "issuing public corporation" that results in
the purchaser acquiring voting power in excess of 20%, 33% or 51% of the total
voting power of the issuing public corporation requires approval of a majority
of the voting power of the issuing public corporation and each class entitled to
vote separately on the proposal, excluding the shares of the acquiring person,
any officer of the issuing public corporation and any employee of the issuing
public corporation who is also a director of the corporation. Shares acquired in
a control share acquisition without such approval will have no voting rights and
under certain circumstances may be subject to redemption by the corporation. The
restrictions imposed under the law are applicable to all Louisiana corporations
that fall within the definition of an "issuing public corporation," as we do,
unless the issuing public corporation's articles of incorporation or by-laws
contain a provision expressly disclaiming them, which ours do not. Therefore,
these restrictions contained in Louisiana law apply to us.
In addition, if particular elections were to be made by our board of
directors under the Louisiana Business Corporation Law, unless specified price
and procedural requirements were met, business combinations involving us and any
holder of 20% or more of our outstanding voting stock could be required to be
approved by at least:
- 80% of the votes entitled to be cast by holders of the outstanding voting
stock; and
- two-thirds of the votes entitled to be cast by holders of our voting
stock other than the voting stock of the 20% holder.
This provision could be regarded as a deterrent to a takeover of us and
could be applied selectively by our board of directors.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
Our articles of incorporation contain provisions that eliminate the
personal liability of our directors and officers for:
- monetary damages resulting from breaches of their fiduciary duty other
than liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law;
- violations under Section 92(D) of the Louisiana Business Corporation Law,
relating to unlawful distributions; or
- any transaction from which the director or officer derived an improper
personal benefit.
Our articles of incorporation contain provisions requiring the
indemnification of our directors and officers to the fullest extent permitted by
Section 83 of the Louisiana Business Corporation Law, including circumstances in
which indemnification is otherwise discretionary. We believe that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
CLASSIFIED BOARD OF DIRECTORS
Our articles of incorporation provide that if the number of directors
constituting our entire board of directors is increased to twelve or more
members, then at the next meeting of our shareholders at which directors are to
be elected, the board of directors will be divided into three classes, the
members of which will serve staggered three-year terms. We believe that a
classified board of directors could help to ensure the continuity and stability
of our board and the business strategies and policies determined by them. The
classified board provision, if implemented, could have the effect of making the
removal of incumbent directors more time-consuming and could discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us, even though an attempt might be beneficial to us and our shareholders.
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ADVANCE NOTICE PROVISIONS FOR PARTICULAR SHAREHOLDER ACTIONS
Our by-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of our board or a committee
thereof, of candidates for election as directors. This is called the "nomination
procedure" with respect to the election of directors, or with respect to other
matters to be brought before an annual meeting of our shareholders, the
"business procedure."
The nomination procedure requires that a shareholder give prior written
notice, in proper form, of a planned nomination for our board of directors to
our secretary. The requirements as to the form and timing of that notice are
specified in our by-laws. If the election inspectors determine that a person was
not nominated in accordance with the nomination procedure, the person will not
be eligible for election as a director.
Although our by-laws do not give our board any power to approve or
disapprove shareholder nominations for the election of directors or of any other
business desired by shareholders to be conducted at an annual or any other
meeting, our by-laws may:
- have the effect of precluding a nomination for the election of directors
or precluding the conduct of business at a particular annual meeting if
the proper procedures are not followed; and
- may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of us, even if the conduct of the solicitation or the
attempt might be beneficial to us and our shareholders.
Under the business procedure, a shareholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to our secretary. The requirements as to the form and timing of that notice are
specified in our by-laws. If the chairman or other officer presiding at a
meeting determines that an item of business was not properly brought before the
meeting in accordance with the business procedure, then that item of business
will not be conducted at the meeting.
SUPER MAJORITY PROVISIONS
Our articles of incorporation contain provisions requiring the affirmative
vote of the holders of at least 75% of the voting power of our capital stock to
amend specific provisions of the articles, including provisions relating to the
removal of directors.
Our articles of incorporation require the approval of the holders of at
least 75% of our outstanding shares of our common stock, not including shares
held by a related person, to approve some business combinations and related
transactions. The term "related person" includes any individual, corporation,
partnership or other entity which owns beneficially, directly or indirectly,
more than five percent of the outstanding shares of our common stock. The term
"business combination" includes, among other things:
- any merger or consolidation of us or a subsidiary of ours which
constitutes more than 50% of our assets, other than a merger or
consolidation which results in our voting securities outstanding
immediately prior to the merger or consolidation continuing to represent
more than 50% of the combined voting power of the voting securities of
the surviving entity;
- any sale, lease, exchange, transfer or other disposition of more than 50%
of our assets;
- any reclassification of our common stock; and
- our liquidation or dissolution.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is First Union
National Bank, Charlotte, North Carolina.
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DEPOSITARY SHARES
GENERAL
We may offer fractional shares of preferred stock, rather than full shares
of preferred stock. If we decide to offer fractional shares of preferred stock,
we will issue receipts for depositary shares. Each depositary share will
represent a fraction of a share of a particular series of preferred stock. The
prospectus supplement will indicate that fraction. The shares of preferred stock
represented by depositary shares will be deposited under a depositary agreement
between us and a bank or trust company that meets certain requirements and is
selected by us (the "Bank Depositary"). Each owner of a depositary share will be
entitled to all the rights and preferences of the preferred stock represented by
the depositary share. The depositary shares will be evidenced by depositary
receipts issued pursuant to the depositary agreement. Depositary receipts will
be distributed to those persons purchasing the fractional shares of preferred
stock in accordance with the terms of the offering.
We have summarized selected provisions of a depositary agreement and the
related depositary receipts. The summary is not complete. The forms of the
deposit agreement and the depositary receipts relating to any particular issue
of depositary shares will be filed with the SEC via a Current Report on Form 8-K
prior to our offering of the depositary shares, and you should read such
documents for provisions that may be important to you.
DIVIDENDS AND OTHER DISTRIBUTIONS
If we pay a cash distribution or dividend on a series of preferred stock
represented by depositary shares, the Bank Depositary will distribute such
dividends to the record holders of such depositary shares. If the distributions
are in property other than cash, the Bank Depositary will distribute the
property to the record holders of the depositary shares. However, if the Bank
Depositary determines that it is not feasible to make the distribution of
property, the Bank Depositary may, with our approval, sell such property and
distribute the net proceeds from such sale to the record holders of the
depositary shares.
REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of preferred stock represented by depositary shares,
the Bank Depositary will redeem the depositary shares from the proceeds received
by the Bank Depositary in connection with the redemption. The redemption price
per depositary share will equal the applicable fraction of the redemption price
per share of the preferred stock. If fewer than all the depositary shares are
redeemed, the depositary shares to be redeemed will be selected by lot or pro
rata as the Bank Depositary may determine.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the preferred
stock represented by depositary shares are entitled to vote, the Bank Depositary
will mail the notice to the record holders of the depositary shares relating to
such preferred stock. Each record holder of these depositary shares on the
record date (which will be the same date as the record date for the preferred
stock) may instruct the Bank Depositary as to how to vote the preferred stock
represented by such holder's depositary shares. The Bank Depositary will
endeavor, insofar as practicable, to vote the amount of the preferred stock
represented by such depositary shares in accordance with such instructions, and
we will take all action which the Bank Depositary deems necessary in order to
enable the Bank Depositary to do so. The Bank Depositary will abstain from
voting shares of the preferred stock to the extent it does not receive specific
instructions from the holders of depositary shares representing such preferred
stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the depositary agreement may be amended by agreement between the
Bank Depositary and us. However, any amendment that materially and adversely
alters the rights of the holders of depositary shares will not be effective
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<PAGE> 85
unless such amendment has been approved by the holders of at least a majority of
the depositary shares then outstanding. The depositary agreement may be
terminated by the Bank Depositary or us only if (i) all outstanding depositary
shares have been redeemed or (ii) there has been a final distribution in respect
of the preferred stock in connection with any liquidation, dissolution or
winding up of our company and such distribution has been distributed to the
holders of depositary receipts.
CHARGES OF BANK DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the Bank Depositary in connection with the initial deposit of the preferred
stock and any redemption of the preferred stock. Holders of depositary receipts
will pay other transfer and other taxes and governmental charges and any other
charges, including a fee for the withdrawal of shares of preferred stock upon
surrender of depositary receipts, as are expressly provided in the depositary
agreement to be for their accounts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of depositary receipts at the principal office of the Bank
Depositary, subject to the terms of the depositary agreement, the owner of the
depositary shares may demand delivery of the number of whole shares of preferred
stock and all money and other property, if any, represented by those depositary
shares. Partial shares of preferred stock will not be issued. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of whole
shares of preferred stock to be withdrawn, the Bank Depositary will deliver to
such holder at the same time a new depositary receipt evidencing the excess
number of depositary shares. Holders of preferred stock thus withdrawn may not
thereafter deposit those shares under the depositary agreement or receive
depositary receipts evidencing depositary shares therefor.
MISCELLANEOUS
The Bank Depositary will forward to holders of depositary receipts all
reports and communications from us that are delivered to the Bank Depositary and
that we are required to furnish to the holders of the preferred stock.
Neither the Bank Depositary nor we will be liable if we are prevented or
delayed by law or any circumstance beyond our control in performing our
obligations under the depositary agreement. The obligations of the Bank
Depositary and us under the depositary agreement will be limited to performance
in good faith of our duties thereunder, and we will not be obligated to
prosecute or defend any legal proceeding in respect of any depositary shares or
preferred stock unless satisfactory indemnity is furnished. We may rely upon
written advice of counsel or accountants, or upon information provided by
persons presenting preferred stock for deposit, holders of depositary receipts
or other persons believed to be competent and on documents believed to be
genuine.
RESIGNATION AND REMOVAL OF BANK DEPOSITARY
The Bank Depositary may resign at any time by delivering to us notice of
its election to do so, and we may at any time remove the Bank Depositary. Any
such resignation or removal will take effect upon the appointment of a successor
Bank Depositary and its acceptance of such appointment. Such successor Bank
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50,000,000.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of our common stock. Warrants may be
issued independently or together with Debt Securities, preferred stock or common
stock offered by any prospectus supplement
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and may be attached to or separate from any such offered securities. Each series
of warrants will be issued under a separate warrant agreement to be entered into
between us and a bank or trust company, as warrant agent, all as set forth in
the prospectus supplement relating to the particular issue of warrants. The
warrant agent will act solely as our agent in connection with the warrants and
will not assume any obligation or relationship of agency or trust for or with
any holders of warrants or beneficial owners of warrants. The following summary
of certain provisions of the warrants does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all provisions of
the warrant agreements.
You should refer to the prospectus supplement relating to a particular
issue of warrants for the terms of and information relating to the warrants,
including, where applicable:
(1) the number of shares of common stock purchasable upon exercise of
the warrants and the price at which such number of shares of common stock
may be purchased upon exercise of the warrants;
(2) the date on which the right to exercise the warrants shall
commence and the date on which such right shall expire (the "Expiration
Date");
(3) United States Federal income tax consequences applicable to the
warrants;
(4) the amount of the warrants outstanding as of the most recent
practicable date; and
(5) any other terms of the warrants.
Warrants will be offered and exercisable for U.S. dollars only. Warrants
will be issued in registered form only. Each warrant will entitle its holder to
purchase such number of shares of common stock at such exercise price as shall
in each case be set forth in, or calculable from, the prospectus supplement
relating to the warrants. The exercise price may be subject to adjustment upon
the occurrence of events described in such prospectus supplement. After the
close of business on the Expiration Date (or such later date to which we may
extend such Expiration Date), unexercised warrants will become void. The place
or places where, and the manner in which, warrants may be exercised will be
specified in the prospectus supplement relating to such warrants.
Prior to the exercise of any warrants, holders of the warrants will not
have any of the rights of holders of common stock, including the right to
receive payments of any dividends on the common stock purchasable upon exercise
of the warrants, or to exercise any applicable right to vote.
SELLING SHAREHOLDERS
Stone & Webster, Incorporated, a Debtor-in-Possession, is a Delaware
corporation. Stone & Webster Group Limited and Stone & Webster Canada Limited
are wholly-owned subsidiaries of Stone & Webster, Incorporated. Effective July
14, 2000, we completed the acquisition of substantially all the assets and
assumption of certain liabilities of Stone & Webster, Incorporated and its
subsidiaries for a total purchase price of approximately $38 million in cash and
approximately 2,231,773 shares of our common stock. In order to induce Stone &
Webster and its subsidiaries to enter into a purchase agreement with us for
substantially all of such assets, we agreed to provide Stone & Webster and its
subsidiaries certain registration rights.
The following table sets forth information relating to the selling
shareholders' beneficial ownership of shares of our common stock:
<TABLE>
<CAPTION>
SHARES OF
SELLING SHAREHOLDER COMMON STOCK OWNED
------------------- ------------------
<S> <C>
Stone & Webster, Incorporated............................... 1,707,298
Stone & Webster Group Limited............................... 369,837
Stone & Webster Canada Limited.............................. 154,638
</TABLE>
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<PAGE> 87
A portion of the proceeds of the sales by the selling shareholders will be
paid into an escrow for our benefit in accordance with the purchase agreement
with Stone & Webster.
The prospectus supplement relating to any shares of common stock offered by
the selling shareholder will set forth the number of shares of common stock
being offered for the selling shareholder's account as well as the number of
such shares and the percentage of the class, if greater than one percent, to be
owned by the selling shareholder after completion of the offering.
All expenses incurred with the registration of shares of common stock owned
by the selling shareholder will be borne by us; provided that, we will not be
obligated to pay any underwriting fees, discounts, or commissions in connection
with such registration.
PLAN OF DISTRIBUTION
Both the selling shareholder and we may sell securities pursuant to this
prospectus in or outside the United States (a) through underwriters or dealers,
(b) through agents or (c) directly to one or more purchasers, including our
existing stockholders in a rights offering. The prospectus supplement relating
to any offering of securities will include the following information:
- the terms of the offering
- the names of any underwriters, dealers or agents
- the name or names of any managing underwriter or underwriters
- the purchase price of the securities from us
- the net proceeds to us from the sale of the securities
- any delayed delivery arrangements
- any underwriting discounts, commissions and other items constituting
underwriters' compensation
- any initial public offering price
- any discounts or concessions allowed or reallowed or paid to dealers
- any commissions paid to agents
SALE THROUGH UNDERWRITERS OR DEALERS
If we use underwriters in the sale, the underwriters will acquire the
securities for their own account. The underwriters may resell the securities
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Underwriters may offer securities to the public either
through underwriting syndicates represented by one or more managing underwriters
or directly by one or more firms acting as underwriters. Unless we inform you
otherwise in the prospectus supplement, the obligations of the underwriters to
purchase the securities will be subject to certain conditions, and the
underwriters will be obligated to purchase all the offered securities if they
purchase any of them. The underwriters may change from time to time any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers.
During and after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters may also impose a penalty bid, which means that selling concessions
allowed to syndicate members or other broker-dealers for the offered securities
sold for their account may be reclaimed by the syndicate if the offered
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the offered securities, which may be higher than the price that
might otherwise prevail in the open market. If commenced, the underwriters may
discontinue these activities at any time.
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<PAGE> 88
If we or the selling shareholder use dealers in the sale of securities, the
selling shareholder and we will sell the securities to them as principals. They
may then resell those securities to the public at varying prices determined by
the dealers at the time of resale.
DIRECT SALES AND SALES THROUGH AGENTS
We may sell the securities directly. In this case, no underwriters or
agents would be involved. We may sell securities upon the exercise of rights
that we may issue to our securityholders. We may also sell the securities
directly to institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act with respect to any sale
of those securities.
We may sell the securities through agents we designate from time to time.
Unless we inform you otherwise in the prospectus supplement, any agent will
agree to use its reasonable best efforts to solicit purchases for the period of
its appointment.
DELAYED DELIVERY CONTRACTS
If we so indicate in the prospectus supplement, we may authorize agents,
underwriters or dealers to solicit offers from certain types of institutions to
purchase securities from us at the public offering price under delayed delivery
contracts. These contracts would provide for payment and delivery on a specified
date in the future. The contracts would be subject only to those conditions
described in the prospectus supplement. The prospectus supplement will describe
the commission payable for solicitation of those contracts.
GENERAL INFORMATION
We may have agreements with the agents, dealers and underwriters to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act, or to contribute with respect to payments that the agents,
dealers or underwriters may be required to make. Agents, dealers and
underwriters may be customers of, engage in transactions with or perform
services for us in the ordinary course of their business.
LEGAL MATTERS
Our legal counsel, Vinson & Elkins L.L.P., Houston, Texas, will pass upon
certain legal matters in connection with the offered securities. The validity of
issuance of the offered securities and other matters arising under Louisiana law
are being passed upon by Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation), Baton Rouge, Louisiana. Any underwriters will be advised about
other issues relating to any offering by their own legal counsel.
EXPERTS
The financial statements of The Shaw Group Inc. as of and for the year
ended August 31, 1999 incorporated by reference in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving such reports.
The financial statements included in and incorporated by reference in this
prospectus and elsewhere in the registration statement to the extent and for the
periods indicated in their reports have been audited by Arthur Andersen LLP and
Hannis T. Bourgeois, LLP, independent public accountants, and are included in
this prospectus in reliance upon the authority of said firms as experts in
accounting and auditing in giving said reports. The single jointly signed
auditors' report is considered to be the equivalent of two separately signed
auditors' reports. Thus each firm represents that it has complied with generally
accepted auditing standards and is in a position that would justify being the
only signatory of the report.
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The financial statements of Stone & Webster, Incorporated, incorporated by
reference in this prospectus from our report on Form 8-K/A, filed with the SEC
on September 13, 2000, have been audited by PricewaterhouseCoopers, LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving such reports.
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================================================================================
4,000,000 SHARES
[THE SHAW GROUP INC. LOGO]
COMMON STOCK
---------------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------------
Joint Book-Running Managers
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
JEFFERIES & COMPANY, INC.
, 2000
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