-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HtNnRmQ6URUneMF5+sPjIhneHdhyU41zs3EQoNoXP/WgBrin+55gxAkqbD7pPBlZ JCGYqxDFtspp49dkNYYdMQ== 0000912057-01-513063.txt : 20010507 0000912057-01-513063.hdr.sgml : 20010507 ACCESSION NUMBER: 0000912057-01-513063 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT LAKES DREDGE & DOCK CORP CENTRAL INDEX KEY: 0000885538 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 133634726 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-60300 FILM NUMBER: 1623393 BUSINESS ADDRESS: STREET 1: 2122 YORK ROAD CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 6305743000 MAIL ADDRESS: STREET 1: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT LAKES DREDGE & DOCK CO CENTRAL INDEX KEY: 0000043365 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 361163930 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-60300-01 FILM NUMBER: 1623394 BUSINESS ADDRESS: STREET 1: GREAT LAKES DREDGE & DOCK CORP STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 6305743000 MAIL ADDRESS: STREET 1: GREAT LAKES DREDGE & DOCK CORP STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAWSON DREDGING CO CENTRAL INDEX KEY: 0001070597 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 363503893 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-60300-02 FILM NUMBER: 1623395 BUSINESS ADDRESS: STREET 1: 2122 YORK RD STREET 2: C/O GREAT LAKES DREDGE & DOCK CORP CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 6305743000 MAIL ADDRESS: STREET 1: C/O GREAT LAKES DREDGE & DOCK CORP STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIFTY THREE DREDGING CORP CENTRAL INDEX KEY: 0001070599 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 363177787 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-60300-03 FILM NUMBER: 1623396 BUSINESS ADDRESS: STREET 1: 2122 YORK RD STREET 2: C/O GREAT LAKES DREDGE & DOCK CORP CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 6305743000 MAIL ADDRESS: STREET 1: C/O GREAT LAKES DREDGE & DOCK CORP STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH AMERICAN SITE DEVELOPERS INC CENTRAL INDEX KEY: 0001140030 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042598486 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-60300-04 FILM NUMBER: 1623397 BUSINESS ADDRESS: STREET 1: C/O GREAT LAKES DREDGE & DOCK CO STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 6305743000 MAIL ADDRESS: STREET 1: C/O GREAT LAKES DREDGE & DOCK CO STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60523 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT LAKES CARIBBEAN DREDGING INC CENTRAL INDEX KEY: 0001140031 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 364347352 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-60300-05 FILM NUMBER: 1623398 BUSINESS ADDRESS: STREET 1: C/O GREAT LAKES DREDGE & DOCK CO STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 6305743000 MAIL ADDRESS: STREET 1: C/O GREAT LAKES DREDGE & DOCK CO STREET 2: 2122 YORK RD CITY: OAK BROOK STATE: IL ZIP: 60523 S-4 1 a2047496zs-4.txt S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 2001 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- GREAT LAKES DREDGE & DOCK CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 1600 13-3634726 (State or other jurisdiction (primary standard industrial (I.R.S. Employer (of incorporation or classification code number) Identification No.) organization)
See Table Of Additional Registrants Below 2122 YORK ROAD OAK BROOK, ILLINOIS 60523 (630) 574-3000 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) MR. DOUGLAS B. MACKIE PRESIDENT & CHIEF EXECUTIVE OFFICER GREAT LAKES DREDGE & DOCK CORPORATION 2122 YORK ROAD OAK BROOK, ILLINOIS 60523 (630) 574-3000 (Name, address, including zip code, and telephone number, including area code, of agent or service) -------------------------- WITH COPIES TO: JOHN D. LAROCCA, ESQ. Dechert 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE Series D 11 1/4% Senior Subordinated Notes due 2008............................................ $155,000,000 100% $155,000,000 $38,750 Guarantee of Series D 11 1/4% Senior Subordinated Notes due 2008 by each of the Registrants other than Great Lakes Dredge & Dock Corporation (see table below).................................... $155,000,000 -- -- None(2)
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the registration fee. (2) Pursuant to Rule 457(n), no separate fee is payable for the guarantees. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF ADDITIONAL REGISTRANTS
STATE OR OTHER PRIMARY STANDARD EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER; JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER ADDRESS, INCLUDING ZIP CODE; AND TELEPHONE NUMBER, INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES ORGANIZATION NUMBER NUMBER - ----------------------------------------------------- ------------------- ------------------- --------------- Great Lakes Dredge & Dock Company................. New Jersey 1600 36-1163930 2122 York Road Oak Brook, IL 60523 (630) 574-3000 Great Lakes Caribbean Dredging, Inc............... Delaware 1600 36-4347352 2122 York Road Oak Brook, IL 60523 (630) 574-3000 Dawson Marine Services Company.................... Delaware 1600 36-3503893 2122 York Road Oak Brook, IL 60523 (630) 574-3000 North American Site Developers, Inc............... Massachusetts 1795 04-2598486 2122 York Road Oak Brook, IL 60523 (630) 574-3000 Fifty-Three Dredging Corporation.................. New Jersey 1600 36-3177787 2122 York Road Oak Brook, IL 60523 (630) 574-3000
[Logo of Great Lakes Dredge And Dock Corporation] OFFER TO EXCHANGE ALL OF OUR OUTSTANDING REGISTERED 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B AND UNREGISTERED 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES C FOR REGISTERED 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES D THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 2001 UNLESS EXTENDED ------------------------ We hereby offer, on the terms and conditions described in this prospectus and in the accompanying letter of transmittal, to exchange all of our outstanding registered 11 1/4% Senior Subordinated Notes due 2008, Series B and all of our outstanding unregistered 11 1/4% Senior Subordinated Notes due 2008, Series C for $155.0 million in aggregate principal amount of our registered 11 1/4% Senior Subordinated Notes Due 2008, Series D. The Series B notes were issued in a publicly registered exchange on February 5, 1999 and, as of the date of this prospectus, an aggregate principal amount of $115.0 million is outstanding. The Series C notes were issued in a private transaction on April 24, 2001 and, as of the date of this prospectus, an aggregate principal amount of $40.0 million is outstanding. If all Series B and Series C notes are exchanged for Series D notes in this exchange, a single series of registered notes will be outstanding. We do not intend to list the exchange notes on any securities exchange and no active public market for the exchange notes is therefore anticipated. INFORMATION ABOUT THE EXCHANGE NOTES - Maturity: The exchange notes will mature on August 15, 2008. - Interest: We will pay interest on the exchange notes semi-annually on February 15 and August 15 of each year beginning August 15, 2001. - Optional Redemption: On or after August 15, 2003, we may redeem the exchange notes at the redemption prices listed in "Description of Exchange Notes--Optional Redemption." Prior to August 15, 2001, we may redeem up to 35% of the exchange notes with the proceeds of certain offerings of our common equity at the price specified in "Description of Exchange Notes--Optional Redemption." - Mandatory Redemption: If we experience specific kinds of changes in control, we must offer to repurchase the exchange notes at the prices listed in "Description of Exchange Notes--Repurchase at the Option of Holders--Change of Control--Asset Sales." - Subsidiary Guarantees: The exchange notes will be jointly and severally guaranteed on a senior subordinated basis by NASDI, our 80% owned subsidiary, all of our existing wholly-owned domestic subsidiaries and all of our future domestic restricted subsidiaries. - Subordination: The exchange notes will be our general unsecured obligation, will rank subordinate in right of payment to all of our senior debt and will rank senior or equal in right of payment to any of our future subordinated indebtedness. The subsidiary guaranties will rank subordinate in right of payment to all senior debt of each subsidiary guarantor, including each subsidiary guarantor's guarantee of indebtedness under our senior credit facility. SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF RISKS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR EXISTING NOTES. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these notes or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is , 2001 TABLE OF CONTENTS
PAGE -------- SUMMARY..................................................... 1 RISK FACTORS................................................ 15 THE ACQUISITION AND THE FINANCING........................... 27 USE OF PROCEEDS............................................. 29 CAPITALIZATION.............................................. 30 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................................ 31 SELECTED FINANCIAL DATA..................................... 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 40 THE EXCHANGE OFFER.......................................... 54 BUSINESS.................................................... 63 MANAGEMENT.................................................. 76 OWNERSHIP OF CAPITAL STOCK.................................. 79 DESCRIPTION OF CAPITAL STOCK................................ 80 DESCRIPTION OF THE NEW CREDIT FACILITY...................... 82 DESCRIPTION OF NEW BONDING AGREEMENT........................ 83 DESCRIPTION OF EXCHANGE NOTES............................... 86 CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................... 121 PLAN OF DISTRIBUTION........................................ 123 LEGAL MATTERS............................................... 123 EXPERTS..................................................... 123 AVAILABLE INFORMATION....................................... 124 FORWARD-LOOKING STATEMENTS.................................. 124 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
Until , 2001 (90 days after the date of this prospectus), all dealers effecting transactions in the notes, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters with respect to their unsold allotments or subscriptions. Based on certain interpretive letters issued by the staff of the SEC to third parties in unrelated transactions, we are of the view that holders of the existing notes (other than any holder who is an "affiliate" of our company or any guarantor within the meaning of Rule 405 under the Securities Act) who exchange their existing notes for exchange notes pursuant to the exchange offer generally may offer such exchange notes for resale, resell such exchange notes and otherwise transfer such exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided: - the exchange notes are acquired in the ordinary course of the holders' business; and - the holders have no arrangement with any person to participate in a distribution of such exchange notes. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivery of a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, at it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for existing notes where such existing notes were acquired by such broker-dealer as a result of market-making activities i or other trading activities. We have agreed that, for a period of 180 days after the expiration date of this exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The exchange offer is not conditioned upon any minimum principal amount of existing notes being tendered for exchange pursuant to the exchange offer. We will pay all the expenses incident to the exchange offer. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE 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 MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED, WHERE THE PERSON MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY BE OFFERED THE SECURITIES. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE. ii SUMMARY THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE ACCOMPANYING NOTES) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES: - "WE", "US" AND "THE COMPANY" REFER TO GREAT LAKES DREDGE & DOCK CORPORATION AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AFTER THE ACQUISITION OF NORTH AMERICAN SITE DEVELOPERS, INC. ("NASDI") DESCRIBED BELOW; - "GREAT LAKES" REFERS TO GREAT LAKES DREDGE & DOCK CORPORATION AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS PRIOR TO THE THE ACQUISITION OF NASDI; - ON APRIL 24, 2001, GREAT LAKES PURCHASED 80% OF NASDI (THE "ACQUISITION"); - "BID MARKET SHARE" INCLUDES THE VALUE OF DREDGING CONTRACTS BID UPON AND WON BY US DIVIDED BY THE VALUE OF ALL DREDGING CONTRACTS UPON WHICH WE BID, INCLUDING THOSE WE DID NOT WIN VALUED AT THE PRICE AT WHICH THE CONTRACTS WERE AWARDED. AS SUCH, BID MARKET SHARE DATA DOES NOT REFLECT MARKET SHARE DATA FOR ALL DREDGING ACTIVITIES; AND - PRO FORMA DATA FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 GIVES PRO FORMA EFFECT TO THE ACQUISITION AND THE APRIL 2001 SERIES C NOTE OFFERING. THE COMPANY We are the largest provider of dredging services in the United States. Dredging generally involves the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. The U.S. dredging market consists of three primary types of dredging work: Capital, Maintenance and Beach Nourishment, in which activities we achieved a combined U.S. bid market share of 37% in 2000. In addition, we are the only U.S. dredging contractor with significant international operations, which represented approximately 21% of our dredging contract revenues in 2000. Our fleet of over 220 vessels, including 28 dredges, 31 material transportation barges, 3 drillboats, and numerous other specialized support vessels, is the largest and most diverse fleet in the U.S. We believe that our fleet would have a replacement cost in excess of $750 million. On April 24, 2001 we acquired 80% of NASDI. According to the ENGINEERING NEWS RECORD, NASDI is one of the three largest providers of commercial and industrial demolition, or CID, services in the United States, based on 1999 revenues. We believe that the Acquisition will provide us with the following benefits: - STRENGTHENS AND DIVERSIFIES OUR BUSINESS. The Acquisition enables us to increase our revenues and cash flow by utilizing our core competencies in a related business segment and also diversifies our customer base. Similar to our dredging activities, NASDI's CID activities involve the removal, transportation and disposal of materials using specialized equipment, employing a unionized workforce and requiring special operating permits, licenses and skills. Many of the larger and more complex demolition projects that make up a majority of NASDI's revenue require sophisticated estimating methods and systems that are also required in our estimation of dredging projects. The Acquisition also provides us with exposure to the attractive market dynamics of the CID business. NASDI's customers are generally non-government entities for whom CID is a critical function. NASDI is also a leader in the developing market for the demolition of aging industrial infrastructure, particularly power generation plants, to allow for the construction of new and more efficient replacements on the same sites. - POSITIONS NASDI FOR INCREASED GROWTH. By integrating and supplementing certain of NASDI's administrative functions (such as contract cost and performance tracking, contract administration, and risk management), we can better enable the management of NASDI to focus 1 on exploiting new business opportunities, which will further contribute to our combined revenues and earnings. For the year ended December 31, 2000, after giving pro forma effect to the Acquisition, we generated revenues of $411.7 million, EBITDA (as defined) of $71.5 million and net income of $13.9 million. In addition, as of December 31, 2000, we had a dredging contract backlog in excess of $198.0 million and a CID contract backlog in excess of $23.3 million. DREDGING ACTIVITIES Over our 110-year life, we have grown to be the leader in each of our primary dredging activities in the U.S., including: - CAPITAL--U.S. AND FOREIGN (approximately 57% of pro forma 2000 revenues). Capital dredging projects are primarily port expansion projects, which involve the deepening of channels to allow access by larger, deeper draft ships and the providing of land fill for building additional port facilities, thereby enhancing port profitability and competitiveness. The U.S. capital market includes "Deep Port" projects authorized under the 1986 Water Resource Development Act, or WRDA, which initially authorized the deepening of 39 ports. Subsequent WRDA bills, most recently in December 2000, have authorized additional port deepening projects and expanded previously authorized projects. We achieved a 60% cumulative bid market share of Deep Port projects over the past five years. Our bid market share of total U.S. capital projects was 35% in 2000. - MAINTENANCE (approximately 18% of pro forma 2000 revenues). Maintenance dredging consists of the redredging of previously deepened waterways and harbors to remove silt, sand and other accumulated sediments. Due to natural sedimentation, active channels generally require maintenance dredging every one to three years, thus creating a continuous source of dredging work that is typically non-deferrable if optimal navigability is to be maintained. Our bid market share of U.S. maintenance projects was 27% in 2000. - BEACH NOURISHMENT (approximately 8% of pro forma 2000 revenues). Beach nourishment dredging projects generally involve moving sand from the ocean floor to shoreline locations when erosion has progressed to a stage that threatens substantial shoreline assets. Our bid market share of U.S. beach nourishment projects was 53% in 2000. We believe that we benefit from a number of favorable trends in the U.S. dredging market: - DEEP PORT CAPITAL PROJECTS. The average controlling depth of the ten largest U.S. ports (as measured by annual container volume) is 40.4 feet, compared to 52.7 feet for the ten largest non-U.S. ports. Without significant deepening efforts, most major U.S. ports risk being unable to efficiently accommodate larger cargo vessels, which renders them less competitive. In 1997, the United States Army Corps of Engineers, or the Corps, which has the primary responsibility for maintaining and improving the nation's waterways, ports and shorelines, announced new Deep Port projects and the expansion of existing projects with an estimated aggregate revenue value in excess of $2.0 billion to be completed through 2005. - INCREASING NEED FOR BEACH NOURISHMENT. Beach erosion is a continuous problem and there is a growing awareness among state and local governments as to the importance of beachfront assets to the multi-billion dollar tourist industry. To date, a significant amount of funding has been allocated by local governments to restore and preserve eroding beachfront. - ADDITIONAL SIGNIFICANT LONG TERM OPPORTUNITIES. There are significant capital dredging opportunities related to projects to contain the erosion of wetlands and coastal marshes (particularly in Louisiana) and to provide land reclamation for the San Francisco airport expansion. These long term projects have the potential to add substantial revenue to the dredging market over the next several years. 2 COMMERCIAL AND INDUSTRIAL DEMOLITION ACTIVITIES CID activities conducted by NASDI accounted for approximately 18% of our pro forma 2000 revenues. NASDI offers a comprehensive array of specialized services, including: interior and exterior demolition of commercial and industrial buildings; salvage and recycling of related materials; and removal of hazardous substances and materials. NASDI's specialized fleet of rented and owned demolition equipment includes excavators equipped with shears, pulverizers, processors, grapples and hydraulic hammers. Since NASDI can satisfy a significant amount of its equipment needs through rental and utilizes hourly workers on a project basis, NASDI has a highly variable cost structure, which provides the flexibility to adjust costs to the level of project activity. From 1998 to 2000, NASDI increased its contract revenue and Adjusted EBITDA (as defined) at compound annual growths rates of 54.8% and 115.9%, respectively. For the fiscal year ended December 31, 2000, NASDI generated contract revenue of $72.6 million and Adjusted EBITDA (as defined) of $23.3 million. NASDI's operations have historically been concentrated in the New England region where NASDI has a significant share of the Massachusetts CID market. We believe that NASDI is one of the few CID providers in its region of operation with the required licenses, operating expertise, equipment fleet and access to bonding to execute larger, highly profitable industrial projects. COMPETITIVE STRENGTHS We possess a number of competitive strengths that have allowed us to develop and maintain our leading position within the dredging industry, including the following: - FLEXIBLE PORTFOLIO OF DREDGING ASSETS. Our dredging fleet is the largest in the United States and one of the largest in the world. Our U.S. fleet consists of over 200 pieces of equipment, including the largest number of hopper dredges, most of the large hydraulic dredges, the only two large electric dredges, and the only drillboat capable of operating in offshore conditions in U.S. waters. The size, versatility and technical capabilities of our fleet improve our competitiveness as they generally permit us to select the most efficient equipment for a particular job. To maintain the value and effectiveness of our fleet, we emphasize proactive maintenance that results in less downtime, increased profitability, enhanced vessel life and relatively low capital expenditure requirements. To this end, in 2000, we incurred $25.9 million of maintenance expense (which is included in costs of contract revenues) in addition to capital expenditures of $14.1 million. - FAVORABLE COMPETITIVE DYNAMIC. We are the largest U.S. provider of dredging services and have maintained the largest cumulative bid market share in the industry since 1991. In 2000, we had a 37% bid market share, which was substantially greater than our nearest competitor's share of those contracts. In addition, we believe that we benefit from: - FAVORABLE COMPETITIVE ENVIRONMENT. The requirements of the Dredging Act of 1906 and the Jones Act of 1920 effectively prohibit foreign dredges and foreign-owned dredging companies from competing in the U.S. In addition, we believe that we are one of only four dredging providers that can obtain performance bonds in an amount greater than $50 million, which we believe provides us with a competitive advantage in bidding for larger projects due to the job bonding requirements imposed by many state and federal agencies. Moreover, there is a long lead time and a high capital cost associated with the construction of a new dredge, which we estimate to be two years and between $18.0 million and $50.0 million, respectively. - STRONG REPUTATION AND UNEQUALLED EXPERTISE. We have never failed to complete a project over our 110-year operating history. Our long history as a leader in the industry has enabled us to develop a proprietary database that contains detailed bidding and technical information on most domestic dredging projects since 1970, which our management believes allows us, among other things, to be more accurate than our competitors in predicting contract costs prior to bidding. 3 - SPECIALIZED CAPABILITY IN CAPITAL PROJECTS. We believe that we are the leader in capital dredging projects which generally require specialized engineering expertise and specific combinations of equipment and experience in performing complex projects. - PROVEN EXPERIENCED MANAGEMENT TEAM. Our senior managers have an average of 20 years of experience in the dredging industry. We believe that our experienced management team provides us with a significant advantage over our competitors, many of whom are family owned and managed. Our management group owns approximately 14% of our issued and outstanding common stock. BUSINESS STRATEGY Our strategy is to continue to grow contract revenues and cash flow and strengthen our competitive position worldwide. The principal elements of our strategy include: - CONTINUE TO GROW IN DOMESTIC DREDGING MARKETS. We expect to strengthen our domestic leadership position by leveraging (i) the size, diversity and technical capabilities of our fleet, (ii) our industry-leading operating experience, (iii) our engineering expertise, and (iv) our efficient and safe project management practices. - CAPITALIZE ON OPPORTUNITIES CREATED BY STRATEGIC ASSET ACQUISITIONS. During the last several years, we have successfully acquired several key pieces of equipment which will further enhance our operating capabilities by providing additional tools for capital projects and strengthening our ability to perform maintenance and beach nourishment projects. These acquisitions include: - certain hydraulic dredging assets, including the dredge "Texas", which we acquired in 1998. In 2000, we increased the cutter power of the dredge Texas, making it the most powerful cutter dredge in the U.S., capable of handling the type of rock work expected in certain of the upcoming port deepening projects; - the dredge "New York", a newly-built backhoe dredge, which we took delivery of under a long-term lease in July 1999. The "New York" has performed successfully on the Kill Van Kull channel deepening in New York and will be working on the Wilmington, North Carolina and San Juan, Puerto Rico channel deepening projects in 2001; - the drillboat "Apache" which we constructed in 2000. The "Apache" has increased drilling efficiency and capacity, is capable of working in offshore conditions and is the only drillboat of its type in use in U.S. waters; and - the dredge "Liberty Island", a new 5,000 cubic meter hopper dredge, to accommodate anticipated growth in domestic hopper dredging attributable to the reduction of the Corps' hopper fleet, additional Deep Port work and related maintenance dredging, potential increased beach nourishment work, and the aging of the industry's hopper fleet. The new hopper dredge is expected to be delivered by the end of 2001 under a long-term lease. - GROW ESTABLISHED FOREIGN DREDGING MARKET BASE. Since the early 1990s, a consolidation among certain foreign competitors, together with an increase in foreign governments' port infrastructure investments, have resulted in new overseas dredging opportunities for us. In 2000, we recorded approximately $71.8 million in revenue from non-U.S. dredging projects. We intend to continue to selectively pursue international opportunities that offer us the potential to increase the utilization of our asset base, to leverage our project management capabilities and to increase our international revenues. - EXPLOIT GROWTH OPPORTUNITIES IN CID MARKET. We believe that our experience in bidding for and completing large projects in multiple markets and our significant infrastructure will be particularly valuable in helping NASDI to execute large CID projects and increase its market share. In particular, our national presence, purchasing power and administrative capabilities will 4 facilitate NASDI's ability to obtain licenses and pre-qualifications necessary to operate in new geographic markets. Thus, we believe that under our ownership NASDI will be well positioned to selectively enter attractive new geographic markets, generally with a contracted project from an existing customer. RECENT OPERATING RESULTS Great Lakes' revenues and operating income for the quarter ended March 31, 2001 were $72.6 million and $8.6 million compared to $88.9 million and $10.6 million, respectively, for the quarter ended March 31, 2000. Depreciation for the quarter ended March 31, 2001 was $3.2 million compared to $3.1 million for the quarter ended March 31, 2000, resulting in EBITDA (as defined) for the respective periods of $11.8 million and $13.7 million. NASDI is in the process of finalizing operating results for the quarter ended March 31, 2001. Based on NASDI's books and records, NASDI expects to have first quarter revenues of $8.7 million, operating income of $2.6 million, and EBITDA (as defined) of $2.9 million, which amounts do not reflect accruals for stockholder bonuses relating to first quarter earnings under pre-Acquisition employment agreements. Such quarterly results are not necessarily indicative of Great Lakes' or NASDI's annual results. THE TRANSACTION On April 24, 2001, we purchased 80% of the capital stock of NASDI. We purchased a portion of the holdings of NASDI management stockholders and all of the holdings of the other stockholders of NASDI. The purchase consideration for the Acquisition included (1) $35.0 million in cash, subject to certain downward adjustments, payable to the stockholders of NASDI and (2) two notes totaling $3.0 million from NASDI payable to the NASDI management stockholders, which notes are guaranteed by Great Lakes, but not the subsidiaries of Great Lakes. We funded the cash portion of the acquisition price and the related fees and expenses, as well as repayment of a portion of our outstanding borrowings under our revolving credit facility, with the proceeds of our April 2001 Series C note offering. In that offering, we issued $40.0 million in aggregate principal amount of our unregistered Series C notes and received proceeds (net of discounts and fees) from the issuance of these notes of approximately $38.7 million. NASDI is a subsidiary guarantor of these Series C notes and certain of our other existing indebtedness. We effected the acquisition of NASDI through a newly-formed acquisition subsidiary which was merged into NASDI following consummation of the Acquisition. We retained an 80% interest in the surviving entity and the NASDI management stockholders retained a 20% non-voting interest. The NASDI management stockholders will continue to operate NASDI under the terms of multi-year employment agreements and can earn substantial incentive bonuses if certain earnings levels are achieved. See "The Acquisition and the Financing". The following table sets forth the sources and uses of funds for the April 2001 Series C note offering and the Acquisition:
AMOUNT ------------- (IN MILLIONS) SOURCES OF FUNDS: Series C notes............................................ $39.7 NASDI Seller Notes........................................ 3.0 ----- TOTAL SOURCES........................................... $42.7 ===== USES OF FUNDS: Purchase of 80% of NASDI stock............................ $38.0 Repay a portion of outstanding revolving loan balance..... 1.6 Fees and expenses......................................... 3.1 ----- TOTAL USES.............................................. $42.7 =====
5 SPONSOR As a result of a recapitalization in July 1998, Vectura Holding Company LLC acquired over 80% of our common stock. The membership interests of Vectura Holding Company LLC are owned by 399 Venture Partners Inc., an affiliate of Citicorp Venture Capital Ltd., and certain other investors. * * * The principal executive offices of the Company are located at 2122 York Road, Oak Brook, Illinois 60523 and the telephone number is (630) 574-3000. THE EXCHANGE OFFER Securities To Be Exchanged................ On August 19, 1998 we issued $115.0 million in aggregate principal amount of unregistered 11 1/4% Senior Subordinated Notes due 2008, or the Series A notes, to an initial purchaser in a transaction exempt from the registration requirements of the Securities Act of 1933. Subsequently in February 1999, we conducted an exchange offer in which we offered to exchange the Series A notes for Series B notes, which were substantially identical to the Series A notes in all respects except that the Series B notes offered in the February 5, 1999 exchange offer were registered with Securities and Exchange Commission and do not contain any legends restricting their transfer. The Series B notes are currently governed by the terms of an indenture dated as of August 19, 1998, as supplemented. On April 24, 2001, we issued $40.0 million in aggregate principal amount of unregistered Series C notes to an initial purchaser in a transaction exempt from the registration requirements of the Securities Act of 1933. The Series C notes are currently governed by the terms of the August 19, 1998 indenture. We are now conducting this exchange offer so that the holders of the registered Series B notes and the holders of the unregistered Series C notes can exchange their existing notes for exchange notes, which are substantially identical to the existing notes in all respects except as noted below. If all holders of Series B and Series C notes elect to tender their existing notes, then there will be $155.0 million in aggregate principal amount of exchange notes outstanding. The existing notes and the exchange notes are governed by the terms of the same indenture dated as of August 19, 1998. The Exchange Offer........................ We are offering to exchange $1,000 principal amount of exchange notes for each $1,000 principal amount of existing notes. As of the date hereof, $155.0 million aggregate principal amount of existing notes are outstanding. The terms of the exchange notes are the same in all material respects as the terms of the existing notes except that interest on the exchange notes shall accrue from the most recent date to which interest has been paid on the existing notes surrendered
6 in exchange therefor, or if no interest has been paid on the existing notes, from the original date of issuance of the existing notes, and, with respect to the Series C notes, the exchange notes will be registered under the Securities Act of 1933, as amended, and will not contain any legends restricting their transfer. Expiration Date; Withdrawal Of Tender..... The exchange offer will expire at 5:00 p.m., New York City time, on , 2001 or such later date and time to which we extend the exchange offer. The tender of existing notes pursuant to the exchange offer may be withdrawn at any time prior to such date. Any existing notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the exchange offer. Interest On The Exchange Notes And The Existing Notes.......................... Interest on the exchange notes will accrue from the date of issuance of the existing notes for which the exchange notes are exchanged or from the date of the last periodic payment of interest on the existing notes, whichever is later. Interest on the exchange notes will be at the same rate and on the same terms as interest on the existing notes. No additional interest will be paid on the existing notes tendered and accepted for exchange. Certain Conditions To The Exchange Offer................................... Our obligation to accept for exchange, or to issue exchange notes in exchange for any existing notes is subject to certain customary conditions relating to compliance with any applicable law or any applicable interpretation by the staff of the Securities and Exchange Commission, the receipt of any applicable governmental approvals and the absence of any actions or proceedings of any governmental agency or court which could materially impair our ability to consummate the exchange offer. We currently expect that each of the conditions will be satisfied and that no waivers will be necessary. See "The Exchange Offer--Certain Conditions to the Exchange Offer." Procedures For Tendering Existing Notes... Each holder of existing notes wishing to accept the exchange offer must complete, sign and date the letter of transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such letter of transmittal, or such facsimile, together with such existing notes and any other required documentation, to the exchange agent at the address set forth herein. Persons holding the existing notes through the Depository Trust Company ("DTC") and wishing to accept the exchange offer must do so pursuant to the DTC's Automated Tender Offer
7 Program, by which each tendering participant will agree to be bound by the letter of transmittal. By executing or agreeing to be bound by the letter of transmittal, each holder will represent to us that, among other things: - the exchange notes acquired pursuant to this exchange offer are being obtained in the ordinary course of business of the person receiving such exchange notes, whether or not such person is the registered holder of the tendered Series B notes or Series C notes; - the holder is not engaging in and does not intend to engage in a distribution of such exchange notes; - the holder does not have an arrangement or understanding with any person to participate in the distribution of such exchange notes; and - the holder is not an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of the Company. We will accept for exchange any and all existing notes which are properly tendered (and not withdrawn) in this exchange offer prior to 5:00 p.m., New York City time, on , 2001. The exchange notes issued pursuant to this exchange offer will be delivered promptly following this expiration date. See "The Exchange Offer--Terms of the Exchange Offer and Procedures for Tendering Existing Notes." Use Of Proceeds........................... We will not receive any proceeds from the exchange of existing notes pursuant to the exchange offer. Exchange Agent............................ The Bank of New York is serving as the exchange agent (the "exchange agent") in connection with the exchange offer. Federal Income Tax Consequences........... The exchange of existing notes pursuant to the exchange offer should not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Considerations." Effect Of Not Tendering................... Series B notes that are not tendered or that are tendered but not accepted, following the completion of this exchange offer, (1) will continue to be subject to the terms of the indenture dated as of August 19, 1998; (2) will continue to be registered securities; and (3) may have their liquidity impaired as a result of fewer Series B notes outstanding after the exchange offer is completed. Series C notes that are not tendered or that are tendered but not accepted will, following the completion of the exchange offer, continue to be subject to the existing restrictions upon their transfer. See "The Exchange Offer--Purpose and Effect' and "Risk Factors".
8 THE EXCHANGE NOTES The summary below describes the principal terms of the exchange notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The "Description of Exchange Notes" section of this prospectus contains a more detailed description of the terms of the exchange notes. Issuer.................................... Great Lakes Dredge and Dock Corporation Securities Offered........................ $155.0 million in aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2008. Maturity Date............................. August 15, 2008. Interest Rate............................. The exchange notes will bear interest at the rate of 11 1/4% per annum, payable semi-annually on February 15 and August 15 of each year, commencing August 15, 2001. Subsidiary Guarantees..................... The exchange notes will be jointly and severally guaranteed on a senior subordinated basis by NASDI and all of our existing wholly owned domestic subsidiaries. Subordination............................. The exchange notes will be our general unsecured obligations, will rank subordinate in right of payment to all senior debt and will rank senior or equal in right of payment to any of our future subordinated indebtedness. The subsidiary guarantees will rank subordinate in right of payment to all senior debt of each subsidiary guarantor, including each subsidiary guarantor's guarantee of indebtedness under the senior credit facility. The exchange notes and the subsidiary guarantees will be effectively subordinated to all liabilities, including trade payables, of our subsidiaries that are not subsidiary guarantors. As of December 31, 2000, on a pro forma basis after giving effect to the Acquisition, the exchange notes would have been subordinated to $38.4 million of senior debt, exclusive of contingent obligations, and effectively subordinated to $18.0 million of liabilities of our subsidiaries that are not subsidiary guarantors. As of December 31, 2000 after giving effect the Acquisition and the April 2001 Series C note offering, approximately $53.8 million would have been available for additional borrowing under the senior credit facility. See "Risk Factors--Subordination." Optional Redemption....................... On or after August 15, 2003, we may redeem the exchange notes at the redemption prices listed in "Description of Exchange Notes--Optional Redemption." Prior to August 15, 2001, we may redeem up to 35% of the exchange notes originally issued with the proceeds of certain offerings of our common equity at the price specified in "Description of Exchange Notes--Optional Redemption." Change Of Control......................... If we sell certain assets and fail to use the proceeds of those sales for specified purposes or if we experience specific kinds of changes in control, we must offer to repurchase the exchange notes at the prices listed in "Description of
9 Exchange Notes--Repurchase at the Option of Holders-- Change of Control." Certain Covenants Of Indenture............ We will issue the exchange notes under an indenture with Bank of New York, as trustee. The indenture governing the notes will, among other things, restrict our ability to: - pay dividends or make certain other restricted payments; - borrow money; - incur liens; - sell certain assets or merge with or into other companies; - enter into transactions with affiliates; and - make certain investments. For more details, see "Description of Exchange Notes-Certain Covenants." Registration Rights Agreement............. We have agreed to exchange the existing notes for the exchange notes and to use our best efforts to have a registration statement covering this exchange declared effective with the Securities and Exchange Commission by October 19, 2001. We have agreed to use our best efforts to consummate this exchange within 30 business days from the date on which the registration statement is declared effective. We have also agreed to file under certain circumstances a shelf registration statement to cover resales of Series C notes and to cause the registration statement to be declared effective as promptly as possible by the Securities and Exchange Commission. If we fail to satisfy these obligations, we have agreed to pay liquidated damages to holders of the Series C notes in certain circumstances. See "Description of Exchange Notes--Registration Rights; Liquidated Damages."
For a discussion of certain risks that should be considered in evaluating an investment in the exchange notes, see "Risk Factors." 10 SUMMARY CONDENSED FINANCIAL AND OTHER DATA The following tables set forth summary condensed financial and other data of Great Lakes and NASDI. The historical financial data of Great Lakes (except for EBITDA and Adjusted EBITDA) for each of the three years ended December 31, 2000 have been derived from, and should be read in conjunction with, the audited consolidated financial statements of Great Lakes and the related notes thereto included elsewhere in this prospectus. The historical financial data of Great Lakes (except for EBITDA and Adjusted EBITDA) for each of the two years ended December 31, 1997, have been derived from the audited financial statements of Great Lakes which are not contained herein. The historical financial data of NASDI (except for Adjusted EBITDA) for the eleven months ended December 31, 1998 and each of the two fiscal years ended December 31, 2000 were derived from, and should be read in conjunction with, the audited financial statements of NASDI and the related notes thereto included elsewhere in this prospectus. The pro forma financial data have been derived from the Unaudited Pro Forma Condensed Combined Financial Statements and notes thereto included elsewhere herein. The pro forma statement of operations data for the period presented was prepared to give effect to the Acquisition as if it occurred on January 1, 2000, and the pro forma balance sheet data was prepared to give effect to the Acquisition as if it had occurred on December 31, 2000, and do not purport to represent what the Company's operating results or financial position would have been or to project its operating results or financial position for any future date. See "Unaudited Pro Forma Condensed Combined Financial Statements," "Selected Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and the related notes thereto (the "Historical Financial Statements") included elsewhere in this prospectus. 11 SUMMARY CONDENSED FINANCIAL AND OTHER DATA GREAT LAKES DREDGE & DOCK CORPORATION
PRO FORMA YEAR ENDED DECEMBER 31, YEAR ENDED ---------------------------------------------------- DECEMBER 31, 1996 1997 1998 1999 2000 2000 -------- -------- -------- -------- -------- ------------ (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Contract revenues............................. $235.9 $258.3 $289.2 $302.3 $339.1 $411.7 Gross profit.................................. 27.2 29.9 48.6 57.5 57.4 83.7 Operating income.............................. 10.8 11.0 8.3 35.6 35.1 55.4 OTHER DATA: EBITDA(1)..................................... $ 24.7 $ 24.6 $ 22.2 $ 47.6 $ 47.8 $ 71.5(2) Adjusted EBITDA(1)............................ 26.2 28.8 41.1 -- -- -- Depreciation and amortization(3).............. 13.9 13.6 13.9 12.0 12.7 16.1 Maintenance expense(4)........................ 14.7 17.3 22.7 27.2 25.9 25.9 Capital expenditures(5)....................... 5.4 11.5 29.1 15.0 14.1 15.1 PRO FORMA DATA: Cash interest expense(6)............................................................................ $ 22.5 Ratio of pro forma EBITDA to cash interest expense.................................................. 3.2x Ratio of total debt to pro forma EBITDA(7).......................................................... 2.8x
AS OF DECEMBER 31, 2000 --------------------- PRO ACTUAL FORMA ---------- -------- (DOLLARS IN MILLIONS) BALANCE SHEET DATA: Cash and cash equivalents................................. $ 1.1 $ 1.8 Working capital........................................... 11.8 16.9 Total assets.............................................. 248.7 300.9 Total debt(8)............................................. 155.0 197.7 Total stockholders' deficit............................... (32.3) (32.3)
NORTH AMERICAN SITE DEVELOPERS, INC.
YEAR END DECEMBER 31, ------------------------------ 1998(9) 1999 2000 -------- -------- -------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Contract revenues......................................... $30.3 $45.5 $72.6 Gross profit.............................................. 5.8 11.2 26.3 Operating income (loss)................................... (0.4) 2.1 4.5 OTHER DATA: Adjusted EBITDA(1)........................................ $ 5.0 $10.1 $23.3 Depreciation and amortization............................. 1.3 1.4 1.4 Capital expenditures...................................... 0.9 0.9 1.0
- ------------------------ (1) "EBITDA", as provided for herein, represents earnings from continuing operations before interest expense, net, income taxes and depreciation and amortization expense and excludes equity in earnings of joint ventures and minority interests. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles in the United States of 12 America. EBITDA is included in the prospectus as it is a basis upon which we assess our financial performance, and certain covenants in our borrowing arrangements are tied to similar measures. "Adjusted EBITDA" excludes the effects of certain items on our historical EBITDA that are not expected to recur in our ongoing activities. Adjusted EBITDA is presented to provide additional information with respect to our ability to meet future debt service, capital expenditures and working capital requirements, but is not necessarily a measure of our ability to fund our cash needs. EBITDA and Adjusted EBITDA should not be considered in isolation or as an alternative to net income, cash flows from continuing operations, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles as measures of our profitability or liquidity. EBITDA and Adjusted EBITDA as defined in this prospectus may differ from similarly titled measures presented by other companies. The components of EBITDA and Adjusted EBITDA are set forth below for the periods indicated. GREAT LAKES DREDGE & DOCK CORPORATION
YEAR END DECEMBER 31, ---------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) Operating income......................................... $10.8 $11.0 $ 8.3 $35.6 $35.1 Depreciation and amortization............................ 13.9 13.6 13.9 12.0 12.7 ----- ----- ----- ----- ----- EBITDA................................................... 24.7 24.6 22.2 47.6 47.8 Management fees paid to former stockholder(a)............ 0.5 0.5 0.3 Legal and other expenses related to the Chicago flood litigation(b).......................................... 0.6 1.8 Disposed operations(c)................................... 1.5 1.9 0.9 Other corporate charges(d)............................... (1.1) Equity incentive plan and other compensation expenses(e)............................................ 8.2 Recapitalization related expenses(f)..................... 9.5 ----- ----- ----- ----- ----- Adjusted EBITDA.......................................... $26.2 $28.8 $41.1 $47.6 $47.8 ===== ===== ===== ===== =====
NORTH AMERICAN SITE DEVELOPERS, INC.
YEAR END DECEMBER 31, ------------------------------ 1998(9) 1999 2000 -------- -------- -------- (DOLLARS IN MILLIONS) Operating income (loss)..................................... $(0.4) $ 2.1 $ 4.5 Depreciation and amortization............................... 1.3 1.4 1.4 ----- ----- ----- EBITDA...................................................... 0.9 3.5 5.9 Bonuses(g).................................................. 4.1 6.6 17.4 ----- ----- ----- Adjusted EBITDA............................................. $ 5.0 $10.1 $23.3 ===== ===== =====
- ------------------------ (a) MANAGEMENT FEES PAID TO FORMER STOCKHOLDER. During the periods presented, we paid a management fee to a former st3ockholder. In 1998, we effected a recapitalization of the Company and have not paid such a fee as of that date. (b) LEGAL AND OTHER EXPENSES RELATED TO THE CHICAGO FLOOD LITIGATION. In 1992, an underwater utility tunnel located beneath the Chicago Loop failed adjacent to a construction site completed by us in the fall of 1991. The failure resulted in a flooding of the tunnel and 13 building basements served by the tunnel. Numerous suits were filed against us for claims of flood damage and losses due to business interruption. We incurred substantial legal expenses along with other expenses as a result of the Chicago flood litigation. During 1997, all remaining claims were settled relating to the Chicago flood litigation. (c) DISPOSED OPERATIONS. In 1996, we sold a marine construction business. The adjustments reflect the elimination of the impact on EBITDA attributable to the disposal of this business. (d) OTHER CORPORATE CHARGES. In 1996, we offered a voluntary early retirement program and incurred a charge of $0.6 million relating thereto. Additionally, in that year we terminated our defined benefit pension plan and recognized a net gain of $1.7 million. (e) EQUITY INCENTIVE PLAN AND OTHER COMPENSATION EXPENSES. In 1998, options granted in a prior year were exercised. A portion of these shares was then sold to Vectura in connection with a recapitalization resulting in $5.2 million in non-cash compensation expense. Additionally, we approved and paid bonuses of $3.0 million to certain members of our management. (f) RECAPITALIZATION RELATED EXPENSES. In 1998, pursuant to the terms of an agreement for recapitalization, we paid fees and expenses of $3.6 million and bonuses to certain members of our management of $5.9 million. (g) BONUSES. In 1998, 1999 and 2000, NASDI paid discretionary bonuses to all stockholders, including bonuses to management stockholders in excess of amounts required under their employment agreements then in effect. We do not intend to pay such discretionary bonuses. (2) Pro forma EBITDA for the year ended December 31, 2000 includes Great Lakes' 2000 EBITDA of $47.8 million and NASDI's 2000 pro forma EBITDA of $23.7 million. NASDI's 2000 pro forma EBITDA of $23.7 million is equal to NASDI's 2000 Adjusted EBITDA of $23.3 million plus an additional $0.4 million to reflect the add-back of certain bonus payments that would not have been paid had the employment agreements following the Acquisition been in effect. (3) Effective January 1, 1999, we made changes in the estimated useful lives of certain dredging equipment to better reflect the remaining period over which we anticipate utilizing this equipment with normal repairs and maintenance. Thus, depreciation for 1999 and 2000 is approximately $2.9 million less than it would have been using the previous lives. (4) Represents amount expended for maintenance included in costs of contract revenues. (5) Capital expenditures in 1998 included $19.3 million for certain dredging assets acquired from a competitor and construction related to a new backhoe dredge. We subsequently financed these acquisitions through sale-leaseback arrangements. (6) Pro forma cash interest is defined as interest expense exclusive of amortization of deferred financing fees. (7) The ratio of total debt to pro forma EBITDA was calculated based on pro forma debt as of December 31, 2000 of $197.7 million. See "Capitalization." (8) Total debt includes long-term debt and the current maturities of long-term debt and excludes contingent obligations. (9) Amounts presented for 1998 are for the eleven-months ended December 31, 1998. 14 RISK FACTORS THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM OUR FORWARD LOOKING STATEMENTS ARE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENT SET FORTH BELOW. RISKS RELATED TO THE EXCHANGE NOTES OUR SUBSTANTIAL DEBT COULD IMPAIR OUR FINANCIAL CONDITION AND OUR ABILITY TO FULFILL OUR DEBT OBLIGATIONS. We have a significant amount of indebtedness, which was further increased in connection with the Acquisition. The following chart sets forth certain significant credit statistics and is presented assuming we had completed the April 2001 Series C note offering and the Acquisition as of the dates or at the beginning of the periods specified below.
AT DECEMBER 31, 2000 (DOLLARS IN MILLIONS) --------------------- PRO FORMA --------------------- Total debt................................................ $197.7 Stockholders' deficit..................................... $(32.3)
FOR THE YEAR ENDED DECEMBER 31, 2000 ------------------ PRO FORMA ------------------ Ratio of earnings to fixed charges (including preferred stock).................................................... 1.55x
In addition, on a pro forma basis, after giving effect to the April 2001 Series C note offering, the use of proceeds from the April 2001 Series C note offering and the Acquisition, as of December 31, 2000, we would have had approximately $53.8 million of unused availability under our senior credit facility. As a joint venture partner of Amboy Aggregates, we are liable for 50% of the liabilities of Amboy Aggregates (other than non-recourse liabilities). Our portion of such liabilities was approximately $4.0 million as of December 31, 2000, which included approximately $3.1 million of outstanding indebtedness that we have guaranteed. Our substantial indebtedness could have important consequences to you. For example, it could: - make it more difficult for us to satisfy our obligations with respect to the exchange notes; - increase our vulnerability to general adverse economic and industry conditions; - require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate requirements; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; - place us at a competitive disadvantage compared to our competitors that have less debt; and - limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. Moreover, failure to comply with those covenants 15 could result in an event of default which, if not cured or waived, could have a material adverse effect on us. WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR DEBT. Our future cash flow may be insufficient to meet the payment obligations under the exchange notes. Our ability to pay or to refinance our indebtedness will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sell assets on satisfactory terms, or at all. In addition, subject to the restrictions and limitations contained in our credit facility and the indenture governing the exchange notes, we may incur significant additional indebtedness, which could adversely affect our operating cash flow and our ability to service indebtedness. ADDITIONAL BORROWINGS ARE AVAILABLE AND WE AND OUR SUBSIDIARIES WILL BE ABLE TO INCUR MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE. We and our subsidiaries may be able to incur additional indebtedness in the future. Although the indenture governing the exchange notes contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions; and the indebtedness incurred in compliance with these such restrictions could be substantial. Also, these restrictions do not prevent us from incurring obligations that do not constitute indebtedness. As of December 31, 2000, on a pro forma basis after giving effect to the Acquisition, the consummation of the April 2001 Series C note offering and the repayment of a portion of our debt under our existing revolving credit facility, we had $53.8 million of unused additional borrowing capacity under our senior credit facility. To the extent new debt is added to our and our subsidiaries' currently anticipated debt levels, the substantial risks associated with our indebtedness described above would increase. See "Capitalization," "Selected Financial Data," "Description of Exchange Notes" and "Description of Certain Indebtedness." RESTRICTIVE COVENANTS IN THE SENIOR CREDIT FACILITY, THE INDENTURE GOVERNING THE EXCHANGE NOTES AND THE BONDING AGREEMENT MAY REDUCE OUR OPERATING FLEXIBILITY. The senior credit facility, the indenture governing the exchange notes and the bonding agreement currently contain various covenants that limit our ability to engage in certain transactions. Our senior credit facility and bonding agreement also require us to maintain specified financial ratios and satisfy other financial conditions. Our ability to meet those financial ratios and conditions can be affected by events beyond our control, and therefore we may be unable to meet those ratios and conditions. Our breach of any of these covenants or our failure to meet any of these ratios or conditions could result in a default under our senior credit facility, the exchange notes, the bonding agreement and/or other indebtedness, any of which could cause defaults under other of our indebtedness. Upon the occurrence of an event of default under our senior credit facility, the lenders could elect to declare all amounts outstanding under our senior credit facility to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness, which would constitute an event of default under the indenture. If the lenders under our senior credit facility accelerate the repayment of borrowings, we may not have sufficient assets to repay our senior credit facility and our other indebtedness, including the exchange notes. Similarly, upon the occurrence of an event of default under the indenture, the holders of at least 25% in principal amount of the then outstanding exchange notes could elect to declare all amounts outstanding under the indenture to be immediately due and payable. In addition, pursuant to the bonding agreement between us and the subsidiary guarantors, our 16 obligations and the subsidiary guarantors' obligations are secured by a security interest in certain of our fixed assets. If we or any of the subsidiary guarantors fail or are unable to complete the work under a bonded contract or breach the bonding agreement, the bonding company may proceed against the collateral, in addition to pursuing other remedies. THE EXCHANGE NOTES ARE NOT SECURED BY OUR ASSETS OR THOSE OF OUR SUBSIDIARIES, AND THE LENDERS UNDER THE SENIOR CREDIT FACILITIES WILL BE ENTITLED TO REMEDIES AVAILABLE TO A SECURED LENDER WHICH GIVES THEM PRIORITY OVER THE NOTE HOLDERS TO COLLECT AMOUNTS DUE ON OUR DEBT. In addition to being subordinated to all of our existing and future senior debt, the exchange notes and the subsidiary guaranties will not be secured by any of our assets. Our obligations under our senior credit facility are secured by, among other things: - a first priority lien in vessels and equipment approved by the credit facility agent and having appraised orderly liquidation value of approximately $65.0 million; - a second priority lien in all vessels and equipment (with the exception of those vessels and equipment operated by our NATCO Limited Partnership subsidiary) securing our bonding company; and - a security interest in our accounts receivable. Our obligations under our bonding agreement are secured by: - a first priority lien in vessels and equipment having a fair market value of approximately $61.0 million; - a second priority lien on vessels and equipment operated by NATCO Limited Partnership; and - a security interest in our accounts receivable. If we become insolvent or are liquidated, or if payment under our senior credit facility, the obligations under the bonding agreement or under any other secured senior indebtedness is accelerated, the lenders under our senior credit facility, the bonding agreement or holders of other secured senior indebtedness will be entitled to exercise the remedies available to a secured lender under applicable law (in addition to any remedies that may be available under documents pertaining to our senior credit facility, the bonding agreement or other senior debt). Upon any default under our senior credit facility or the bonding agreement (and even without accelerating the indebtedness under our senior credit facility), the lenders may be able to prohibit the payment of the exchange notes and guaranties under the subordination provisions contained in the indenture governing the exchange notes, or otherwise limit our ability to use our cash flow to make payments on the exchange notes. See "Description of Certain Indebtedness" and "Description of Exchange Notes." YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES IS JUNIOR TO OUR AND THE SUBSIDIARY GUARANTORS' EXISTING SENIOR INDEBTEDNESS AND POSSIBLY ALL OF OUR AND THEIR FUTURE BORROWINGS. FURTHERMORE, CLAIMS OF CREDITORS OF OUR NON-GUARANTOR SUBSIDIARIES WILL GENERALLY HAVE PRIORITY WITH RESPECT TO THE ASSETS AND EARNINGS OF SUCH SUBSIDIARIES OVER YOUR CLAIMS. The exchange notes and the subsidiary guaranties will be subordinated to the prior payment in full of our, and the subsidiary guarantors', as the case may be, current and future senior indebtedness to the extent set forth in the indenture. As of December 31, 2000, after giving pro forma effect to the Acquisition, the consummation of the April 2001 Series C note offering and the repayment of a portion of our debt under our existing revolving credit facility, we and our guarantor subsidiaries would have had about $38.4 million of senior indebtedness (including borrowings under the senior credit facility but excluding letters of credit, guarantees and outstanding bond obligations), and approximately $53.8 million would have been available for additional borrowing under the senior credit facility. Senior debt will also include our letters of credit, guarantees and bonding obligations in effect from time to 17 time. The indenture permits the incurrence of additional indebtedness, including senior debt, by us and our restricted subsidiaries in the future. See "Description of Other Indebtedness." Because of the subordination provisions of the exchange notes, in the event of the bankruptcy, liquidation or reorganization of our Company or any subsidiary guarantor, our assets or the assets of the subsidiary guarantors would be available to pay obligations under the exchange notes only after all payments had been made on our or the subsidiary guarantors' senior indebtedness. Sufficient assets may not remain after all such payments have been made to make any payments on the exchange notes, including payments on interest when due. In addition, all payments on the exchange notes and the guaranties will be prohibited in the event of a payment default on certain of our senior indebtedness (including borrowings under the senior credit facilities) and, may be blocked for up to 179 days each year, upon the occurrence of other defaults under such indebtedness. We conduct a portion of our business through our subsidiaries. With the exception of NASDI, our non-wholly owned subsidiaries and our foreign subsidiaries are not guaranteeing the exchange notes or the credit facility. Claims of creditors of the non-guarantor subsidiaries, including trade creditors, secured creditors and creditors holding indebtedness, and claims of preferred stockholders (if any) of the non-guarantor subsidiaries will generally have priority with respect to their assets and earnings over the claims of creditors of our company, including holders of the exchange notes, even if the obligations of the subsidiaries do not constitute senior indebtedness, except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. As of December 31, 2000, such subsidiaries had approximately $18.0 million of liabilities (including trade payables) and other liabilities outstanding. In addition, after payment to creditors, the Company's rights against non-guarantor subsidiaries will effectively rank PARI PASSU with minority interests in the Company's subsidiaries which are not subsidiary guarantors. As a joint venture partner of Amboy Aggregates, the Company is liable for 50% of the liabilities of Amboy Aggregates (other than non-recourse liabilities). Our portion of such liabilities aggregated approximately $4.0 million as of December 31, 2000. See "Description of Exchange Notes--General" and "Description of Exchange Notes--Subordination." WE MAY BE UNABLE TO PURCHASE THE EXCHANGE NOTES UPON A CHANGE OF CONTROL. Upon the occurrence of "change of control" events specified in the "Description of Exchange Notes--Repurchase at the Option of Holders--Change of Control," you may require us to purchase your exchange notes at 101% of their principal amount, plus accrued and unpaid interest and liquidated damages, if any. The terms of our senior credit facility and our bonding agreement limit our ability to purchase your exchange notes in those circumstances. Any of our future debt agreements may contain similar restrictions and provisions. Accordingly, we may be unable to satisfy our obligations to purchase your exchange notes unless we are able to refinance or obtain waivers under our senior credit facility, our bonding agreement and other indebtedness with similar restrictions. We may not have the financial resources to purchase your exchange notes, particularly if a change of control event triggers a similar repurchase requirement for, or results in the acceleration of, other indebtedness. Our senior credit facility currently provides that certain change of control events will constitute a default and could result in the acceleration of our indebtedness under our senior credit facility. A default under our senior credit facility would likely cause a cross default under our bonding agreement which would trigger certain remedies in favor of our bonding company. 18 THE EXCHANGE NOTES AND THE SUBSIDIARY GUARANTIES MAY NOT BE ENFORCEABLE UNDER FEDERAL AND STATE FRAUDULENT CONVEYANCE LAWS THAT ALLOW COURTS, UNDER CERTAIN CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE THE RETURN OF PAYMENTS RECEIVED FROM US OR THE SUBSIDIARY GUARANTORS. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a court could void all or a portion of the obligations under the exchange notes and subsidiary guaranties or subordinate the obligations under the exchange notes and the subsidiary guaranties to other existing, and future indebtedness if, among other things, the debtor or guarantor, at the time it incurred the indebtedness evidenced by the exchange notes or guaranty: - received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness; and - were insolvent or rendered insolvent by reason of such incurrence; - were engaged in a business or transaction for which our remaining assets constituted unreasonably small capital; or - intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. The measures of insolvency for purposes of fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a debtor would be considered insolvent if: - the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets, or - if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or - it could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, we believe that after giving effect to the indebtedness incurred in connection with the Acquisition, neither we, nor the subsidiary guarantors will be insolvent, we will not have unreasonably small capital for the business in which we are engaged and will not have incurred debts beyond our ability to pay such debts as they mature. We cannot assure you, however, what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard. HOLDERS OF ALL OF THE EXISTING NOTES MAY NOT PARTICIPATE IN THE EXCHANGE OFFER. We believe that many of the existing notes will be tendered in this exchange offer; however, we cannot assure you that a significant amount of the existing notes will be tendered. Failure of a significant amount of the existing notes to be tendered could affect the liquidity of the market for the exchange notes. AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES. The existing notes were not listed on any securities exchange. Before the April 2001 Series C note offering, there had been no market for the Series C notes. Since the issuance there has been a limited trading market for the Series C notes and there can be no assurance that such market will provide adequate liquidity for holders who want to sell their Series C notes. The exchange notes will not be listed on any securities exchange. The exchange notes are new securities for which there is currently no market. Prior to this exchange offer, there was no public market for the exchange notes. We have been informed by initial purchaser that they intend to make a 19 market in these notes after this exchange offer is completed. However, the initial purchaser may cease their market-making at any time without notice. In addition, the liquidity of the trading market in these notes, and the market price quoted for these notes, may be adversely affected by changes in the overall market for the high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for these notes. If no trading market develops, you may not be able to resell your exchange notes at their fair market value or at all. SERIES C NOTES THAT ARE NOT EXCHANGED FOR EXCHANGE NOTES IN THE EXCHANGE OFFER WILL REMAIN RESTRICTED SECURITIES AND WILL CONTINUE TO BE SUBJECT TO THE RESTRICTIONS ON TRANSFER AND LIMITATION OF RIGHTS. The Series C notes that are not exchanged in this exchange offer will remain subject to the following restrictions on transfer and limitations on rights: - the Series C notes may be resold only if registered pursuant to the Securities Act, if an exemption from registration is available thereunder, or if neither such registration nor such exemption is required by law; - the Series C notes will bear a legend restricting transfer in the absence of registration or an exemption therefrom; and - a holder of Series C notes who wishes to sell or otherwise dispose of all or any part of its Series C notes under an exemption from registration under the Securities Act of 1933, must deliver to us on our request, an opinion of counsel reasonably satisfactory in form and substance to us, that such exemption is available. Consequently, the Series C notes will have less liquidity than the exchange notes but will bear interest at the same rate as that borne by the exchange notes. SERIES B NOTES THAT ARE NOT EXCHANGED MAY EXPERIENCE DECREASED LIQUIDITY AFTER THE CONSUMMATION OF THE EXCHANGE OFFER. The Series B notes that are not exchanged will continue to be registered securities, but the total principal amount of Series B notes may be reduced by this exchange offer which in turn may reduce the liquidity of the Series B notes outstanding after the exchange offer. RISKS RELATED TO OUR BUSINESS IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE NASDI INTO OUR BUSINESS, WE COULD INCUR UNANTICIPATED COSTS, OUR OPERATIONS COULD BE DISRUPTED AND OUR ABILITY TO PAY PRINCIPAL AND INTEREST ON THE EXCHANGE NOTES MAY BE IMPAIRED. The Acquisition has significantly increased our size and diversified our scope of operations. Our ability to integrate NASDI with our existing business will impact the future success of our business and our ability to pay principal and interest on the exchange notes. We will only achieve the increased revenues and earnings and other benefits that we expect to result from the Acquisition if we can successfully integrate NASDI's administrative, finance, technical and marketing organizations, and implement appropriate operations, financial and management systems and controls. The integration of NASDI into our operations will involve a number of risks, including: - the possible diversion of our management's attention from other business concerns; - the potential inability to successfully pursue some or all of the anticipated revenue opportunities associated with the Acquisition; - the possible loss of NASDI's key professional employees; 20 - insufficient management resources to accomplish the integration; - increased complexity and diversity compared to our operations prior to the Acquisition; and - unanticipated problems or legal liabilities. The occurrence of any of the above events, as well as any other difficulties which may be encountered in the transition and integration process, could have a material adverse effect on our business, financial condition and results of operations. IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES AND OTHER PERSONNEL, OUR GROWTH MAY BE HINDERED. Our success is largely dependent on maintaining our staff of qualified professionals. The market for qualified professionals is competitive and we may not be able to continue to be successful in our efforts to attract and retain such professionals. Our future operations could be harmed if any of our senior executives or other key personnel ceased working for us. With respect to NASDI, certain executives including the Chief Executive Officer, Christopher Berardi, and the General Manager, Joseph Berardi, are key personnel. Together, Messrs. Berardi own 20% of NASDI and continue in leadership roles with the support of additional senior leadership and administrative staff from Great Lakes. On November 6, 2000, Joseph Berardi pleaded guilty to tax evasion relating to tax years 1994 and 1995. He has made payments of $1.34 million, which includes payment of all back taxes, penalties and interest. In connection with the final resolution of the matter, on April 4, 2001, he was sentenced to 12 months of work release, beginning May 9, 2001. He is currently working for NASDI on a full time basis and the terms of his sentence allow him to continue to do so. Our success depends in part on key customer relationships forged by members of our senior management. We cannot assure you that we will be able to continue to maintain these relationships if members of senior management leave the company. OUR BUSINESS COULD SUFFER IN THE EVENT OF A WORK STOPPAGE BY OUR UNIONIZED LABOR FORCE. A significant portion of our hourly work force is represented by various unions. Certain of these unions have had strikes from time to time. See "Business--Employees." Future strikes, employee slowdowns or similar actions by one or more unions could have a material adverse effect on us. WE ARE DEPENDENT ON OUR ABILITY TO CONTINUE TO OBTAIN GOVERNMENT DREDGING CONTRACTS, AND INDIRECTLY, ON THE AMOUNT OF GOVERNMENT FUNDING FOR NEW GOVERNMENT DREDGING PROJECTS. Substantially all of our dredging revenues have been, and are expected to continue to be, attributable to contracts with federal, state and other government agencies or with companies operating under contracts with such government agencies. Government contracts are typically subject to termination at any time, on relatively short notice, at the election of the applicable government agency involved even if we are performing our contractual obligations. Cancellation of significant dredging contracts or our failure to win significant dredging contracts could have a material adverse effect on us. In addition, our dredging operations depend on project funding by various government agencies and may be adversely affected by the level and timing of such funding. Lack of funding has, in the past, substantially delayed scheduled projects, including projects that have been put up for bid. Recently the Corps has scheduled in excess of $2.0 billion of dredging projects to be bid on and completed by 2005. Overall, these projects have been bid and/or executed according to the published schedules to date; however, there is no assurance that they will continue to follow the schedules in the future. Substantially all of our dredging contracts are, and are expected to continue to be, awarded based on competitive bidding. In the United States, dredging contracts are awarded to the lowest adequately bonded bidder, regardless of a bidder's relationship with the project sponsor, work on past projects, reputation or similar factors. There can be no assurance that our competitors will not bid more 21 aggressively than us for contracts or that we will continue to achieve bid market shares at the levels that we have achieved historically. Some government dredging contracts are awarded through a negotiated procurement process in which the contractor submits a proposal and cost and pricing data to the government, and the contractor and the government negotiate the contract price. Under such contracts, the government has the right, after award and/or completion of the contract, to audit the contractor's books and records, including, the proposal and data available to the contractor during negotiations to ensure compliance with the contract and applicable federal legislation, rules and regulations. The government may seek a price adjustment based on the results of such audit. WE ARE DEPENDENT ON KEY CUSTOMERS AND LARGE CONTRACTS IN OUR CID ACTIVITIES. We are dependent on key customer relationships and the ability to obtain large contracts in our CID business. For the year ended December 31, 2000, 40% of NASDI's revenues related to one large contract with one customer. This contract was completed in 2000. NASDI management believes that such relationships will continue and that similar large contracts will be available for bid in 2001; however, there can be no assurance that NASDI will be able to maintain such relationships or successfully obtain such large contracts. The inability to maintain these relationships and/or obtain such replacement contracts would have a material adverse effect on NASDI's revenues. WE ARE DEPENDENT ON OUR ABILITY TO OBTAIN BONDING FOR FUTURE PROJECTS. We, like all dredging service providers, generally are required to post bonds in connection with our dredging contracts to insure job completion if we should fail to finish a project. We have entered into a bonding agreement with Travelers Property Casualty ("Travelers") pursuant to which Travelers acts as surety, issues bid bonds, performance bonds and payment bonds and obligates itself upon other contracts of guaranty required by us in the day-to-day operations of our dredging and marine construction business. However, Travelers is not obligated under the bonding agreement to issue bonds for us. No bond issued on our behalf has ever been drawn upon in our 110-year history. However, our business would be materially and adversely affected if we were unable to obtain bonding for future projects. In addition, if we were to default on a contract, the bonding company would be required either to complete the contract or to reimburse the project sponsor for the cost of completion. We would be obligated to reimburse the bonding company for the amount it expended as a result of our default. Pursuant to the bonding agreement between us and the subsidiary guarantors, our obligations and the subsidiary guarantors' obligations are secured by a security interest in certain of our fixed assets. NASDI is also an obligor under our bonding agreement. In the event we or any of the subsidiary guarantors fail or are unable to complete the work under a bonded contract or breach the bonding agreement, the bonding company may proceed against the collateral, cause the performance of such bonded contract by subletting it in our name or in the name of our subsidiary guarantors and seek reimbursement from us and our subsidiary guarantors for costs incurred on the subletting or performance of such bonded contract. The bonding agreement contains financial and operating covenants that limit our ability to incur indebtedness, create liens, pay dividends and to take certain other corporate actions. The total amount of bonds outstanding varies with the dollar value of contracts in process; however, the face amount of outstanding bonds typically overstates the associated contingent liability to the extent of the portion of the related projects which we have completed. We estimate that as of December 31, 2000, approximately $500 million of bonds were outstanding. "Business--Bonding and Foreign Projects Guarantees" and "Description of Other Indebtedness." THE AMOUNT OF OUR ESTIMATED BACKLOG IS SUBJECT TO CHANGE AND NOT NECESSARILY INDICATIVE OF FUTURE SALES. OUR PROFITABILITY IS SUBJECT TO INHERENT RISK BECAUSE OF THE FIXED PRICE NATURE OF MOST OF OUR CONTRACTS. 22 Our dredging contract backlog represents our estimate of the revenues which will be realized under contracts remaining to be performed based upon estimates relating to, among other things, the time required to mobilize the necessary assets at the project site, the amount of material to be dredged and the time necessary to demobilize the project assets. However, such estimates are necessarily subject to fluctuations based upon the amount of material which actually must be dredged, as well as factors affecting the time required to complete each job. Consequently, backlog is not necessarily indicative of future revenues. In addition, because a majority of our dredging backlog relates to government contracts, our order backlog can be canceled at any time without penalty, except, in some cases, the recovery of our actual committed costs and profit on work performed up to the date of cancellation. Our CID contract backlog represents our estimate of the revenues which will be realized under contracts remaining to be performed based upon estimates of the resources and time necessary to complete the projects. However, such estimates are necessarily subject to fluctuations based upon the actual resources and time required to complete each job. Consequently, backlog is not necessarily indicative of future revenues. Further, the estimated size of any contract is not necessarily indicative of the profitability of that contract. Substantially all of our contracts with our customers are fixed-price contracts. Under a fixed-price contract, the customer agrees to pay a specified price for our performance of the entire contract. Fixed-price contracts carry inherent risks, including risks of losses from underestimating costs, operational difficulties and other changes that may occur over the contract period. One of the most significant factors which can affect the profitability of a dredging project is the weather at the project site. Inclement or hazardous weather conditions can result in substantial delays in dredging and additional contract expenses. There can be no assurance that we will be able to perform our obligations under such fixed-price contracts without incurring additional expenses. If we were to significantly underestimate the cost of one or more significant contracts, the resulting losses could have a material adverse effect on us. WE ARE DEPENDENT ON SUBCONTRACTORS IN OUR CID BUSINESS. We are dependent on subcontractors in our CID business. Our business activities include interior and exterior demolition and asbestos and other hazardous substance and material removal. We sometimes subcontract hazardous substance and material removal and other demolition activities to licensed, insured subcontractors. We could experience a material adverse effect on our CID business if: (i) we are unable to find qualified subcontractors in the future; (ii) subcontractors upon which we rely fail to complete jobs in a timely manner; and/or (iii) subcontractors upon which we rely for the removal of asbestos and/or other hazardous substances or materials improperly transport, treat, store or dispose of such substances and materials. In addition, disputes with subcontractors that have failed to complete jobs have resulted, and in the future may result, in litigation. There can be no assurances that we will not be required to pay significant sums in connection with such disputes and there can be no assurances as to the outcome of these disputes or the effect it will have on our CID business. OUR BUSINESS IS SUBJECT TO SIGNIFICANT OPERATING RISKS. The businesses of dredging and demolition are generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labor disputes, encountering unusual or unexpected geological formations, cave-ins of below water tunnels, collisions with fixed objects, disruption of transportation services and flooding. These risks could result in damage to, or destruction of, dredges, transportation vessels, other buildings, personal injury, environmental damage, performance delays, monetary losses and possible legal liability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." For example, in 1992, an underwater utility tunnel located beneath the Chicago Loop failed adjacent to a construction site completed by us in the fall of 1991. The failure resulted in a flooding of the tunnel and building basements serviced by the tunnel. Numerous suits were filed against us for claims of flood damage and losses due to business 23 interruption. Although all remaining claims relating to the Chicago flood litigation were settled in 1997, there can be no assurance that the Company's operations will not be adversely affected in the future by similar or other conditions attributable to these or similar risks. Although we maintain insurance within ranges of coverage consistent with industry practice, we cannot assure you that such insurance will be available at economically feasible premiums. WE ARE SUBJECT TO RISKS RELATED TO OUR INTERNATIONAL OPERATIONS. Approximately 17% of our dredging revenues over the last three years were generated by operations conducted abroad. International operations subject us to risks customarily associated with foreign operations, including: - currency fluctuations; - import and export license requirements; - changes in tariffs and taxes; - restrictions on repatriating foreign profits back to the United States; - unfamiliarity with foreign laws and regulations; - difficulties in staffing and managing international operations; and - political, cultural and economic uncertainties. In addition, we have benefited in recent years from the substantial investment in foreign port infrastructure, particularly in the Pacific Rim. Because many international dredging contractors have concentrated significant assets in the Pacific Rim projects, we have enjoyed less competition in areas such as the Middle East, Africa and South America. However, there can be no assurances that this favorable competitive dynamic will continue. OUR DREDGING OPERATIONS MAY FLUCTUATE DUE TO SEASONALITY AND OTHER FACTORS. Quarterly and yearly dredging results can fluctuate significantly based upon the number and size of contracts undertaken and the timing of performance of projects under such contracts. We have historically realized lower contract revenues and earnings in the first and fourth quarters of each year, due to a number of factors including variation in weather conditions and government funding cycles, which affect the timing and execution of projects. We have seen the trend of this historical seasonality diminish over the past three years, with the increase in Deep Port work and the impact of environmental windows, which require that we perform certain work in winter months to protect wildlife habitats. We have been able to respond to these changing market factors since we have the flexibility to move our equipment around as weather conditions and environmental restrictions dictate. However, in the future, seasonality may become more of a factor if the project mix changes and we are not able to be as flexible in utilizing our equipment. Substantial fluctuations in our results in operations may adversely affect our ability to service our debt or satisfy other liquidity needs in a particular period, which could have a material adverse effect on us. IF OUR DEMOLITION BUSINESS IS UNABLE TO COMPETE EFFECTIVELY, OUR DEMOLITION REVENUES MAY DECLINE AND WE MAY BE UNABLE TO SUSTAIN OUR GROSS PROFIT MARGINS IN OUR DEMOLITION BUSINESS. The CID business is highly competitive. NASDI's ability to compete depends heavily on elements outside its control, such as general economic conditions affecting the construction industry. NASDI's principal competitors include large construction companies that perform in-house demolition services, large national demolition companies, regional demolition companies, and smaller independent demolition businesses. Some of NASDI's competitors are more geographically diverse, have greater name recognition than NASDI, have greater financial and other resources available to them and may be substantially less leveraged than NASDI. There can be no assurance that NASDI will not encounter 24 increased competition from existing competitors or new market entrants, such as large construction companies that develop in-house demolition capabilities, that may be significantly larger and have greater financial resources than NASDI. Competitive pressures may result in a decline in our demolition revenues and adversely affect our gross profit margins in our demolition business. ALTHOUGH WE INSURE AGAINST THE RISK OF CERTAIN LIABILITIES IN OUR BUSINESS, WE CANNOT BE SURE THAT ACTUAL LIABILITIES WILL NOT EXCEED OUR INSURANCE COVERAGE. We insure our own risks up to certain policy limits and subject to certain deductibles. We make estimates and assumptions that affect the reported amount of liability and the disclosure of contingent liabilities. As claims develop, it is possible that the ultimate results of these claims may differ from our estimates. We cannot assure you that the dollar amount of our liabilities will not materially exceed the insurance policy limits. In addition, premiums and deductibles for liability insurance could increase to the point that such insurance becomes prohibitively expensive, or unavailable. The failure to obtain adequate insurance could affect our ability to bid on, or execute, significant projects, or obtain adequate bonding or financing. ENVIRONMENTAL MATTERS COULD FORCE US TO INCUR SIGNIFICANT CAPITAL AND OPERATIONAL COSTS. Our operations and facilities are subject to various environmental laws and regulations, relating to dredging operations, the disposal of dredged material, wetlands, storm and waste water discharges, demolition activities, asbestos removal, transportation and disposal of certain other hazardous substances and materials and air emissions. We are also subject to laws designed to protect certain species and habitats. Compliance with these statutes and regulations can delay appropriation with respect to, and performance of, particular projects and increase related expenses. Our projects may involve demolition, excavation, transportation, disposal and management of hazardous waste substances and materials. Various laws strictly regulate the removal, treatment and transportation of hazardous substances and materials and impose liability for contamination caused by such substances. While our CID business requires the Company to transport and dispose of hazardous substances and materials, the Company's risks are limited to the proper execution of such tasks. The Company's CID customers and the hazardous waste sites retain the risks associated with the remediation of the materials. Additionally, the transportation of the hazardous waste material is typically performed by other entities which accept the risks associated with these tasks. Services rendered in connection with hazardous substance and material removal and site development may involve professional judgments by licensed experts about the nature of soil conditions and other physical conditions, including the extent to which toxic and hazardous substances and materials are present, and about the probable effect of procedures to mitigate problems or otherwise affect those conditions. If the judgments and the recommendations based upon those judgments are incorrect, we may be liable for resulting damages that our clients incur. Based on our experience, we believe that the future cost of compliance with existing environmental laws and regulations (and liability for known environmental conditions) will not have a material adverse effect on our business, financial condition or results of operations. However, we cannot predict: - what environmental legislation or regulations will be enacted in the future; - how existing or future laws or regulations will be enforced, administered or interpreted; or - the amount of future expenditures which may be required to comply with these environmental or health and safety laws or regulations or to respond to future cleanup matters or other environmental claims. See "Business--Environmental Matters." 25 A LIMITED NUMBER OF PEOPLE CONTROL OUR COMPANY, AND MAY EXERCISE THEIR CONTROL IN A MANNER ADVERSE TO YOUR INTERESTS. Vectura owns approximately 53.2% of our outstanding voting capital stock and all of the non-voting capital stock. Pursuant to the Stockholders' Agreement among us, Vectura, management investors and certain other stockholders of the Company, Vectura has the right to appoint up to two of our five directors. Vectura and our directors, our executive officers and other employees, whom we refer to as our management investors and their affiliates, control all of the voting power represented by our outstanding shares of capital stock. By virtue of this stock ownership, they have the ability, if acting in concert, to control the outcome of all matters presented for approval to our stockholders. Such concentration of ownership may have the effect of preventing a change in control. Because a limited number of people control us, transactions could be difficult or impossible to complete without the support of those persons. It is possible that these persons will exercise control over us in a manner that is adverse to your interests. See "Management," "Ownership of Capital Stock" and "Description of Capital Stock." 26 THE ACQUISITION AND THE FINANCING On April 24, 2001, we purchased 80% of the capital stock of NASDI. We purchased a portion of the holdings of NASDI management stockholders and all of the holdings of the other stockholders of NASDI. The purchase consideration for the Acquisition included (1) $35.0 million in cash, subject to certain downward adjustments, payable to the stockholders of NASDI and (2) two notes totaling $3.0 million from NASDI payable to the NASDI management stockholders, which notes are guaranteed by Great Lakes, but not the subsidiaries of Great Lakes. We funded the cash portion of the acquisition price and the related fees and expenses, as well as repayment of a portion of our outstanding borrowings under our revolving credit facility, with the proceeds of our April 2001 Series C note offering. In that offering, we issued $40.0 million in aggregate principal amount of our unregistered Series C notes and received proceeds (net of discounts and fees) from the issuance of these notes of approximately $38.7 million. NASDI is a subsidiary guarantor of these Series C notes and certain of our other existing indebtedness. We effected the acquisition of NASDI through a newly-formed acquisition subsidiary which was merged into NASDI following consummation of the Acquisition. We retained an 80% interest in the surviving entity and the NASDI management stockholders retained a 20% non-voting interest. The NASDI management stockholders will continue to operate NASDI under the terms of multi-year employment agreements and can earn substantial incentive bonuses if certain earnings levels are achieved. NASDI's management stockholders, Christopher Berardi and Joseph Berardi, owned approximately 50% of NASDI prior to the Acquisition. NASDI SELLER NOTES Upon closing, NASDI issued two junior subordinated promissory notes to the NASDI management stockholders, in an aggregate principal amount of $3.0 million. These notes bear interest at the greater of 6% per annum or the applicable federal rate, payable annually on each anniversary of the notes. All outstanding principal and unpaid interest on these notes will be payable in a single installment for each note on March 31, 2004; however, this payment date may be deferred to December 31, 2004 if NASDI has failed to meet certain financial performance levels for each of the three preceding years. NASDI may prepay the NASDI seller notes at any time without premium or penalty. NASDI's obligations under the NASDI seller notes is a guaranteed by Great Lakes, but not the subsidiaries of Great Lakes. EMPLOYMENT AGREEMENTS Each of the two NASDI management stockholders entered into a three-year employment agreement with NASDI, containing non-compete provisions should the NASDI management stockholders leave NASDI. The employment agreements are renewable on an annual basis, unless sooner terminated by either party giving 30 days written notice prior to the end of the then current term. The employment agreements provide for payment of salary of $175,000 per year to each of the NASDI management stockholders, plus substantial incentive bonuses if certain earnings levels are achieved as well as benefits as provided from time to time to other NASDI senior executives. STOCKHOLDERS AGREEMENT We and the NASDI management stockholders entered into a stockholders agreement relating to the ownership of NASDI capital stock. The NASDI stockholders agreement contains provisions which, with certain exceptions, restrict the ability of the NASDI management stockholders to transfer their NASDI common stock, which have no voting rights. In addition, so long as we and the NASDI management stockholders continue to own, in the aggregate, more than 50% of NASDI, the NASDI management stockholders will have the right, during the two-month period following April 15, 2006, to require us to acquire their NASDI common stock at a price equal to the greater of (i) $2.0 million or (ii) a formula based on NASDI's financial performance. In addition, each NASDI management stockholder has the right to require us to purchase his NASDI common stock following a termination 27 of his employment, at a price based upon certain formulas, depending upon the reason for the termination. Following an initial public offering of our common stock, if we and the NASDI management stockholders continue to own, in the aggregate, more than 50% of NASDI, the NASDI management stockholders have the right to exchange their NASDI common stock for our common stock which is registered in the initial public offering, at a conversion price based upon NASDI's financial performance, unless the initial public offering occurs prior to December 31, 2002, and then based upon an appraised value. We have the right to acquire the NASDI common stock held by each NASDI management stockholder in the following circumstances: - termination of employment of such management stockholder; - certain types of changes of control; - our initial public offering, where such management stockholder does not convert his NASDI common stock into our registered shares; or - for any reason after December 31, 2008. The purchase price at which we can exercise these call rights will be a formula based on NASDI's financial performance, an appraised value, or $2.0 million, depending upon the timing and the event giving rise to the call. Under the NASDI stockholders agreement, if we decide to sell NASDI at a price which would result in the NASDI management stockholders receiving an aggregate amount of at least $2.0 million, then the NASDI management stockholders will agree to consent to the sale and tender their NASDI common stock for such consideration. In addition, the NASDI management stockholders have the right to participate in certain sales by us of our NASDI common stock. The stockholders agreement provides that transactions between us and NASDI, with certain exceptions, will be on fair and equitable terms. The board of directors of NASDI shall be composed of three persons nominated by Great Lakes, and so long as the NASDI management stockholders own at least 5% of the issued and outstanding NASDI capital stock, the NASDI management stockholders shall designate one board member who shall be acceptable to Great Lakes. INTERCOMPANY DEBT In connection with the closing of the Acquisition, NASDI and Great Lakes entered into an intercompany credit agreement. Upon closing of the Acquisition, NASDI was deemed to have borrowed from Great Lakes approximately $32.0 million, which reflects Acquisition-related indebtedness. The intercompany note bears interest at 10% per annum, with principal and interest payable quarterly and will mature on March 31, 2006. TAX ALLOCATION AGREEMENT We entered into a tax allocation agreement with NASDI. The agreement requires, in general, that NASDI's federal and certain state tax liabilities be payable to us and determined as if NASDI filed its own returns. 28 USE OF PROCEEDS We will not receive any proceeds from the exchange offer. The gross proceeds of $39.7 million received by us from the sale of the Series C notes, were used by us to: (1) finance the cash Acquisition price, (2) repay a portion of our outstanding borrowings, under our revolving credit facility, and (3) pay related fees and expenses. 29 CAPITALIZATION The following table sets forth our consolidated cash and cash equivalents and capitalization as of December 31, 2000, on an actual basis and on a pro forma basis giving effect to the Acquisition, the consummation of the April 2001 Series C note offering and the repayment of a portion of our debt under our existing revolving credit facility as if these events all occurred on December 31, 2000. You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Other Indebtedness" and our historical financial statements and accompanying notes incorporated by reference herein.
AS OF DECEMBER 31, 2000 ----------------------- ACTUAL PRO FORMA -------- --------- (DOLLARS IN MILLIONS) Cash and cash equivalents................................... $ 1.1 $ 1.8 ------ ------ Debt: Senior credit facility(l)................................. Revolving credit facility(2)............................ $ 9.0 $ 7.4 Term loan............................................... 31.0 31.0 11 1/4% Senior Subordinated Notes due 2008, net of discount................................................ 115.0 154.7 NASDI Seller Notes(3)..................................... -- 3.0 Equipment debt............................................ -- 1.6 ------ ------ Total debt(4)........................................... 155.0 197.7 Minority interests.......................................... 3.4 5.0 Stockholders' deficit....................................... (32.3) (32.3) ------ ------ Total capitalization.................................... $126.1 $170.4 ====== ======
- ------------------------ (1) See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Other Indebtedness." (2) As of December 31, 2000, on a pro forma basis giving effect to the Acquisition, the consummation of the April 2001 Series C note offering and the repayment of a portion of our debt under our existing revolving credit facility, approximately $8.8 million face amount of letters of credit were issued and outstanding and approximately $53.8 million of borrowings was available to us under our senior credit facility. As of March 31, 2001, the outstanding balance under our revolver was $18.5 million, and $45.3 million of borrowings was available to us under such facility. In addition, the outstanding balance under our term loan was $29.0 million as of March 31, 2001. (3) Issued by NASDI and guaranteed by Great Lakes, but not the subsidiaries of Great Lakes. (4) Total debt includes long-term debt and the current maturities of long-term debt and excludes contingent obligations. 30 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following Unaudited Pro Forma Condensed Combined Financial Statements of the Company consist of an Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2000 and Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2000, and were derived from Great Lake's and NASDI's historical financial statements included elsewhere herein, as adjusted to illustrate the effects of the Acquisition, the completion of the April 2001 Series C note offering, and repayment of a portion of our outstanding borrowings under our revolving credit facility. The Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2000 gives effect to the Acquisition, the completion of the April 2001 Series C note offering, and repayment of a portion of our outstanding borrowings under our revolving credit facility as if such transactions had occurred on December 31, 2000. The Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2000 gives effect to the Acquisition, the completion of the April 2001 Series C note offering, and the repayment of a portion of our outstanding borrowings under our revolving credit facility as if such transactions occurred on January 1, 2000. The unaudited pro forma adjustments are based upon currently available information and upon certain assumptions that we believe are reasonable under the circumstances. Additionally, the unaudited pro forma adjustments assume issuance of the notes at a discount. The Unaudited Pro Forma Condensed Combined Financial Statements do not purport to represent what our actual results of operations, net income or actual financial position would have been if the Acquisition in fact occurred on such dates or to project our results of operations or financial position for any future period or date. The Unaudited Pro Forma Condensed Combined Financial Statements do not give effect to any other transactions other than the Acquisition and those related transactions as discussed in the notes to the Unaudited Pro Forma Condensed Combined Financial Statements set forth below. The Unaudited Condensed Combined Financial Statements and accompanying notes should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the historical consolidated financial statements of Great Lakes and related notes thereto included in this prospectus, the historical financial statements of NASDI and related notes thereto included in this prospectus, and other financial information included elsewhere in this prospectus. 31 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2000 (DOLLARS IN MILLIONS)
NASDI COMPANY NASDI ACQUISITION OFFERING HISTORICAL HISTORICAL COMBINED ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ---------- -------- ----------- ----------- --------- ASSETS Cash and equivalents............... $ 1.1 $ 1.8 $ 2.9 $(1.1)(a) $ 1.8 Marketable securities.............. 1.4 1.4 1.4 Accounts receivable, net........... 40.5 9.5 50.0 50.0 Contract revenues in excess of billings......................... 18.6 1.8 20.4 20.4 Inventories........................ 14.7 14.7 14.7 Other current assets............... 17.2 0.6 17.8 17.8 ------ ----- ------ ----- ----- ------ Total current assets............. 92.1 15.1 107.2 (1.1) 106.1 Property and equipment............. 137.7 3.3 141.0 2.1 (b) 143.1 Inventories........................ 6.8 6.8 6.8 Investment in joint venture........ 6.4 6.4 6.4 Other assets and intangibles....... 5.7 0.1 5.8 30.4 (b) 2.3(e) 38.5 ------ ----- ------ ----- ----- ------ Total assets..................... $248.7 $18.5 $267.2 $31.4 $ 2.3 $300.9 ====== ===== ====== ===== ===== ====== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Accounts payable................... $ 37.8 $ 4.3 $ 42.1 $ 42.1 Accrued expenses and other......... 33.5 3.6 37.1 37.1 Current maturities of long-term debt............................. 9.0 1.0 10.0 10.0 ------ ----- ------ ----- ----- ------ Total current liabilities........ 80.3 8.9 89.2 89.2 Long-term debt..................... 146.0 0.6 146.6 41.1(f) 187.7 Deferred income taxes.............. 44.3 44.3 44.3 Other.............................. 7.0 7.0 7.0 ------ ----- ------ ----- ----- ------ Total liabilities................ 277.6 9.5 287.1 41.1 328.2 Minority interests................. 3.4 3.4 1.6 (c) 5.0 Stockholders' equity (deficit)..... (32.3) 9.0 (23.3) (9.0)(d) (32.3) ------ ----- ------ ----- ----- ------ Total liabilities and stockholders' equity (deficit)...................... $248.7 $18.5 $267.2 $(7.4) $41.1 $300.9 ====== ===== ====== ===== ===== ======
- -------------------------- 32 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2000 (DOLLARS IN MILLIONS) (a) To record distribution of excess cash to prior NASDI stockholders as required under the purchase agreement for the Acquisition. (b) Represents purchase accounting adjustments to reflect 80% of NASDI's property and equipment at the estimated fair market value and to record excess purchase price as goodwill, as follows: Purchase price for 80% of NASDI stock: Cash...................................................... $35.0 NASDI Seller Notes........................................ 3.0 Acquisition costs......................................... 0.8 ----- Total purchase price.................................... 38.8 80% of net assets acquired.................................. (6.3) Increase property and equipment to estimated fair market value..................................................... (2.1) ----- Goodwill.................................................... $30.4 =====
(c) To record remaining 20% of NASDI net assets to minority interests. (d) To reflect the net impact of pro forma adjustments on stockholders' equity: Distribution of excess cash to NASDI stockholders........... $(1.1) 80% of net assets acquired.................................. (6.3) Remaining 20% of NASDI net assets to minority interests..... (1.6) ----- Total................................................... $(9.0) =====
(e) To record offering costs of the April 2001 Series C notes and amendment costs of the bank credit facility. (f) To record the impact of the Acquisition on debt, as follows: Issuance of April 2001 Series C notes....................... $39.7 Issuance of NASDI Seller Notes.............................. 3.0 Repayment of a portion of borrowings under the revolving credit facility........................................... (1.6) ----- Total................................................... $41.1 =====
33 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 (DOLLARS IN MILLIONS)
NASDI ACQUISITION COMPANY NASDI AND OFFERING HISTORICAL HISTORICAL COMBINED ADJUSTMENTS PRO FORMA ---------- ---------- -------- ------------ --------- Contract revenues............................... $339.1 $72.6 $411.7 $411.7 Cost of contract revenues....................... 281.7 46.3 328.0 328.0 ------ ----- ------ ------ Gross profit.................................. 57.4 26.3 83.7 83.7 General and administrative expenses............. 22.3 1.8 24.1 2.0 (a) 26.1 Bonuses......................................... 20.0 20.0 (17.8)(b) 2.2 ------ ----- ------ ------- ------ Operating income.............................. 35.1 4.5 39.6 15.8 55.4 Interest income (expense), net.................. (18.6) 0.4 (18.2) (5.0)(c) (23.2) Other expense................................... (0.8) (0.8) (0.8) ------ ----- ------ ------- ------ Income before income taxes and minority interests................................... 15.7 4.9 20.6 10.8 31.4 Income taxes.................................... (7.4) (0.3) (7.7) (7.0)(d) (14.7) Minority interests.............................. (1.0) (1.0) (1.8)(e) (2.8) ------ ----- ------ ------- ------ Net income...................................... $ 7.3 $ 4.6 $ 11.9 $ 2.0 $ 13.9 ====== ===== ====== ======= ====== Ratio of earnings to fixed charges(f)........... 1.55x Other data: Depreciation and amortization................. $ 12.7 $ 1.4 $ 14.1 $ 2.0 (a) $ 16.1 EBITDA(g)..................................... 47.8 5.9 53.7 17.8 (b) 71.5
- -------------------------- 34 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 (DOLLARS IN MILLIONS) (a) To record annual amortization of goodwill of $30.4 million related to the Acquisition, assuming an estimated useful life of fifteen years. (b) To adjust NASDI historical bonuses to reflect bonuses that would have been paid based on NASDI performance for the period assuming the contractual terms of Employment Agreements with NASDI management stockholders were in effect. The Employment Agreements were entered into as part of the purchase agreement for the Acquisition. (c) To record interest expense on the April 2001 Series C notes, interest expense on the Seller Notes, a reduction of interest expense from the repayment of a portion of borrowings under the revolving loan facility and amortization of the deferred offering costs and bank credit facility amendment costs: Interest expense on $40.0 million April 2001 Series C notes at 11 1/4%................................................ $ 4.5 Interest expense on Seller Notes of $3.0 million at 6.0%.... 0.2 Reduction of interest expense on $1.6 million reduction of revolving loan facility at 8.57% average interest rate over the year............................................. (0.1) Amortization of deferred offering and amendment costs....... 0.4 ----- Total..................................................... $ 5.0 =====
(d) To record estimated tax effect to change NASDI from Subchapter S-Corporation to C-Corporation and certain other pro forma adjustments: Estimate of U.S. federal income tax on NASDI income before taxes of $4.9 million at 35%.............................. $ 1.7 Pro forma adjustments at estimated effective rate of 41%.... 5.3 ----- Total..................................................... $ 7.0 =====
(e) To record 20% of NASDI pro forma income attributable to minority interest holders. (f) Earnings used in computing the ratio of earnings to fixed charges consists of earnings before income taxes and minority interests. Fixed charges are defined as interest expense, including the amortization of deferred financing costs, and preferred stock dividends. (g) "EBITDA", as provided for herein, represents earnings from continuing operations before interest expense, net, income taxes and depreciation and amortization expense and excludes equity in earnings of joint ventures and minority interests. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles in the United States of America. EBITDA is included in the prospectus as it is a basis upon which we assess our financial performance, and certain covenants in our borrowing arrangements are tied to similar measures. Pro forma EBITDA, as provided for herein, reflects EBITDA adjusted for effect of the Acquisition, the completion of the April 2001 Series C note offering, and the repayment of a portion of our outstanding borrowings under our revolving credit facility as if such transactions took place on January 1, 2000. Pro forma EBITDA is presented to provide additional information with respect to our ability to meet future debt service, capital expenditures and working capital requirements, but is not necessarily a measure of our ability to fund our cash flow needs. Pro forma EBITDA should not be considered in isolation or as an alternative to net income, cash flows from continuing operations, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles as measures of our profitability or liquidity. Pro forma EBITDA as defined in this prospectus may differ from similarly titled measures presented by other companies. 35 SELECTED FINANCIAL DATA The following tables present selected historical financial and other data of Great Lakes and NASDI for the periods indicated. The selected financial data presented below (except for EBITDA and Adjusted EBITDA) were derived from the audited consolidated financial statements of Great Lakes and audited financial statements of NASDI for the periods indicated. The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Great Lakes' consolidated financial statements and NASDI's financial statements, and the notes related thereto, included elsewhere in this prospectus. GREAT LAKES DREDGE & DOCK CORPORATION
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Contract revenues............................. $ 235.9 $ 258.3 $ 289.2 $ 302.3 $ 339.1 Costs of contract revenues.................... (208.7) (228.4) (240.6) (244.8) (281.7) ------- ------- ------- ------- ------- Gross profit................................ 27.2 29.9 48.6 57.5 57.4 General and administrative expenses........... (16.4) (18.9) (22.6) (21.9) (22.3) Equity incentive plan and other compensation expenses.................................... -- -- (8.2) -- -- Recapitalization related expenses............. -- -- (9.5) -- -- ------- ------- ------- ------- ------- Operating income............................ 10.8 11.0 8.3 35.6 35.1 Interest expense, net......................... (6.0) (6.0) (9.9) (18.1) (18.6) Equity (loss) in earnings of joint ventures... 1.1 3.1 1.2 0.2 (0.8) ------- ------- ------- ------- ------- Income (loss) before income taxes, minority interests, discontinued operations and extraordinary item........................ 5.9 8.1 (0.4) 17.7 15.7 Provision for income taxes.................... (2.4) (2.6) (0.7) (8.5) (7.4) Minority interests............................ (0.4) (1.7) (2.7) 0.5 (1.0) ------- ------- ------- ------- ------- Income (loss) from continuing operations before extraordinary item................... 3.1 3.8 (3.8) 9.7 7.3 Discontinued operations, net of tax benefit... (1.1) -- -- -- -- Extraordinary item, net of income tax benefit..................................... -- -- (0.9) -- -- ------- ------- ------- ------- ------- Net income (loss)........................... $ 2.0 $ 3.8 $ (4.7) $ 9.7 $ 7.3 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges(7)......... 1.9x 2.0x -- 1.4x 1.1x OTHER DATA: EBITDA(1)..................................... $ 24.7 $ 24.6 $ 22.2 $ 47.6 $ 47.8 Adjusted EBITDA(1)............................ 26.2 28.8 41.1 -- -- Net cash flows from operating activities...... 24.7 13.6 20.2 25.3 17.5 Depreciation and amortization(2).............. 13.9 13.6 13.9 12.0 12.7 Maintenance expense(3)........................ 14.7 17.3 22.7 27.2 25.9 Capital expenditures(4)....................... 5.4 11.5 29.1 15.0 14.1 BALANCE SHEET DATA: Cash and cash equivalents..................... $ 1.9 $ 1.7 $ 0.8 $ 1.5 $ 1.1 Working capital............................... 22.0 38.4 22.3 13.2 11.8 Total assets.................................. 222.1 245.6 235.1 241.4 248.7 Total debt(5)................................. 52.4 57.6 170.4 159.2 155.0 Stockholders' equity (deficit)................ 74.4 78.2 (48.7) (39.6) (32.3)
36 NORTH AMERICAN SITE DEVELOPERS, INC.
YEARS ENDED DECEMBER 31, ------------------------------ 1998(6) 1999 2000 -------- -------- -------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Contract revenues......................................... $ 30.3 $ 45.5 $ 72.6 Costs of contract revenues................................ (24.5) (34.3) (46.3) ------ ------ ------ Gross profit............................................ 5.8 11.2 26.3 General and administrative expenses....................... (1.6) (1.5) (1.8) Bonuses................................................... (4.6) (7.6) (20.0) ------ ------ ------ Income (loss) from operations........................... (0.4) 2.1 4.5 Other income, net......................................... 0.1 -- 0.4 ------ ------ ------ Income (loss) before income taxes....................... (0.3) 2.1 4.9 State income taxes........................................ -- (0.2) (0.3) ------ ------ ------ Net income (loss)....................................... $ (0.3) $ 1.9 $ 4.6 ====== ====== ====== OTHER DATA: Adjusted EBITDA(1)........................................ 5.0 10.1 23.3 Net cash flow from operating activities................... (1.0) 4.9 4.2 Depreciation and amortization............................. 1.3 1.4 1.4 Capital expenditures...................................... 0.9 0.9 1.0 BALANCE SHEET DATA: Cash and cash equivalents................................. $ 0.7 $ 1.2 $ 1.8 Working capital........................................... 3.8 4.7 6.2 Total assets.............................................. 14.5 19.9 18.5 Total debt(5)............................................. 1.9 2.1 1.6 Stockholders' equity...................................... 4.2 6.1 9.0
- ------------------------ (1) "EBITDA", as provided for herein, represents earnings from continuing operations before net interest expense, income taxes and depreciation and amortization expense and excludes equity in earnings of joint ventures and minority interests. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles in the United States of America. EBITDA is included in the prospectus as it is a basis upon which we assess our financial performance, and certain covenants in our borrowing arrangements are tied to similar measures. "Adjusted EBITDA" excludes the effects of certain items on our historical EBITDA that are not expected to recur in our ongoing activities. Adjusted EBITDA is presented to provide additional information with respect to our ability to meet future debt service, capital expenditures and working capital requirements, but is not necessarily a measure of our ability to fund our cash needs. EBITDA and Adjusted EBITDA should not be considered in isolation or as an alternative to net income, cash flows from continuing operations, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles as measures of our profitability or liquidity. EBITDA and Adjusted EBITDA as defined in this prospectus may differ from similarly titled measures presented by other companies. 37 The components of EBITDA and Adjusted EBITDA are set forth below for the periods indicated.
YEAR END DECEMBER 31, ---------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) GREAT LAKES DREDGE & DOCK CORPORATION Operating income................................. $10.8 $11.0 $ 8.3 $35.6 $35.1 Depreciation and amortization.................... 13.9 13.6 13.9 12.0 12.7 ----- ----- ----- ----- ----- EBITDA........................................... 24.7 24.6 22.2 47.6 47.8 Management fees paid to former stockholder(a).... 0.5 0.5 0.3 Legal and other expenses related to the Chicago flood litigation(b)............................ 0.6 1.8 Disposed operations(c)........................... 1.5 1.9 0.9 Other corporate charges(d)....................... (1.1) Equity incentive plan and other compensation expenses(e).................................... 8.2 Recapitalization related expenses(f)............. 9.5 ----- ----- ----- ----- ----- Adjusted EBITDA.................................. $26.2 $28.8 $41.1 $47.6 $47.8 ===== ===== ===== ===== =====
YEAR END DECEMBER 31, ------------------------------ 1998(6) 1999 2000 -------- -------- -------- NORTH AMERICAN SITE DEVELOPERS, INC. Operating income (loss)..................................... $(0.4) $ 2.1 $ 4.5 Depreciation and amortization............................... 1.3 1.4 1.4 ----- ----- ----- EBITDA...................................................... 0.9 3.5 5.9 Bonuses(g).................................................. 4.1 6.6 17.4 ----- ----- ----- Adjusted EBITDA............................................. $ 5.0 $10.1 $23.3 ===== ===== =====
- ------------------------ (a) MANAGEMENT FEES PAID TO FORMER STOCKHOLDER. During the periods presented, we paid a management fee to a former stockholder. In 1998, we effected a recapitalization of the Company and have not paid such a fee as of that date. (b) LEGAL AND OTHER EXPENSES RELATED TO THE CHICAGO FLOOD LITIGATION. In 1992, an underwater utility tunnel located beneath the Chicago Loop failed adjacent to a construction site completed by us in the fall of 1991. The failure resulted in a flooding of the tunnel and building basements served by the tunnel. Numerous suits were filed against us for claims of flood damage and losses due to business interruption. We incurred substantial legal expenses along with other expenses as a result of the Chicago flood litigation. During 1997, all remaining claims were settled relating to the Chicago flood litigation. (c) DISPOSED OPERATIONS. In 1996, we sold a marine construction business. The adjustments reflect the elimination of the impact on EBITDA attributable to the disposal of this business. (d) OTHER CORPORATE CHARGES. In 1996, we offered a voluntary early retirement program and incurred a charge of $0.6 million relating thereto. Additionally, in that year we terminated our defined benefit pension plan and recognized a net gain of $1.7 million. (e) EQUITY INCENTIVE PLAN AND OTHER COMPENSATION EXPENSES. In 1998, options granted in a prior year were exercised. A portion of these shares was then sold to Vectura in connection with a recapitalization resulting in $5.2 million in non-cash compensation expense. Additionally, we approved and paid bonuses of $3.0 million to certain members of our management. 38 (f) RECAPITALIZATION RELATED EXPENSES. In 1998, pursuant to the terms of an agreement for recapitalization, we paid fees and expenses of $3.6 million and bonuses to certain members of management of $5.9 million. (g) BONUSES. In 1998, 1999 and 2000, NASDI paid discretionary bonuses to all stockholders, including bonuses to management stockholders in excess of amounts required under their employment agreements then in effect. We do not intend to pay such discretionary bonuses. (2) Effective January 1, 1999, we made changes in the estimated useful lives of certain dredging equipment to better reflect the remaining period over which we anticipate utilizing this equipment with normal repairs and maintenance. Thus, depreciation for 1999 and 2000 is approximately $2.9 million less than it would have been using the previous lives. (3) Represents amount expended for maintenance included in costs of contract revenues. (4) Capital expenditures in 1998 included $19.3 million for certain dredging assets acquired from a competitor and construction related to a new backhoe dredge. We subsequently financed these acquisitions through sale-leaseback arrangements. (5) Total debt includes long-term debt and the current maturities of long-term debt and excludes contingent obligations. (6) Amounts presented for 1998 are for the eleven-months ended December 31, 1998. (7) Earnings used in computing the ratio of earnings to fixed charges consists of earnings before provision for income taxes plus distributed income of joint ventures and fixed charges. Fixed charges are defined as interest expense, including the amortization of deferred financing costs, and preference security dividends. For the year ended December 31, 1998, earnings were insufficient to cover fixed charges by $5.4 million. 39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY IN "RISK FACTORS." SEE "FORWARD-LOOKING STATEMENTS" AND "RISK FACTORS." THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES WHICH APPEAR ELSEWHERE IN THIS PROSPECTUS. GREAT LAKES DREDGE & DOCK CORPORATION GENERAL We are the largest provider of dredging services in the United States. Dredging generally involves the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. The U.S. dredging market consists of three primary types of work: Capital, Maintenance and Beach Nourishment, and we have experienced a combined bid market share in the U.S. of 37% in 2000 in these areas. In addition, we have continued our role as the only U.S. dredging contractor with significant international operations, which represented an average of 17% of our contract revenues over the past three years. Most dredging contracts are obtained through competitive bidding on terms specified by the party inviting the bid. The nature of the specified services dictates the types of equipment, material and labor involved, all of which affect the cost of performing the contract and the price that dredging contractors will bid. We recognize contract revenues under the percentage-of-completion method, based on our engineering estimates of the physical percentage completed of each project. Costs of contract revenues are adjusted to reflect the gross profit percentage expected to be achieved upon ultimate completion of each project. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined. Claims for additional compensation are not recognized in contract revenues until such claims are settled. Billings on contracts are generally submitted after verification with the customers of physical quantities completed and may not match the timing of revenue recognition. The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues. Significant expenditures incurred incidental to major contracts are deferred and recognized as costs of contracts based on contract performance over the duration of the related project. These expenditures are reported as prepaid expenses. The components of costs of contract revenues are labor, equipment, subcontracts, rentals, lease expense, other assets employed (including depreciation, insurance, fuel, maintenance and supplies) and project overhead. The hourly labor generally is hired on a per project basis and laid-off upon the completion of the project. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized. Generally, capital projects have the lowest costs of contract revenues as a percent of contract revenues and beach nourishment projects have the highest. Our cost structure includes significant fixed costs, averaging approximately 20% to 22% of total costs of contract revenues. We can have significant fluctuations in equipment utilization throughout the year. Accordingly, for interim reporting, we prepay or accrue fixed equipment costs and amortize the expenses in proportion to revenues recognized over the year to better match revenues and expenses. Costs of contract revenues also includes the net gain or loss on dispositions of property and equipment. 40 We conduct certain hopper dredging activities, primarily maintenance and beach nourishment projects through the operation of NATCO Limited Partnership, or NATCO, and North American Trailing Company. Minority interests reflect Ballast Nedam Group N.V.'s respective 25% and 20% interest in NATCO and North American. RESULTS OF OPERATIONS--QUARTERLY BASIS The following table sets forth the components of net income and EBITDA (as defined) on a quarterly basis for the years ended December 31, 1999 and 2000.
QUARTER ENDED ----------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- (DOLLARS IN MILLIONS) 1999 Contract revenues.......................................... $ 72.3 $ 78.0 $ 76.0 $ 76.0 Costs of contract revenues................................. (59.1) (63.9) (60.7) (61.1) ------ ------ ------ ------ Gross profit............................................. 13.2 14.1 15.3 14.9 General and administrative expenses........................ (4.9) (4.8) (5.2) (7.0) ------ ------ ------ ------ Operating income......................................... 8.3 9.3 10.1 7.9 Interest expense, net...................................... (4.4) (4.6) (4.6) (4.5) Equity in (loss) earnings of joint ventures................ (0.3) -- 0.1 0.4 ------ ------ ------ ------ Income before income taxes and minority interests........ 3.6 4.7 5.6 3.8 Provision for income taxes................................. (1.6) (2.5) (2.4) (2.0) Minority interests......................................... 0.2 0.4 (0.4) 0.3 ------ ------ ------ ------ Net income............................................... $ 2.2 $ 2.6 $ 2.8 $ 2.1 ====== ====== ====== ====== $ 11.2 $ 12.2 $ 13.0 $ 11.2 ====== ====== ====== ====== EBITDA.................................................
QUARTER ENDED ----------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- (DOLLARS IN MILLIONS) 2000 Contract revenues.......................................... $ 88.9 $ 85.5 $ 81.1 $ 83.6 Costs of contract revenues................................. (72.9) (73.4) (70.1) (65.3) ------ ------ ------ ------ Gross profit............................................. 16.0 12.1 11.0 18.3 General and administrative expenses........................ (5.3) (5.2) (5.2) (6.5) ------ ------ ------ ------ Operating income........................................... 10.7 6.9 5.8 11.8 Interest expense, net...................................... (4.5) (4.7) (4.9) (4.6) Equity in (loss) earnings of joint ventures................ (0.2) -- 0.1 (0.7) ------ ------ ------ ------ Income before income taxes and minority interests........ 6.0 2.2 1.0 6.5 Provision for income taxes................................. (2.7) (1.0) (0.6) (3.1) Minority interests......................................... (0.7) -- 0.5 (0.8) ------ ------ ------ ------ Net income................................................. $ 2.6 $ 1.2 $ 0.9 $ 2.6 ====== ====== ====== ====== EBITDA.................................................
41 RESULTS OF OPERATIONS--FISCAL YEARS The following table sets forth the components of net income and EBITDA (as defined) as a percentage of contract revenues for the years ended December 31:
1998 1999 2000 -------- -------- -------- Contract revenues...................................... 100.0% 100.0% 100.0% Costs of contract revenues............................. (83.2) (81.0) (83.1) ----- ----- ----- Gross profit......................................... 16.8 19.0 16.9 General and administrative expense..................... (7.8) (7.2) (6.6) Equity incentive plan and other compensation expenses............................................. (2.8) -- -- Recapitalization related expenses...................... (3.3) -- -- ----- ----- ----- Operating income..................................... 2.9 11.8 10.3 Interest expense, net.................................. (3.4) (6.0) (5.5) Equity in (loss) earnings of joint ventures............ 0.4 -- (0.2) ----- ----- ----- Income (loss) before income taxes, minority interests, and extraordinary item.................. (0.1) 5.8 4.6 Provision for income taxes............................. (0.2) (2.8) (2.2) Minority interests..................................... (1.0) 0.2 (0.3) ----- ----- ----- Income (loss) from continuing operations before extraordinary item................................. (1.3) 3.2 2.1 Extraordinary item, net of applicable income tax benefit.............................................. (0.3) -- -- ----- ----- ----- Net income (loss).................................... (1.6)% 3.2% 2.1% ===== ===== ===== EBITDA................................................. 7.7% 15.7% 14.1% ===== ===== ===== Adjusted EBITDA(1)..................................... 13.8% 15.7% 14.1% ===== ===== =====
- ------------------------ (1) EBITDA for 1998 has been adjusted for equity incentive plan and other compensation expenses and recapitalization related expenses. COMPONENTS OF CONTRACT REVENUES AND BACKLOG The following table sets forth, by type of work, the Company's contract revenues for the years ended and backlog as of December 31:
1998 1999 2000 -------- -------- -------- (DOLLARS IN MILLIONS) REVENUES Capital--U.S...................................... $ 88.6 $152.9 $161.3 Beach nourishment................................. 81.0 40.5 33.2 Maintenance....................................... 62.0 78.2 72.8 Capital--foreign.................................. 57.6 30.7 71.8 ------ ------ ------ $289.2 $302.3 $339.1 ====== ====== ====== BACKLOG Capital--U.S...................................... $149.0 $136.1 $100.2 Beach nourishment................................. 19.3 8.3 31.1 Maintenance....................................... 33.0 22.6 4.4 Capital--foreign.................................. 33.9 100.1 62.6 ------ ------ ------ $235.2 $267.1 $198.3 ====== ====== ======
42 The Company's overall growth in 2000 revenues is the result of increased U.S. and foreign capital work, relating to the Deep Port projects and specific international projects in Ghana and India. Domestic capital dredging project revenues increased $8.4 million or 5.5% in 2000, when compared to 1999 revenues. Capital projects include large port deepenings and other infrastructure projects. Due to the significant volume of capital projects announced and bid in 1999 and 2000, the Company has allocated more of its resources to these higher margin projects. In 2000, contract revenues from capital projects included $19.5 million generated from a large project in Los Angeles, which began work in 1997, and $26.9 million for the Houston Deep Port project, which was awarded in 1998. Jobs awarded in 1999 related to Deep Port work in San Juan, Charleston, and New York generated 2000 contract revenues of $18.8 million, $16.4 million, and $10.7 million, respectively. Additionally, two Deep Port projects in Wilmington, which were awarded in the third quarter of 2000, contributed $11.8 million to 2000 contract revenues. Beach nourishment projects include rebuilding of shoreline areas which have been damaged by storm activity or ongoing erosion. In 2000, revenues from beach projects decreased $7.3 million or 18.0%, compared to 1999. This decrease continued to be primarily a result of the deferral of some key projects by customers, so that fewer projects were let for bid than in prior years. Despite the overall decline, the bid market for beach work improved dramatically in the third and fourth quarters of 2000 when $70 million of new projects were bid. The Company expects to see additional growth in beach nourishment projects over the next few years due to growing awareness of the importance of the tourism revenue to the local economies. Several projects contributed to 2000's beach revenues, including beach nourishment projects in Brevard, Florida; Tybee Island, Georgia; and Egg Harbor/Peck Beach, New Jersey, which contributed revenues of $11.4 million, $6.5 million, and $7.3 million, respectively. Maintenance projects include routine dredging of ports, rivers and channels to remove the regular build up of sediment. Revenues from maintenance projects for the year ended December 31, 2000 decreased $5.4 million or 6.9%, over 1999. The 2000 maintenance market saw a decline over prior years due to lower than typical precipitation levels in the Midwest, which affects the Mississippi River schoaling and dredging from St. Louis south to the Gulf. Significant maintenance revenues in 2000 were related to projects in Morehead/Wilmington, North Carolina; South Pass, Louisiana; and Mississippi/Memphis river rentals, which generated revenues of $6.9 million, $10.0 million, and $11.6 million, respectively. Revenues of the Company's NATCO hopper dredging subsidiary for 2000 approximated 1999 levels; however, margins improved by $1.0 million, or 9.5% due to receipt of claim revenue on the Long Beach project, which was substantially performed in 1999 and 2000. This project had experienced performance problems in its early stages since NATCO encountered more compacted material than was included in the specifications provided by the Corps. The Company expects NATCO's utilization in 2001 to be comparable to levels experienced in 2000. However, the hopper market is expected to continue to be highly competitive, with pricing being impacted by increased restrictions imposed by environmental windows coupled with the decline in emergency dredging opportunities on the Mississippi. Revenues from foreign operations in 2000 increased $41.1 million or 133.8% compared to 1999. Key foreign projects which contributed to 2000 revenues included the Company's joint venture project in Egypt, which began in the first quarter of 1999 and was completed in mid-2000, a project in Dabhol, India which began in the third quarter of 1999 and will continue into 2001, and a long-term project in Ghana, West Africa which began in the first quarter of 2000 and is expected to be completed in 2003. These projects contributed revenue of $10.2 million, $22.7 million, and $29.0 million, respectively, during 2000. 43 BACKLOG Our contract backlog represents management's estimate of the revenues which will be realized under the portion of the contracts remaining to be performed based upon current estimates. Such estimates are subject to fluctuations based upon the amount of material actually dredged as well as factors affecting the time required to complete the job. In addition, because a substantial portion of our backlog relates to government contracts, our backlog can be canceled at any time without penalty, except, in some cases, the recovery of our actual committed costs and profit on work performed up to the date of cancellation. Consequently, backlog is not necessarily indicative of future results. Our backlog includes only those projects for which the customer has provided an executed contract. Backlog at December 31, 2000 of $198.3 million, while still strong from a historical perspective, declined 25.8% from our record year-end backlog level of $267.1 million at December 31, 1999. This decline in backlog reflects the overall dynamics of the 2000 bid market, which was characterized by an uneven flow of bidding opportunities. During the first, second and fourth quarters of fiscal 2000, the dredging industry experienced intensely competitive bidding due to a reduced number of projects bid. As a result, several projects let for bid during these quarters were won by our competitors at prices that were lower than we considered acceptable. During the third quarter, the number of projects let for bid comprised more than 50% of the total bids for 2000. We won 62% of this work at more favorable pricing. The largest portion of our backlog continues to be capital work. The Deep Port and foreign markets have continued to provide numerous and attractive project opportunities, which is expected to continue into 2001, as a result of updates to the WRDA legislation approving and authorizing additional Deep Port work and the expected commencement of certain significant foreign projects, particularly in the Middle East. At December 31, 2000, the Company had been low bidder on additional work valued at $32.5 million which was still pending award, and therefore excluded from backlog. Additional significant revenues in backlog at December 31, 2000 relate to two capital projects in Wilmington for $54.0 million, and capital projects in San Juan, Puerto Rico for $13.9 million, in Baltimore for $16.0 million, and in Ghana for $52.6 million. The increase in backlog from beach nourishment work reflects revenues from bids won in the third and fourth quarters of 2000, including projects in Sunny Isles, Florida for $14.4 million, Brevard, Florida for $7.1 million and Patrick Air Force Base, Florida for $4.0 million. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999. CONTRACT REVENUES. Contract revenues increased $36.8 million or 12.2% from $302.3 million in 1999 to $339.1 million in 2000. The increase in 2000 is due primarily to a higher level of foreign project activity in 2000, which offset slight declines in revenues from beach nourishment and maintenance projects. COSTS OF CONTRACT REVENUES. Costs of contract revenues increased $36.9 million or 15.1%, from $244.8 million in 1999 to $281.7 million in 2000. Costs of contract revenues as a percentage of contract revenues was 83.1% in 2000 and 81.0% in 1999. The increase in costs of contract revenues as a percentage of revenues in 2000 was attributable to a higher mix of lower margin foreign projects, as well as certain domestic projects which operated below margin levels experienced in recent years due to competitive pricing pressures experienced in the first half of the year. GROSS PROFIT. Gross profit remained level at $57.4 million and $57.5 million in 2000 and 1999, respectively, due to the impact of the increase in foreign work and certain capital projects on costs of contract revenues. 44 GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $22.3 million and $21.9 million in 2000 and 1999, respectively. As a percent of sales, general and administrative expenses remained relatively consistent as 6.6% of sales in 2000 compared to 7.2% in 1999. OPERATING INCOME. Operating income was $35.1 million in 2000, compared to $35.6 million in 1999. Operating income declined as a percent of revenues, due to the reasons stated above. EBITDA. EBITDA increased only $0.2 million, to $47.8 million for the year ended December 31, 2000 from $47.6 million for the year ended December 31, 1999. Although revenues increased 12.2% in 2000, EBITDA as a percentage of revenue declined due to the higher mix of lower margin foreign work, as well as the impact of certain domestic projects, which operated below margin levels experienced in recent years due to competitive pricing pressures encountered in the first half of the year. INTEREST EXPENSE, NET. Net interest expense increased $0.5 million or 3.1%, from $18.1 million in 1999 to $18.6 million in 2000. The increase was due to a combination of higher working capital investment on the foreign projects and an increase in the borrowing rates on variable rate debt. EQUITY IN (LOSS) EARNINGS OF JOINT VENTURES. Equity in (losses) earnings of joint ventures declined $1.0 million from earnings of $0.2 million in 1999 to a loss $0.8 million in 2000. In 2000, Amboy recorded additional costs related to its efforts to obtain new permits and incurred expenses resulting from an unfavorable outcome on certain litigation. INCOME TAX EXPENSE. Income taxes decreased $1.1 million, to $7.4 million in 2000 from $8.5 million in 1999. The decrease was a result of decreased taxable earnings in 2000. MINORITY INTERESTS. Income attributable to minority interests increased the Company's allocation to minority interests to $1.0 million in 2000 from a credit from minority interests of $0.5 million in 1999. The 2000 expense was due to higher earnings from the NATCO hopper dredging operations in 2000 compared to losses incurred in 1999. NET INCOME. Net income decreased $2.4 million, to $7.3 million in 2000 from $9.7 million in 1999. The 2000 net income reflects the lower margins on the increased foreign work as well as the reduced margins obtained on certain domestic projects which were bid at lower margins due to the competitive bid market in 2000. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998. CONTRACT REVENUES. Contract revenues increased $13.1 million or 4.5% from $289.2 million in 1998 to $302.3 million in 1999. The increase in 1999 is due primarily to the increased volume of higher margin capital dredging projects which offset a decline in revenues from beach nourishment and foreign projects. COSTS OF CONTRACT REVENUES. Costs of contract revenues increased $4.2 million or 1.8%, from $240.6 million in 1998 to $244.8 million in 1999. Costs of contract revenues as a percentage of contract revenues was 81.0% in 1999 and 83.2% in 1998. The improvement in costs of contract revenues as a percentage of revenues in 1999 is primarily attributable to the project mix. Throughout 1999, there were more higher margin capital dredging projects and fewer lower margin beach nourishment and foreign projects. GROSS PROFIT. Gross profit increased $8.8 million or 18.2%, from $48.6 million in 1998 to $57.5 million in 1999. The improvement in 1999 was attributable to the increased volume of higher margin capital dredging work. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses remained relatively consistent as 7.2% of sales in 1999 compared to 7.8% in 1998. 45 OPERATING INCOME. Operating income was $35.6 million in 1999, an increase of $9.6 million compared to 1998 (excluding nonrecurring recapitalization and equity incentive plan and other compensation expenses totaling $17.7 million related to the recapitalization of the Company in August 1998). The 1999 increase in operating income was primarily a result of the increased volume of higher margin capital dredging work. EBITDA. EBITDA increased $7.7 million or 19.2%, to $47.6 million for the year ended December 31, 1999 from $39.9 million (excluding recapitalization and equity incentive plan and other compensation expenses) for the year ended December 31, 1998. The increase was due to the increased volume of higher margin work in 1999. INTEREST EXPENSE, NET. Net interest expense increased $8.2 million or 83.5%, from $9.9 million in 1998 to $18.1 million in 1999. The increase was related to interest on the additional debt incurred in connection with the Company's recapitalization effected in August 1998. EQUITY IN EARNINGS OF JOINT VENTURES. Equity in earnings of joint ventures declined $1.0 million or 85.0%, from $1.2 million in 1998 to $0.2 million in 1999. The decrease was due to the continued reduction in demand for Amboy Aggregate's products, combined with commencement of the maintenance phase of the Riovia S.A. project. The maintenance phase is anticipated to have lower revenues and margins than the capital phase, which was substantially complete at the end of 1998. Further, at October 1, 1999, we began accounting for our investment in Riovia S.A. using the cost method. Equity earnings for Riovia S.A. in 1999 were insignificant. INCOME TAX EXPENSE. Income taxes increased $7.8 million, to $8.5 million in 1999 from $0.7 million in 1998. The increase is a result of taxable earnings in 1999 of approximately $17.7 million compared to a loss in 1998 of $0.4 million which resulted from the inclusion of significant nonrecurring expenses related to our recapitalization. MINORITY INTERESTS. Income attributable to minority interests declined to a loss of $0.5 million in 1999 from income of $2.7 million in 1998. The decrease was due to lower earnings from the NATCO hopper dredging operations in 1999 compared to 1998. NET INCOME (LOSS). Net income increased $14.4 million, to $9.7 million in 1999 from a loss of $4.7 million in 1998. The 1999 net income reflects the improved operating earnings resulting from the favorable project mix, while the 1998 losses reflect the additional nonrecurring expenses related to our recapitalization in 1998. SEASONALITY Prior to the last three years, we have historically realized lower contract revenues and earnings in the first and fourth quarters of each year. This trend was due to a number of factors including variation in weather conditions and government funding cycles, which affected the timing and execution of projects. We have seen the trend of this historical seasonality diminish over the past three years, with the increase in Deep Port work and the impact of environmental windows, which require that certain work be performed in winter months to protect wildlife habitats. We have been able to respond to these changing market factors since we have the flexibility to move our equipment around, as weather conditions and environmental restrictions dictate. However, in the future, seasonality may become more of a factor if the project mix changes and we may not be able to be as flexible in utilizing our equipment. INFLATION We do not believe that inflation has had a material impact on our operations in the years ended December 31, 2000, 1999 and 1998. 46 NORTH AMERICAN SITE DEVELOPERS, INC. GENERAL NASDI, founded in 1976, is one of the three largest providers of commercial and industrial demolition services in the United States according to the ENGINEERING NEWS RECORD (based on 1999 revenues). Nationally, the demolition and related services industry is comprised mostly of small, regional companies. NASDI's customers include general contractors who subcontract demolition services, corporations that commission projects, non-profit institutions such as universities and hospitals, and local government and municipal agencies. NASDI has established a network of local contacts with developers and prime contractors that act as referral sources and frequently enable NASDI to procure jobs on a sole-source basis. NASDI maintains a strong reputation and is one of the few firms with the capability to execute large projects. For these reasons, if it is not the lowest bidder on a contract, NASDI may still be awarded a project based on its qualifications. NASDI's core business is exterior and interior demolition. Exterior demolition involves the complete dismantling and demolition of structures and foundations. Interior demolition involves removing specific structures within a building. NASDI owns and maintains a multitude of specialized demolition and material handling equipment to enable it to perform a comprehensive array of services. Other business activities include site development and asbestos and other hazardous material removal. NASDI contracts hazardous material removal to insured subcontractors and does not take possession of hazardous materials, which remain the property of the site owner. CONTRACT REVENUES Contract revenues will typically include some or all of the following activities: demolition, asbestos or other hazardous substance and material removal and site development. Due to their complexity and requirement for specialized equipment and services, larger CID projects typically generate higher contract margins. A majority of NASDI's projects are negotiated as fixed price contracts whereby NASDI provides a contract estimate to a potential customer for the total cost of the project. Other contracts are obtained through the competitive bidding process on terms specified by the party inviting the bid. In all cases, the nature of the specified services dictates the types of equipment, material and labor involved, all of which affect the cost of performing the contract and the price charged by NASDI. Additionally, NASDI generates a significant amount of revenue from change orders, particularly on larger projects, which are negotiated with the customer. These change orders are typically executed after the project has commenced and often command higher margins than the underlying base contract. NASDI may also receive incentive payments such as bonuses for early completion of a project. Contract revenues are generally recognized on a percentage of completion basis. Contracts generally provide for monthly invoicing, retainage ranging from 5% to 10% of the invoiced amount and 30 day payment terms. Additionally, certain larger projects may include terms for an advanced payment from the customer. Provisions for contract losses are made in the periods in which such losses are determined; however, claims for additional compensation due NASDI are not recognized in contract revenues until such claims are settled. COSTS OF CONTRACT REVENUES The largest component of NASDI's costs of contract revenues is its payments to subcontractors, which NASDI makes on a percentage of completion method. NASDI's costs of contract revenues also include depreciation and amortization related to demolition equipment, direct labor (salaries and wages to hourly workers), material, cost of rental equipment used, other direct costs and allocated overhead. The hourly labor generally is hired on a project basis and is laid-off upon the completion of the contract. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized. 47 GENERAL AND ADMINISTRATIVE EXPENSES NASDI's general and administrative costs include back office and administrative expenses such as payroll, human resources, accounting, information technology and marketing. BONUSES Bonuses primarily represent amounts paid to NASDI stockholders. In addition to amounts paid to management stockholders pursuant to their existing employment agreements, discretionary bonuses were paid to all NASDI stockholders based on the results of operations. OTHER INCOME, NET Other income consists of dividend and interest income generated by NASDI's investments in marketable securities, net of interest expense related to NASDI's equipment financing arrangements and other borrowing facilities. ADJUSTED EBITDA Adjusted EBITDA is defined as operating income (loss) plus depreciation and amortization plus bonuses paid to management and investor stockholders which were in excess of amounts required under their employment agreements then in effect. RESULTS OF OPERATIONS The following table sets forth, for the periods presented, certain information relating to NASDI's historical operations expressed as percentages of contract revenues for the period:
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1999 2000 -------- -------- -------- Contract revenues...................................... 100.0% 100.0% 100.0% Costs of contract revenues............................. (80.9) (75.4) (63.8) ----- ----- ----- Gross profit........................................... 19.1 24.6 36.2 General and administrative expenses.................... (5.0) (3.3) (2.5) Bonuses................................................ (15.4) (16.7) (27.5) ----- ----- ----- Operating income (loss)................................ (1.3) 4.6 6.2 Other income, net...................................... 0.3 -- 0.6 Provision for state taxes.............................. -- (0.4) (0.4) ===== ===== ===== Net income (loss)...................................... (1.0)% 4.2% 6.4% ===== ===== ===== Adjusted EBITDA(1)..................................... 16.5% 22.2% 32.1%
- ------------------------ (1) Adjusted EBITDA in 1998, 1999 and 2000 reflects EBITDA (as defined) adjusted for discretionary bonuses paid to all stockholders, including bonuses to management stockholders in excess of amounts required under their employment agreements then in effect. We do not intend to pay such discretionary bonuses. BACKLOG NASDI's backlog represents management's estimate of the revenues which will be realized under contracts remaining to be performed based upon current estimates of the resources and time necessary to complete the projects. However, such estimates are necessarily subject to fluctuations based upon the actual resources and time required to complete each job. Consequently, backlog is not necessarily 48 indicative of future revenues. NASDI's backlog includes only those projects for which the customer has provided an executed contract. Backlog at December 31, 2000 of $23.3 million represents the work remaining on contracts in progress. The actual revenue generated by NASDI's contracts often increases from initial contract prices due to change orders. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999. CONTRACT REVENUES. Contract revenues increased $27.1 million or 59.6% from $45.5 million for the year ended December 31, 1999 to $72.6 million for the year ended December 31, 2000. Revenues increased in 2000 in part due to several large new CID projects which were awarded and commenced in 2000. In addition, two existing contracts generated a total of $21.0 million more in revenue in 2000 than in 1999, due primarily to revenue generated from change orders. These two projects were completed in 2000. COSTS OF CONTRACT REVENUES. Costs of contract revenues increased $12.0 million or 35.0% from $34.3 million for the year ended December 31, 1999 to $46.3 million for the year ended December 31, 2000. Costs of contract revenues as a percentage of contract revenues was 75.4% in 1999 and 63.8% in 2000. The decrease in cost as a percentage of revenues in 2000 is primarily related to change orders on two large projects, which were negotiated and completed in 2000. GROSS PROFIT. Gross profit increased $15.1 million or 134.8% from $11.2 million for the year ended December 31, 1999 to $26.3 million for the year ended December 31, 2000. The increase is due to the reasons stated above. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $0.3 million or 20.0% from $1.5 million for the year ended December 31, 1999 to $1.8 million for the year ended December 31, 2000. The change is related to the increase in 2000 contract activity. BONUSES. Bonuses increased $12.4 million from $7.6 million for the year ended December 31, 1999 to $20.0 million for the year ended December 31, 2000. The change is related to the increase in earnings. OPERATING INCOME. Operating income increased $2.4 million or 114.3% from $2.1 million for the year ended December 31, 1999 to $4.5 million for the year ended December 31, 2000, due to the reasons discussed above. NET INCOME. Net income increased $2.7 million or 142.1% from $1.9 million for the year ended December 31, 1999 to $4.6 million for the year ended December 31, 2000, due to the reasons discussed above. ADJUSTED EBITDA. Adjusted EBITDA increased $13.2 million or 130.7% from $10.1 million for the year ended December 31, 1999 to $23.3 million for the year ended December 31, 2000, due to the reasons stated above. YEAR ENDED DECEMBER 31, 1999 COMPARED TO ELEVEN MONTHS ENDED DECEMBER 31, 1998 (YEAR ENDED 1998). CONTRACT REVENUES. Contract revenues increased $15.2 million or 50.2% from $30.3 million for the year ended December 31, 1998 to $45.5 million for the year ended December 31, 1999. The increase is primarily related to two large industrial demolition contracts, which were awarded and commenced in 1999 and contributed approximately $14.1 million in contract revenue. 49 COSTS OF CONTRACT REVENUES. Costs of contract revenues increased $9.8 million or 40.0% from $24.5 million for the year ended December 31, 1998 to $34.3 million for the year ended December 31, 1999. Costs of contract revenues as a percentage of contract revenues was 80.9% in 1998 and 75.4% in 1999. The decrease in costs as a percentage of revenues in 1999 is related to the award and commencement of two large industrial demolition contracts, which were performed at higher margins than typical smaller contracts. GROSS PROFIT. Gross profit increased $5.4 million or 93.1% from $5.8 million for the year ended December 31, 1998 to $11.2 million for the year ended December 31, 1999, due to the reasons stated above. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses remained consistent at $1.5 million for the respective years. BONUSES. Bonuses increased $3.0 million from $4.6 million for the year ended December 31, 1998 to $7.6 million for the year ended December 31, 1999. The change is related to the increase in 1999 earnings. OPERATING INCOME (LOSS). Operating income (loss) increased $2.5 million, from a loss of $0.4 million for the year ended December 31, 1998 to income of $2.1 million for the year ended December 31, 1999, due to the reasons discussed above. NET INCOME (LOSS). Net income increased $2.2 million from a net loss of $(0.3) million for the year ended December 31, 1998 to $1.9 million for the year ended December 31, 1999. The increase in net income is due to the reasons stated above. ADJUSTED EBITDA. Adjusted EBITDA increased $5.1 million or 102.0% from $5.0 million for the year ended December 31, 1998 to $10.1 million for the year ended December 31, 1999. The increase in Adjusted EBITDA is attributed to the reasons discussed above. SEASONALITY We do not believe that seasonality has had a material impact on NASDI's operations in the eleven months ended December 31, 1998 and in the years ended December 31, 1999 and December 31, 2000. INFLATION We do not believe that inflation has had a material impact on NASDI's operations in the eleven months ended December 31, 1998 and in the years ended December 31, 1999 and December 31, 2000. LIQUIDITY AND CAPITAL RESOURCES GREAT LAKES DREDGE & DOCK CORPORATION CASH FLOWS. Our primary sources of liquidity are cash flows from operations and borrowings under the revolving line of credit provided by the Credit Agreement. (see Note 7, "Long-term Debt" in the notes to the Consolidated Financial Statements). Our primary uses of cash are funding working capital, capital expenditures and debt service. Our net cash flows from operating activities for the years ended December 31, 2000, 1999 and 1998 were $17.5 million, $25.3 million and $20.2 million, respectively. The decrease in cash flows from operating activities in 2000 compared to 1999 was due to additional working capital requirements for certain foreign projects, as well as the normal fluctuations in working capital requirements inherent in our operations. The increase in cash flows from operating activities in 1999 compared to 1998 was due to favorable contract operations in 1999 over 1998 and a decrease in working capital resulting primarily 50 from normal fluctuations in working capital requirements, along with an increase in billings received in advance of revenue recognition on our Ghana project. Our net cash flows used in investing activities for the years ended December 31, 2000, 1999 and 1998, were $13.7 million, $12.8 million, and $10.6 million, respectively. Uses in 2000 and 1999 relate primarily to capital expenditures; however, 1999 also included $3.6 million in distributions from joint ventures, which was offset by $1.7 million paid out as distributions to minority interests. In 1999, there was an increase in capital additions of $6.0 million compared to the net capital additions in 1998. Capital expenditures in 1998 included $13.6 million for two hydraulic dredges and certain support vessels acquired from a competitor. In December 1998, we entered into a sale lease-back transaction for this equipment and received proceeds of $14.5 million. Additionally, in 1998, we contracted to build a new backhoe dredge to cost approximately $18.0 million. Capital expenditures in 1998 included $5.7 million in costs related to the construction of this dredge. In October 1998, we sold the $5.7 million in related construction in progress and entered into a construction agency agreement to complete the backhoe and a long term operating lease to operate the dredge upon completion. Our net cash flows used in financing activities for the years ended December 31, 2000, 1999 and 1998, were $4.2 million, $11.7 million, and $10.6 million, respectively. The 2000 use of cash related to the scheduled payments of our term senior debt, offset by net borrowings on our revolver arrangement. The 1999 use of cash related primary to payments on the term loan portion of the Credit Agreement, which was amended in October 1999 to allow for prepayment of a portion of the term loan and increased capacity under the revolving loan. The use of cash related to financing activities in 1998 is explained by the recapitalization effected in August of 1998, which extinguished the debt under the former credit agreement and redeemed the stock of the majority stockholders with the proceeds from the new Credit Agreement, issuance of senior subordinated notes and equity investments by new stockholders. Distributions from and contributions to both Amboy Aggregates and Riovia are subject to the unanimous consent of the partners in such joint venture. We received distributions from the joint ventures totaling $0.2 million and $3.6 million in 2000 and 1999, respectively. No distributions were received from joint ventures in 1998. In 2000, we made an additional investment in the Riovia joint venture of $0.3 million representing our share of the cost to buy out one of the joint venture partners. We recorded (losses) earnings from joint ventures of $(0.8) million, $0.2 million and $1.2 million in 2000, 1999, and 1998, respectively. In the first half of 1999, we made distributions to minority interests of $1.7 million, related to 1998 earnings; such distributions were made during the fourth quarter of 1997 for 1997 earnings and no distributions have been made for 1999 or 2000 earnings. We recorded minority interest income (expense), attributable to subsidiary results, of $(1.0) million, $0.5 million, and $(2.7) million in 2000, 1999, and 1998, respectively. We have entered into operating lease agreements for certain dredging assets and office space, which require annual lease payments through 2011. See Note 13, "Lease Commitments" in the notes to the Consolidated Financial Statements. In the fourth quarter of 1999, we secured construction and long-term lease financing for a new 5,000 cubic meter hopper dredge, expected to be delivered by the end of 2001. Additionally, we expect to incur annual maintenance expenses of approximately $25 to $27 million. Amounts expended for operating leases and maintenance expenses are charged to operations on an annual basis. Planned capital expenditures, which primarily include support equipment and equipment upgrades, are expected to require spending of approximately $12 to $15 million annually for the foreseeable future. In connection with the closing of the Acquisition, we entered into an intercompany agreement with NASDI, under which NASDI was deemed to have borrowed from us approximately $32.0 million, which reflects the Acquisition-related indebtedness. NASDI will be required to service this debt with its 51 excess cash until repaid. Cash flow in excess of principal and interest payments and all cash flow after the debt is fully repaid is expected to be available for distribution to the Company and the minority interest management stockholders according to their ownership interests. We and the NASDI management stockholders entered into a stockholders agreement relating to the ownership of NASDI capital stock. In accordance with the stockholders agreement, so long as we and the NASDI management stockholders continue to own, in the aggregate, more than 50% of NASDI, the NASDI management stockholders will have the right, during the two-month period following April 15, 2006, to require us to acquire their NASDI common stock at a price equal to the greater of (i) $2.0 million or (ii) a formula based on NASDI's financial performance. In addition, each NASDI management stockholder will have the right to require us to purchase his NASDI common stock following a termination of his employment, at a price based upon certain formulas, depending upon the reason for the termination. We believe cash flows from operations and available credit will be sufficient to finance operations, planned capital expenditures and debt service requirements for the foreseeable future. Our ability to fund our working capital needs, planned capital expenditures and scheduled debt payments, to refinance indebtedness and to comply with all of the financial covenants under our debt agreements, depends on our future operating performance and cash flow, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. NORTH AMERICAN SITE DEVELOPERS, INC. NASDI's primary source of liquidity has been cash flows from operations. NASDI's primary uses of cash have been the funding of working capital, capital expenditures and stockholder distributions. NASDI's net cash flows from operating activities for the years ended December 31, 2000, 1999 and 1998 were sources of $4.2 million, $4.9 million and a use of $1.0 million, respectively. The slight decrease in cash flows from operating activities in 2000 compared to 1999 is the result of normal fluctuations in working capital requirements inherent in NASDI's operations. The increase in cash flows from operating activities in 1999 compared to 1998 was due to contract operations in 1999 over 1998. NASDI's net cash flows from investing activities for the years ended December 31, 2000, 1999 and 1998 were nil, a use of $2.5 million and a use of $0.9 million, respectively. The change in cash flows from investing activities between the years 2000, 1999 and 1998 is primarily related to the purchase and sale of marketable securities. NASDI periodically invests excess cash generated from operating activities in marketable securities. Capital expenditures for years ended 2000, 1999 and 1998 were $1.0 million, $0.9 million and $0.9 million, respectively. NASDI's net cash flows from financing activities for the years ended December 31, 2000, 1999 and 1998 were uses of $3.6 million, $1.8 million and a source of $0.8 million, respectively. The change in cash flows from financing activities between years 2000 and 1999 is largely attributed to a $1.7 million increase in distributions to stockholders. The change in cash flows from financing activities between the years 1999 and 1998 is related to stockholder advances provided for working capital requirements and subsequent repayments thereof. NASDI has entered into operating lease agreements for certain machinery and equipment, which require annual lease payments through 2003. See Note 6, "Debt Obligations" in the notes to the Financial Statements. Planned capital expenditures, which primarily include machinery and equipment, are expected to require annual spending of approximately $1.0 million to $1.5 million in 2001 and 2002. 52 EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended, which requires that all derivative instruments be reported in the balance sheet at the fair value and established criteria for designation and effectiveness of hedge relationships. The adoption of SFAS 133 resulted in a pre-tax reduction to other comprehensive income of $1,200 ($626 after tax) related to our fuel hedge arrangements, which are designated as cash flow hedges. The losses included in accumulated other comprehensive income as of January 1, 2001 will be reclassified into earnings over the next thirteen months, the remaining term of the hedge arrangements. NASDI's adoption of SFAS 133 did not have an impact on its financial position or operating results. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements," which summarizes certain of the SEC staff's views in applying U.S. generally accepted accounting principles to revenue recognition in financial statements. In June 2000, the SEC issued SAB 101B, which delayed the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. Adoption of this SAB has not had a material impact on the Company's financial statements or those of NASDI. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A portion of our current dredging operations are conducted outside of the U.S. In 2000 and 1999, 21% and 10%, respectively, of contract revenues were attributable to overseas operations. It is our policy to hedge foreign currency exchange risk on contracts denominated in currencies other than the U.S. dollar, if available. Forward currency exchange contracts, typically with durations of less than one year, are used to minimize the impact of foreign currency fluctuations on operations. We do not purchase forward exchange contracts for trading purposes. At December 31, 2000 and 1999, we had outstanding foreign currency forward contracts with a notional value of $2.0 million and $4.3 million, respectively, designated as hedges of our foreign currency denominated tax liabilities. We expect that gains or losses on the foreign currency forward contracts should offset gains or losses on the underlying tax liability being hedged, such that the impact of a change in the exchange rate would be immaterial to our earnings. Our obligations under the senior credit facility expose earnings to changes in short-term interest rates since interest rates on bank debt are variable. If the variable rates on our outstanding bank debt were to increase by 10% from the rates at December 31, 2000, for the full year 2001, assuming scheduled principle payments are made, interest expense would increase $0.4 million and assuming a 38% marginal tax rate, net income would decrease $0.2 million. The fair value of our fixed rate debt was $114.4 million and $120.2 million at December 31, 2000 and 1999, respectively, based on quoted market prices. Assuming a 10% decrease in interest rates from the rates at December 31, 2000, the fair value of this fixed rate debt would have increased by $7.0 million. One of our significant operating costs is diesel fuel. During 2000 and 1999, fuel expenditures represented 5.4% and 4.6%, respectively, of dredging costs of contract revenues. We use fuel commodity forward contracts, typically with durations of less than eighteen months, to reduce the impacts of changing fuel prices on operations. We do not purchase fuel hedges for trading purposes. Based on our 2001 projected fuel consumption, a one cent change in the average annual price per gallon of fuel would impact its net income by less than $0.1 million, after the effect of fuel commodity contracts in place as of December 31, 2000. At December 31, 2000 and 1999, we had outstanding arrangements to hedge the price of a portion of its fuel purchases related to work in backlog, representing approximately 59% of its projected fuel requirements for 2001 and 2000, respectively. 53 THE EXCHANGE OFFER PURPOSE AND EFFECT In 1998, we sold the Series A notes in an unregistered transaction which notes we subsequently exchanged on February 5, 1999 for the registered Series B notes. We sold the Series C notes on April 24, 2001 in an unregistered transaction to Credit Suisse First Boston Corporation, as initial purchaser. In connection with this transaction, we, the subsidiary guarantors and the initial purchaser entered into a registration rights agreement, pursuant to which we agreed to prepare and file with Securities and Exchange Commission a registration statement registering the offer to exchange the Series C notes and the Series B notes for single class of publicly tradable notes having identical terms to those of the existing notes not later than June 22, 2001 and to cause the registration statement to become effective under the Securities Act not later than October 19, 2001. The registration statement of which this prospectus is a part is intended to satisfy in part the Company's obligations with respect to the existing notes under the registration rights agreement. Based on certain interpretive letters issued by the staff of the Securities and Exchange Commission, or the Commission, to third parties in unrelated transactions, the Company is of the view that holders of the existing notes (other than any holder who is an "affiliate" of our company or any guarantor within the meaning of Rule 405 under the Securities Act) who exchange their existing notes for exchange notes pursuant to the exchange offer generally may offer such exchange notes for resale, resell such exchange notes and otherwise transfer such exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided: - the exchange notes are acquired in the ordinary course of the holders' business; and - the holders have no arrangement with any person to participate in a distribution of such exchange notes. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and by delivery of a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, at it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for existing notes where such existing notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the expiration date of this exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Except as provided below, our obligations with respect to the exchange of the existing notes will terminate upon completion of the exchange offer. A copy of the registration rights agreement has been filed as an exhibit to the registration statement, of which this prospectus is a part, and the summary in this prospectus of the material provisions of the registration rights agreement does not purport to be complete and is qualified in its entirety by reference to that agreement. Following the completion of this exchange, except as set forth below, (A) holders of Series C notes not tendered will continue to be subject to certain restrictions on transfer and (B) holders of Series B notes not tendered will not have any further rights under the registration rights agreement. Accordingly, the liquidity of the market for the existing notes could be adversely affected upon consummation of this exchange offer. The registration rights agreement provides that: - we will file an Exchange Offer Registration Statement with the Commission on or prior to June 22, 2001; 54 - we will use our best efforts to have the exchange offer registration statement declared effective by the Commission on or prior to October 19, 2001; - unless the exchange offer would not be permitted by applicable law or Commission policy, we will commence the exchange offer and use our best efforts to issue on or before 30 business days after the date on which the exchange offer registration statement was declared effective by the Commission, exchange notes in exchange for all existing notes tendered prior thereto in the exchange offer; and - if obligated to file the shelf registration statement with respect to the Series C notes, we will use our best efforts to file the shelf registration statement with the Commission on or prior to 60 days after such filing obligation arises and to cause the shelf registration statement to be declared effective by the Commission on or prior to 180 days after such obligation arises. We will be permitted to suspend use of the prospectus that is part of the shelf registration statement during certain periods of time and in certain circumstances relating to pending corporate developments and public filings with the Commission and similar events. Other than as set forth above, no holder will have the right to participate in the shelf registration statement nor otherwise require that we register such holder's shares of unregistered Series C notes under the Securities Act of 1933. See "--Procedure for Tendering Existing Notes." In order to have their notes included in the shelf registration statement and benefit from the provisions regarding Liquidated Damages, holders of Series C notes will be required to do the following: - make certain representations to Great Lakes (as described in the registration rights agreement) in order to participate in the exchange offer; - deliver information to be used in connection with the shelf registration statement; and - provide comments on the shelf registration statement within the time periods set forth in the registration rights agreement. TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal (which together constitute the exchange offer), we will accept for exchange existing notes which are properly tendered on or prior to the expiration date and not withdrawn as permitted below. As used herein, the term "expiration date" means 5:00 p.m., New York City time, on, , 2001; provided, however, that if we have extended the period of time for which the exchange offer is open, the term "expiration date" means the latest time and date to which the exchange offer is extended. As of the date of this prospectus, $155.0 million aggregate principal amount of the existing notes are outstanding. This prospectus, together with the letter of transmittal, is first being sent on or about , 2001 to all holders of existing notes known to us. Our obligation to accept existing notes for exchange pursuant to the exchange offer is subject to certain conditions as set forth under "--Certain Conditions to the Exchange Offer" below. We expressly reserve the right, at any time or from time to time, to extend the period of time during which the exchange offer is open, and thereby delay acceptance for any exchange of any existing notes, by giving notice of such extension to the holders thereof. During any such extension, all existing notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any existing notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the exchange offer. 55 We expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any existing notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified below under "--Certain Conditions to the Exchange Offer." We will give notice of any extension, amendment, non- acceptance or termination to the holders of the existing notes as promptly as practicable, such notice in the case of any extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Holders of existing notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the exchange offer. PROCEDURES FOR TENDERING EXISTING NOTES The tender to us of existing notes by a holder thereof as set forth below and the acceptance thereof by us will constitute a binding agreement between the tendering holder and us upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal. Except as set forth below, a holder who wishes to tender existing notes for exchange pursuant to the exchange offer must transmit a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to The Bank of New York at one of the addresses set forth below under "Exchange Agent" on or prior to the expiration date. In addition, either (i) certificates for such existing notes must be received by the Exchange Agent along with the letter of transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such existing notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility" or the "Depositary") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the expiration date, or the holder must comply with the guaranteed delivery procedure described below. THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO US. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the existing notes surrendered for exchange pursuant thereto are tendered: - by a registered holder of the existing notes who has not completed the box entitled "Special Issuance Instruction" or "Special Delivery Instruction" on the letter of transmittal; or - for the account of an Eligible Institution (as defined below). In the event that signatures on a letter of transmittal or a notice of withdrawal, as the case maybe, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust Company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If existing notes are registered in the name of a person other than a signer of the letter of transmittal, the existing notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by, the registered holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of existing notes tendered for exchange will be determined by us in our sole discretion, which 56 determination shall be final and binding. We reserve the absolute right to reject any and all tenders of any particular existing notes not properly tendered or to not accept any particular existing notes which acceptance might, in our or our counsel's judgment, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of the exchange offer as to any particular existing notes either before or after the expiration date (including the right to waive the ineligibility of any holder who seeks to tender existing notes in the exchange offer). The interpretation of the terms and conditions of the exchange offer as to any particular existing notes either before or after the expiration date (including the letter of transmittal and the instructions thereto) by us shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of existing notes for exchange must be cured within such reasonable period of time as we shall determine. Neither we, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of existing notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the letter of transmittal or any existing notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by us, proper evidence satisfactory to us of their authority to so act must be submitted. By tendering, each holder of existing notes will represent to us in writing that, among other things, the exchange notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the holder and any beneficial holder, that neither the holder nor any such beneficial holder has an arrangement or understanding with any person to participate in the distribution of such exchange notes and that neither the holder nor any such other person is our "affiliate," as defined under Rule 405 of the Securities Act. If the holder is not a broker-dealer, the holder must represent that it is not engaged in nor does it intend to engage in a distribution of the exchange notes. If the holder is a broker-dealer, the holder must represent that it will receive exchange notes for its own account in exchange for existing notes that were acquired as a result of market-making activities or other trading activities. Each broker-dealer that receives exchange notes for its own account in exchange for existing notes, where such existing notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (an "Exchanging Dealer"), must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution." ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES For each existing note accepted for exchange, the holder of such existing note will receive an exchange note having a principal amount equal to that of the surrendered existing note. For purposes of the exchange offer, we shall be deemed to have accepted properly tendered existing notes for exchange when, as and if we have given oral and written notice thereof to the Exchange Agent. In all cases, issuance of exchange notes for existing notes that are accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the Exchange Agent of certificates for such existing notes or a timely Book-Entry Confirmation of such existing notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed letter of transmittal and all other required documents. If any tendered existing notes are not accepted for any reason set forth in the terms and conditions of the exchange offer or if existing notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged existing notes will be returned without expense to the tendering holder thereof (or, in the case of existing notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged existing notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration of the exchange offer. 57 BOOK-ENTRY TRANSFER Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of existing notes by causing the Book-Entry Transfer Facility to transfer such existing notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of existing notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the letter of transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent" on or prior to the expiration date or the guaranteed delivery procedures described below must be complied with. The Company understands that the Exchange Agent has confirmed with the Book-Entry Transfer Facility that any financial institution that is a participant in the Book-Entry Transfer Facility's system may utilize the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") to tender existing notes. The Company further understands that the Exchange Agent will request, within two business days after the date the exchange offer commences, that the Book-Entry Transfer Facility establish an account with respect to the existing notes for the purpose of facilitating the exchange offer, and any participant may make book-entry delivery of existing notes by causing the Book-Entry Transfer Facility to transfer such existing notes into the Exchange Agent's account in accordance with the Book-Entry Transfer Facility's ATOP procedures for transfer. However, the exchange of the existing notes so tendered will only be made after timely confirmation (a "Book-Entry Confirmation") of such book-entry transfer and timely receipt by the Exchange Agent of an Agent's Message (as defined in the next sentence), an appropriate letter of transmittal with any required signature guarantee, and any other documents required. The term "Agent's Message" means a message, transmitted by the Book- Entry Transfer Facility and received by the Exchange Agent and forming part of Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering existing notes which are the subject of such Book-Entry Confirmation and that such participant has received and agrees to be bound by the terms of the letter of transmittal and that the Company may enforce such agreement against such participant. GUARANTEED DELIVERY PROCEDURES If a registered holder of the existing notes desires to tender such existing notes and the existing notes are not immediately available, or time will not permit such holder's existing notes or other required documents to reach the Exchange Agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if: - the tender is made through an Eligible Institution; - prior to the expiration date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed letter of transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of existing notes and the amount of existing notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered existing notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the letter of transmittal will be deposited by the Eligible Institution with the Exchange Agent; and - the certificates for all physically tendered existing notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the letter of 58 transmittal are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of existing notes may be withdrawn at any time prior to the expiration date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must: - specify the name of the person having tendered the existing notes to be withdrawn; - identify the existing notes to be withdrawn (including the principal amount of such existing notes); and - specify (where certificates for existing notes have been transmitted) specify the name in which such existing notes are registered, if different from that of the withdrawing holder. If certificates for existing notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If existing notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn existing notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any existing notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any existing notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or in the case of existing notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such existing notes will be credited to an account maintained with such Book-Entry Transfer Facility for the existing notes) as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn existing notes may be retendered by following one of the procedures described under "--Procedures for Tendering existing notes" above at any time on or prior to the expiration date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the exchange offer, we shall not be required to accept for exchange, or to issue exchange notes in exchange for, any existing notes and may terminate or amend the exchange offer if at any time before the acceptance of such existing notes for exchange or the exchange of exchange notes for such existing notes, we determine that (i) the exchange offer does not comply with any applicable law or any applicable interpretation of the staff of Securities and Exchange Commission, (ii) we have not received all applicable governmental approvals or (iii) any actions or proceedings of any governmental agency or court exist which could materially impair our ability to consummate the exchange offer. The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time in our reasonable discretion. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, we will not accept for exchange any existing notes tendered, and no exchange notes will be issued in exchange for any such existing notes, if at such time any stop order shall be threatened 59 or in effect with respect to the Registration statement of which this prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). In any such event we are required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time. EXCHANGE AGENT The Bank of New York has been appointed as the Exchange Agent for the exchange offer. All executed letters of transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the Exchange Agent addressed as follows:
BY HAND OR OVERNIGHT DELIVERY: FACSIMILE TRANSMISSIONS: BY REGISTERED OR CERTIFIED MAIL: The Bank of New York (Eligible Institutions Only) The Bank of New York 101 Barclay Street 101 Barclay Street, 7E New York, New York 10286 (212)571-3080 New York, New York 10286 Corporate Trust Services To Confirm by Telephone Window or for Information Call: Ground Level (212) 815-6333 Attention: Reorganization Section,
Delivery to an address other than as set forth above or transmission via facsimile to a number other than as set forth above does not constitute a valid delivery. FEES AND EXPENSES We will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by our officers and employees. The expenses to be incurred in connection with the exchange offer will be paid by us. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The exchange notes will be recorded at the same carrying amount as the existing notes, which is the principal amount as reflected in our accounting records on the date of the exchange and, accordingly, no gain or loss will be recognized. The debt issuance costs will be capitalized and amortized to interest expense over the term of the exchange notes. TRANSFER TAXES Holders who tender their existing notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct us to register exchange notes in the name of, or request that existing notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES Holders of Series C notes who do not exchange their existing notes for exchange notes pursuant to the exchange offer will continue to be subject to the restrictions on transfer of such Series C notes as 60 set forth in the legend thereon as a consequence of the issuance of the Series C notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of, the Securities Act and applicable state securities laws. If we fail to complete this exchange offer, as discussed above, the holders of the Series C notes are entitled to certain liquidated damages. See "Description of Exchange Notes--Registration Rights; Liquidated Damages." Holders of Series B notes who do not exchange their existing notes for exchange notes pursuant to the exchange offer will continue to hold registered notes but the total principal amount of Series B notes may be reduced by this exchange offer, accordingly, the liquidity of the market for a holder's Series B notes could be adversely affected upon completion of the exchange offer. Holders of these notes who do not exchange their existing notes will not have further rights under the registration rights agreement. Existing notes not exchanged pursuant to the exchange offer will continue to accrue interest at 11 1/4% per annum and will otherwise remain outstanding in accordance with their terms. Holders of existing notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the exchange offer. In general, the Series C notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will register the Series C notes under the Securities Act. However, we are obligated to file a shelf registration statement on the appropriate form under the Securities Act relating to the existing notes: - if the Initial Purchaser so requests with respect to Series C notes not eligible to be exchanged for exchange notes in the exchange offer and held by it following consummation of the exchange offer; or - if any holder of Series C notes (other than an Exchanging Dealer) is not eligible to participate in the exchange offer or, in the case of any holder of Series C notes (other than an Exchanging Dealer) that participates in the exchange offer, does not receive exchange notes in exchange for Series C notes that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder as our affiliate within the meaning of the Securities Act). Based on certain interpretive letters issued by the staff of Securities and Exchange Commission to third parties in unrelated transactions, we are of the view that exchange notes issued pursuant to the exchange offer in exchange for existing notes, may be offered for resale, resold or otherwise transferred by holders thereof (other than (i) any such holder which is our "affiliate" within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases notes from us to resell pursuant to Rule 144A or any other available exemption) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such exchange notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such exchange notes. If any holder of such exchange notes has any arrangement or understanding with respect to the distribution of such exchange notes to be acquired pursuant to the exchange offer, such holder (i) could not rely on the applicable interpretations of the staff of Securities and Exchange Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. A broker-dealer who holds existing notes that were acquired for its own account as a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of exchange notes. Each such broker-dealer that receives exchange notes for its own account in exchange for existing notes, where such existing notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, 61 must acknowledge in the letter of transmittal that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution." We have not requested the staff of Securities and Exchange Commission to consider the exchange offer in the context of a no-action letter, and there can be no assurance that the staff would take positions similar to those taken in the interpretive letters referred to above if we were to make such a no-action request. In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Series C exchange notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and is complied with. We have agreed, pursuant to the registration rights agreement and subject to certain specified limitations therein, to register or qualify the exchange notes for offer or sale under the securities or blue sky laws of such jurisdictions in the United States as any selling holder of the notes reasonably requests in writing. 62 BUSINESS GENERAL We are the largest provider of dredging services in the United States. Dredging generally involves the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. The U.S. dredging market consists of three primary types of dredging work: Capital, Maintenance and Beach Nourishment, in which activities we achieved a combined U.S. bid market share of 37% in 2000. In addition, we are the only U.S. dredging contractor with significant international operations, which represented approximately 21% of our dredging contract revenues in 2000. Our fleet of over 200 vessels, including 28 dredges, 31 material transportation barges, 3 drillboats, and numerous other specialized support vessels, is the largest and most diverse fleet in the U.S. We believe that our fleet would have a replacement cost in excess of $750 million. On April 24, 2001 we acquired 80% of NASDI. According to the ENGINEERING NEWS RECORD, NASDI is one of the three largest providers of commercial and industrial demolition, or CID, services in the United States, based on 1999 revenues. We believe that the Acquisition will provide us with the following benefits: - STRENGTHENS AND DIVERSIFIES OUR BUSINESS. The Acquisition enables us to increase our revenues and cashflow by utilizing our core competencies in a related business segment and also diversifies our customer base. Similar to our dredging activities, NASDI's CID activities involve the removal, transportation and disposal of materials using specialized equipment, employing a unionized workforce and requiring special operating permits, licenses and skills. Many of the larger and more complex demolition projects that make up a majority of NASDI's revenue require sophisticated estimating methods and systems that are also required in our estimation of dredging projects. The Acquisition also provides us with exposure to the attractive market dynamics of the CID business. NASDI's customers are generally non-government entities for whom CID is a critical function. NASDI is also a leader in the developing market for the demolition of aging industrial infrastructure, particularly power generation plants, to allow for the construction of new and more efficient replacements on the same site. - POSITIONS NASDI FOR INCREASED GROWTH. By integrating and supplementing certain of NASDI's administrative functions (such as contract cost and performance tracking, contract administration, and risk management), we can better enable the management of NASDI to focus on exploiting new business opportunities, which will further contribute to our combined revenues and earnings. For the year ended December 31, 2000, after giving pro forma effect to the Acquisition, we generated revenues of $411.7 million and EBITDA (as defined) of $71.5 million. In addition, as of December 31, 2000, we had a dredging contract backlog in excess of $198.0 million and a CID contract backlog in excess of $23.3 million. DREDGING ACTIVITIES Over our 110-year life, we have grown to be the leader in each of our primary dredging activities in the U.S., including: - CAPITAL--U.S. AND FOREIGN (approximately 57% of pro forma 2000 revenues). Capital dredging projects are primarily port expansion projects, which involve the deepening of channels to allow access by larger, deeper draft ships and the providing of land fill for building additional port facilities, thereby enhancing port profitability and competitiveness. The U.S. capital market includes "Deep Port" projects authorized under the 1986 Water Resource Development Act, or WRDA, which initially authorized the deepening of 39 ports. Subsequent WRDA bills, most 63 recently in December 2000, have authorized additional port deepening projects and expanded previously authorized projects. We achieved a 60% cumulative bid market share of Deep Port projects over the past five years. Our bid market share of total U.S. capital projects was 35% in 2000. - MAINTENANCE (approximately 18% of pro forma 2000 revenues). Maintenance dredging consists of the redredging of previously deepened waterways and harbors to remove silt, sand and other accumulated sediments. Due to natural sedimentation, active channels generally require maintenance dredging every one to three years, thus creating a continuous source of dredging work that is typically non-deferrable if optimal navigability is to be maintained. Our bid market share of U.S. maintenance projects was 27% in 2000. - BEACH NOURISHMENT (approximately 8% of pro forma 2000 revenues). Beach nourishment dredging projects generally involve moving sand from the ocean floor to shoreline locations when erosion has progressed to a stage that threatens substantial shoreline assets. Our bid market share of U.S. beach nourishment projects was 53% in 2000. We believe that we benefit from a number of favorable trends in the U.S. dredging market: - DEEP PORT CAPITAL PROJECTS. The average controlling depth of the ten largest U.S. ports (as measured by annual container volume) is 40.4 feet, compared to 52.7 feet for the ten largest non-U.S. ports. Without significant deepening efforts, most major U.S. ports risk being unable to efficiently accommodate larger cargo vessels, which renders them less competitive. In 1997, the United States Army Corps of Engineers (the "Corps"), which has the primary responsibility for maintaining and improving the nation's waterways, ports and shorelines, announced new Deep Port projects and the expansion of existing projects with an estimated aggregate revenue value in excess of $2.0 billion to be completed through 2005. - INCREASING NEED FOR BEACH NOURISHMENT. Beach erosion is a continuous problem and there is a growing awareness among state and local governments as to the importance of beachfront assets to the multi-billion dollar tourist industry. To date, a significant amount of funding has been allocated by local governments to restore and preserve eroding beachfront. - ADDITIONAL SIGNIFICANT LONG TERM OPPORTUNITIES. There are significant capital dredging opportunities related to projects to contain the erosion of wetlands and coastal marshes (particularly in Louisiana) and to provide land reclamation for the San Francisco airport expansion. These long term projects have the potential to add substantial revenue to the dredging market over the next several years. COMMERCIAL AND INDUSTRIAL DEMOLITION ACTIVITIES CID activities conducted by NASDI accounted for approximately 18% of our pro forma 2000 revenues. NASDI offers a comprehensive array of specialized services, including: interior and exterior demolition of commercial and industrial buildings; salvage and recycling of related materials; and removal of hazardous substances and materials. NASDI's specialized fleet of rented and owned demolition equipment includes excavators equipped with shears, pulverizers, processors, grapples and hydraulic hammers. Since NASDI can satisfy a significant amount of its equipment needs through rental and utilizes hourly workers on a project basis, NASDI has a highly variable cost structure, which provides the flexibility to adjust costs to the level of project activity. From 1998 to 2000, NASDI increased its contract revenue and Adjusted EBITDA (as defined) at compound annual growths rates of 54.8% and 115.9%, respectively. For the fiscal year ended December 31, 2000, NASDI generated contract revenue of $72.6 million and Adjusted EBITDA (as defined) of $23.3 million. NASDI's operations have historically been concentrated in the New England region where NASDI has a significant share of the Massachusetts CID market. We believe that NASDI is one of the few 64 CID providers in its region of operation with the required licenses, operating expertise, equipment fleet and access to bonding to execute larger, highly profitable industrial projects. COMPETITIVE STRENGTHS We possess a number of competitive strengths that have allowed us to develop and maintain our leading position within the dredging industry, including the following: FLEXIBLE PORTFOLIO OF DREDGING ASSETS. Our dredging fleet is the largest in the United States and one of the largest in the world. Our U.S. fleet consists of over 200 pieces of equipment, including the largest number of hopper dredges, most of the large hydraulic dredges, the only two large electric dredges, and the only drillboat capable of operating in offshore conditions in U.S. waters. The size, versatility and technical capabilities of our fleet improve our competitiveness as they generally permit us to select the most efficient equipment for a particular job. To maintain the value and effectiveness of our fleet, we emphasize proactive maintenance that results in less downtime, increased profitability, enhanced vessel life and relatively low capital expenditure requirements. To this end, in 2000, we incurred $25.9 million of maintenance expense (which is included in costs of contract revenues) in addition to capital expenditures of $14.1 million. FAVORABLE COMPETITIVE DYNAMIC. We are the largest U.S. provider of dredging services and have maintained the largest cumulative bid market share in the industry since 1991. In 2000, we had a 37% bid market share, which was substantially greater than our nearest competitor's share of those contracts. In addition, we believe that we benefit from: - FAVORABLE COMPETITIVE ENVIRONMENT. The requirements of the Dredging Act of 1906 and the Jones Act of 1920 effectively prohibit foreign dredges and foreign-owned dredging companies from competing in the U.S. In addition, we believe that we are one of only four dredging providers that can obtain performance bonds in an amount greater than $50 million, which we believe provides us with a competitive advantage in bidding for larger projects due to the job bonding requirements imposed by many state and federal agencies. Moreover, there is a long lead time and a high capital cost associated with the construction of a new dredge, which we estimate to be two years and between $18.0 million and $50.0 million, respectively. - STRONG REPUTATION AND UNEQUALLED EXPERTISE. We have never failed to complete a project over our 110-year operating history. Our long history as a leader in the industry has enabled us to develop a proprietary database that contains detailed bidding and technical information on most domestic dredging projects since 1970, which our management believes allows us, among other things, to be more accurate than our competitors in predicting contract costs prior to bidding. SPECIALIZED CAPABILITY IN CAPITAL PROJECTS. We believe that we are the leader in capital dredging projects which generally require specialized engineering expertise and specific combinations of equipment and experience in performing complex projects. PROVEN EXPERIENCED MANAGEMENT TEAM. Our senior managers have an average of 20 years of experience in the dredging industry. We believe that our experienced management team provides us with a significant advantage over our competitors, many of whom are family owned and managed. Our management group owns approximately 14% of our issued and outstanding common stock. BUSINESS STRATEGY Our strategy is to continue to grow contract revenues and cash flow and strengthen our competitive position worldwide. The principal elements of our strategy include: CONTINUE TO GROW IN DOMESTIC DREDGING MARKETS. We expect to strengthen our domestic leadership position by leveraging (i) the size, diversity and technical capabilities of our fleet, (ii) our industry- 65 leading operating experience, (iii) our engineering expertise, and (iv) our efficient and safe project management practices. CAPITALIZE ON OPPORTUNITIES CREATED BY STRATEGIC ASSET ACQUISITIONS. During the last several years, we have successfully acquired several key pieces of equipment which will further enhance our operating capabilities by providing additional tools for capital projects and strengthening our ability to perform maintenance and beach nourishment projects. These acquisitions include: - certain hydraulic dredging assets, including the dredge "Texas", which we acquired in 1998. In 2000, we increased the cutter power of the dredge Texas, making it the most powerful cutter dredge in the U.S., capable of handling the type of rock work expected in certain of the upcoming port deepening projects; - the dredge "New York", a newly-built backhoe dredge, which we took delivery of under a long-term lease in July 1999. The "New York" has performed successfully on the Kill Van Kull channel deepening in New York and will be working on the Wilmington, North Carolina and San Juan, Puerto Rico channel deepening projects in 2001; - the drillboat "Apache" which we constructed in 2000. The "Apache" has increased drilling efficiency and capacity, is capable of working in offshore conditions and is the only drillboat of its type in use in U.S. waters; and - the dredge "Liberty Island", a new 5,000 cubic meter hopper dredge, to accommodate anticipated growth in domestic hopper dredging attributable to the reduction of the Corps' hopper fleet, additional Deep Port work and related maintenance dredging, potential increased beach nourishment work, and the aging of the industry's hopper fleet. The new hopper dredge is expected to be delivered by the end of 2001 under a long-term lease. GROW ESTABLISHED FOREIGN DREDGING MARKET BASE. Since the early 1990s, a consolidation among certain foreign competitors, together with an increase in foreign governments' port infrastructure investments, have resulted in new overseas dredging opportunities for us. In 2000, we recorded approximately $71.8 million in revenue from non-U.S. dredging projects. We intend to continue to selectively pursue international opportunities that offer us the potential to increase the utilization of our asset base, to leverage our project management capabilities and to increase our international revenues. EXPLOIT GROWTH OPPORTUNITIES IN CID MARKET. We believe that our experience in bidding for and completing large projects in multiple markets and our significant infrastructure will be particularly valuable in helping NASDI to execute large CID projects and increase its market share. In particular, our national presence, purchasing power and administrative capabilities will facilitate NASDI's ability to obtain licenses and pre-qualifications necessary to operate in new geographic markets. Thus, we believe that under our ownership NASDI will be well positioned to selectively enter attractive new geographic markets, generally with a contracted project from an existing customer. CUSTOMERS DREDGING. Our dredging customers include federal, state, and local governments, foreign governments, and both domestic and foreign private concerns such as utilities and oil companies. Most dredging projects are competitively bid, with the award going to the lowest qualified bidder. There are generally few economical substitutes that customers can use for dredging services. The Corps is the largest dredging customer in the U.S. and has responsibility for federally funded projects related to navigation and flood control. In addition, the United States Coast Guard and the United States Navy are responsible for awarding federal contracts with respect to their own facilities. In 66 2000, approximately 67% of our contract revenues were earned from contracts with federal government agencies or companies operating under contracts with federal government agencies. Foreign governments are the primary dredging customers in international markets, generally for capital projects relating to infrastructure development. Approximately 21% of our 2000 contract revenues were earned from contracts with foreign governments or companies operating under contracts with foreign governments. CID SERVICES. NASDI provides demolition services primarily in the private market, with customers primarily in the construction and power generation industries. NASDI also provides services to municipal and other entities. NASDI benefits from key relationships with certain customers. NASDI negotiates the majority of its demolition contracts as fixed price ("lump sum") contracts with certain other projects negotiated on a time and expense ("T&E") basis. NASDI frequently receives revenues from change orders on existing contracts. The majority of CID services work is currently concentrated in New England. In 2000, approximately 40% of NASDI's revenues were earned from a contract with one customer. BIDDING PROCESS DREDGING. Most dredging contracts are obtained through competitive bidding on terms specified by the party inviting the bid. The nature of the specified services dictates the types of equipment, material and labor involved, all of which affect the cost of performing the contract and the price that dredging contractors will bid. For contracts under its jurisdiction, the Corps typically prepares a cost estimate based on its understanding of the availability of contractors and their equipment. The Corps will award the bid to a responsible bidder (i.e., a bidder that generally has the necessary equipment and experience to successfully complete the project) submitting the lowest responsive bid that does not exceed 125% of an estimate determined by the Corps to be fair and reasonable. Contracts for projects that are not administered by the Corps, are generally awarded to the lowest qualified bidder, provided such bid is no greater than the amount of funds that are available for such project. Substantially all of our contracts are competitively bid. However, some government contracts are awarded by a sole source procurement process through negotiation between the contractor and the government. Prior to negotiations, the contractor submits a proposal and cost and pricing data to the government. Under such contracts, the government has the right, after award and, or completion of the contract, to audit the contractor's books and records, including the proposal and data available to the contractor during negotiations, to ensure compliance with the contract and applicable federal legislation, rules and regulations. The government may seek a price adjustment based on the results of such audit. The Corps has recently bid certain projects through a "request for proposal" (RFP) process. The RFP process is likely to be advantageous for us, as it allows the project award to be based on technical capability, as well as prices. We have operated for 110 years and maintain an extensive historical database of dredging production records from our own and our competitors' activities and past bidding results. These prior production records help us predict sediment composition and optimum equipment requirements. We believe that our extensive database and our accumulated estimating and bidding expertise allow us to be more accurate than our competitors in predicting dredging costs prior to bidding for contracts. CID SERVICES. NASDI has established a network of local contacts with developers and prime contractors that act as referral sources and frequently enable NASDI to procure jobs on a sole-source basis. When NASDI bids a project, it evaluates the contract specifications and develops a cost estimate to which it adds profit for the final bid price. NASDI maintains a strong reputation and is one of the 67 few firms with the capability to execute large projects. For these reasons, if it is not the lowest bidder on a contract, NASDI may still be awarded a project based on its qualifications. NASDI management reviews the cost estimate, including a summary of labor, equipment and materials for each required task, and bid price of all of the demolition projects. Cost estimates are based on historical cost reports and experienced knowledge of demolition requirements. BONDING AND FOREIGN PROJECT GUARANTEES DREDGING. For most domestic projects and some foreign projects, dredging service providers are required to obtain three types of bonds, which are typically provided by large insurance companies. These bonds are: - BID BOND. A bid bond is required to serve as a guarantee that if a service provider's bid is chosen, the service provider will sign the contract. The amount of the bond is typically 20% of the service provider's bid, up to a maximum bond of $3.0 million. - PERFORMANCE BOND. After a contract is signed, the bid bond is replaced by a performance bond, the purpose of which is to guarantee that the job will be completed. A performance bond typically covers 100% of the contract value with no maximum bond amounts. If the service provider fails to complete a job, the bonding company assumes such obligation and pays to complete the job, generally by using the equipment of the defaulting company. A company's ability to obtain performance bonds with respect to a particular contract depends upon the size of the contract, as well as the size of the service provider and its financial position. - PAYMENT BOND. A payment bond is also required to protect the service provider's suppliers and subcontractors in the event that the service provider cannot make timely payments. Payment bonds are generally written at 100% of the contract value. Our dredging projects had been bonded by Reliance until mid-2000, at which time Travelers purchased the surety business of Reliance. We have never experienced difficulty in obtaining bonding from Reliance for any of our dredging projects and expect this good relationship to continue with Travelers, a major surety provider. If we were to fail to complete a project, the bonding company would be required to either permit the customer to complete the job and reimburse the customer for the cost of completion or complete the defaulted contract utilizing our equipment and labor force or a third party service provider. In the event the bonding company were to complete the defaulted contract, it would be entitled to be paid the contract price directly by the customer. Additionally, the bonding company would be entitled to be paid by us for any costs incurred in excess of the contract price. For most foreign dredging projects, letters of credit or bank guarantees issued by foreign banks, which are secured by letters of credit issued under our credit agreement with our senior secured lenders, are required as security for the bid, performance and, if applicable, advance payment. Foreign bid guarantees are usually 2% to 5% of the service provider's bid. Foreign performance and advance payment guarantees are each typically 5% to 10% of the contract value. CID SERVICES. NASDI's contracts are primarily with private, non-government customers; thus, it often is not required to secure bonding. Those NASDI projects that have required bonding have been successfully completed. NASDI's bonding requirements going forward, will be obtained through Travelers. COMPETITION DREDGING. The U.S. dredging industry is highly fragmented but has experienced significant consolidation in recent years. Approximately 180 entities in the U.S. presently operate more than 600 dredges, most of which are smaller entities, servicing the inland, as opposed to coastal, waterways and 68 therefore do not compete with us. Competition in the dredging market is determined primarily on the basis of price, and competition is often limited by the size of the job, equipment requirements, bonding requirements, certification requirements, or government regulations. Currently, we and three competitors are the only dredging companies which independently bid on jobs with values in excess of $50.0 million. Up until very recently, most dredging competitors have concentrated their efforts in certain regions and operated only one type of dredge. Regional concentrations do not allow these competitors to respond to opportunities in other regions or to diversify their risks in the event of a temporary decline in the market in their area. In the dredging industry, the unique nature of each project requires a matching of the equipment to the specific project. While a dredging company may sometimes bid on a project contemplating the use of equipment that is not ideal for the job, the bidder with the most appropriate equipment is most likely to be the low bidder and earn a profit on the contract. A company with a variety of equipment, such as ours, is better able to respond to changes in demand for certain types of dredges and can select the most suitable equipment for any particular project, minimizing its project completion cost. Additionally, with our extensive fleet and engineering expertise we can readily meet applicable certification, government and bonding requirements. In recent years, the consolidation within the domestic dredging market has allowed two competitors to obtain additional dredging assets, which has enabled them to expand operations across regions, and bid more competitively. This is apparent in the Deep Port bid market in which our market share, while still strong, has declined in the past two years due to the more aggressive competition presented by these entities. CID SERVICES. The U.S. demolition and related services industry is highly fragmented and is comprised mostly of small regional companies. According to the ENGINEERING NEWS RECORD, NASDI is one of the three largest providers of commercial and industrial demolition services in the U.S., based on 1999 revenues. NASDI believes that it competes in the demolition and related services industry primarily on the basis of its experience, reputation, equipment and key client relationships. EQUIPMENT DREDGING. Our fleet of dredges, material barges and other specialized equipment is the largest and most versatile in the U.S. There are three primary types of dredging equipment: hopper dredges, hydraulic dredges and mechanical dredges. - HOPPER DREDGES. Hopper dredges are self-propelled and have the general appearance of an ocean-going vessel. The dredge has hollow hulls into which material is suctioned hydraulically through drag-arms and deposited. Once the hollow hulls or "hoppers" are filled, the dredge will sail to the designated disposal site and either bottom dump the material or pump the material from the hoppers through a pipeline to the designated site. Hopper dredges can operate in rough waters, are less likely to interfere with ship traffic and can move quickly from one project to another. We operate the largest hopper fleet in the U.S., which gives us flexibility to quickly respond to time-sensitive projects. - HYDRAULIC DREDGES. Hydraulic dredges remove material using a revolving cutterhead which cuts and churns the sediment on the ocean floor and hydraulically pumps the material by pipe to the disposal location. These dredges are very powerful and can dredge some types of rock. Certain materials can be directly pumped as far as seven miles with the aid of a booster pump. Hydraulic dredges work with an assortment of support equipment which help with the positioning and movement of the dredge, handling of the pipelines, and the placement of the dredged material. We operate the only two large electric hydraulic dredges in the U.S., which makes us particularly competitive in markets with stringent emissions standards, such as California. 69 - MECHANICAL DREDGES. There are two basic types of mechanical dredges operating in the U.S.: clamshell and backhoe. In all cases, the dredge uses a bucket which excavates the material from the ocean floor. The dredged material is placed by the bucket into material barges or "scows" for transport to the designated disposal area. The scows are emptied by bottom-dumping, direct pump-out or removal by a crane with a bucket. Mechanical dredges are capable of removing hardpacked sediments and debris and can work in tight areas such as along docks or terminals. Clamshell dredges with specialized buckets are ideally suited to handle material requiring controlled disposal. We have the largest fleet of material barges in the industry which provides cost advantages when dredged material is required to be disposed far offshore or when material requires controlled disposal. We are committed to preventive maintenance, which we believe is reflected in the long lives of most of our equipment and its low level of downtime on jobs. Effective January 1, 1999, we increased the estimated useful lives of certain operating equipment to better reflect the period over which we anticipate utilizing this equipment with normal repairs and maintenance. In 2000, we incurred $25.9 million in maintenance expenditures (which are included in costs of contract revenues), in addition to $14.1 million on capital expenditures. Our domestic fleet is typically positioned on the east and west coasts with a smaller number of vessels on the Gulf of Mexico and on inland rivers. The mobility of our fleet enables us to move equipment in response to changes in demand. We believe that on average, our dredge equipment capacity utilization based on actual operating time is among the highest in the industry. Our fleet includes assets currently positioned internationally in the Middle East, India, Africa, the Caribbean and Central America. We are continually assessing the need to upgrade and expand our fleet to take advantage of improving technology and to address the changing needs of the dredging market. We believe that our recent significant additions to our fleet's dredging capacity will enhance our ability to compete for and execute future Deep Port projects. CID SERVICES. NASDI owns and operates specialized demolition equipment, including a fleet of excavators equipped with shears, pulverizers, processors, grapples, and hydraulic hammers that provide high-capacity processing of construction and demolition debris for recycling and reclamation. NASDI also owns and maintains a multitude of skid-steer loaders, heavy-duty large-capacity loaders, cranes, recycling crushers, off-highway hauling units and a fleet of tractor-trailers for transporting equipment and materials to and from job sites. NASDI rents additional equipment on a project-by-project basis, which allows NASDI flexibility to adjust costs to the level of project activity. EQUIPMENT CERTIFICATION The U.S. Coast Guard's certification of equipment and the America Bureau of Shipping's establishment of the permissible loading capacity are important factors in our business. Federal regulations provide that many projects, such as beach nourishment projects with offshore sand, dredging projects in exposed entrance channels, and dredging projects with offshore disposal areas may be performed only by dredges or scows that have U.S. Coast Guard certification and a load line established by the America Bureau of Shipping. The certifications indicate that the dredge is structurally capable of operating in open waters. We have more certified vessels than any domestic competitor and we make substantial investments to maintain these certifications. PROPERTIES DREDGING. Our dredging fleet is the largest in the U.S. and one of the largest fleets in the world. The fleet consists of over 200 pieces of equipment, including the largest hopper fleet and most of the large hydraulic dredges in the U.S. 70 The following table provides a listing of our current fleet of dredging equipment.
TYPES OF EQUIPMENT QUANTITY - ------------------ -------- Hydraulic Dredges........................................... 13 Hopper Dredges.............................................. 7 Clamshell Dredges........................................... 8 Unloaders................................................... 1 Drill Boats................................................. 3 Dump Barges................................................. 22 Hopper Barges............................................... 9 Deck Barges................................................. 34 Other Barges................................................ 31 Booster Pumps............................................... 6 Tugs........................................................ 10 Launches.................................................... 29 Derricks.................................................... 6 Cranes...................................................... 13 Loaders/Dozers.............................................. 13 Survey Boats................................................ 20 --- Total....................................................... 225 ===
A significant portion of our dredging equipment is subject to liens by our senior lenders and the bonding company. See Note 4, "Property and Equipment" and Note 7, "Long-term Debt" in the Notes to the Consolidated Financial Statements. We lease approximately 40,000 square feet of office facilities in Oak Brook, Illinois, which serves as our principal administrative facility. The primary lease for this property will expire in the year 2008. We also lease waterfront properties in Baltimore, Maryland, and Green Cove Springs, Florida. These locations serve as mooring sites for idle equipment and inventory storage. Annual rental payments on our real estate and equipment leased during the year ended December 31, 2000 totaled $17.8 million, including other short-term rentals. See Note 13, "Lease Commitments" in the Notes to the Consolidated Financial Statements. CID SERVICES. The following table summarizes the primary equipment used in NASDI's demolition operations.
TYPES OF EQUIPMENT QUANTITY - ------------------ -------- Excavators.................................................. 14 Loaders..................................................... 12 Bobcats..................................................... 15 Dozers...................................................... 4 Backhoes.................................................... 3 Trucks/Trailers............................................. 34 -- Total....................................................... 82 ==
NASDI rents its primary office facility in Allston, Massachusetts, and a garage and maintenance facility in Everett, Massachusetts, as well as various pieces of operating equipment. For the year ended December 31, 2000, NASDI's rent expense, including operating equipment rentals, totaled $4.4 million. 71 GOVERNMENT REGULATIONS We are subject to government regulations pursuant to the dredging statute (46 U.S.C. Section 292) which protects the United States dredging industry from competition from foreign-built dredges. The law prohibits foreign-built vessels (absent special legislative action) from competing in the United States dredging market. Dredges operating in the navigable waters of the United States must also meet the coastwise trade requirements of the Jones Act (Section 27 of the Merchant Marine Act, 1920) and Section 2 of the Shipping Act, 1916, as amended, and must have a coastwise endorsement pursuant to the Vessel Documentation Act (46 U.S.C. Section 12101 et seq.). These acts prohibit vessels owned or controlled by entities which are less than 75% owned and controlled by United States citizens from transporting dredged material between points in the United States. Our operations and facilities are subject to a variety of federal and state environmental statutes and regulations. In addition, we are required to comply with federal and state statutes designed to protect certain species and habitats. BACKLOG Our contract backlog represents our current estimate of the revenues which will be realized under the portion of our contracts remaining to be performed. Such estimates are subject to fluctuations based upon the amount of material actually dredged as well as factors affecting the time required to complete the job. In addition, because a substantial portion of our backlog relates to government contracts, our backlog can be canceled at any time without penalty, except, in some cases, the recovery of our actual committed costs and profit on work performed up to the date of cancellation. Consequently, backlog is not necessarily indicative of future results. Our backlog includes only those projects for which the customer has provided an executed contract. The components of our backlog are addressed in more detail elsewhere in this prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." EMPLOYEES DREDGING. We employ approximately 300 full-time salaried personnel, with additional hourly personnel, most of whom are unionized and hired on a project-by-project basis. During 2000, we employed an average of approximately 575 hourly personnel to meet project requirements. Crews are generally available for hire on relatively short notice. We are party to more than twenty collective bargaining agreements that govern our relationships with our hourly personnel. Four primary agreements apply to more than ninety percent of such employees. We have not experienced any significant labor disputes in the past five years and believe we have good relationships with our significant unions; however, there can be no assurances that we will not experience labor strikes or disturbances in the future. CID SERVICES. Currently, NASDI employs thirteen full-time salaried administrative employees, in addition to approximately 150 unionized employees who are party to four union agreements. The unionized employees are hired on a project-by-project basis and are generally available for hire on relatively short notice. JOINT VENTURES AMBOY AGGREGATES. We, along with our partner, a New Jersey aggregates company, each own 50% of Amboy Aggregates. Amboy Aggregates was formed in December 1984 to mine sand from the entrance channel to the New York Harbor and to provide sand and aggregate for use in road and building construction. Our dredging expertise together with our partner's knowledge of the aggregate 72 market formed the basis for the joint venture. Our investment in Amboy Aggregates is accounted for using the equity method. Amboy Aggregates is the only east coast aggregate producer to mine sand from the ocean floor. In 1988, Amboy Aggregates built a specially designed dredge at a cost of $9.0 million for sand mining, de-watering and dry delivery. No other vessel of this type operates in the U.S. Amboy Aggregate's ocean-based supply of sand provides a long-term competitive advantage in the northeast as land-based sand deposits are depleted or rendered less cost competitive by escalating land values. Amboy Aggregates performs its mining operations pursuant to permits granted to Amboy Aggregates by the federal government and the states of New York and New Jersey. In recent years, Amboy Aggregates has failed to obtain approval for new permits to mine sand in new borrow areas. These new sources would have contained aggregate more closely meeting the specifications for concrete sand which would require less blending with other materials, thereby reducing the cost of the final product and improving margins. Despite these recent setbacks, Amboy Aggregates continues to pursue other avenues for obtaining new permits, but it is likely that the current sand supply will continue to require additional blending, and hence additional costs, for the next few years. In 1999, Amboy Aggregates partnered in a venture intended to provide a steady supply of grit, the material which is blended with its dredged aggregate. To date, this venture has performed poorly which has further impacted Amboy Aggregates' performance. Amboy Aggregates is also pursuing other alternative uses for its current supply of sand in an effort to provide an additional earnings stream. ARGENTINE JOINT VENTURE. At December 31, 2000, we had a 20% interest in Riovia S.A. ("Riovia"), a joint venture with four European dredging firms, to dredge the Rio Via channel linking Buenos Aires, Argentina and Montevideo, Uruguay which is important for shipping to Argentina and Uruguay. This venture was established in 1996, with six other partners originally, and has given us the opportunity to work with these other international dredging companies to design, manage and execute this project. During 1999, upon completion of the capital works portion, Riovia entered into the maintenance phase of the dredging contract which is expected to continue until 2007. We currently account for our investment in Riovia at cost. LEGAL PROCEEDINGS Although we are subject to various claims and legal actions that arise in the ordinary course of business, we believe that the outcome of such actions, proceedings or claims will not have a material adverse effect on our business, financial condition or results of operations. ENVIRONMENTAL MATTERS Our operations and facilities are subject to various environmental laws and regulations, relating to dredging operations, the disposal of dredged material, wetlands, storm and waste water discharges, demolition activities, asbestos removal, transportation and disposal of certain other hazardous substances and materials and air emissions. We are also subject to laws designed to protect certain species and habitats. Compliance with these statutes and regulations can delay appropriation with respect to, and performance of, particular projects and increase related expenses. Our projects may involve demolition, excavation, transportation, disposal and management of hazardous waste substances and materials. Various laws strictly regulate the removal, treatment and transportation of hazardous substances and materials and impose liability for contamination caused by such substances. While our CID business requires us to transport and dispose of hazardous substances and materials, our risks are limited to the proper execution of such tasks. Our CID customers and the hazardous waste sites retain the risks associated with the remediation of the materials. Additionally, the transportation of the hazardous waste material is typically performed by other entities which accept the risks associated with these tasks. 73 Services rendered in connection with hazardous substance and material removal and site development may involve professional judgments by licensed experts about the nature of soil conditions and other physical conditions, including the extent to which toxic and hazardous substances and materials are present, and about the probable effect of procedures to mitigate problems or otherwise affect those conditions. If the judgments and the recommendations based upon those judgments are incorrect, we may be liable for resulting damages that our clients incur. Based on our experience, we believe that the future cost of compliance with existing environmental laws and regulations (and liability for known environmental conditions) will not have a material adverse effect on our business, financial condition or results of operations. However, we cannot predict: - what environmental legislation or regulations will be enacted in the future; - how existing or future laws or regulations will be enforced, administered or interpreted; or - the amount of future expenditures which may be required to comply with these environmental or health and safety laws or regulations or to respond to future cleanup matters or other environmental claims. 74 CERTAIN TRANSACTIONS In July 1999, we issued 125 shares and 30,500 shares of our preferred and common stock, respectively, to certain members of management at a total cost of $0.2 million. At December 31, 2000, $0.1 million remains receivable from Ms. Wensel for a portion of her purchased shares. NASDI has historically leased equipment from other companies related by common ownership on an as-needed basis. Equipment rentals from these companies totaled $0.1 million for the year ended December 31, 2000. Court Square Capital Limited, an affiliate of 399 Venture Partners, Inc., has agreed to provide advisory services to us. Pursuant to the terms of the advisory agreement, Court Square was paid approximately $100,000 upon consummation of the transaction. An investment fund administered by an affiliate of 399 Venture Partners, Inc. acquired an aggregate principal amount of $5.0 million of Series C notes in connection with the April 2001 Series C note offering. 75 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES Set forth below are the names and ages of each of our directors, executive officers and key employees and the positions they hold:
NAME AGE POSITION - ---- -------- -------------------------------------------------------- Douglas B. Mackie........... 48 President, Chief Executive Officer and Director Richard M. Lowry............ 45 Executive Vice President and Chief Operating Officer Deborah A. Wensel........... 40 Vice President and Chief Financial Officer William F. Pagendarm........ 50 Vice President--Division Manager Steven F. O'Hara............ 46 Vice President--Division Manager Bradley T. J. Hansen........ 48 Vice President--Division Manager Daniel L. Hussin............ 52 Vice President--Manager of U.S. Business Development Michael A. Delaney.......... 46 Director David Wagstaff III.......... 62 Director
Set forth is a brief description of the business experience of each of our directors, executive officers and key employees. DOUGLAS B. MACKIE has served as our President, Chief Executive Officer and as one of our directors since 1995. Mr. Mackie joined the Company in 1978 as Corporate Counsel. In 1987 he was named Senior Vice President. RICHARD M. LOWRY has served as our Executive Vice President and Chief Operating Officer since 1995. Mr. Lowry joined us in 1978 as a Project Engineer and has since held positions of increasing responsibility in the engineering and operating areas. In 1990 he was named Senior Vice President and Chief Engineer. DEBORAH A. WENSEL has served as one of our Vice Presidents, and as our Chief Financial Officer and Treasurer since April 1999. Ms. Wensel joined the Company in 1987 as Accounting and Financial Reporting Supervisor. In 1989, she was named Controller and Chief Accounting Officer. WILLIAM F. PAGENDARM has served as one of our Vice Presidents and as a Division Manager since 1985. He joined the Company in 1979 as Project Superintendent. STEVEN F. O'HARA has served as one of our Vice Presidents and as a Division Manager since 1988. He joined the Company in 1978 as Cost Accountant. BRADLEY T. J. HANSEN has served as one of our Vice Presidents and as a Division Manager since 1994. Mr. Hansen joined the Company in 1977 as an Area Engineer. He was named Vice President & General Superintendent of the Company in 1991. DANIEL L. HUSSIN has served as our Vice President--Manager of U.S. Business Development since 1995. Mr. Hussin joined the Company in 1972 as an Estimator. He was named Vice President and Division Manager of the Company in 1993. MICHAEL A. DELANEY has served as one of our directors since the consummation of our recapitalization on August 19, 1998. Mr. Delaney has been a Managing Director of 399 Venture Partners, Inc. and its affiliate Citicorp Venture Capital Ltd. since 1997. From 1989 through 1997, he 76 was a Vice President of Citicorp Venture Capital Ltd. and 399 Venture Partners, Inc. From 1986 through 1989, he was Vice President of Citicorp Mergers and Acquisitions. Mr. Delaney is also a director of GVC Holdings, JAC Holdings, Palomar Technologies, Inc., SC Processing, Inc., MSX International, Delco Remy International, Inc., International Knife and Saw Inc., Fabri-Steel Holdings, Inc., ChipPAC Incorporated, and Strategic Industries, LLC. DAVID WAGSTAFF III has served as one of our directors since the consummation of our recapitalization on August 19, 1998. Mr. Wagstaff has served as President and Chief Executive Officer of Vectura Group, Inc. since 1993. He was previously the Principal in a private consulting business and has worked in various executive capacities at the Equitable Life Assurance Company and Citicorp. SUMMARY COMPENSATION TABLE The following table sets forth certain information regarding the compensation for 2000, 1999 and 1998 to our chief executive officer and our next four highest paid executive officers:
ANNUAL COMPENSATION ------------------------------ OTHER ANNUAL ALL OTHER NAME AND PRINCIPLE POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION(3) - --------------------------- -------- -------- -------- --------------- --------------- Douglas B. Mackie, ................. 2000 $331,000 $309,420 $ $ 161,046 President and Chief Executive 1999 312,000 435,554 -- 145,222 Officer 1998 300,000 420,000 2,512,660(4) 1,512,926(5) Richard M. Lowry, .................. 2000 287,000 268,290 -- 135,066 Executive Vice President and Chief 1999 270,400 377,480 2,512,660(6) 122,713 Operating Officer 1998 260,000 364,000 1,494,659(7) Deborah A. Wensel, ................. 2000 153,500 105,250 -- 77,268 Vice President Chief Financial 1999* 130,000 130,128 86,499 Officer and Treasurer William F. Pagendarm, .............. 2000 150,500 46,000 -- 40,143 Vice President and Division 1999 144,000 50,000 647,273(8) 32,674 Manager 1998 140,000 45,000 53,280 Bradley T. J. Hansen, .............. 2000 143,000 53,000 647,273(9) 39,165 Vice President and Division 1999 135,000 60,000 26,949 Manager 1998 120,000 40,000 48,970
- ------------------------ * Ms. Wensel was named an executive officer in 1999. (1) Attributable to the reported year, but paid in the subsequent year. (2) Includes the value of the difference between the price paid and the fair market value of the stock purchased upon the exercise of options and amounts reimbursed for the payment of taxes. (3) Includes bonuses paid pursuant to the terms of the agreement for recapitalization, employer matching contributions and profit sharing contributions under Great Lakes' 401(k) plan and payment of lost 401(k) benefit due to IRS limitations. (4) Includes the value of the difference between the price paid and the fair market value of the stock purchased upon the exercise of options of $1,616,701 prior to the recapitalization. (5) Includes bonus paid pursuant to the terms of the agreement for recapitalization of $1,400,000. (6) Includes the value of the difference between the price paid and the fair market value of the stock purchased upon the exercise of options of $1,616,701 prior to the recapitalization. 77 (7) Includes bonus paid pursuant to the terms of the agreement for recapitalization of $1,400,000. (8) Includes the value of the difference between the price paid and the fair market value of the stock purchased upon the exercise of options of $518,941 prior to the recapitalization. (9) Includes the value of the difference between the price paid and the fair market value of the stock purchased upon the exercise of options of $518,941 prior to the recapitalization. EXECUTIVE EMPLOYMENT ARRANGEMENTS We have entered into an Employment Agreement, dated as of January 1, 1992, with Douglas B. Mackie. The employment agreement provides for an initial term of three years with automatic renewal for successive one year terms, unless sooner terminated by either party giving 90 days written notice prior to the end of the then current term. In addition, either party may terminate the employment agreement at any time, with or without cause, by giving the other party 30 days prior written notice. Mr. Mackie's 2000 base salary under his employment agreement was $331,000, which is subject to annual increase as determined by the compensation committee of the Board of Directors, and benefits as provided from time to time to our senior executives. In the event Mr. Mackie resigns for good reason (defined to include, among other things, our material breach of the employment agreement) or we terminate the employment agreement for any reason other than cause, death or permanent disability, Mr. Mackie will be entitled to receive severance compensation in the amount equal to the sum of (a) Mr. Mackie's current annual base salary and (b) a bonus calculated by multiplying current base salary by the average percentage of Mr. Mackie's base salary represented by the bonuses Mr. Mackie received during the term of the employment agreement. During the term of the employment agreement and for one year thereafter, Mr. Mackie is prohibited from directly or indirectly carrying on, engaging or having a financial interest in any business which is in material competition with our business. We have also entered into an employment agreement with Richard M. Lowry which contains terms substantially similar to Mr. Mackie's employment agreement, other than the amount of base salary and the office held. Mr. Lowry's 2000 base salary under his employment agreement was $287,000. 78 OWNERSHIP OF CAPITAL STOCK The following table sets forth certain information regarding the beneficial ownership of our preferred stock and common stock.
NUMBER AND PERCENT OF SHARES PREFERRED STOCK CLASS A STOCK CLASS B STOCK ------------------- ------------------- -------------------- NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT - ------------------------ -------- -------- -------- -------- --------- -------- Vectura Holding Company LLC(1) ............... 41,818 93.6% 818,000 53.2% 3,363,900 100% c/o Great Lakes Dredge & Dock Corporation 2122 York Road Oak Brook, Illinois 60523 Douglas B. Mackie ............................ 930(2) 2.1% 208,000(2) 13.5% -- -- c/o Great Lakes Dredge & Dock Corporation 2122 York Road Oak Brook, Illinois 60523 Richard M. Lowry ............................. 930 2.1% 208,000 13.5% -- -- c/o Great Lakes Dredge & Dock Corporation 2122 York Road Oak Brook, Illinois 60523 Deborah A. Wensel ............................ 130 0.3% 33,000 2.1% -- -- c/o Great Lakes Dredge & Dock Corporation 2122 York Road Oak Brook, Illinois 60523 William F. Pagendarm ......................... 130 0.3% 33,000 2.1% -- -- Bradley T. J. Hansen ......................... 130 0.3% 33,000 2.1% -- -- All directors and executive officers as a group ...................................... 2,510 5.6% 581,100 37.8% -- --
- -------------------------- (1) Vectura Holding Company LLC ("Vectura") is a Delaware limited liability company which beneficially owns the stock of the Company indicated above as well as other investments. Investors in Vectura hold voting and economic interests that vary depending on the Vectura investment concerned. With respect to Vectura's investment in the Company, 49.7% of the voting interests (including voting power and investment power) are owned by 399 Venture Partners, Inc., a wholly owned indirect subsidiary of Citigroup Inc. and its affiliates, and 49.1% of the voting interests (including voting power and investment power) are owned by David Wagstaff III, a director of the Company and a vice president of Vectura. (2) Includes certain shares held by family trusts established for the benefit of the children of Mr. Mackie. 79 DESCRIPTION OF CAPITAL STOCK PREFERRED STOCK Our Certificate of Incorporation provides that we may issue 250,000 shares of preferred stock, all of which has been designated as 12% Series A Cumulative Compounding Preferred Stock. The preferred stock has a stated value of $1,000 per share and is entitled to annual dividends when, as and if declared, which dividends are cumulative, whether or not earned or declared, and accrue at a rate of 12%, compounding annually. As of the date of this prospectus, 44,675 shares of our preferred stock were outstanding. The vote of a majority of the outstanding shares of the preferred stock, voting as a separate class, will be required to (1) create, authorize or issue any other class or series of stock entitled to a preference prior to the preferred stock upon any dividend or distribution or any liquidation, distribution of assets, dissolution or winding up of the Company, or increase the authorized amount of any such other class or series, or (2) amend our Certificate of Incorporation if the amendment would adversely affect the relative rights and preferences of the holders of the preferred stock. Except as described in the immediately preceding sentence or as otherwise required by law, the preferred stock is not entitled to vote. We may not pay any dividend upon (except for a dividend payable in Junior Stock, as defined below), or redeem or otherwise acquire shares of, capital stock junior to the preferred stock (including the common stock) ("Junior Stock") unless all cumulative dividends on the preferred stock have been paid in full. Upon liquidation, dissolution or winding up, holders of preferred stock are entitled to receive out of our legally available assets, before any amount shall be paid to holders of Junior Stock, an amount equal to $1,000 per share of preferred stock, plus all accrued and unpaid dividends to the date of final distribution. If such available assets are insufficient to pay the holders of the outstanding shares of preferred stock in full, such assets, or the proceeds from the sale of the assets, will be distributed ratably among the holders. The preferred stock is not mandatorily redeemable prior to the maturity of the notes. We may redeem, in whole or in part, the Preferred Stock at any time at a price per share of $1,000, plus accrued and unpaid dividends to the date of redemption. At our option, the preferred stock may be exchanged for our junior subordinated debentures, subject to our compliance with the requirements of the credit facility, the bonding agreement and the notes. We anticipate that the dividends on the preferred stock will be declared and accrued but not paid. Our ability to pay cash dividends, and to redeem the preferred stock, is subject to restrictions contained in the credit facility, the bonding agreement and the notes. COMMON STOCK Our Certificate of Incorporation provides that we may issue 50 million shares of common stock, divided into two classes consisting of 25 million shares of Class A Common Stock and 25 million shares of Class B Common Stock. As of the date of this prospectus, 4,902,700 shares of our common stock were outstanding. The holders of Class A Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Except as required by law, the holders of Class B Common Stock have no voting rights. Under our Certificate of Incorporation, either class of common stock is convertible into an equal number of shares of the other class of common stock. In the case of a conversion from Class B Common Stock, which is nonvoting, into Class A Common Stock, which is voting, the holder of shares to be converted would be permitted under applicable law to hold the total number of shares of Class A Common Stock which would be held upon conversion. STOCKHOLDERS' AGREEMENT In connection with our 1998 recapitalization, our stockholders entered into a Securities Purchase and Holders Agreement (the "Stockholders' Agreement") containing certain agreements among the stockholders regarding our capital stock and corporate governance. 80 According to the Stockholders' Agreement, our board of directors must be composed of up to five directors as follows: Mr. Mackie (so long as he continues to be our President and own shares of our common stock or preferred stock); the President of the Company if Mr. Mackie is no longer serving on our board of directors; up to two individuals designated by Vectura; and the remaining directors shall be such independent directors designated by Vectura (to the extent permitted by applicable law as determined by Vectura in its sole discretion), provided that in the event that Vectura concludes that it is unable to designate, or elects not to designate for any reason, one or more of such independent directors or the election of any such independent director is not approved by the holders of a majority of the outstanding shares of Class A Common Stock, these directorship(s) shall not be filed by the remaining members of the board of directors but shall remain vacant until the election of a director designated by Vectura to fill such vacancy in accordance with the Stockholders' Agreement. The Stockholders' Agreement contains provisions which, with certain exceptions, restrict the ability of the stockholders to transfer any of our common stock or preferred stock. If holders of more than 50% of our common stock approve the sale of the Company each stockholder has agreed to consent to the sale and, if the sale includes the sale of stock, each stockholder has agreed to sell all of such stockholder's common stock and preferred stock on the terms and conditions approved by holders of a majority of our common stock then outstanding. In the event we propose to issue and sell (other than in a public offering pursuant to a registration statement declared effective by the Securities and Exchange Commission) any shares of common stock or any securities containing options or rights to acquire any shares of our common stock or any securities convertible into our common stock to Vectura or any of its respective affiliates, we must first offer to each of the other shareholders a pro rata portion of these shares. These preemptive rights are not applicable to the issuance of shares of our common stock upon conversion of shares of one class of our common stock into shares of the other class. Subject to certain limitations neither Vectura, nor any of its respective affiliates, may sell any of their shares of our preferred stock or our common stock without offering the other stockholders a pro rata opportunity to participate in such sale. The Stockholders' Agreement also provides for certain additional restrictions on transfer of our shares by our executive officers and other employees, whom we refer to as our management investors, including our right to repurchase certain shares upon termination of the stockholder's employment prior to 2003, at a formula price, and the grant of a right of first refusal in our favor in the event a management investor elects to transfer its shares of common stock. STOCKHOLDERS' REGISTRATION RIGHTS AGREEMENT In connection with their entry into the Stockholders' Agreement, the Company, Vectura, the management investors and certain other of our stockholders entered into a Registration Rights Agreement (the "Stockholders Registration Rights Agreement"). According to the Stockholders Registration Rights Agreement, upon the written request of Vectura, we will prepare and file a registration statement with the Securities and Exchange Commission concerning the distribution of all or part of the shares held by Vectura and use our best efforts to cause such registration statement to become effective. If at any time we file a registration statement for common stock pursuant to a request by Vectura or otherwise, we will use our best efforts to allow the other parties to the Stockholders' Registration Rights Agreement to have their shares of Common Stock (or a portion of their shares under certain circumstances) included in the registered offering of our Common Stock. We are not bound by this requirement if we are filing a registration statement on Form S-8, Form S-4 or any similar form, a registration statement filed in connection with a share exchange or an offering solely to our employees or existing stockholders, or a registration statement registering a unit offering (as defined) (a "Qualifying Offering"). We will pay the registration expenses of the selling stockholders (other than underwriting fees, brokerage fees and transfer taxes applicable to the shares sold by such stockholders or in certain cases the fees and expenses of any accountants or other representatives retained by a selling stockholder). 81 DESCRIPTION OF OTHER INDEBTEDNESS SENIOR CREDIT FACILITY We have a senior credit facility with Bank of America National Trust and Savings Association, as administrative agent, and certain other financial institutions. The senior credit facility, as amended, currently provides for (i) a revolving credit facility in the maximum amount of $70.0 million ($9.0 million was outstanding at December 31, 2000) and (ii) a remaining term loan facility in the amount of $31.0 million as of December 31, 2000. We had approximately $8.8 million of face amount of letters of credit outstanding under the revolving credit facility at December 31, 2000. The revolving credit facility enables us to obtain revolving credit loans and standby letters of credit from time to time for working capital, acquisitions and general corporate purposes. The senior credit facility expires on February 18, 2005. The term loan facility is subject to amortization of principal in the following annual amounts: (i) $9.0 million in 2001, (ii) $11.0 million in 2002, and (iii) $11.0 million in 2003. INTEREST The loans under the revolving credit facility bear interest, generally at our option, at a Base Rate plus a Base Rate Margin or at the applicable Eurodollar Rate plus Eurodollar Rate Margin. The "Base Rate" equals the higher of (A) the rate of interest publicly announced from time to time by Bank of America, or (B) 0.5% per annum above the latest Federal Funds Rate. The "Base Rate Margin" ranges from 0.0% to 0.75% depending on our ratio of consolidated total funded debt to cashflow. The "Eurodollar Rate" equals the rate of interest determined by the senior credit facility agent to be the rate per annum at which deposits in dollars in immediately available funds are offered to the senior credit facility agent in the interbank Eurodollar market two business days prior to the beginning of the applicable interest period. The Eurodollar Rate Margin ranges from 1.25% to 2.25% depending on our ratio of consolidated total funded debt to cashflow. At December 31, 2000, the weighted average interest rate with respect to such indebtedness was approximately 9.7%, including amortization of deferred financing fees. Amounts repaid under the revolving credit facility with proceeds from the April 2001 Series C note offering are available for future borrowings. COVENANTS The senior credit facility contains various covenants that restricts us from various actions and that will require us to achieve and maintain certain financial covenants. The senior credit facility includes financial covenants consisting of a total debt to cashflow ratio, a senior debt to cashflow ratio, a cashflow to interest expense ratio and a minimum net worth test, and limitations on, among other things, indebtedness, liens, capital expenditures, dividends, business activities, investments and guarantees, sale of assets, consolidations and mergers, and amendments or modifications to the bonding agreement or our certificate of incorporation, bylaws, shareholder agreements, voting trusts or other similar arrangements. EVENTS OF DEFAULT The senior credit facility includes events of default consisting of, among other things: - any failure to pay principal or failure in the payment of any reimbursement obligation under any letter of credit, or to pay interest or fees within three business days after the date due or any other obligations within five business days after the date due; - any failure to pay certain other indebtedness or contingent obligations, or defaults that result in or permit the acceleration of such indebtedness or contingent obligations; - the breach by us or certain of our subsidiaries of covenants, representations or warranties contained in the credit facility; 82 - certain events of bankruptcy, insolvency or dissolution of our Company or our subsidiaries; - the incurrence of certain pension related liabilities, including liabilities with respect to failures to make certain required contributions when due and termination of, or withdrawal from, certain pension plans which result in liabilities in excess of specified amounts; - the invalidity of or any challenge to the validity of the guarantees of the indebtedness under the credit facility or of the security interests granted to the Lenders; - default by our Company or any of our subsidiaries in the payment when due of any amount due under the bonding agreement or a breach or default with respect to any other term of the bonding agreement or bonded contracts that are the subject of such bonding agreement, or the failure of any surety in connection with the bonding agreement to issue bonds thereunder, the effect of which is materially adverse to us; and - a change in control of our Company or our subsidiaries. GUARANTY/SECURITY All obligations under the senior credit facility are guaranteed by each of the subsidiary guarantors. The loans under the credit facility are secured by: - a perfected first priority lien and security interest (exclusive of all liens and security interests other than those in favor of the bonding company) in vessels and equipment approved by the senior credit facility agent and having appraised orderly liquidation value of at least $61.0 million; - a perfected second priority lien and security interest in all vessels and equipment (with the exception of those vessels and equipment operated by NATCO) securing the bonding company; - a perfected second priority lien in certain assets; and - a security interest in all of our accounts receivable and those of our subsidiaries. INTERCREDITOR AGREEMENT In connection with the execution of the senior credit facility and the bonding agreement, the senior credit facility agent and the bonding company under the bonding agreement entered into an intercreditor agreement which addresses, among other things, the lien priorities of shared collateral, the substitution of vessels under ship mortgages, the exercise of rights under ship mortgages and other shared collateral agreements, the application of proceeds of various classes of shared collateral as well as certain collateral benefiting only the bonding companies, the exercise of remedies under the credit facility and the bonding agreement, the release of certain liens, the taking of additional collateral and other relevant intercreditor provisions. In addition, the intercreditor agreement provides that the bonding company will have the right to use all encumbered vessels and other equipment to perform any outstanding bonded contracts. BONDING AGREEMENT We and certain of our subsidiaries have entered into an amended and restated underwriting and continuing indemnity agreement (the "bonding agreement") with the bonding company under the bonding agreement, pursuant to which the bonding company acts as surety, issues bid bonds, performance bonds and payment bonds and obligates itself upon other contracts of guaranty required by us and our subsidiaries in the day-to-day operations of our dredging business. The bonding company's obligations under the bonding agreement are discretionary. As such, the bonding company is 83 not obligated under the bonding agreement to issue bonds on our behalf or on behalf of any of our subsidiaries. The bonding agreement contains various covenants that restricts us from various actions and that requires us to achieve and maintain certain financial covenants. The bonding agreement includes a current ratio and a minimum net worth test, and limitations on, among other things, indebtedness and contingent obligations, cash dividends, liens, business combinations, investments, business activities, sale of assets, issuances of equity and affiliate transactions. The bonding agreement includes events of default, consisting of, among other things: - the failure to pay any obligation owing to the bonding company; - the breach of covenants, representations or warranties contained in the bonding agreement; - certain events of bankruptcy or insolvency; - the default of any provision under a bonded contract; - the failure to pay certain other indebtedness, or defaults that result or permit the acceleration of such indebtedness or contingent obligation; and - certain judgments that are not fully covered by insurance or bonded or discharged. Our obligations and our wholly owned subsidiaries' obligations under the bonding agreement are secured by a security interest in our fixed assets. In the event that we or any of our subsidiaries fail or are unable to complete the work under a bonded contract or breaches the bonding agreement, the bonding companies under the bonding agreement may proceed against their collateral, cause the performance of such bonded contract by subletting it in our name or our wholly-owned subsidiary and seek reimbursement from us and our wholly owned subsidiary for costs incurred in the subletting or performance of such bonded contract. In connection with the execution of the senior credit facility and the bonding agreement, the senior credit facility agent and the bonding company entered into an intercreditor agreement which addresses, among other things, the lien priorities of shared collateral, the substitution of vessels under ship mortgages, the exercise of rights under ship mortgages and other shared collateral agreements, the application of proceeds of various classes of shared collateral as well as certain collateral benefiting only the bonding companies, the exercise of remedies under the senior credit facility and the bonding agreement, the release of certain liens, the taking of additional collateral and other relevant intercreditor provisions. In addition, the intercreditor agreement provides that the bonding company will have the right to use all encumbered vessels and other equipment to perform any outstanding bonded contracts. NASDI SELLER NOTES Upon the closing of the Acquisition, NASDI issued two junior subordinated promissory notes to the NASDI management stockholders, in an aggregate principal amount of $3.0 million. These notes bear interest at the greater of 6% per annum or the applicable federal rate, payable annually on each anniversary of the notes. All outstanding principal and unpaid interest on these notes will be payable in a single installment for each note on March 31, 2004; however, this payment date may be deferred to December 31, 2004 if NASDI has failed to meet certain financial performance levels for each of the three preceding years. NASDI may prepay the NASDI seller notes at any time without premium or penalty. Great Lakes, but not the subsidiaries of Great Lakes, guaranty NASDI's obligations under the NASDI seller notes. 84 ORIGINAL SENIOR SUBORDINATED NOTES On August 19, 1998, we issued $115 million of senior subordinated notes due August 15, 2008. These notes were issued in connection with our recapitalization in 1998 pursuant to an indenture, dated August 19, 1998, with the Bank of New York, as trustee. Interest on these original notes accrue at a rate of 11 1/4% per annum, and is payable semi-annually. These notes are general unsecured obligations of our company, subordinated in right of payment to all existing and future senior debt, including our senior credit facility and our obligations under our bonding facility. These notes were exchanged for registered Series B notes pursuant to an exchange offer by the Company in 1999. The 1998 senior subordinated notes have the same terms as the Series C notes. The Series C notes were issued under the same indenture as our previous issuance of 11 1/4% senior subordinated notes due 2008 and are treated as part of the same class under the indenture as those notes. See "Description of Exchange Notes." We have agreed to file a registration statement with the Securities and Exchange Commission relating to an offer to exchange the notes and our outstanding 11 1/4% Senior Subordinated Notes due 2008 for a single class of publicly tradable notes having identical terms to those of the notes and the outstanding 11 1/4% Senior Subordinated Notes due 2008. 85 DESCRIPTION OF EXCHANGE NOTES GENERAL The form and terms of the exchange notes are substantially identical to the form and terms of the existing notes, except that, unlike the unregistered Series C notes, the exchange notes will have been registered and will not bear legends restricting their transfer. The Series B notes and the Series C notes were issued pursuant to an Indenture (the "Indenture") among the Company, the Subsidiary Guarantors and The Bank of New York, as trustee (the "Trustee"). The Series C notes were issued in a private transaction that is not subject to the registration requirements of the Securities Act. The Series B Notes are registered securities issued pursuant to an exchange offer dated February 5, 1999. The terms of the Indenture apply to the existing notes and the exchange notes to be issued in exchange therefor pursuant to the exchange offer (the existing notes and the exchange notes, collectively, the "Notes"). The terms of the Indenture include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. Copies of the Indenture and Registration Rights Agreement are available as set forth below under "--Additional Information." The definitions of certain terms used in the following summary are set forth below under "--Certain Definitions." The Notes will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt, including Indebtedness pursuant to the New Credit Facility. The Company's obligations under the Notes will be guaranteed (the "Subsidiary Guarantees") on a senior subordinated basis by the Subsidiary Guarantors. See "--Subsidiary Guarantees." As of December 31, 2000 on a pro forma basis after giving effect to the Acquisition and the April 2001 Series C note offering, the Notes would have been subordinated to $38.4 million of Senior Debt, excluding contingent obligations, of the Company and the Subsidiary Guarantors and effectively subordinated to $18.0 million of liabilities of the Company's subsidiaries that are not Subsidiary Guarantors. Upon closing of the April 2001 Series C note offering, approximately $53.8 million was available for additional borrowing under the New Credit Facility. The Indenture permits the incurrence of additional Senior Debt in the future. See "Risk Factors--Subordination." The operations of the Company are conducted through its Subsidiaries and, therefore, the Company is dependent upon the cash flow of such Subsidiaries to meet their obligations, including their obligations under the Notes. In addition to NASDI, all of the existing domestic Wholly Owned Restricted Subsidiaries of the Company are, and all future domestic Restricted Subsidiaries are expected to be, Subsidiary Guarantors. As of the date of the Indenture, all of the Company's Subsidiaries are Restricted Subsidiaries. However, under certain circumstances, the Company will be able to designate current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants set forth in the Indenture. In addition, the Notes will be effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and capital lease obligations) of the Company's foreign Subsidiaries and the Company's Subsidiaries that are not Wholly Owned Restricted Subsidiaries (other than NASDI). Any right of the Company to receive assets of any of its foreign Subsidiaries or its Subsidiaries that are not Wholly Owned Restricted Subsidiaries (other than NASDI) upon such Subsidiary's liquidation or reorganization (and the consequent right of the Holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that Subsidiary's creditors. As of December 31, 2000, on a 86 pro forma basis after giving effect to the Acquisition and the April 2001 Series C note offering, the aggregate amount of liabilities (including trade payables) of the Company's foreign Subsidiaries and the Company's other Subsidiaries that are not Subsidiary Guarantors was $18.0 million. PRINCIPAL, MATURITY AND INTEREST The Indenture provides for the issuance of up to $165.0 million aggregate principal amount of notes. If all of the Company's outstanding existing notes participate in the exchange offer, there will be $155.0 million in aggregate principal amount of notes issued under the Indenture, $115.0 million of which were issued on August 19, 1998 and $40.0 million of which were issued on April 24, 2001 as the existing notes. The Notes will mature on August 15, 2008. Interest on the Notes issued hereby will accrue at the rate of 11 1/4% per annum and will be payable semi-annually in arrears on February 15 and August 15 of each year, commencing August 15, 2001, to Holders of record on the immediately preceding February 1 and August 1. Additional Notes may be issued from time to time, subject to the provisions of the Indenture described below under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock." The Notes and any Additional Notes subsequently issued would be treated as a single class for all purposes under the Indenture, including without limitations, waivers, amendments, redemptions and offers to purchase. Interest on the exchange notes will accrue from the most recent date to which interest has been paid on the existing notes, or, if no interest has been paid, from the date of original issuance of the existing notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium and Liquidated Damages, if any, and interest on the Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of principal, premium, interest and Liquidated Damages, if any, may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments of principal, premium, interest and Liquidated Damages, if any, with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. SUBORDINATION The payment of principal of, premium, if any, and interest on the Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Debt, whether outstanding on the date of the Indenture or thereafter incurred. The Notes will rank PARI PASSU in right of payment with all other senior subordinated Indebtedness of the Company and senior in right of payment to all subordinated Indebtedness. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt whether or not allowed in such proceeding) before the Holders of Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to such Senior Debt are paid in full in cash, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). 87 The Company also may not make any payment upon or in respect of the Notes (except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the representatives of the holders of any Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived in writing and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived in writing or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due during such payment blockage period have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. The Indenture further requires that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. On a pro forma basis, after giving effect to the Acquisition, the principal amount of Senior Debt outstanding at December 31, 2000 would have been approximately $38.4 million. The Indenture limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that the Company and its subsidiaries can incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock" and "Risk Factors--Subordination." SUBSIDIARY GUARANTEES The Company's payment obligations under the Notes are fully and unconditionally guaranteed on a joint and several basis (the "Subsidiary Guarantees") by the Subsidiary Guarantors. The Subsidiary Guarantee of each Subsidiary Guarantor is subordinated to the prior payment in full of all Senior Debt of such Guarantor. As of December 31, 2000, on a pro forma basis giving effect to the Acquisition and the April 2001 Series C note offering, the Subsidiary Guarantors would have had an aggregate of approximately $38.4 million of Senior Debt outstanding. The Indenture permits the Subsidiary Guarantors to incur additional Senior Debt, subject to certain limitations. The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are limited so as not to constitute a fraudulent conveyance under applicable law. See, however, "Risk Factors--Fraudulent Conveyance Statutes." The Indenture provides that no Subsidiary Guarantor may consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person), another Person whether or not affiliated with such Subsidiary Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Subsidiary Guarantor) assumes, by operation of law or otherwise, all the obligations of such Subsidiary Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Subsidiary Guarantees, the Indenture, and the Registration Rights Agreement; and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists, provided that nothing in the foregoing provisions shall prohibit the merger or consolidation of a 88 Subsidiary Guarantor with and into the Company or another Wholly Owned Subsidiary Guarantor where the Company or such other Wholly Owned Subsidiary Guarantor is the surviving Person. The Indenture provides that in the event of a sale or other disposition of all or substantially all of the assets of any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Subsidiary Guarantor) or the corporation or other entity acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Subsidiary Guarantor) will be released and relieved of any and all obligations under its Subsidiary Guarantee (and, in the event of a disposition of assets, any Liens in favor of the Holders will be released); provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "--Repurchase at Option of Holders", "--Asset Sales." In addition, the Indenture provides that, in the event the Company designates a Restricted Subsidiary to become an Unrestricted Subsidiary in accordance with the Indenture, then such Restricted Subsidiary shall, in accordance with the Indenture, be released from its obligations under its Subsidiary Guarantee upon the effectiveness of such designation. OPTIONAL REDEMPTION The Notes are redeemable at any time at the option of the Company, in whole or in part upon not less than 30 nor more than 60 days' notice, in cash at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on August 15 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2003........................................................ 105.625% 2004........................................................ 103.750% 2005........................................................ 101.875% 2006 and thereafter......................................... 100.000%
Notwithstanding the foregoing, at any time prior to August 15, 2001, the Company may (but will not have the obligation to) on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes originally issued at a redemption price equal to 111.250% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that at least 65% of the aggregate principal amount of Notes originally issued remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 180 days of the date of the closing of such Public Equity Offering. SELECTION AND NOTICE If less than all of the Notes are to be redeemed or repurchased at any time, selection of Notes for redemption or repurchase will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption or repurchase may not be conditional. If any Note is to be redeemed or repurchased in part only, the notice of redemption or repurchase that relates to such Note shall state the portion of the principal amount 89 thereof to be redeemed or repurchased. A new Note in principal amount equal to the unredeemed or unrepurchased portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption or repurchase become due on the date fixed for redemption or repurchase. On and after the redemption or repurchase date, interest and Liquidated Damages ceases to accrue on Notes or portions of them called for redemption or repurchase. MANDATORY REDEMPTION Except as set forth below under "--Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations directly conflict with the provisions of the Indenture relating to such Change of Control Offer, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof. On the Change of Control Payment Date, the Company will, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent (as defined in the Indenture) an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under the agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable (and will not affect the subordination provisions). Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the 90 event of a takeover, recapitalization or similar transaction. The New Credit Facility currently prohibits the Company from repurchasing any Notes and also provides that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the New Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes. In addition, the exercise by Holders of the Notes of their right to require the Company to repurchase the Notes could cause a default under such Senior Debt, even if the Change of Control itself does not, due to the financial effect of such repurchases on the Company. Finally, the Company's ability to pay cash to the Holders of Notes upon a repurchase may be limited by the Company's then existing financial resources. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries (determined on a consolidated basis), in each case, to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Company or a Wholly Owned Restricted Subsidiary or any Principal or a Related Party of a Principal (as defined below), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company (other than in a transaction which complies with the provisions described under "--Merger, Consolidation or Sale of Assets"), (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than one or more Principals or their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares) and the Principals do not beneficially own as much or more of the Voting Stock of the Company (measured by voting power rather than by number of shares) than such person or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance, or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries (determined on a consolidated basis). Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the 91 Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election or was designated by a Principal or a Related Party of a Principal. "Principals" means (i) CVC and the Management Investors and (ii) any Related Party of a Person referred to in clause (i). "Related Party" means (a) with respect to CVC (i) Citicorp, any direct or indirect wholly owned subsidiary of Citicorp, and any officer, director or employee of CVC, Citicorp or any wholly owned subsidiary of Citicorp, (ii) any spouse or lineal descendant (including by adoption and stepchildren) of the officers, directors and employees referred to in clause (a)(i) above, (iii) any trust, corporation or partnership 100%-in-interest of the beneficiaries, stockholders or partners of which consists of one, or more of the persons described in clause (a)(i) or (ii) above or (iv) Vectura, so long as CVC or any of its Related Parties described in (i), (ii) or (iii) above holds at least 50% of the Great Lakes membership interests in Vectura; and (b) with respect to any officer or employee of the Company or a Subsidiary of the Company (i) any spouse or lineal descendant (including by adoption and stepchildren) of such officer or employee and (ii) any trust, corporation or partnership 100%-in-interest of the beneficiaries, stockholders or partners of which consists of such officer or employee, any of the persons described in clause (b)(i) above or any combination thereof. ASSET SALES The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of Qualified Proceeds; provided that the aggregate fair market value of Qualified Proceeds (other than cash or Cash Equivalents), which may be received in consideration for asset sales pursuant to this clause (ii) shall not exceed $5.0 million since the date of the Indenture; provided further that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, Notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received) within 90 days following the closing of such Asset Sale, shall be deemed to be cash for purposes of this provision, provided further that the 75% limitation referred to above shall not apply to any Asset Sale in which the cash and Cash Equivalents portion of the consideration received therefor, determined in accordance with the foregoing proviso, is equal to or greater than what the net after-tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or any Restricted Subsidiary may apply such Net Proceeds, at its option, (a) to repay Senior Debt, (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of, another Permitted Business, the making of a capital expenditure or the acquisition or commitment to acquire (provided that such commitment or a reasonable replacement thereof is consummated substantially in accordance with the terms thereof) of other assets that are used or useful in a Permitted Business or (c) for a combination of uses described in clauses (a) and (b). Pending the final application of any such Net Proceeds, the Company and its Restricted Subsidiaries may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the 92 Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of repurchase, in accordance with the procedures set forth in the Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any general corporate purpose. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than, in each case, dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company (other than Equity Interests owned by the Company or any Restricted Subsidiary of the Company) or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes (other than any subordinated indebtedness held by the Company or any Subsidiary Guarantor), except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless: (a) at the time of and after giving effect to such Restricted Payment, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock;" and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv), (viii), (ix) and (xi) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net 93 Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate fair market value of Qualified Proceeds received by the Company since the date of the Indenture as a contribution to its equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company), plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for Qualified Proceeds, the lesser of (A) the fair market of the Qualified Proceeds received with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) 50% of any dividends received by the Company or a Wholly Owned Restricted Subsidiary after the date of the Indenture from an Unrestricted Subsidiary of the Company, to the extent that such dividends were not otherwise included in Consolidated Net Income of the Company for such period, plus (v) to the extent that any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after the date of the Indenture, the lesser of (A) the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation or (B) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary. The foregoing provisions will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company or any Subsidiary Guarantor, in each case, in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock) or the net cash proceeds of a common equity capital contribution to the Company; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend or making of any distribution by a Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any former member of the Company's (or any of their Subsidiaries') Board of Directors or any former officer, employee or director of the Company or any of its Restricted Subsidiaries pursuant to any equity subscription agreement, stockholder agreement, stock option agreement, employment agreement or other similar agreements or employee benefit plan; provided that (A) the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed (1) $2.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to clause (2)) of $5.0 million, plus (2) in the case of a repurchase, redemption or other acquisition or retirement of Equity Interests of the Company, the aggregate cash proceeds received by the Company during such calendar year from any reissuance of Equity Interests by or the Company to employees, officers and directors of the Company and its Restricted Subsidiaries plus the cash proceeds of any "key man" life insurance policy received by the Company with respect to the owner of, and any cash proceeds paid to the Company in connection with the issuance or exercise of, any management or employee Equity Interests so acquired plus (3) in the case of a repurchase, redemption or other acquisition or retirement of Equity Interests of a Subsidiary Guarantor, the aggregate cash proceeds received by such Subsidiary Guarantor during such calendar year from any reissuance of Equity Interests of such Subsidiary Guarantor to employees, officers, and directors of such Subsidiary Guarantor plus the cash proceeds of any "key man" life insurance policy received by such Subsidiary Guarantor with respect to the owner of any cash proceeds 94 paid to such Subsidiary Guarantor in connection with the issuance or exercise of, any management or employee Equity Interests so acquired, and (B) no Default or Event of Default shall have occurred and be continuing immediately after such transaction; provided, further that the aggregate cash proceeds referred to in (2) above shall be excluded from clause (c)(ii) of the preceding paragraph; (vi) any Investment to the extent that the consideration therefor consists of the net cash proceeds of the substantially concurrent issue and sale (other than to a Restricted Subsidiary) of Equity Interests of the Company (other than any Disqualified Stock); (vii) so long as no Default or Event of Default has occurred and is continuing and the Company can incur at least $1.00 of additional indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock," the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company, or any Subsidiary Guarantor issued after the date of the Indenture in accordance with the covenant described below under the caption "Incurrence of Indebtedness and Issuance of Disqualified Stock;" (viii) repurchase of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options; (ix) loans to employees of the Company or any Subsidiary Guarantor not to exceed $2.0 million at any one time outstanding; (x) Restricted Payments not to exceed $5.0 million since the date of the Indenture and (xi) payments made pursuant to the Merger Agreement and tax "gross up" payments made pursuant to the Stockholders Agreement in connection with the Recapitalization, in each case, as in effect on the date of the Indenture, as the same may be amended, modified or replaced from time to time so long as such amendment, modification or replacement does not increase the amount of any such payments from the amount of such payments provided for in the Merger Agreement or Stockholders Agreement, as the case may be, as in effect on the date of the Indenture. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. For purposes of determining compliance with this covenant, in the event that a Restricted Payment meets the criteria of more than one of the exceptions described in (i) through (x) above or is entitled to be made pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such Restricted Payment in any manner that complies with the covenant. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment or return of capital on any Restricted Subsidiary shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $7.5 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. 95 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may incur Indebtedness or issue preferred equity if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company and the Subsidiary Guarantors of term Indebtedness under the New Credit Facility (including any guarantee thereof by any Subsidiary Guarantor); provided that the aggregate principal amount of all term Indebtedness outstanding under the New Credit Facility after giving effect to such incurrence does not exceed an amount equal to $55.0 million plus (in the case of any refinancing thereof) the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing less the aggregate amount of all scheduled or mandatory repayments of the principal of any term Indebtedness under the New Credit Facility (other than repayments that are immediately reborrowed) that have been made since the date of the Indenture; (ii) the incurrence by the Company and the Subsidiary Guarantors of Indebtedness and reimbursement obligations in respect of letters of credit under Credit Facilities (including any guarantee thereof by any Subsidiary Guarantor); provided that the aggregate principal amount of all revolving credit or other Indebtedness (other than term Indebtedness permitted under clause (i) above) (with letters of credit being deemed to have a principal amount equal to the maximum face amount thereunder) outstanding under all Credit Facilities after giving effect to such incurrence does not exceed an amount equal to $55.0 million; (iii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iv) the incurrence by the Company of Indebtedness represented by the Notes issued on August 19, 1998, the Series C notes and the incurrence by the Subsidiary Guarantors of Indebtedness represented by the Subsidiary Guarantees of such notes; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage or construction financings or purchase money obligations or similar financings, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount not to exceed $20.0 million at any time outstanding; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph hereof or clauses (iii), (iv), (v), (vi) or (ix) of this paragraph; 96 (vii) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (vii); (viii) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging (i) interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding, (ii) the value of foreign currencies purchased or received by the Company or any Restricted Subsidiary in the ordinary course of business as conducted by the Company or (iii) commodity risk relating to commodity agreements to the extent entered into in the ordinary course of business solely to protect the Company and its Restricted Subsidiaries from fluctuations in the prices of raw materials used in its business; (ix) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness (in addition to Indebtedness permitted by other clauses of this paragraph) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (ix), not to exceed $25.0 million; (x) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (x); (xi) the Guarantee by the Company or any of the Subsidiary Guarantors of Indebtedness of the Company or a Subsidiary Guarantor, which Indebtedness was permitted to be incurred by another provision of this covenant; (xii) Indebtedness of the Company or a Restricted Subsidiary owed to (including obligations in respect of letters of credit for the benefit of) any Person in connection with worker's compensation, health, disability or other employee benefits or property, casualty or liability insurance provided by such Person to the Company or such Restricted Subsidiary, pursuant to reimbursement or indemnification obligations to such Person, in each case incurred in the ordinary course of business and consistent with past practices; (xiii) the incurrence of Permitted Bonding Obligations; (xiv) the issuance of preferred stock (other than Disqualified Stock) by any Subsidiary Guarantor to members of management of such Subsidiary Guarantor, provided that such preferred stock does not require the Company or any Restricted Subsidiary to pay dividends thereon other than in shares of additional preferred stock (other than Disqualified Stock); and (xv) the incurrence of Indebtedness arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Capital Stock of a Restricted Subsidiary; provided that the maximum aggregate liability of such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with any such disposition. 97 For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xv) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued. NO SENIOR SUBORDINATED DEBT The Indenture provides that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Indebtedness and senior in any respect in right of payment to the Notes, and (ii) no Subsidiary Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Indebtedness of such Subsidiary Guarantor and senior in any respect in right of payment to the Subsidiary Guarantee of such Subsidiary Guarantor; provided that no Indebtedness will be deemed subordinate or junior in right of payment to any other Indebtedness solely by reason of the fact that such Indebtedness is unsecured. LIENS The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness or trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except (i) Permitted Liens, and (ii) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens (with the same relative priority as such subordinate or junior Indebtedness shall have with respect to the Notes and the Subsidiary Guarantees) and (y) in all other cases, the Notes are secured by such Lien on an equal and ratable basis. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of the Indenture, (b) the New Credit Facility and Permitted Bonding Obligations as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the New Credit Facility or in agreements with respect to Permitted Bonding Obligations, as applicable, as in effect on the date of the Indenture, 98 (c) the Indenture, the Notes and the Subsidiary Guarantees, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (f) customary non-assignment provisions in leases or other similar agreements entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (h) any agreement for the sale of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenant described above under the caption "--Liens" that limits the right of the debtor to dispose of the assets securing such Indebtedness, (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business, (1) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, (m) mortgage or construction financing that imposes restrictions on the transfer of the property acquired or improved, (n) encumbrances or restrictions imposed by amendments to the contracts, agreements or obligations referred to in the foregoing clauses (a), (c), (e), (f), (g), (h), (j), (k) and (n), provided that such amendments are not materially more restrictive than the agreement so amended; and (o) protective liens filed in connection with sale-leaseback transactions permitted under the caption "--Sale and Leaseback Transactions." MERGER, CONSOLIDATION, OR SALE OF ASSETS The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation or other entity organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the then existing obligations of the Company under the Registration Rights Agreement (as defined), the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock." The Indenture provides that the Company will not, directly or indirectly, lease all or substantially all of its properties or assets to any Person. 99 TRANSACTIONS WITH AFFILIATES The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.0 million, a resolution of the Board of Directors of the Company set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Company and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement, compensation, employee benefit arrangements and incentive arrangements or indemnification agreement or arrangement with any officer, director, member or employee entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company or such Restricted Subsidiary, (ii) transactions between or among the Company and/or its Restricted Subsidiaries, (iii) payment of reasonable directors fees, (iv) Restricted Payments (other than Restricted Investments) that are permitted by the provisions of the Indenture described above under the caption "--Restricted Payments," (v) loans and advances to officers, directors and employees of the Company or any Restricted Subsidiary for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business; (vi) transactions pursuant to the Stockholders' Agreement and the Merger Agreement, in each case, as in effect on the date of the Indenture as the same may be amended, modified or replaced from time to time so long as such amendment, modification or replacement is no less favorable to the Company and its Restricted Subsidiaries, taken as a whole, than the Stockholders' Agreement or the Merger Agreement, as the case may be, as in effect on the date of the Indenture. SALE AND LEASEBACK TRANSACTIONS The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any of its Restricted Subsidiaries may enter into a sale and leaseback transaction if (i) the Company or such Restricted Subsidiary could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the covenant described above under the caption "--Incurrence of Additional Indebtedness and Issuance of Disqualified Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption "--Liens," (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors of the Company and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and if applicable, the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption "--Asset Sales." Notwithstanding the foregoing, this covenant shall not apply to the sale and leaseback of (i) the backhoe dredge "New York" under construction on the date of the Indenture or (ii) the dredging assets acquired from T.L. James & Company, Inc. pursuant to the acquisition agreement in effect on the date of the Indenture, as such 100 agreement is in effect on such date, in the case of clauses (i) and (ii), within 120 days of the date of completion of such construction or acquisition of such assets, as applicable. BUSINESS ACTIVITIES The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. PAYMENTS FOR CONSENT The Indenture provides that neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ADDITIONAL SUBSIDIARY GUARANTEES The Indenture provides that if the Company or any of its Restricted Subsidiaries shall acquire or create another domestic Subsidiary after the date of the Indenture, then, unless such Subsidiary is properly designated as an Unrestricted Subsidiary, such newly acquired or created Subsidiary shall become a Subsidiary Guarantor and execute a Supplemental Indenture and deliver an opinion of counsel, in accordance with the terms of the Indenture. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS The Indenture provides that the Company will not permit any Restricted Subsidiary, directly or indirectly, to Guarantee any other Indebtedness of the Company or a Subsidiary Guarantor unless, if such Restricted Subsidiary is not a Guarantor, such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary, which Guarantee shall be senior to or PARI PASSU with such Subsidiary's Guarantee of such other Indebtedness unless such other Indebtedness is Senior Debt, in which case the Guarantee of the Notes may be subordinated to the Guarantee of such Senior Debt to the same extent as the Notes are subordinated to such Senior Debt. Notwithstanding the foregoing, any such Subsidiary Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's stock in, or all or substantially all the assets of, such Restricted Subsidiary, which sale, exchange or transfer is made in compliance with the applicable provisions of the Indenture. The form of such Subsidiary Guarantee is attached as an exhibit to the Indenture. REPORTS The Indenture provides that, whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company will furnish to the Holders of Notes (i) all quarterly financial information beginning with the quarter ended March 31, 2001 and annual financial information that would be required to be contained in a filing with Securities and Exchange Commission on Forms 10-Q and 10-K if the Company was required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial 101 Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company) and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with Securities and Exchange Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in Securities and Exchange Commission's rules and regulations. In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of Securities and Exchange Commission, the Company will file a copy of all such information and reports with Securities and Exchange Commission for public availability within the time periods specified in Securities and Exchange Commission's rules and regulations (unless Securities and Exchange Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, (i) at all times Securities and Exchange Commission does not accept the filings provided for in the preceding sentence or (ii) such filings provided for in the preceding sentence do not contain the information required to be delivered upon request pursuant to Rule 144A(d)(4) under the Securities Act, then, in each case, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes (whether or not permitted by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not permitted by the subordination provisions of the Indenture); (iii) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the caption "--Change of Control;" (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice by the Trustee or by the Holders of at least 25% in principal amount of Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its stated maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated (after giving effect to any applicable grace period), aggregates $10.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million (net of any amount with respect to which a reputable insurance company with assets over $100.0 million has acknowledged liability in writing), which judgments are not paid, discharged or stayed for a period of 60 days after their entry; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Subsidiaries and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. 102 If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations and the obligations of the Subsidiary Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium and Liquidated Damages, if any, and interest on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default & Remedies" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable government securities, or a combination thereof, in such amounts as will be 103 sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, subject to customary assumptions and exceptions, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exceptions, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that, subject to customary assumptions and exceptions, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any 104 existing default or compliance with any provision of the Indenture, the Notes or the Subsidiary Guarantees may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption "--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "--Repurchase at the Option of Holders"), (viii) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee or the Indenture, except in accordance with the terms of the Indenture, or (ix) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 and Section 11.02 of the Indenture (which relate to subordination) requires the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of the Notes. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Subsidiary Guarantors, the Company and the Trustee may amend or supplement the Indenture, the Subsidiary Guarantees or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or a Subsidiary Guarantor's obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets, to provide for the issuance of Additional Notes in accordance with the provisions set forth in the Indenture on the date of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act or to allow any Subsidiary Guarantor to guarantee the Notes. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the 105 request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this prospectus may obtain a copy of the Indenture and Registration Rights Agreement without charge by writing to the Company at 2122 York Road, Oak Brook, Illinois 60521, Attention: President. BOOK-ENTRY, DELIVERY AND FORM The Exchange Notes will be in the form of one or more registered global notes without interest coupons (collectively, the "Global Notes"). Upon issuance, the Global Notes will be deposited with the Trustee, as custodian for DTC, in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to the accounts of DTC's Direct and Indirect Participants (as defined below). The Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee in certain limited circumstances. Beneficial interests in the Global Notes may be exchanged for Notes in certificated form in certain limited circumstances. See "--Transfer of Interests in Global Notes for Certificated Notes." Initially, the Trustee will act as Paying Agent and Registrar. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. DEPOSITARY PROCEDURES DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Direct Participants") and to facilitate the clearance and settlement of transactions in those securities between Direct Participants through electronic book-entry changes in accounts of Participants. The Direct Participants include securities brokers and dealers (including the initial purchaser), banks, trust companies, clearing corporations and certain other organizations, including Euroclear and Cedel Bank. Access to DTC's system is also available to other entities that clear through or maintain a direct or indirect, custodial relationship with a Direct Participant (collectively, the "Indirect Participants"). DTC may hold securities beneficially owned by other persons only through the Direct Participants or Indirect Participants and such other persons' ownership interest and transfer of ownership interest will be recorded only on the records of the Direct Participant and/or Indirect Participant, and not on the records maintained by DTC. DTC has also advised the Company that, pursuant to DTC's procedures, (i) upon deposit of the Global Notes, DTC will credit the accounts of the Direct Participants designated by the initial purchaser with portions of the principal amount of the Global Notes allocated by the initial purchaser to such Direct Participants, and (ii) DTC will maintain records of the ownership interests of such Direct Participants in the Global Notes and the transfer of ownership interests by and between Direct Participants. DTC will not maintain records of the ownership interests of, or the transfer of ownership interests by and between, Indirect Participants or other owners of beneficial interests in the Global Notes. Direct Participants and Indirect Participants must maintain their own records of the ownership interests of, and the transfer of ownership interests by and between, Indirect Participants and other owners of beneficial interests in the Global Notes. Investors in the Global Notes may hold their interests therein directly through DTC if they are Direct Participants in DTC or indirectly through organizations that are Direct Participants in DTC. The laws of some states require that certain persons take physical delivery in definitive, certificated form of securities that they own. This may limit or curtail the ability to transfer beneficial interests in a 106 Global Note to such persons. Because DTC can act only on behalf of Direct Participants, which in turn act on behalf of Indirect Participants and others, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons or entities that are not Direct Participants in DTC, or to otherwise take actions in respect of such interests, may be affected by the lack of physical certificates evidencing such interests. For certain other restrictions on the transferability of the Notes see "--Regulation S Temporary and Regulation S Permanent Global Notes" and "--Transfers of Interests in Global Notes for Certificated Notes." Except as described in "Transfers of Interests in Global Notes for Certificated Notes," owners of beneficial interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Under the terms of the Indenture, the Company, the Subsidiary Guarantors and the Trustee will treat the persons in whose names the Notes are registered (including Notes represented by Global Notes) as the owners thereof for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of the principal, premium, Liquidated Damages, if any, and interest on Global Notes registered in the name of DTC or its nominee will be payable by the Trustee to DTC or its nominee as the registered holder under the Indenture. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of DTC's records or any Direct Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Direct Participant's or Indirect Participant's records relating to the beneficial ownership interests in any Global Note or (ii) any other matter relating to the actions and practices of DTC or any of its Direct Participants or Indirect Participants. DTC has advised the Company that its current payment practice (for payments of principal, interest and the like) with respect to securities such as the Notes is to credit the accounts of the relevant Direct Participants with such payment on the payment date in amounts proportionate to such Direct Participant's respective ownership interests in the Global Notes as shown on DTC's records. Payments by Direct Participants and Indirect Participants to the beneficial owners of the Notes will be governed by standing instructions and customary practices between them and will not be the responsibility of DTC, the Trustee, the Company or the Subsidiary Guarantors. Neither the Company, the Subsidiary Guarantors nor the Trustee will be liable for any delay by DTC or its Direct Participants or Indirect Participants in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Notes for all purposes. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more Direct Participants to whose account interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such Direct Participant or Direct Participants has or have given direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange Global Notes (without the direction of one or more of its Direct Participants) for legended Notes in certificated form, and to distribute such certificated forms of Notes to its Direct Participants. See "--Transfers of Interests in Global Notes for Certificated Notes." TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES An entire Global Note may be exchanged for definitive Notes in registered, certificated form without interest coupons ("Certificated Notes") if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the 107 Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Certificated Notes or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. In any such case, the Company will notify the Trustee in writing that, upon surrender by the Direct and Indirect Participants of their interest in such Global Note, Certificated Notes will be issued to each person that such Direct and Indirect Participants and DTC identify as being the beneficial owner of the related Notes. Beneficial interests in Global Notes held by any Direct or Indirect Participant may be exchanged for Certificated Notes upon request to DTC, by such Direct Participant (for itself or on behalf of an Indirect Participant), but only upon at least 20 days' prior written notice given to the Trustee by or on behalf of DTC in accordance with customary DTC procedures. Certificated Notes delivered in exchange for any beneficial interest in any Global Note will be registered in the names, and issued in any approved denominations, requested by DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's customary procedures). Neither the Company, the Subsidiary Guarantors nor the Trustee will be liable for any delay by the holder of the Global Notes or the DTC in identifying the beneficial owners of Notes, and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the holder of the Global Note or the DTC for all purposes. SAME DAY SETTLEMENT AND PAYMENT The Indenture requires that payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the holder of such Global Note. With respect to Certificated Notes, the Company will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. The Company expects that secondary trading in the Certificated Notes will also be settled in immediately available funds. REGISTRATION RIGHTS; LIQUIDATED DAMAGES Great Lakes, the Subsidiary Guarantors and the initial purchaser entered into a Registration Rights Agreement (the "Registration Rights Agreement") on April 24, 2001. Great Lakes has filed this Exchange Offer Registration Statement (the "Exchange Offer Registration Statement") pursuant to the Registration Rights Agreement, offering to exchange the Series C notes and the Series B notes for a single class of publicly tradable notes having identical terms to those of the Series C notes and the Series B notes. Upon the effectiveness of the Exchange Offer Registration Statement, Great Lakes will offer to the holders of Transfer Restricted Securities (as defined below) and the Series B notes pursuant to the Exchange Offer who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities and the Series B notes for Exchange Notes. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Rights Agreement. Great Lakes will file with the Commission the Shelf Registration Statement to cover resales of the Series C notes by the Holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement if the following occur: Great Lakes is not required to file the Exchange Offer Registration Statement or permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or any Holder of Transfer Restricted Securities notifies Great Lakes within the specified time period that: (a) it is prohibited by law or Commission policy from participating in the Exchange Offer; or (b) it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without 108 delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales; or (c) it is a broker-dealer and owns Series C notes acquired directly from Great Lakes or an affiliate of Great Lakes. For purposes of the foregoing, "Transfer Restricted Securities" means each Series C note until the earlier to occur of: (1) the date on which such note has been exchanged by a person other than a broker-dealer for an Exchange Note in the Exchange Offer; (2) following the exchange by a broker-dealer in the Exchange Offer of a Series C note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement; (3) the date on which such Series C note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; or (4) the date on which such Series C note is distributed to the public pursuant to Rule 144 under the Securities Act. The Registration Rights Agreement provide that: (1) Great Lakes will file an Exchange Offer Registration Statement with the Commission on or prior to June 22, 2001; (2) Great Lakes will use its best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to October 19, 2001; (3) unless the Exchange Offer would not be permitted by applicable law or Commission policy, Great Lakes will commence the Exchange Offer and use its best efforts to issue on or before 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all Series C notes and Series B notes tendered prior thereto in the Exchange Offer; and (4) if obligated to file the Shelf Registration Statement, Great Lakes will use its best efforts to file the Shelf Registration Statement with the Commission on or prior to 60 days after such filing obligation arises and to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to 180 days after such obligation arises. Great Lakes will be permitted to suspend use of the prospectus that is part of the Shelf Registration Statement during certain periods of time and in certain circumstances relating to pending corporate developments and public filings with the Commission and similar events. Great Lakes will pay Liquidated Damages to each Holder of Series C notes offered hereby in the following circumstances: (1) Great Lakes fails to file any of the Registration Statements required by the Registration Rights Agreement on or before the date specified for such filing; (2) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"); (3) Great Lakes fails to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement; or (4) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable (including as a result of Great Lakes' suspending the use of any prospectus pursuant to the preceding paragraph) in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (1) through (4) above a "Registration Default"). With respect to the first 90-day period immediately following the occurrence of such Registration Default, Great Lakes will pay Liquidated Damages in an amount equal to $.05 per week per $1,000 principal amount of notes held by such Holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal amount of notes. All accrued Liquidated Damages will be paid by Great Lakes on each interest payment date with respect to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to Holders of Certificated Securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. 109 In order to have their Series C notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages, holders of Series C notes will be required to do the following: (1) make certain representations to Great Lakes (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer; (2) deliver information to be used in connection with the Shelf Registration Statement; and (3) provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, will be governed by the provisions of the Indenture described above under the caption "--Change of Control" and/or the provisions described above under the caption "Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by any Restricted Subsidiary of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $2.0 million or (b) for net proceeds in excess of $2.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is permitted by the covenant described above under the caption "--Restricted Payments," (iv) the sale and leaseback of any assets within 120 days of the date of acquisition or completion of construction of such assets, (v) the sale at fair market value of property or equipment that has become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, as the case may be, in the ordinary course of business and (vi) bare-boat charters entered into in the ordinary course of business for a term not to exceed 12 months. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during 110 the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Bonding Agreement" means that certain Second Amended and Restated Underwriting and Continuing Indemnity Agreement, dated as of the date of the Indenture, by and among the Company, certain of its Subsidiaries and the bonding company, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, restated, modified, renewed, refunded, replaced or refinanced from time to time. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one-year and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million, (iv) repurchase obligations with a term of not more than thirty days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) obligations issued or fully guaranteed by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (vi) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within one year after the date of acquisition, (vii) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i) through (vii) of this definition and (viii) short-term asset management accounts offered by any lender under Credit Facilities for the purpose of investing in notes issued by a corporation (other than the Company or any Affiliate of the Company) organized under the laws of any state of the United States or of the District of Columbia and rated A-2 or higher by Standard & Poor's Rating Group, a division of McGraw Hill, Inc. or P-2 or higher by Moody's Investors Service, Inc. "Citicorp" means Citicorp, a Delaware corporation, or any successor thereto by merger or consolidation. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary or nonrecurring loss plus any net loss realized in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income, plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue 111 discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus, without duplication, (v) any interest expense on Indebtedness of another person that is guaranteed by such person or a Subsidiary of such person or secured by a Lien on the assets of such person or one of its Subsidiaries (to the extent that such interest expense was deducted in computing Consolidated Net Income in such period), plus (vi) expenses and charges of the Company related to the Company's recapitilization in 1998 and the financing thereof incurred or for which the Company became obligated on or prior to or within 30 days after the date of the Indenture plus (vii) incremental expenses incurred associated with the Chicago Flood Litigation not exceeding $800,000, minus (viii) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded and (v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Subsidiaries. "Credit Facilities" means, with respect to the Company or its Restricted Subsidiaries, one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as increased as permitted by the terms of the Indenture, and amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "CVC" means Citicorp Venture Capital, Ltd., a New York corporation, or any successor thereto by merger or consolidation. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means (i) any Obligations outstanding under the New Credit Facility (including letters of credit), (ii) any Permitted Bonding Obligation and (iii) any other Senior Debt 112 permitted under the Indenture the principal amount of which is $50.0 million or more and that has been designated by the Company as "Designated Senior Debt." Notwithstanding the foregoing, Indebtedness under the New Credit Facility shall be deemed outstanding for purposes of this definition at all times when the lenders thereunder have an effective commitment to extend credit thereunder, regardless of whether any such Indebtedness is actually outstanding at such time. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Indebtedness" means Indebtedness (including Guarantees) of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of the Indenture, until such amounts are permanently repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to interest Hedging Obligations; provided, however, that in no event shall any amortization of deferred financing costs incurred in connection with the Company's recapitilization in 1998 and the financing thereof be included in Fixed Charges) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments and non-cash dividend payments, on any series of preferred stock and any series of Disqualified Stock, in each case, of such Person or any of its Restricted Subsidiaries, other than dividend payments (x) on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or (y) to the Company or a Subsidiary Guarantor, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the referent Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays or redeems any Indebtedness (other than repayment of revolving credit borrowings that are not accompanied by a permanent reduction in the commitment amount) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage 113 Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers (including the Merger) or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate or currency swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) other agreements or arrangements solely designed to protect such Person against fluctuations in interest or currency exchange rates and (iii) commodities purchase and sale agreements and other similar agreements designed to protect such Person against fluctuations in the price of raw materials used by the Company and its Restricted Subsidiaries in the ordinary course of business. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing (other than letters of credit, Hedging Obligations and Attributable Debt) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness (other than Hedging Obligations, guarantees and Attributable Debt) outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. 114 "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that an acquisition of Equity Interests or other securities by the Company or any of its Restricted Subsidiaries for consideration consisting solely of Equity Interests (other than Disqualified Stock) of the Company shall not be deemed to be an Investment. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of dividends on preferred interests, (i) excluding, however, (a) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (1) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (2) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (b) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss) and (ii) less the aggregate amount of all Restricted Payments made by such Person or any of its Restricted Subsidiaries for such period pursuant to clause (vii) of the covenant described under the caption "--Certain Covenants--Restricted Payments" to the extent not otherwise deducted in computing such Net Income. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, any taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means that certain Credit Agreement, dated as of the date of the Indenture, by and among the Company, Bank of America National Trust and Savings Association, as agent, and certain other lenders party thereto, initially providing for up to $55.0 million of revolving credit borrowings and $55.0 million of term borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as increased as permitted by the terms of the Indenture, and amended, modified, renewed, restated, refunded, replaced or refinanced from time to time. 115 "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes being offered hereby) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, costs, expenses, reimbursement obligations, damages and other liabilities and obligations which may arise under or in connection with the New Credit Facility or the bonding agreement or under or in connection with the documentation governing any Indebtedness, and in all cases whether direct or indirect, absolute or contingent, now outstanding or hereafter created, assumed or incurred and including, without limitation, interest accruing subsequent to the filing of a petition in bankruptcy or the commencement of any insolvency, reorganization or similar proceedings at the rate provided in the relevant document, whether or not an allowed claim, and any obligation to redeem or defease any of the foregoing. "Permitted Bonding Obligations" means (i) obligations incurred by the Company or any of its Subsidiaries (including Guarantees) with respect to bid, performance, surety, appeal or similar bonds and completion guarantees in the ordinary course of business and consistent with past practices and (ii) obligations incurred by the Company or any of its Subsidiaries (including Guarantees) under the bonding agreement. "Permitted Business" means any of the businesses engaged in by the Company and its Restricted Subsidiaries on the date of the Indenture and any other business reasonably related, complementary or ancillary thereto. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company that is a Subsidiary Guarantor and is engaged in a Permitted Business; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company and a Subsidiary Guarantor and is engaged in a Permitted Business or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company that is a Subsidiary Guarantor and that is engaged in Permitted Business; (d) any Investment made as a result of the receipt of assets not constituting Cash Equivalents from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales;" (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $10.0 million; (g) Investments in securities of customers received in settlement of obligations or pursuant to a plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (h) Investments existing on the date of the Indenture; (i) loans and advances to officers, directors, members and employees for business-related travel expenses, moving expenses and other similar expenses, in each case, incurred in the ordinary course of business and consistent with past practices not to exceed $1.0 million in the aggregate at any time; (j) any Hedging Obligation; (k) Investments consisting of intercompany loans from the Company and its Restricted Subsidiaries to Restricted Subsidiaries, including Restricted Subsidiaries that are not Subsidiary 116 Guarantors; (1) Investments consisting of capital contributions from the Company or any Restricted Subsidiaries to Restricted Subsidiaries that are not Subsidiary Guarantors in an aggregate amount at any one time outstanding not to exceed $10.0 million; and (m) Investments in joint ventures formed in the ordinary course of business for the purpose of bidding and completing specific projects within a Permitted Business in an aggregate amount at any one time outstanding not to exceed $5.0 million. "Permitted Junior Securities" means Equity Interests in the Company or any Subsidiary Guarantor or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture; provided that no such Equity Interests or debt securities may be issued if the rights of the holders of the Senior Debt are impaired by any such issuance in connection with a reorganization, including, without limitation, by reason of such rights being impaired within the meaning of Section 1124 of Title 11 of the United States Code. "Permitted Liens" means (i) Liens on assets of the Company securing Senior Debt of the Company and Liens on assets of Subsidiary Guarantors securing Senior Debt, provided, in each case, that such Indebtedness was permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company or a Subsidiary Guarantor; (iii) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, bid bonds, payment bonds, performance and lien bonds or other obligations of a like nature incurred in the ordinary course of business; (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (v) or (ix) of the second paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering, in the case of such clause (v), only the assets acquired with such Indebtedness; (vii) Liens existing on the date of the Indenture; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (x) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $7.5 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; (xi) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens (including statutory maritime Liens) imposed by law incurred in the ordinary course of business; (xii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security or similar obligations, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (ix) judgment or attachment Liens not giving rise to an Event of Default; (xiv) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary course of the business of the Company or any of its Restricted Subsidiaries; (xv) any interest or title of a lessor under any lease, whether or not characterized as capital or operating; provided that such Liens do not extend to any property or assets which is not leased property subject to such lease; (xvi) Liens 117 securing Hedging Obligations which Hedging Obligations relate to Indebtedness that is otherwise permitted under the Indenture; (xvii) Liens securing reimbursement obligations with respect to letters of credit and products and proceeds thereof; (xviii) Liens securing Permitted Refinancing Indebtedness which is incurred to refinance any Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; (xix) Liens in favor of the Company or any of its Restricted Subsidiaries securing Indebtedness of any Restricted Subsidiary that is not a Subsidiary Guarantor; (xx) Liens with respect to current wages of the master and crew and for wages of a stevedore when employed directly by the Company or any Subsidiary of the Company, or by the charterer, operator, master or agent of any of the vessels owned or operated by the Company or any Subsidiary of the Company; and (xxi) Liens for salvage (including contract salvage). "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses, premiums, penalties, fees and interest incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Public Equity Offering" means a public offering pursuant to an effective registration statement under the Securities Act of Equity Interests (other than Disqualified Stock) of the Company. "Qualified Proceeds" means any of the following or any combination of the following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or useful in a Permitted Business and (iv) the Capital Stock of any Person engaged in a Permitted Business if, in connection with the receipt by the Company or any Restricted Subsidiary of the Company of such Capital Stock, (a) such Person becomes a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or any Restricted Subsidiary of the Company. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Debt" means (i) all Obligations of the Company or a Subsidiary Guarantor outstanding under the New Credit Facility, including any Guarantee thereof and all Hedging Obligations with respect thereto and all interest and fees accrued with respect thereto following the commencement of a proceeding under bankruptcy law, whether or not considered an allowed claim in such proceeding, (ii) all Permitted Bonding Obligations from time to time outstanding, (iii) any other Indebtedness of the Company or a Subsidiary Guarantor permitted to be incurred under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity 118 with or subordinated in right of payment to the Notes and (iv) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (v) any liability for federal, state, local or other taxes owed or owing, (vi) any Indebtedness of the Company or any Subsidiary Guarantor to any Subsidiary of the Company or any other Affiliates of the Company, (vii) any trade payables, (viii) any Indebtedness which is expressly subordinated to any other Indebtedness of the Company or any of its Subsidiaries, or (ix) any Indebtedness that is incurred in violation of the Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal (including any sinking fund payment) on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Stockholders' Agreement" means the Securities Purchase and Holders Agreement among the stockholders of the Company, as in effect on the date of the Indenture. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantors" means each of (i) the wholly owned domestic Restricted Subsidiaries of the Company on the date of the Indenture and (ii) any other subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. "Sureties" means Reliance Insurance Company, United Pacific Insurance Company, Reliance National Insurance Company and Reliance Surety Company, together with any of their respective affiliates. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company or any successor to any of them) that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a board resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the 119 Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described above under the caption "Certain Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock," the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under the covenant described under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 120 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material United States federal income tax consequences of the exchange offer to a "U.S. Holder" of existing notes who purchased the existing notes pursuant to their original issue. For purposes of this discussion, a "U.S. Holder" is (i) an individual who is a citizen or resident of the United States for United States federal income tax purposes, (ii) a corporation or other entity taxable as a corporation created or organized under the laws of the United States or any state thereof (including the District of Columbia), (iii) an estate the income of which is subject to United States federal income tax regardless of its source or (iv) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and (b) one or more United States persons have the authority to control all substantial decisions of the trust. This discussion is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), existing and proposed Treasury regulations, and judicial and administrative determinations, all of which are subject to change at any time, possibly on a retroactive basis. The following relates only to the existing notes, and the exchange notes received therefor, that are held as "capital assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does not discuss state, local, or foreign tax consequences, nor does it discuss tax consequences to subsequent purchasers (persons who did not purchase the existing notes pursuant to their original issue), or to categories of holders that are subject to special rules, such as foreign persons, tax-exempt organizations, insurance companies, banks and dealers in stocks and securities. Tax consequences may vary depending on the particular status of an investor. No rulings will be sought from the Internal Revenue Service with respect to the federal income tax consequences of the exchange offer. THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING NOTES FOR EXCHANGE NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE EXISTING NOTES FOR EXCHANGE NOTES. THE EXCHANGE OFFER The exchange of existing notes pursuant to the exchange offer should be treated as a continuation of the corresponding existing notes, because the terms of the exchange notes are not materially different from the terms of the existing notes. Accordingly, such exchange should not constitute a taxable event to U.S. Holders and, therefore, (i) no gain or loss should be realized by U.S. Holders upon receipt of an Exchange Note, (ii) the holding period of an Exchange Note should include the holding period of the Existing Note exchanged therefor and (iii) the adjusted tax basis of an Exchange Note should be the same as the adjusted tax basis of the Existing Note exchanged therefor immediately before the exchange. STATED INTEREST Stated interest on a Note will be taxable to a U.S. Holder as ordinary interest income at the time that such interest accrues or is received, in accordance with the U.S. Holder's regular method of accounting for federal income tax purposes. The Notes are not considered to have been issued with original issue discount for federal income tax purposes. SALE, EXCHANGE OR RETIREMENT OF THE NOTES A U.S. Holder's tax basis in a Note generally will be its cost. A U.S. Holder generally will recognize gain or loss on the sale, exchange or retirement of a Note in an amount equal to the 121 difference between the amount realized on the sale, exchange or retirement and the tax basis of the Note. Gain or loss recognized on the sale, exchange or retirement of a Note (excluding amounts received in respect of accrued interest, which will be taxable as ordinary interest income) generally will be capital gain or loss and will be long-term capital gain or loss, if the Note was held for more than one year. Net long-term capital gain recognized by non-corporate taxpayers is generally subject to a 20% maximum rate of tax. BACKUP WITHHOLDING Under certain circumstances, a U.S. Holder of a Note may be subject to "backup withholding" at a 31% rate with respect to payments of interest thereon or the gross proceeds from the disposition thereof. This withholding generally applies if the U.S. Holder fails to furnish his or her social security number or other taxpayer identification number in the specified manner and in certain circumstances or fails to properly certify that he or she is not subject to backup withholding in general. Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable as a credit against such U.S. Holder's federal income tax liability. Corporations and certain other entities described in the Code and Treasury regulations are exempt from backup withholding if their exempt status is properly established. 122 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for existing notes where such existing notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the expiration date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until 90 days after the date of this prospectus, all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the expiration date the Company will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the exchange offer other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters with respect to the exchange notes offered hereby will be passed upon for the Company by Dechert, Philadelphia, Pennsylvania. EXPERTS The consolidated financial statements of Great Lakes as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The financial statements of NASDI as of December 31, 2000 and 1999 and for eleven-month period ended December 31, 1998 and for each of the two fiscal years in the period ended December 31, 2000 included in this prospectus have been audited by O'Connor & Drew P.C. of Quincy, Massachusetts, independent auditors, as stated in their report appearing herein. The financial statements of Amboy Aggregates as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 have been audited by J.H. Cohn LLP, independent public accountants, as stated in their report appearing herein. 123 AVAILABLE INFORMATION This prospectus is a part of a registration statement on Form S-4 (the "registration statement," which term includes all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder, covering the exchange notes being offered hereby. This prospectus does not contain all the information set forth in the Registration Statement. For further information with respect to the Company and the exchange offer, reference is made to the Registration Statement. Statements made in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will file periodic reports and other information with the Securities and Exchange Commission. Such periodic reports and other information filed with Securities and Exchange Commission, including the registration statement, may be inspected without charge at the Public Reference Section of Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for inspection and copying at the regional offices of Securities and Exchange Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of such material may be obtained from the Public Reference Section of Securities and Exchange Commission upon payment of certain prescribed fees. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. In addition, Securities and Exchange Commission maintains a web site that contains periodic reports and other information filed by registrants such as the Company. This address of the web site is http://www.sec.gov. Copies of such material can also be obtained from the Company upon request. While any exchange notes remain outstanding, the Company will make available, on request, to any holder and any prospective purchaser of exchange notes the information required pursuant to Rule 144A(d)(4) under the Securities Act during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act FORWARD-LOOKING STATEMENTS This prospectus contains both historical and forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are not historical facts, but only predictions and generally can be identified by use of statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or phrases of similar import. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated. Factors that could materially affect these forward-looking statements can be found in our periodic reports filed with the SEC. Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements, including the factors described above under "Risk Factors" and are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this prospectus are made only as of the date of this prospectus and we undertake no obligation to publicly update these forward-looking statements to reflect new information, future events or otherwise. In light of these risks uncertainties and assumptions, the forward-looking events might or might not occur. We cannot assure you that projected results or events will be achieved. 124 INDEX TO FINANCIAL STATEMENTS GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES Independent Auditors' Report................................ F-2 Consolidated Balance Sheets as of December 31 2000 and 1999...................................................... F-3 Consolidated Statements of Operations for the years ended December 31 2000, 1999 and 1998........................... F-4 Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2000, 1999, and 1998...................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... F-6 Notes to Consolidated Financial Statements for the years ended December 31, 2000, 1999 and 1998.................... F-7 NORTH AMERICAN SITE DEVELOPERS, INC. Independent Auditors' Report................................ F-27 Balance Sheets as of December 31, 2000 and 1999............. F-28 Statements of Operations for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998...................................................... F-29 Statement of Stockholders' Equity for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998......................................... F-30 Statements of Cash Flows for the years ended December 31, 2000, 1999 and the eleven months ended December 31, 1998...................................................... F-31 Notes to Financial Statements for the years ended December 31, 2000, 1999 and the eleven months ended December 31, 1998......................................... F-32 AMBOY AGGREGATES (A JOINT VENTURE) Report of Independent Public Accountants.................... F-40
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Great Lakes Dredge & Dock Corporation: We have audited the accompanying consolidated balance sheets of Great Lakes Dredge & Dock Corporation and Subsidiaries (the Company) as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Amboy Aggregates (Amboy) joint venture for the years ended December 31, 2000 and 1999, the Company's investment in which is accounted for using the equity method. The Company's equity of $5.1 million and $6.0 million in Amboy's net assets at December 31, 2000 and 1999, respectively, and of $(0.8) million, $0.2 million and $1.0 million in Amboy's net (loss) income for each of the three years in the period ended December 31, 2000 are included in the accompanying financial statements. The financial statements of Amboy were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such joint venture, is based solely on the report of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements presents fairly, in all material respects, the financial position of Great Lakes Dredge & Dock Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Chicago, Illinois January 29, 2001 F-2 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 (in thousands, except share and per share amounts)
2000 1999 -------- -------- ASSETS Current assets: Cash and equivalents...................................... $ 1,137 $ 1,533 Accounts receivable....................................... 40,578 33,392 Contract revenues in excess of billings................... 18,542 20,536 Inventories............................................... 14,657 14,714 Prepaid expenses.......................................... 4,682 3,169 Other current assets...................................... 12,561 8,799 -------- -------- Total current assets.................................... 92,157 82,143 Property and equipment, net................................. 137,662 136,883 Inventories................................................. 6,773 8,838 Investments in joint ventures............................... 6,394 7,101 Other....................................................... 5,749 6,429 -------- -------- Total assets................................................ $248,735 $241,394 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................... $ 37,813 $ 25,227 Accrued expenses.......................................... 25,636 28,458 Billings in excess of contract revenues................... 7,863 8,548 Current maturities of long-term debt...................... 9,000 6,700 -------- -------- Total current liabilities............................... 80,312 68,933 Long-term debt.............................................. 146,000 152,500 Deferred income taxes....................................... 44,302 44,286 Foreign income taxes........................................ -- 1,525 Other....................................................... 7,032 11,332 -------- -------- Total liabilities....................................... 277,646 278,576 Minority interests.......................................... 3,372 2,373 Commitments and contingencies (Note 17)..................... -- -- Stockholders' deficit: Preferred stock, $.01 par value; 250,000 shares authorized: 45,000 issued; 44,675 outstanding in 2000 and 1999, respectively............................................ 1 1 Common stock, $.01 par value; 50,000,000 shares authorized: 5,000,000 issued; 4,902,700 and 4,905,700 outstanding in 2000 and 1999, respectively............................. 50 50 Additional paid-in capital................................ 50,457 50,457 Accumulated deficit....................................... (82,268) (89,519) Treasury stock, at cost; 2000: 325 preferred shares, 97,300 preferred shares and common shares; 1999: 325 preferred shares, 94,300 common shares.............. (422) (419) Notes receivable from stockholders........................ (101) (125) -------- -------- Total stockholders' deficit............................. (32,283) (39,555) -------- -------- Total liabilities and stockholders' deficit................. $248,735 $241,394 ======== ========
See notes to consolidated financial statements. F-3 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2000, 1999 and 1998 (in thousands)
2000 1999 1998 -------- -------- -------- Contract revenues........................................... $339,054 $302,289 $289,212 Costs of contract revenues.................................. 281,624 244,825 240,578 -------- -------- -------- Gross profit.............................................. 57,430 57,464 48,634 General and administrative expenses......................... 22,292 21,867 22,672 Equity incentive plan and other compensation expenses....... -- -- 8,169 Recapitalization related expenses........................... -- -- 9,527 -------- -------- -------- Operating income.......................................... 35,138 35,597 8,266 Other income (expense): Interest income........................................... 90 291 312 Interest expense.......................................... (18,753) (18,385) (10,175) Equity in (loss) earnings of joint ventures............... (791) 183 1,218 -------- -------- -------- Income (loss) before income taxes, minority interests and extraordinary item................................ 15,684 17,686 (379) Provision for income taxes.................................. (7,434) (8,454) (636) Minority interests.......................................... (999) 491 (2,738) -------- -------- -------- Income (loss) from continuing operations before extraordinary item.................................... 7,251 9,723 (3,753) Extraordinary item, net of tax benefit of $543.............. -- -- (925) -------- -------- -------- Net income (loss)....................................... $ 7,251 $ 9,723 $ (4,678) ======== ======== ========
See notes to consolidated financial statements. F-4 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) Years ended December 31, 2000, 1999 and 1998 (in thousands, except share amounts)
NUMBER OF SHARES --------------------- ADDITIONAL RETAINED PREFERRED COMMON PREFERRED COMMON PAID-IN EARNINGS TREASURY STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) STOCK --------- --------- --------- -------- ---------- --------- -------- BALANCE AT DECEMBER 31, 1997............... -- 100 $ -- $60,000 $ -- $ 18,156 $ -- Exercise of stock options................ -- 8 -- 4,516 -- -- -- Tax benefit on tax compensation expense related to stock options exercised..... -- -- -- 944 -- -- -- Assignment of settlement advance receivable............................. -- -- -- -- -- (11,000) -- Common stock purchased................... -- 3,552,190 -- 8,704 -- -- -- Issuance of preferred stock.............. 34,420 -- 34,420 -- -- -- -- Conversion of common shares to preferred shares................................. 10,580 (7) 10,580 (8,656) -- (1,924) -- Redemption of common shares.............. -- (100) -- (60,000) -- (99,796) -- Record shares at par value............... -- 1,447,809 (44,999) (5,458) 50,457 -- -- Net loss................................. -- -- -- -- -- (4,678) -- ------ --------- ------- ------- ------- -------- ----- BALANCE AT DECEMBER 31, 1998............... 45,000 5,000,000 1 50 50,457 (99,242) -- Purchase of treasury stock............... -- -- -- -- -- -- (575) Issuance of treasury stock............... -- -- -- -- -- -- 156 Loans to employee stockholders........... -- -- -- -- -- -- -- Net income............................... -- -- -- -- -- 9,723 -- ------ --------- ------- ------- ------- -------- ----- BALANCE AT DECEMBER 31, 1999............... 45,000 5,000,000 1 50 50,457 (89,519) (419) Purchase of treasury stock............... -- -- -- -- -- -- (3) Repayment on notes receivable from stockholders........................... -- -- -- -- -- -- -- Net income............................... -- -- -- -- -- 7,251 -- ------ --------- ------- ------- ------- -------- ----- BALANCE AT DECEMBER 31, 2000............... 45,000 5,000,000 $ 1 $ 50 $50,457 $(82,268) $(422) ====== ========= ======= ======= ======= ======== ===== NOTES RECEIVABLE FROM STOCKHOLDERS TOTAL ------------ -------- BALANCE AT DECEMBER 31, 1997............... $ -- $ 78,156 Exercise of stock options................ -- 4,516 Tax benefit on tax compensation expense related to stock options exercised..... -- 944 Assignment of settlement advance receivable............................. -- (11,000) Common stock purchased................... -- 8,704 Issuance of preferred stock.............. -- 34,420 Conversion of common shares to preferred shares................................. -- -- Redemption of common shares.............. -- (159,796) Record shares at par value............... -- -- Net loss................................. -- (4,678) ----- -------- BALANCE AT DECEMBER 31, 1998............... -- (48,734) Purchase of treasury stock............... -- (575) Issuance of treasury stock............... -- 156 Loans to employee stockholders........... (125) (125) Net income............................... -- 9,723 ----- -------- BALANCE AT DECEMBER 31, 1999............... (125) (39,555) Purchase of treasury stock............... -- (3) Repayment on notes receivable from stockholders........................... 24 24 Net income............................... -- 7,251 ----- -------- BALANCE AT DECEMBER 31, 2000............... $(101) $(32,283) ===== ========
See notes to consolidated financial statements. F-5 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2000, 1999 and 1998 (in thousands)
2000 1999 1998 -------- -------- --------- OPERATING ACTIVITIES Net income (loss)........................................... $ 7,251 $ 9,723 $ (4,678) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation............................................ 12,666 11,986 13,950 Loss (earnings) of joint ventures....................... 791 (183) (1,218) Minority interests...................................... 999 (491) 2,738 Deferred income taxes................................... 861 (2,546) (2,733) Foreign income taxes.................................... (1,759) 1,112 1,866 Loss on dispositions of property and equipment.......... 171 23 717 Compensation expense related to exercise of options..... -- -- 5,152 Extraordinary item...................................... -- -- 925 Other, net.............................................. (239) 1,514 921 Changes in assets and liabilities: Accounts receivable................................. (7,186) 4,004 2,903 Contract revenues in excess of billings............. 1,994 (4,600) (428) Inventories......................................... 2,122 (3,220) (4,811) Prepaid expenses and other current assets........... (6,120) (2,155) 4,712 Accounts payable and accrued expenses............... 9,998 2,304 (1,654) Billings in excess of contract revenues............. (4,066) 7,844 1,868 -------- -------- --------- Net cash flows from operating activities................ 17,483 25,315 20,230 INVESTING ACTIVITIES Purchases of property and equipment......................... (14,128) (14,958) (29,129) Dispositions of property and equipment...................... 512 303 20,213 Distributions from joint ventures........................... 225 3,589 -- Investments in joint ventures............................... (309) -- (1,720) Distributions to minority interests......................... -- (1,730) -- -------- -------- --------- Net cash flows from investing activities................ (13,700) (12,796) (10,636) FINANCING ACTIVITIES Proceeds from long-term debt issued......................... -- -- 55,000 Repayments of long-term debt................................ (6,700) (17,700) (200) Borrowing (repayments) of revolving loans, net.............. 2,500 6,500 (57,000) Proceeds from 11 1/4% subordinated debt issued.............. -- -- 115,000 Exercise of options......................................... -- -- 4,516 Common stock purchased...................................... -- -- 3,552 Issuance of preferred stock................................. -- -- 34,420 Treasury stock activity, net................................ (3) (544) -- Financing fees.............................................. -- -- (6,045) Redemption of shares........................................ -- -- (159,796) Repayment on notes receivable from stockholders............. 24 -- -- -------- -------- --------- Net cash flows from financing activities................ (4,179) (11,744) (10,553) -------- -------- --------- Net change in cash and equivalents.......................... (396) 775 (959) Cash and equivalents at beginning of year................... 1,533 758 1,717 -------- -------- --------- Cash and equivalents at end of year......................... $ 1,137 $ 1,533 $ 758 ======== ======== ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest...................................... $ 17,811 $ 17,525 $ 4,928 ======== ======== ========= Cash paid for taxes......................................... $ 10,677 $ 4,938 $ 3,276 ======== ======== =========
See notes to consolidated financial statements. F-6 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND RECAPITALIZATION Great Lakes Dredge & Dock Corporation and its subsidiaries (the Company) are in the business of marine construction, primarily dredging. The Company's primary customers are domestic and foreign government agencies. Prior to August 19, 1998, Great Lakes Dredge & Dock Corporation (GLD Corporation) was wholly owned by Blackstone Limited Partnerships (Blackstone). On August 19, 1998, Great Lakes Dredge & Dock Corporation effected a recapitalization whereby (i) management exercised vested options representing 7% of the Company's then outstanding common stock, (ii) a portion of those shares of common stock held by management was purchased directly by Vectura Holding Company, LLC (Vectura), (iii) newly issued common stock and preferred stock was sold to Vectura and certain additional members of management, (iv) the common stock formerly held by Blackstone was redeemed, and (v) a portion of the common stock held by management and Vectura was converted into preferred stock. The redemption of the common stock formerly held by Blackstone was financed using a portion of the proceeds from $115,000 of senior subordinated debt, $110,000 new bank credit facility, and $45,000 of preferred stock and $3,552 of common stock sold to Vectura and certain members of management. As a result of the recapitalization and subsequent stock activity, certain members of Company management own approximately 14% of the outstanding common stock and Vectura owns approximately 85%. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of GLD Corporation and its majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated. The equity method of accounting is used for investments in unconsolidated investees in which the Company has significant influence. All other investments are carried at cost. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. REVENUE AND COST RECOGNITION ON CONTRACTS Substantially all of the Company's contracts for dredging services are fixed-price contracts, which provide for remeasurement based on actual quantities dredged. Contract revenues are recognized under the percentage-of-completion method, based on the Company's engineering estimates of the physical percentage completed of each project. Costs of contract revenues are adjusted to reflect the gross profit percentage expected to be achieved upon ultimate completion of each project. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined. Claims for additional compensation due the Company are not recognized in contract revenues until such claims are settled. Billings on contracts are generally submitted after verification with the customers of physical quantities completed and may not match the timing of revenue recognition. The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract F-7 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) revenues in excess of billings or billings in excess of contract revenues. Significant expenditures incurred incidental to major contracts are deferred and recognized as contract costs based on contract performance over the duration of the related project. These expenditures are reported as prepaid expenses. CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion unless completion of such contracts extends significantly beyond one year. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES Inventories are recorded at the lower of first-in, first-out cost or market. Inventories consist mainly of pipe, purchased spare parts and supplies. PROPERTY AND EQUIPMENT Capital additions, improvements and major renewals are classified as property and equipment and are carried at cost. Maintenance and repairs are charged to earnings as incurred. Depreciation is provided over the estimated useful lives of property and equipment using the straight-line method. The estimated useful lives by class of assets are 5 to 10 years for furniture and fixtures and 3 to 30 years for operating equipment. Effective January 1, 1999, the Company made changes in the estimated useful lives of certain operating equipment to better reflect the remaining period over which the Company anticipates utilizing this equipment with normal repairs and maintenance. This change resulted in lower depreciation for the years ended December 31, 2000 and 1999 by approximately $2,900, than would have been expensed if the prior useful lives had been used. Long-lived assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable by comparing the undiscounted cash flows associated with the assets to their carrying amounts. If such a review indicates an impairment, the carrying amount would be reduced to estimated recoverable value. INCOME TAXES The Company records income taxes based upon Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the use of the liability method of accounting for deferred income taxes. The provision for income taxes includes federal, foreign and state income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. F-8 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of financial instruments included in current assets and current liabilities approximates fair values due to the short-term maturities of these instruments. The carrying value of long-term bank debt is a reasonable estimate of its fair value as interest rates are variable, based on the prevailing market rates. The fair value of the Company's $115,000 long-term subordinated notes was $114,425 and $120,175 at December 31, 2000 and 1999, respectively, based on quoted market prices. The Company is contingently liable under letters of credit and other financial guarantees. It is not practicable to estimate the fair value of these financial instruments; however, the Company does not expect any material losses to result from these financial instruments since performance is not likely to be required. The Company uses derivative instruments to manage commodity price and foreign currency exchange risks. Such instruments are not used for trading purposes. Gains and losses on these hedges are deferred and are recognized in income as part of the related transaction. At December 31, 2000, the Company had one foreign exchange forward contract outstanding, with a notional amount of $2,017, intended to hedge payments related to its foreign tax liabilities. The unrealized gain (loss) on outstanding foreign currency contracts at December 30, 2000 and 1999 was estimated to be $103 and $(189), respectively, based on quoted market prices. The Company had no foreign currency hedge contracts outstanding at December 31, 1998. At December 31, 2000, the Company had outstanding fuel swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through January of 2002. As of December 31, 2000, there were 10,914,000 gallons remaining on these contracts. Under these agreements, the Company will pay fixed prices ranging from $0.83 to $1.03 per gallon. At December 31, 2000 and 1999, the unrealized (loss) gain related to outstanding fuel swap agreements was estimated to be $(1,200) and $540, respectively, based on quoted market prices. The Company had no fuel hedge contracts outstanding at December 31, 1998. CAPITAL STOCK As part of the recapitalization in August 1998, the Company authorized and issued 250,000 and 45,000 shares, respectively, of preferred stock. The preferred stock has a stated value of $1,000 per share and is entitled to annual dividends, if declared. Such dividends are cumulative, whether or not declared, and accrue at the rate of 12%, compounding annually. At December 31, 2000, dividends in arrears on the preferred stock were $13,814. Additionally in 1998, the Company authorized and issued 25,000,000 and 1,636,100 shares, respectively, of class A voting common stock, and 25,000,000 and 3,363,900 shares, respectively, of class B nonvoting common stock, with a par value of $.01 per share. Previously, authorized and issued common stock had no par value. RECENT ACCOUNTING PRONOUNCEMENTS Effective January 1, 2001, the Company adopted Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), as amended, which requires that all derivative instruments be reported in the balance sheet at fair value and established criteria for designation and effectiveness of hedge relationships. The adoption of SFAS 133 resulted in F-9 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) a pre-tax reduction to other comprehensive income of $1,200 ($626 after tax) related to the Company's fuel hedge arrangements, which are designated as cash flow hedges. The losses included in other accumulated comprehensive income as of January 1, 2001 will be reclassified into earnings over the next thirteen months, the remaining term of the hedge arrangements. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," which summarizes certain of the SEC staff's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. In June 2000, the SEC issued SAB 101B, which delayed the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. Adoption of this SAB has not had a material impact on the Company's financial statements. 2. ACCOUNTS RECEIVABLE Accounts receivable are as follows:
2000 1999 -------- -------- Completed contracts....................................... $ 8,935 $ 5,317 Contracts in progress..................................... 29,102 25,213 Retainage................................................. 3,528 3,716 ------- ------- 41,565 34,246 Allowance for doubtful accounts........................... (987) (854) ------- ------- $40,578 $33,392 ======= =======
F-10 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 3. CONTRACTS IN PROGRESS The components of contracts in progress are as follows:
2000 1999 -------- -------- Costs and earnings in excess of billings: Costs and earnings for contracts in progress.......... $265,765 $230,014 Prepaid contract costs................................ (2,788) (1,170) Amounts billed........................................ (246,000) (209,978) -------- -------- Costs and earnings in excess of billings for contracts in progress........................................... 16,977 18,866 Costs and earnings in excess of billings for completed contracts............................................. 1,565 1,670 -------- -------- $ 18,542 $ 20,536 ======== ======== Billings in excess of costs and earnings: Amounts billed........................................ $(77,837) $(64,085) Costs and earnings for contracts in progress.......... 69,217 51,399 -------- -------- $ (8,620) $(12,686) ======== ========
The Company received advance payments related to a long-term foreign contract that are considered billings in excess of costs and earnings. The contract commenced in 1999 and is expected to be completed over approximately four years. These advance payment amounts are being earned as the work is performed over the duration of the contract. The amounts of $757 and $4,138 related to contract performance anticipated to be beyond one year are included in other long-term liabilities at December 31, 2000 and 1999, respectively. 4. PROPERTY AND EQUIPMENT Property and equipment are as follows:
2000 1999 -------- -------- Land.................................................... $ 3,066 $ 3,066 Furniture and fixtures.................................. 5,849 4,949 Operating equipment..................................... 236,863 225,765 -------- -------- 245,778 233,780 Accumulated depreciation................................ (108,116) (96,897) -------- -------- $137,662 $136,883 ======== ========
Performance bonds are customarily required for dredging and marine construction projects. The Company obtains its performance bonds through a bonding agreement with a group of insurance companies that have been granted a security interest in a substantial portion of the Company's operating equipment with a net book value of approximately $66,154 at December 31, 2000. The bonding agreement contains financial and operating covenants that limit the ability of the Company to incur indebtedness, create liens, pay dividends and take certain other actions. F-11 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 5. INVESTMENTS IN JOINT VENTURES At December 31, 2000, the Company had a 50% ownership interest in Amboy Aggregates (Amboy), whose primary business is the dredge mining and sale of fine aggregate, and a 20% ownership interest in Riovia S.A. (Riovia), a venture whose sole business is the performance of a dredging contract in Argentina and Uruguay. Through the third quarter of 1999, the Company's share of earnings in both investments was included in income as earned using the equity method. During 1999, Riovia entered into the maintenance phase of the dredging contract upon completion of the capital works portion. The Company has less involvement in the project operations going forward, and therefore, in the fourth quarter of 1999, the Company began accounting for its investment in Riovia at cost. The financial information presented for 2000 and 1999 includes only Amboy, which continues to be accounted for using the equity method. The 1998 financial information for Riovia was provided as of November 30, 1998 and for the eleven months ended November 30, 1998, which was the most current information available for preparation of the Company's 1998 financial statements. Summarized financial information for the joint ventures is as follows:
2000 1999 1998 -------- -------- -------- Current assets................................... $ 6,910 $ 7,734 $44,310 Non-current assets............................... 11,240 13,509 15,928 ------- ------- ------- Total assets................................... 18,150 21,243 60,238 Current liabilities.............................. (3,931) (2,819) (14,807) Non-current liabilities.......................... (4,003) (6,627) (8,545) ------- ------- ------- Equity......................................... $10,216 $11,797 $36,886 ======= ======= ======= Revenue.......................................... $15,440 $15,492 $55,207 Costs and expenses............................... (17,022) (15,174) (52,739) ------- ------- ------- Net income..................................... $(1,582) $ 318 $ 2,468 ======= ======= =======
Amboy has a mortgage loan with a bank, which contains certain restrictive covenants, including limitations on the amount of distributions to its joint venture partners. The Company has guaranteed 50% of the outstanding mortgage principal and accrued interest which at December 31, 2000 totaled $3,059. F-12 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 6. ACCRUED EXPENSES Accrued expenses are as follows:
2000 1999 -------- -------- Foreign income taxes...................................... $ 6,341 $ 6,575 Payroll and employee benefits............................. 5,787 6,469 Interest.................................................. 5,310 5,276 Insurance................................................. 4,341 4,228 U.S. income and other taxes............................... 2,518 4,591 Other..................................................... 1,339 1,319 ------- ------- $25,636 $28,458 ======= =======
7. LONG-TERM DEBT Long-term debt is as follows:
2000 1999 -------- -------- Bank debt: Term loan............................................. $ 31,000 $ 37,500 Revolving loan........................................ 9,000 6,500 11 1/4% subordinated debt............................... 115,000 115,000 Other unsecured debt.................................... -- 200 -------- -------- 155,000 159,200 Current maturities of long-term debt.................... (9,000) (6,700) -------- -------- $146,000 $152,500 ======== ========
In August 1998, the Company entered into a new bank credit agreement (Credit Agreement), expiring in 2005. The Credit Agreement consisted of a $55,000 term loan and a $55,000 aggregate revolving credit facility which may be used for borrowings or for letters of credit. In October 1999, the Credit Agreement was amended to provide for an increase in the revolving loan capacity of $15,000, permit a voluntary prepayment of the term loan in the amount of $15,000 and adjust the installment payments on the term loan. The terms of the Credit Agreement provide for interest rate spreads based on the Company's debt level compared to earnings, as defined, and allow for various interest rate options for loan amounts and periods that are selected at the discretion of the Company. At December 31, 2000 and 1999, the weighted average borrowing rate was 9.7% and 8.3%, respectively, including amortization of financing fees. The Company also pays an annual commitment fee of up to 0.5% on the average daily unused capacity available under the revolving credit facility. At December 31, 2000, the Company had $8,828 in letters of credit outstanding related primarily to contract performance guarantees; therefore, remaining availability under the aggregate revolving credit facility was $52,172. The Credit Agreement contains provisions that require the Company to maintain a minimum net worth and certain other financial ratios, limit payment of dividends and restrict certain other transactions. Borrowings under the Credit Agreement are secured by first lien mortgages on certain F-13 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 7. LONG-TERM DEBT (CONTINUED) operating equipment of the Company with a net book value of $33,796 at December 31, 2000 and are guaranteed by certain subsidiaries of the Company. Quarterly principal payments of the term loan are required as specified in the amended Credit Agreement. Annual prepayments of principal may be required to the extent the Company has excess cash, as defined, and voluntary prepayments are allowed. All prepayments modify the requirements for scheduled principal payments. Scheduled remaining long-term debt maturities for the years ending December 31 are as follows: 2001....................................................... $ 9,000 2002....................................................... 11,000 2003....................................................... 11,000
On August 19, 1998, the Company issued $115,000 of senior subordinated notes (Notes) which will mature on August 15, 2008. Interest on the Notes accrues at a rate of 11 1/4% per annum and is payable semi-annually. The Notes are general unsecured obligations of the Company, subordinated in right of payment to all existing and future senior debt, including borrowings under the Credit Agreement. The Company's obligation under the Notes are guaranteed on a senior subordinated basis by the Company's wholly owned domestic subsidiaries. Financing fees related to the Credit Agreement and the Notes are deferred and amortized over the respective terms of the borrowings. 8. TREASURY STOCK In June 1999, the Company repurchased 450 and 124,800 shares of its preferred and common stock, respectively, from a former officer of the Company at a total cost of $575. In July 1999, the Company reissued 125 shares and 30,500 shares of its preferred and common stock, respectively, to certain members of management at a total cost of $156. At December 31, 2000 and 1999, stockholders' deficit included amounts receivable of $101 and $125, respectively, from certain members of management for a portion of their purchased shares. F-14 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 9. INCOME TAXES The provision for income taxes is as follows:
2000 1999 1998 -------- -------- -------- Federal: Current........................................... $3,551 $7,904 $ 703 Current foreign................................... 2,288 1,442 1,741 Deferred.......................................... 787 (2,264) (2,451) State: Current........................................... 734 1,654 925 Deferred.......................................... 74 (282) (282) ------ ------ ------ $7,434 $8,454 $ 636 ====== ====== ======
The Company's income tax provision reconciles to the provision at the statutory U.S. federal income tax rate as follows:
2000 1999 1998 -------- -------- -------- Tax provision (benefit) at statutory U.S. federal income tax rate.................................... $5,489 $6,190 $(108) State income tax, net of federal income tax benefit............................................ 525 892 367 Foreign taxes deducted, net of federal income tax benefit............................................ 1,487 937 -- Partnership loss (gain) allocated to minority interest........................................... (122) 260 (863) Nondeductible recapitalization related expenses...... -- -- 1,185 Other................................................ 55 175 55 ------ ------ ----- Income tax provision................................. $7,434 $8,454 $ 636 ====== ====== =====
The deferred tax assets (liabilities) are as follows:
2000 1999 -------- -------- Gross deferred tax assets: Accrued liabilities................................... $ 4,254 $ 5,356 Gross deferred tax liabilities: Depreciation.......................................... (43,094) (44,006) Other................................................. (2,767) (2,096) -------- -------- (45,861) (46,102) -------- -------- Total net deferred tax liabilities...................... $(41,607) $(40,746) ======== ======== As reported in the balance sheet: Net current deferred tax assets (included in other current assets).................... $ 2,695 $ 3,540 Net non-current deferred tax liabilities................ (44,302) (44,286) -------- -------- Total net deferred tax liabilities...................... $(41,607) $(40,746) ======== ========
F-15 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 10. RECAPITALIZATION RELATED EXPENSES In August 1998, pursuant to the terms of the agreement for the recapitalization, the Company paid fees and expenses of $3,606 and bonuses to certain members of management of $5,921. 11. OTHER COMPENSATION EXPENSES In September 1998, the Company approved and paid discretionary bonuses of $3,017 to certain members of management. 12. EXTRAORDINARY ITEM In August 1998, as a result of entering into a new credit agreement, deferred financing fees associated with the Company's prior credit agreement of $1,468 ($925 net of income tax benefit) were written off as an extraordinary item. 13. LEASE COMMITMENTS The Company leases certain operating equipment and office facilities under long-term operating leases expiring at various dates through 2011. The equipment leases contain renewal or purchase options which specify prices at the then fair market value upon the expiration of the lease terms. Future minimum lease payments for the years ending December 31 are as follows: 2001........................................................ $12,611 2002........................................................ 12,201 2003........................................................ 12,087 2004........................................................ 12,293 2005........................................................ 12,309 Thereafter.................................................. 28,432 ------- Total minimum lease payments................................ $89,933 =======
Total rent expense for the years ended December 31, 2000, 1999 and 1998 was $17,811, $14,775 and $12,651, respectively, including amounts for other short-term rentals. 14. RETIREMENT PLANS The Company sponsors a 401(k) savings plan (Salaried Plan) covering substantially all non-union salaried employees. In 1999, the Company established a second 401(k) savings plan (Hourly Plan) to cover its non-union hourly employees. Under both plans, individual employees may contribute a percentage of compensation and the Company will match a portion of the employees' contributions. Additionally, the Salaried Plan includes a profit-sharing component, permitting the Company to make discretionary employer contributions to all eligible employees of the Salaried Plan. The Company's expense for matching and discretionary contributions for 2000, 1999 and 1998 was $2,491, $2,451 and $2,087, respectively. The Company also contributes to various multi-employer pension plans pursuant to collective bargaining agreements. In the event of a plan's termination or Company withdrawal from a plan, the Company may be liable for a portion of the plan's unfunded vested benefits. As of December 31, 2000, F-16 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 14. RETIREMENT PLANS (CONTINUED) unfunded amounts, if any, are not significant. Contributions to multi-employer pension plans for the years ended December 31, 2000, 1999 and 1998 were $1,413, $1,207 and $1,816, respectively. 15. STOCK PLANS The Equity Incentive Plan of Great Lakes Dredge & Dock Corporation provided for the grant of options and other stock-based awards to management personnel. On January 1, 1992, options were granted for approximately 7.5 shares of common stock at an exercise price of $600,000 per share, representing the estimated fair market value of the shares on the grant date (as defined in the Agreement). As of December 31, 1997, all options granted were fully vested and outstanding. On August 19, 1998, all options granted under the Equity Incentive Plan were exercised which represented 7% of the common stock outstanding after the exercise. Subsequently, a portion of these shares, representing 4.8% of common stock outstanding, was sold to Vectura in conjunction with the recapitalization, resulting in non-cash compensation expense of $5,152. The Equity Incentive Plan was terminated as of the date of recapitalization. Additionally, in August 1998 as part of the recapitalization, the Great Lakes Dredge & Dock Corporation Employee Stock Purchase Plan was terminated. There were no options granted or outstanding at the time of termination. The Company used Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options. SFAS No. 123, "Accounting for Stock-Based Compensation," requires disclosures of the effect to net income as if SFAS 123 had been adopted. The effects of applying SFAS 123 were not material to the Company's financial statements. 16. SEGMENT INFORMATION AND CONCENTRATIONS OF RISK The Company and its subsidiaries operate in one reportable segment of providing dredging services, which includes three primary types of work: capital, maintenance and beach nourishment. Revenues by type of work for the years ended December 31 are as follows:
2000 1999 1998 -------- -------- -------- Capital....................................... $233,068 $183,613 $146,253 Beach nourishment............................. 33,242 40,522 80,947 Maintenance................................... 72,744 78,154 62,012 -------- -------- -------- $339,054 $302,289 $289,212 ======== ======== ========
In 2000, 1999 and 1998, 67.4%, 71.9% and 61.4%, respectively, of contract revenues were earned from contracts with federal government agencies. At December 31, 2000 and 1999, approximately 58.5% and 57.2%, respectively, of accounts receivable, including contract revenues in excess of billings, were represented by contracts with federal government agencies. Additionally, at December 31, 1999, 16.1% of accounts receivable, including contract revenues in excess of billings, resulted from a contract with the Government of Egypt. F-17 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 16. SEGMENT INFORMATION AND CONCENTRATIONS OF RISK (CONTINUED) The Company derived revenues and gross profit (loss) from foreign project operations for the years ended December 31, as follows:
2000 1999 1998 -------- -------- -------- Contract revenues................................ $71,752 $30,696 $57,591 Costs of contract revenues....................... (68,069) (33,215) (54,292) ------- ------- ------- Gross profit (loss).............................. $ 3,683 $(2,519) $ 3,299 ======= ======= =======
The majority of the Company's long-lived assets are marine vessels and related equipment. At any point in time, the Company may employ certain assets outside of the U.S., as needed, to perform work on the Company's foreign projects. 17. COMMITMENTS AND CONTINGENCIES In November 1999, the Company entered into a construction agency agreement to manage the construction of a 5,000 cubic meter hopper dredge. The dredge is expected to cost approximately $50 million and be delivered by the end of 2001. The Company has indemnified the owner up to 85% of the costs during construction and has entered into a long-term operating lease to operate the dredge upon completion. In 1992, an underwater utility tunnel failed adjacent to a construction site completed by Great Lakes Dredge & Dock Company (GLDD), a wholly-owned subsidiary of GLD Corporation. The failure resulted in a flooding of the tunnel and building basements serviced by the tunnel. Numerous suits were filed against GLDD for claims of flood damage to building basements and losses due to business interruption. During 1997, all outstanding claims were settled related to the flood litigation. Settlement payments totaling $11,000 were advanced by the Company. As part of the recapitalization, the right to receive the $11,000 settlement advance was retained by the Blackstone Limited Partnerships. In the normal course of business, the Company is a defendant in various other legal proceedings. Resolution of these claims is not expected to have a material impact on the financial position or operations of the Company. As is customary with negotiated contracts with the federal government, the government has the right to audit the books and records of the Company to ensure compliance with such contracts and applicable federal laws. The government has the ability to seek a price adjustment based on the results of such audit. Any such audits have not had and are not expected to have a material impact on the financial position or operations of the Company. 18. RELATED PARTY TRANSACTIONS In August 1998, the Company made recourse loans totaling $4,516 to certain members of management in connection with the exercise of their options. The loans were immediately repaid to the Company from proceeds received by management upon the sale of a portion of their common stock to Vectura. F-18 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (in thousands, except share and per share amounts) 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION The payment obligations of the Company under the 11 1/4% subordinated debt are guaranteed by the Company's wholly-owned domestic subsidiaries (Subsidiary Guarantors). Such guarantees are full, unconditional and joint and several. Separate financial statements of the Subsidiary Guarantors are not presented because the Company's management has determined that they would not be material to investors. The following supplemental financial information sets forth, on a combined basis, balance sheets, statements of operations and statements of cash flows for the Subsidiary Guarantors, the Company's non-guarantor subsidiaries and for GLD Corporation. During the fourth quarter of 1998, Great Lakes International (GLI), a wholly-owned guarantor subsidiary of the Company, was merged into GLD Corporation. Therefore, the amounts presented in the following columns for GLD Corporation include GLI amounts and activity as if it had been merged into GLD Corporation as of January 1, 1998. F-19 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2000
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ ASSETS Current assets: Cash and equivalents.............. $ (654) $ 1,791 $ -- $ -- $ 1,137 Accounts receivable............... 37,558 3,020 -- -- 40,578 Receivables from affiliates....... 7,956 6,186 9 (14,151) -- Current portion of net investment in direct financing leases...... -- 1,714 1,830 (3,544) -- Contract revenues in excess of billings........................ 17,254 1,288 -- -- 18,542 Inventories....................... 10,694 3,963 -- -- 14,657 Prepaid expenses and other current assets.......................... 15,651 844 748 -- 17,243 -------- ------- -------- --------- -------- Total current assets............ 88,459 18,806 2,587 (17,695) 92,157 Property and equipment, net......... 79,881 14,454 43,327 -- 137,662 Net investment in direct financing leases............................ -- 1,946 1,661 (3,607) -- Investments in subsidiaries......... 16,105 -- 119,326 (135,431) -- Notes receivable from affiliate..... 15,815 -- -- (15,815) -- Inventories......................... 6,773 -- -- -- 6,773 Investments in joint ventures....... 6,394 -- -- -- 6,394 Other assets........................ 2,109 -- 3,640 -- 5,749 -------- ------- -------- --------- -------- $215,536 $35,206 $170,541 $(172,548) $248,735 ======== ======= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................. $ 34,901 $ 2,903 $ -- $ 9 $ 37,813 Payables to affiliates............ 5,310 5,482 3,359 (14,151) -- Accrued expenses.................. 10,141 2,005 13,490 -- 25,636 Current portion of obligations under capital leases............ -- 3,544 -- (3,544) -- Billings in excess of contract revenues........................ 7,863 -- -- -- 7,863 Current maturities of long-term debt............................ -- -- 9,000 -- 9,000 -------- ------- -------- --------- -------- Total current liabilities....... 58,215 13,934 25,849 (17,686) 80,312 Long-term debt...................... -- -- 146,000 -- 146,000 Obligations under capital leases.... -- 3,607 -- (3,607) -- Note payable to affiliate........... -- -- 15,815 (15,815) -- Deferred income taxes............... 30,310 168 13,824 -- 44,302 Other............................... 5,416 280 1,336 -- 7,032 -------- ------- -------- --------- -------- Total liabilities............... 93,941 17,989 202,824 (37,108) 277,646 Minority interests.................. -- -- -- 3,372 3,372 Stockholders' equity (deficit)...... 121,595 17,217 (32,283) (138,812) (32,283) -------- ------- -------- --------- -------- $215,536 $35,206 $170,541 $(172,548) $248,735 ======== ======= ======== ========= ========
F-20 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1999
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ ASSETS Current assets: Cash and equivalents.............. $ 284 $ 1,249 $ -- $ -- $ 1,533 Accounts receivable, net.......... 29,989 3,403 -- -- 33,392 Receivables from affiliates....... 5,313 6,087 -- (11,400) -- Current portion of net investment in direct financing leases...... -- 5,168 2,275 (7,443) -- Contract revenues in excess of billings........................ 19,400 1,136 -- -- 20,536 Inventories....................... 10,797 3,917 -- -- 14,714 Prepaid expenses and other current assets.......................... 11,084 403 797 (316) 11,968 -------- ------- -------- --------- -------- Total current assets............ 76,867 21,363 3,072 (19,159) 82,143 Property and equipment, net......... 75,411 16,373 45,099 -- 136,883 Net investment in direct financing leases............................ -- 3,660 3,491 (7,151) -- Investments in subsidiaries......... 13,036 -- 119,708 (132,744) -- Notes receivable from affiliates.... 20,334 516 -- (20,850) -- Inventories......................... 8,838 -- -- -- 8,838 Investments in joint ventures....... 7,101 -- -- -- 7,101 Other assets........................ 1,828 -- 4,601 -- 6,429 -------- ------- -------- --------- -------- $203,415 $41,912 $175,971 $(179,904) $241,394 ======== ======= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................. $ 22,430 $ 2,787 $ -- $ 10 $ 25,227 Payables to affiliates............ 4,053 4,916 2,431 (11,400) -- Accrued expenses.................. 12,240 1,327 14,891 -- 28,458 Current portion of obligations under capital leases............ -- 7,443 -- (7,443) -- Billings in excess of contract revenues........................ 6,571 1,977 -- -- 8,548 Current maturities of long-term debt............................ 200 -- 6,826 (326) 6,700 -------- ------- -------- --------- -------- Total current liabilities....... 45,494 18,450 24,148 (19,159) 68,933 Long-term debt...................... -- -- 152,500 -- 152,500 Obligations under capital leases.... -- 7,151 -- (7,151) -- Notes payable to affiliates......... -- -- 20,850 (20,850) -- Deferred income taxes............... 27,109 1,964 15,213 -- 44,286 Foreign income taxes................ -- -- 1,525 -- 1,525 Other............................... 9,133 909 1,290 -- 11,332 -------- ------- -------- --------- -------- Total liabilities............... 81,736 28,474 215,526 (47,160) 278,576 Minority interests.................. -- -- -- 2,373 2,373 Stockholders' equity (deficit)...... 121,679 13,438 (39,555) (135,117) (39,555) -------- ------- -------- --------- -------- $203,415 $41,912 $175,971 $(179,904) $241,394 ======== ======= ======== ========= ========
F-21 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ Contract revenues................... $309,318 $43,096 $ -- $(13,360) $339,054 Costs of contract revenues.......... (260,571) (34,672) 259 13,360 (281,624) -------- ------- ------- -------- -------- Gross profit...................... 48,747 8,424 259 -- 57,430 General and administrative expenses.......................... (18,356) (3,936) -- -- (22,292) -------- ------- ------- -------- -------- Operating income.................. 30,391 4,488 259 -- 35,138 Interest, net....................... 819 (978) (18,504) -- (18,663) Equity in earnings of subsidiaries...................... 3,259 -- 18,798 (22,057) -- Equity in loss of joint ventures.... (791) -- -- -- (791) -------- ------- ------- -------- -------- Income before income taxes and minority interests.............. 33,678 3,510 553 (22,057) 15,684 Income tax (expense) benefit........ (14,761) 629 6,698 -- (7,434) Minority interests.................. -- -- -- (999) (999) -------- ------- ------- -------- -------- Net income........................ $ 18,917 $ 4,139 $ 7,251 $(23,056) $ 7,251 ======== ======= ======= ======== ========
F-22 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ Contract revenues................... $262,620 $43,862 $ -- $ (4,193) $302,289 Costs of contract revenues.......... (208,194) (38,994) (1,830) 4,193 (244,825) -------- ------- ------- -------- -------- Gross profit...................... 54,426 4,868 (1,830) -- 57,464 General and administrative expenses.......................... (16,822) (4,985) (60) -- (21,867) -------- ------- ------- -------- -------- Operating income (loss)........... 37,604 (117) (1,890) -- 35,597 Interest, net....................... (317) (492) (17,285) -- (18,094) Equity in earnings of subsidiaries...................... (490) -- 23,325 (22,835) -- Equity in earnings of joint ventures.......................... 183 -- -- -- 183 -------- ------- ------- -------- -------- Income (loss) before income taxes and minority interests.......... 36,980 (609) 4,150 (22,835) 17,686 Provision (benefit) for income taxes............................. (13,454) (573) 5,573 -- (8,454) Minority interests.................. -- -- -- 491 491 -------- ------- ------- -------- -------- Net income (loss)................. $ 23,526 $(1,182) $ 9,723 $(22,344) $ 9,723 ======== ======= ======= ======== ========
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ Contract revenues................... $238,894 $51,118 $ -- $ (800) $289,212 Costs of contract revenues.......... (203,954) (34,967) (2,457) 800 (240,578) -------- ------- ------- -------- -------- Gross profit...................... 34,940 16,151 (2,457) -- 48,634 General and administrative expenses.......................... (17,774) (4,558) (340) -- (22,672) Equity incentive plan and other compensation expenses............. -- -- (8,169) -- (8,169) Recapitalization related expenses... (5,922) -- (3,605) -- (9,527) -------- ------- ------- -------- -------- Operating income (loss)........... 11,244 11,593 (14,571) -- 8,266 Interest, net....................... (385) (204) (9,274) -- (9,863) Equity in earnings of subsidiaries...................... 6,929 -- 12,867 (19,796) -- Equity in earnings of joint ventures.......................... 1,218 -- -- -- 1,218 -------- ------- ------- -------- -------- Income(loss) before income taxes, minority interests and extraordinary item.............. 19,006 11,389 (10,978) (19,796) (379) Income tax (expense) benefit........ (7,151) (710) 7,225 -- (636) Minority interests.................. -- -- -- (2,738) (2,738) -------- ------- ------- -------- -------- Net income (loss) before extraordinary item.............. 11,855 10,679 (3,753) (22,534) (3,753) Extraordinary item (net of income tax benefit of $543).............. -- -- (925) -- (925) -------- ------- ------- -------- -------- Net income (loss)................. $ 11,855 $10,679 $(4,678) $(22,534) $ (4,678) ======== ======= ======= ======== ========
F-23 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ OPERATING ACTIVITIES Net income.............................. $18,917 $4,139 $ 7,251 $(23,056) $ 7,251 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation.......................... 6,719 3,122 2,825 -- 12,666 Loss (earnings) of subsidiaries and joint ventures...................... (2,468) -- (18,798) 22,057 791 Minority interests.................... -- -- -- 999 999 Deferred income taxes................. 4,046 (1,796) (1,389) -- 861 Foreign income taxes.................. -- -- (1,759) -- (1,759) (Gain) loss on dispositions of property and equipment.............. (135) (4) 310 -- 171 Other, net............................ (558) (624) 943 -- (239) Changes in assets and liabilities: Accounts receivable................. (7,569) 383 -- -- (7,186) Contract revenues in excess of billings.......................... 2,146 (152) -- -- 1,994 Inventories......................... 2,168 (46) -- -- 2,122 Prepaid expenses and other current assets............................ (5,125) (441) (554) -- (6,120) Accounts payable and accrued expenses.......................... 10,342 794 (1,138) -- 9,998 Billings in excess of contract revenues.......................... (2,089) (1,977) -- -- (4,066) ------- ------ ------- -------- ------- Net cash flows from operating activities.......................... 26,394 3,398 (12,309) -- 17,483 INVESTING ACTIVITIES Purchases of property and equipment..... (12,836) (1,292) -- -- (14,128) Dispositions of property and equipment............................. 512 -- -- -- 512 Distributions from joint ventures....... 225 -- -- -- 225 Investments in joint ventures........... (309) -- -- -- (309) Principal payments (receipts) on direct financing leases...................... -- 5,169 (5,169) -- -- Payments (receipts) on note with affiliate............................. -- 689 (689) -- -- ------- ------ ------- -------- ------- Net cash flows from investing activities.......................... (12,408) 4,566 (5,858) -- (13,700) FINANCING ACTIVITIES Repayments of long-term debt............ -- -- (6,700) -- (6,700) Borrowing (repayments) of revolving loans, net............................ -- -- 2,500 -- 2,500 Principal receipts (payments) on capital leases................................ 5,169 (7,444) 2,275 -- -- Net change in accounts with affiliates............................ (20,453) 382 20,071 -- -- Treasury stock activity, net............ -- -- (3) -- (3) Repayment on notes receivable from stockholders.......................... -- -- 24 -- 24 Dividends............................... 360 (1,800) 1,440 -- -- Contributions from partners............. -- 1,440 (1,440) -- -- ------- ------ ------- -------- ------- Net cash flows from financing activities.......................... (14,924) (7,422) 18,167 -- (4,179) ------- ------ ------- -------- ------- Net change in cash and equivalents.... (938) 542 -- -- (396) Cash and equivalents at beginning of year................................ 284 1,249 -- -- 1,533 ------- ------ ------- -------- ------- Cash and equivalents at end of year... $ (654) $1,791 $ -- $ -- $ 1,137 ======= ====== ======= ======== =======
F-24 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ OPERATING ACTIVITIES Net income (loss)....................... $23,526 $(1,182) $ 9,723 $(22,344) $ 9,723 Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation.......................... 7,214 2,912 1,860 -- 11,986 Loss (earnings) of subsidiaries and joint ventures...................... 307 -- (23,325) 22,835 (183) Minority interests.................... -- -- -- (491) (491) Deferred income taxes................. (900) (568) (1,078) -- (2,546) Foreign income taxes.................. -- -- 1,112 -- 1,112 Loss (gain) on dispositions of property and equipment.............. (72) 95 -- -- 23 Other, net............................ 1,966 478 (930) -- 1,514 Changes in assets and liabilities: Accounts receivable................. 3,612 386 6 -- 4,004 Contract revenues in excess of billings.......................... (6,050) 1,450 -- -- (4,600) Inventories......................... (2,619) (601) -- -- (3,220) Prepaid expenses and other current assets............................ (6,228) (235) 4,308 -- (2,155) Accounts payable and accrued expenses.......................... 1,379 (1,560) 2,485 -- 2,304 Billings in excess of contract revenues.......................... 7,176 668 -- -- 7,844 ------- ------- ------- -------- ------- Net cash flows from operating activities.......................... 29,311 1,843 (5,839) -- 25,315 INVESTING ACTIVITIES Purchases of property and equipment..... (11,589) (3,369) -- -- (14,958) Dispositions of property and equipment............................. 90 213 -- -- 303 Distributions from joint ventures....... 3,589 -- -- -- 3,589 Distributions to minority interests..... (1,730) -- -- -- (1,730) Principal payments (receipts) on direct financing leases...................... -- 4,767 (4,767) -- -- Payments (receipts) on note with affiliate............................. -- 689 (689) -- -- ------- ------- ------- -------- ------- Net cash flows from investing activities.......................... (9,640) 2,300 (5,456) -- (12,796) FINANCING ACTIVITIES Repayments of long-term debt............ (200) -- (17,500) -- (17,700) Borrowing (repayments) of revolving loans, net............................ -- -- 6,500 -- 6,500 Principal (payments) receipts on capital leases................................ -- (7,995) 7,995 -- -- Net change in accounts with affiliates............................ (25,347) 12,233 13,114 -- -- Treasury stock activity, net............ -- -- (544) -- (544) Dividends............................... 5,670 (7,400) 1,730 -- -- ------- ------- ------- -------- ------- Net cash flows from financing activities.......................... (19,877) (3,162) 11,295 -- (11,744) ------- ------- ------- -------- ------- Net change in cash and equivalents.... (206) 981 -- -- 775 Cash and equivalents at beginning of period.............................. 490 268 -- -- 758 ------- ------- ------- -------- ------- Cash and equivalents at end of period.............................. $ 284 $ 1,249 $ -- $ -- $ 1,533 ======= ======= ======= ======== =======
F-25 GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
GUARANTOR OTHER GLD CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS ------------ ------------ ----------- ------------ ------------ OPERATING ACTIVITIES Net income (loss)....................... $11,855 $10,679 $ (4,678) $(22,534) $ (4,678) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation.......................... 7,649 4,049 2,252 -- 13,950 Earnings of joint ventures............ (8,147) -- (12,867) 19,796 (1,218) Minority interests.................... -- -- -- 2,738 2,738 Deferred income taxes................. (382) (451) (1,900) -- (2,733) Foreign income taxes.................. -- -- 1,866 -- 1,866 Gain on dispositions of property and equipment........................... 717 -- -- -- 717 Compensation expense related to exercise of options................. -- -- 5,152 -- 5,152 Extraordinary item.................... -- -- 925 -- 925 Other, net............................ 439 -- 482 -- 921 Changes in assets and liabilities: Accounts receivable................. 9,878 (7,093) 118 -- 2,903 Contract revenues in excess of billings.......................... 1,273 (1,701) -- -- (428) Inventories......................... (3,674) (1,137) -- -- (4,811) Prepaid expenses and other current assets............................ 4,269 185 258 -- 4,712 Accounts payable and accrued expenses.......................... (4,553) 389 2,510 -- (1,654) Billings in excess of contract revenues.......................... 559 1,309 -- -- 1,868 ------- ------- -------- -------- -------- Net cash flows from operating activities.......................... 19,883 6,229 (5,882) -- 20,230 INVESTING ACTIVITIES Purchases of property and equipment..... (24,985) (4,144) -- -- (29,129) Dispositions of property and equipment............................. 20,213 -- -- -- 20,213 Investments in joint ventures........... (1,720) -- -- -- (1,720) Principal (payments) receipts on direct financing leases...................... -- 4,121 (4,121) -- -- (Payments) receipts on note with affiliate............................. -- 689 (689) -- -- ------- ------- -------- -------- -------- Net cash flows from investing activities.......................... (6,492) 666 (4,810) -- (10,636) FINANCING ACTIVITIES Proceeds from long-term debt............ -- -- 55,000 -- 55,000 Repayments of long-term debt............ (200) -- -- -- (200) Borrowing (repayments) of revolving loans, net............................ -- -- (57,000) -- (57,000) Proceeds from 11 1/4% subordinated debt.................................. -- -- 115,000 -- 115,000 Exercise of options..................... -- -- 4,516 -- 4,516 Common stock purchased.................. -- -- 3,552 -- 3,552 Issuance of preferred stock............. -- -- 34,420 -- 34,420 Financing fees.......................... -- -- (6,045) -- (6,045) Principal receipts (payments) on capital leases................................ -- (7,059) 7,059 -- -- Net change in accounts with affiliates............................ (1,186) -- 1,186 -- -- Redemption of shares.................... -- -- (159,796) -- (159,796) Dividends............................... (12,800) -- 12,800 -- -- ------- ------- -------- -------- -------- Net cash flows from financing activities.......................... (14,186) (7,059) 10,692 -- (10,553) ------- ------- -------- -------- -------- Net decrease in cash and equivalents......................... (795) (164) -- -- (959) Cash and equivalents at beginning of year................................ 1,285 432 -- -- 1,717 ------- ------- -------- -------- -------- Cash and equivalents at end of year... $ 490 $ 268 $ -- $ -- $ 758 ======= ======= ======== ======== ========
F-26 INDEPENDENT AUDITORS' REPORT To the Stockholders of North American Site Developers, Inc. We have audited the accompanying balance sheets of North American Site Developers, Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 2000, 1999 and the eleven months ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North American Site Developers, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years ended December 31, 2000, 1999 and the eleven months ended December 31, 1998 in conformity with accounting principles generally accepted in the United States of America. /s/ O'Connor & Drew P.C. Quincy, Massachusetts March 16, 2001 F-27 NORTH AMERICAN SITE DEVELOPERS, INC. BALANCE SHEETS DECEMBER 31,
2000 1999 ----------- ----------- ASSETS CURRENT ASSETS: Cash and equivalents...................................... $ 1,819,735 $ 1,171,256 Marketable securities..................................... 1,391,061 2,359,475 Contract receivables, including retainage................. 9,469,284 11,750,062 Costs and estimated earnings in excess of billings on uncompleted contracts................................... 1,820,611 321,464 Prepaid expenses.......................................... 639,881 460,792 ----------- ----------- TOTAL CURRENT ASSETS.................................... 15,140,572 16,063,049 PROPERTY AND EQUIPMENT, NET................................. 3,393,886 3,840,098 OTHER ASSETS................................................ 7,500 44,142 ----------- ----------- TOTAL ASSETS................................................ $18,541,958 $19,947,289 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 1,091,367 $ 1,123,197 Accounts payable.......................................... 4,269,100 4,594,006 Billings in excess of costs and estimated earnings on uncompleted contracts................................... 2,085,630 3,905,297 Accrued expenses and other payables....................... 445,144 667,009 Accrued workers compensation.............................. 763,000 909,116 Accrued corporate taxes................................... 323,750 191,000 ----------- ----------- TOTAL CURRENT LIABILITIES............................... 8,977,991 11,389,625 ----------- ----------- LONG-TERM LIABILITIES: Long-term debt............................................ 557,516 974,851 Advances from stockholders................................ -- 1,499,527 ----------- ----------- TOTAL LONG-TERM LIABILITIES............................. 557,516 2,474,378 ----------- ----------- TOTAL LIABILITIES....................................... 9,535,507 13,864,003 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, no par value; Authorized 1,000 shares, 400 shares issued and outstanding........................... 4,000 4,000 Additional paid-in capital................................ 7,542 7,542 Retained earnings......................................... 9,032,977 6,120,481 Accumulated comprehensive loss............................ (38,068) (48,737) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY.............................. 9,006,451 6,083,286 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $18,541,958 $19,947,289 =========== ===========
The accompanying notes are an integral part of these financial statements. F-28 NORTH AMERICAN SITE DEVELOPERS, INC. STATEMENTS OF OPERATIONS For the Years Ended December 31, 2000 and 1999 and the Eleven Months Ended December 31, 1998
2000 1999 1998 ----------- ----------- ----------- CONTRACT REVENUES EARNED.............................. $72,642,284 $45,478,260 $30,334,788 Cost of Revenues Earned............................... 46,372,884 34,325,342 24,583,810 ----------- ----------- ----------- GROSS PROFIT ON CONTRACTS............................. 26,269,400 11,152,918 5,750,978 General and Administrative Expenses................... 1,726,281 1,475,727 1,520,598 Bonuses............................................... 19,998,255 7,631,282 4,597,506 ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS......................... 4,544,864 2,045,909 (367,126) ----------- ----------- ----------- Other Income (Expenses): Dividends and interest.............................. 450,073 165,235 101,531 Interest and finance charges........................ (102,208) (106,758) (114,420) Gain on sale of investments......................... 1,064 11,229 62,040 ----------- ----------- ----------- Net Other Income.................................. 348,929 69,706 49,151 ----------- ----------- ----------- INCOME (LOSS) BEFORE PROVISION FOR STATE INCOME TAXES............................................... 4,893,793 2,115,615 (317,975) Provision for State Income Taxes...................... 316,637 190,500 -- ----------- ----------- ----------- NET INCOME (LOSS)..................................... $ 4,577,156 $ 1,925,115 $ (317,975) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-29 NORTH AMERICAN SITE DEVELOPERS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2000 and 1999 and the Eleven Months Ended December 31, 1998
ADDITIONAL ACCUMULATED COMMON PAID-IN RETAINED COMPREHENSIVE STOCK CAPITAL EARNINGS LOSS TOTAL -------- ---------- ----------- ------------- ----------- STOCKHOLDERS' EQUITY, FEBRUARY 1, 1998................................. $4,000 $7,542 $ 4,513,341 $ (8) $ 4,524,875 Comprehensive Loss: Net loss............................. -- -- (317,975) -- (317,975) Unrealized net holding losses on marketable securities.............. -- -- -- (676) (676) ----------- TOTAL COMPREHENSIVE LOSS............... -- -- -- -- (318,651) ------ ------ ----------- -------- ----------- STOCKHOLDERS' EQUITY, DECEMBER 31, 1998................................. 4,000 7,542 4,195,366 (684) 4,206,224 Comprehensive Income: Net income........................... -- -- 1,925,115 -- 1,925,115 Unrealized net holding losses on marketable securities.............. -- -- -- (59,282) (59,282) Reclassification of unrealized holding gains...................... -- -- -- 11,229 11,229 ----------- TOTAL COMPREHENSIVE INCOME............. -- -- -- -- 1,877,062 ------ ------ ----------- -------- ----------- STOCKHOLDERS' EQUITY, DECEMBER 31, 1999................................. 4,000 7,542 6,120,481 (48,737) 6,083,286 Comprehensive Income: Net income........................... -- -- 4,577,156 -- 4,577,156 Unrealized net holding gains on marketable securities.............. -- -- -- 9,605 9,605 Reclassification of unrealized holding gains...................... 1,064 1,064 ----------- TOTAL COMPREHENSIVE INCOME............. -- -- -- -- 4,587,825 ----------- Stockholder distributions.............. -- -- (1,664,660) -- (1,664,660) ------ ------ ----------- -------- ----------- STOCKHOLDERS' EQUITY, DECEMBER 31, 2000................................. $4,000 $7,542 $ 9,032,977 $(38,068) $ 9,006,451 ====== ====== =========== ======== ===========
The accompanying notes are an integral part of these financial statements. F-30 NORTH AMERICAN SITE DEVELOPERS, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000 and 1999 and the Eleven Months Ended December 31, 1998
2000 1999 1998 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).................................... $ 4,577,156 $ 1,925,115 $ (317,975) ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by (applied to) operating activities: Depreciation and amortization...................... 1,413,362 1,381,014 1,276,778 (Gain) loss on sale of property and equipment...... (6,201) 960 -- Net realized gains on sale of marketable securities....................................... (1,064) (11,229) (62,040) Changes in assets and liabilities: Contract receivables............................. 2,280,778 (3,112,512) (3,163,821) Costs and estimated earnings in excess of billings on uncompleted contracts.............. (1,499,147) (53,048) 884,557 Prepaid expenses................................. (179,089) (120,959) 257,519 Refundable taxes................................. -- 929,800 (929,800) Other assets..................................... 36,642 (38,863) (2,279) Accounts payable................................. (324,906) 1,409,128 (617,135) Billings in excess of costs and estimated earnings on uncompleted contracts.............. (1,819,667) 2,331,860 819,756 Accrued expenses and other payables.............. (221,865) (425,926) 654,033 Accrued workers compensation..................... (146,116) 465,017 444,099 Accrued corporate taxes.......................... 132,750 191,000 (270,449) ----------- ----------- ----------- Net Adjustments.................................. (334,523) 2,946,242 (708,782) ----------- ----------- ----------- Net Cash Provided by (Applied to) Operating Activities..................................... 4,242,633 4,871,357 (1,026,757) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds on sale of marketable securities............ 2,949,676 3,058,171 394,477 Purchases of marketable securities................... (1,969,527) (5,238,346) (396,075) Purchases of property and equipment.................. (973,901) (865,643) (940,875) Proceeds on sale of property and equipment........... 12,950 1,000 -- Insurance proceeds on newly acquired destroyed equipment.......................................... -- 514,500 -- ----------- ----------- ----------- Net Cash Provided by (Applied to) Investing Activities..................................... 19,198 (2,530,318) (942,473) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt......................... $ 1,191,228 $ 378,446 $ -- Payments on long-term debt........................... (1,640,393) (1,689,132) (958,562) Proceeds from stockholders........................... -- 3,034,331 1,909,887 Distributions to stockholders........................ (1,664,660) -- -- Payments to stockholders............................. (1,499,527) (3,571,056) (144,577) ----------- ----------- ----------- Net Cash Provided By (Applied to) Financing Activities..................................... (3,613,352) (1,847,411) 806,748 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS........ 648,479 493,628 (1,162,482) Cash and Equivalents, Beginning of Period.............. 1,171,256 677,628 1,840,110 ----------- ----------- ----------- CASH AND EQUIVALENTS, END OF PERIOD.................... $ 1,819,735 $ 1,171,256 $ 677,628 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-31 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY The principal business of North American Site Developers, Inc. consists of the interior and exterior demolition of commercial and industrial buildings, salvage and recycling of related materials and hazardous material removal. Revenue is recognized using the percentage-of-completion method of accounting for long-term construction contracts as noted below. The Company operates primarily in the state of Massachusetts, and in recent years has expanded to the states of California, Rhode Island and Michigan. REVENUE AND COST RECOGNITION The Company records costs and revenues of long-term fixed price and modified fixed price contracts on the percentage-of-completion method, determined by ratio of cost incurred to date to management's estimates of total anticipated costs. That method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. If estimated total costs on any contract indicates a loss, the entire amount of the estimated loss is immediately recognized. Since certain contracts can extend over one or more years, revisions in costs and earnings estimated during the course of the work are reflected in the accounting period in which the facts requiring the revision become known. The difference between amounts billed and costs and estimated earnings is reflected in the balance sheets as either costs and estimated earnings in excess of billings or billings in excess of costs and estimated earnings. Revenue from time-and-materials contracts is recognized currently as the work is performed. Claims are included in revenues when received. Retainage provisions of certain long-term contracts provide for amounts to be withheld from payment by the customer until completion of the work. It is the Company's policy to invoice such amounts and include them in accounts receivable after work has been completed and the amounts withheld are due. Costs charged to contracts include direct labor, material, subcontract costs, other direct costs and applicable indirect costs. Selling, general and administrative expenses are charged to expense as incurred. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements. CLASSIFICATION OF CURRENT ASSETS AND LIABILITIES The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion, which may extend beyond one year. F-32 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND EQUIVALENTS For financial statement purposes, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES The Company's marketable equity securities are generally considered available for sale and, as such, are accounted for at fair market value. Unrealized gains and losses are recognized as a component of stockholders' equity. Realized gains and losses are recognized in results of operations. INVESTMENT IN JOINT VENTURE In 1998, the Company entered into a 50% general partnership joint venture to fulfill a contract obligation. The Company records its interest in the joint venture using the equity method. The contract was substantially completed in 1998 and terminated in 1999; however, during 2000 and 1999, the Company was charged approximately $40,000 and $72,000, respectively, which represented the Company's proportionate share of cost overruns and final allocation of the joint venture's loss on the contract. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is computed using accelerated methods over the assets' estimated useful lives of five to seven years for financial statement purposes. Amortization of leasehold improvements is included within depreciation expense. INCOME TAXES The shareholders have elected, for Federal and state income tax purposes, to have the Company taxed as a small business corporation ("S" Corporation). This election provides for the net income or loss of the Company to be reported on the personal Federal and state income tax returns of the individual shareholders. The Company pays no income tax on its profits and receives no income tax benefit from its losses. The Company is taxed at the corporate level for state income tax purposes in accordance with current state tax laws. CHANGES IN YEAR-END The Company changed from a January 31, fiscal year-end to a calendar year-end in 1998. ADVERTISING The Company charges the cost of advertising to expense as incurred. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative financial F-33 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) instruments and requires recognition of all derivatives as either assets or liabilities measured at fair value. Initially, the effective date of SFAS 133 was for all fiscal quarters for fiscal years beginning after June 15, 1999; however, in June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instrument and Hedging Activities--Deferral of the Effective Date of FASB Statements No. 133--an amendment of FASB Statement No. 133", which deferred the effective date of SFAS 133 for one year so that it will be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Management does not anticipate adoption of SFAS 133 to have a material impact on the Company's results of operations, financial position or cash flows. RECLASSIFICATIONS Certain amounts in the 1999 and 1998 financial statements have been reclassified to conform to the 2000 presentation. NOTE 2--MARKETABLE SECURITIES At December 31, investments in marketable securities consisted of the following:
2000 1999 ---------- ---------- Marketable equity securities, at cost................ $1,429,129 $2,408,212 Gross unrealized gains............................... 79,047 9,615 Gross unrealized losses.............................. (117,115) (58,352) ---------- ---------- Marketable equity securities, at market value........ $1,391,061 $2,359,475 ========== ==========
Proceeds and gross realized gains and losses from the sale of marketable securities available for sale for the periods ended December 31, were as follows:
2000 1999 1998 ---------- ---------- -------- Gross Proceeds............................. $2,949,676 $3,058,171 $394,477 ========== ========== ======== Gross Realized Gains....................... $ 10,847 $ 11,520 $ 67,669 ========== ========== ======== Gross Realized Losses...................... $ 9,783 $ 291 $ 5,629 ========== ========== ========
F-34 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 NOTE 3--CONTRACT RECEIVABLES Contract receivables consists of the following at December 31,:
2000 1999 ---------- ----------- Billed Contracts Receivables: Completed contracts............................... $2,338,118 $ 5,591,578 Contracts-in-progress............................. 3,951,436 3,708,352 Retained in accordance with contract provisions... 3,052,607 2,450,132 Unbilled Contracts Receivables: Completed contracts............................... 127,123 -- ---------- ----------- $9,469,284 $11,750,062 ========== ===========
NOTE 4--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings on uncompleted contracts at December 31, are as follows:
2000 1999 ----------- ----------- Costs incurred on uncompleted contracts............ $28,693,285 $13,487,687 Estimated earnings............................... 6,858,722 4,992,940 ----------- ----------- 35,552,007 18,480,627 Less billings to date.............................. 35,817,026 $22,064,460 ----------- ----------- Total............................................ $ (265,019) $(3,583,833) =========== ===========
These amounts are included in the accompanying balance sheets under the following captions:
2000 1999 ----------- ----------- Costs and estimated earnings in excess of billings on uncompleted contracts......................... $ 1,820,611 $ 321,464 Billings in excess of costs and estimated earnings on uncompleted contracts......................... (2,085,630) (3,905,297) ----------- ----------- Total.......................................... $ (265,019) $(3,583,833) =========== ===========
F-35 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 NOTE 5--PROPERTY AND EQUIPMENT A summary of the property and equipment at December 31, is as follows:
2000 1999 ---------- ---------- Machinery and equipment.............................. $8,470,200 $8,082,847 Vehicles............................................. 902,061 823,849 Trailers............................................. 335,153 325,753 Furniture and fixtures............................... 172,115 169,413 Leasehold improvements............................... 151,110 151,110 ---------- ---------- 10,030,639 9,552,972 Less: accumulated depreciation....................... 6,636,753 5,712,874 ---------- ---------- $3,393,886 $3,840,098 ========== ==========
NOTE 6--DEBT OBLIGATIONS LINES OF CREDIT The Company has an equipment line of credit, for one million dollars ($1,000,000) at the applicable constant maturing two year treasury bill rate plus 2%. The loan is secured by all business assets. The line of credit is available for 36 months and reviewed annually. The Company also has an additional secured line of credit for five million dollars ($5,000,000) and two million five hundred thousand dollars ($2,500,000), at prime less one half percent, at December 31, 2000 and 1999, respectively. The loan is secured by all corporate assets and is available through June 30, 2001 and reviewed on an annual basis. As of December 31, 2000 and 1999, the prime rate was 9.5% and 8.5%, respectively, and there were no balances outstanding on each of the respective lines of credit. LETTER OF CREDIT In January 1999, the Company obtained a letter of credit from the same financial institution of approximately $397,000. This amount was increased to $763,000 during the year 2000. The purpose of the letter of credit is to finance the potential amounts due under a workers' compensation insurance policy. The letter of credit expires in January 2001, but was subsequently renewed through January 2002. F-36 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 NOTE 6--DEBT OBLIGATIONS (CONTINUED) LONG-TERM DEBT Long-term debt at December 31, is as follows:
2000 1999 ---------- ---------- Various notes payable, payable in monthly installments ranging from $4,017 to $18,317, including interest of 7.5% to 9.3%, maturing at various times from January, 2001 to June, 2001; collateralized by certain machinery and equipment................................................. $ 107,236 $ 281,367 Various notes payable, payable in monthly installments ranging from $2,928 to $15,059, including interest of 5.4% to 6.5%, maturing at various times from June, 2000 to April, 2003; collateralized by certain machinery and equipment................................................. 1,131,444 1,456,766 Various notes payable, payable in monthly installments ranging from $37,848 to $58,774, including interest of 0.09% to7.9%, maturing at various times from September, 2000 to June, 2001........................................ 344,653 264,912 Various note payables, payable in monthly installments ranging from $7,308 to $7,283, non-interest bearing note, maturing at various times from December, 2000 to September, 2001, collaterized by certain equipment........ 65,550 95,003 ---------- ---------- 1,648,883 2,098,048 Less current portion........................................ 1,091,367 1,123,197 ---------- ---------- Long-Term Debt.............................................. $ 557,516 $ 974,851 ========== ==========
Long-term debt maturities for each of the next three years:
YEAR ENDED AMOUNT - ---------- ---------- 2001........................................................ $1,091,367 2002........................................................ 511,329 2003........................................................ 46,187 ---------- Total....................................................... $1,648,883 ==========
NOTE 7--RELATED PARTY TRANSACTIONS ADVANCES FROM STOCKHOLDERS Advances from stockholders consists of operating advances. The advances from the stockholders were repaid during 2000. F-37 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 NOTE 7--RELATED PARTY TRANSACTIONS (CONTINUED) OPERATING LEASES The Company rents its primary office facility as a tenant at will from a trust related by common ownership and requires monthly payments of $2,375. The agreement also requires that the Company pay all insurance costs on the property. The Company leased equipment from other companies related by common ownership, on an "as-needed" basis. Equipment rentals from these companies totaled $130,000, $60,312 and $94,900 for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998, respectively. Total rent expense for the years December 31, 2000 and 1999 and the eleven months ended December 31, 1998 was $145,093, $99,886 and $133,244, respectively. NOTE 8--PROFIT SHARING PLAN The Company has a prescribed profit sharing plan which covers the Company's administrative employees. The Plan was amended to include a money purchase plan. The Company made contributions of $138,500 to the Plan during the year ended December 31, 2000 and $100,000 for the year ended December 31, 1999 and the eleven months ended December 31, 1998. NOTE 9--CASH FLOW INFORMATION During 2000, 1999 and the eleven months ended 1998, the Company paid $102,208, $106,758 and $114,420, respectively, for interest. Additionally, during 2000, 1999 and the eleven months ended December 31, 1998 the Company paid $190,237, $197,368 and $270,449, respectively, for income taxes. The Company recorded net unrealized holding gains (losses) on available for-sale securities of $9,605, $(59,282) and $(676) at December 31, 2000, 1999 and the eleven months ended 1998, respectively. In 2000, 1999 and 1998, the Company obtained certain equipment and insurance policies through long-term debt in the amount of $1,396,677, $1,564,631 and $1,518,825, respectively. Included in the acquisition of equipment through long-term debt, the Company traded in certain equipment with a cost of $693,557, $264,898 and $236,751 and related debt obligations of $233,169, $101,400 and $217,854, respectively. NOTE 10--CONCENTRATIONS AND UNCERTAINTIES FINANCIAL INSTRUMENTS Other financial instruments, which potentially subject the Company to concentration of credit risk, include contract receivables and marketable securities. Contract receivables are generally not collateralized. The credit risk results from the failure of a certain company or companies to meet the responsibility of this payment. To date, the Company has not experienced such failure. F-38 NORTH AMERICAN SITE DEVELOPERS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000, 1999 AND 1998 NOTE 10--CONCENTRATIONS AND UNCERTAINTIES (CONTINUED) UNION CONTRACTS Substantially all of the Company's non-management employees are covered by collective bargaining agreements. Certain of these agreements between the Company and various unions are due to expire within the next year. Failure to successfully renegotiate the union contracts may have an adverse effect on the Company's operations. Management anticipates all of the union agreements to be renewed. LAWSUITS The Company is involved in various claims and lawsuits against and for the Company arising in the normal course of business. Management has vigorously defended its case and believes that any financial responsibility that may be incurred in settlements of such litigation would not be material to the Company's financial position. CONCENTRATIONS The Company had contract revenues earned from one customer representing 40% and 22% during December 31, 2000 and 1999, respectively. At December 31, 2000, there was no outstanding contract receivable from this customer. Included in contract receivables from this customer was approximately $3,785,000 at December 31, 1999. NOTE 11--SUBSEQUENT EVENT Currently, the stockholders are negotiating the proposed sale of 100% of the common stock of the Company. F-39 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners Amboy Aggregates We have audited the accompanying balance sheets of AMBOY AGGREGATES (A JOINT VENTURE) as of December 31, 2000 and 1999, and the related statements of operations and partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amboy Aggregates (A Joint Venture) as of December 31, 2000 and 1999, and its results of operations and cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. J.H. COHN LLP Roseland, New Jersey January 22, 2001 F-40 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by the Delaware General Corporation Law ("DGCL"), the Company's Restated Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, relating to prohibited dividends or distributions or the repurchase or redemption of stock, or (iv) for any transaction from which the director derives an improper personal benefit. In addition, the Company's Bylaws provide for indemnification of the Company's officers and directors to the fullest extent permitted under Delaware law. Section 145 of the DGCL provides that a corporation may indemnify any persons, including officers and directors, who were or are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. The directors and officers of the Company are insured against certain liabilities under the registrant's directors' and officers' liability insurance. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------------------------ 2.01 Plan and Agreement of Merger dated as of August 19, 1998 between the Company and Great Lakes Dredge & Dock Acquisition, Inc.(1) 3.01 Restated Certificate of Incorporation of the Company.(1) 3.02 Bylaws of the Company.(1) 4.01 Indenture dated as of August 19, 1998 among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee.(1) 4.02 Registration Rights Agreement dated as of April 24, 2001 among the Company, the Subsidiary Guarantors and Credit Suisse First Boston Corporation.(5)
II-1
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------------------------ 4.03 Form of 11 1/4% Senior Subordinated Note due 2008 (included in Exhibit 4.01).(1) 4.04 First Supplemental Indenture dated as of June 15, 2000 among the Company, Caribbean Dredging, Inc., the other Subsidiary Guarantors and the Bank of New York, as Trustee.(2) 4.05 Supplemental Indenture dated as of April 24, 2001 among the Company, North American Site Developers, Inc., the other subsidiary Company and the Bank of New York, as Trustee.(5) 5.01* Opinion of Dechert. 10.01 Credit Agreement dated as of August 19, 1998 among the Company and the other loan parties thereto, as Borrowers, the financial institutions from time to time party thereto, as Lenders, Bank of Montreal, Chicago Branch, as Documentation Agent, Bank of America National Trust and Savings Association, as Issuing Lender and Administrative Agent and BancAmerica Robertson Stephens, as Lead Arranger.(1) 10.02 Amendment No. 1 dated October 8, 1999 to the Credit Agreement.(3) 10.03 Amendment No. 2 dated October 23, 2000 to the Credit Agreement.(4) 10.04 Amended and Restated Credit Agreement dated as of April 24, 2001 among the Company, the other loan parties thereto, the financial institutions party thereto and Bank of America, N.A. as administrative agent.(5) 10.05 Second Amended and Restated Underwriting and Continuing Indemnity Agreement dated August 19, 1998 among the Company, certain of its Subsidiaries, Reliance Insurance Company, United Pacific Insurance Company, Reliance National Insurance Company and Reliance Surety Company.(1) 10.06 First Amendment to Second Amended and Restated Underwriting and Continuing Indemnity Agreement dated as of June 13, 2000.(4) 10.07 Second Amendment to Second Amended and Restated Underwriting and Continuing Indemnity Agreement dated as of April 24, 2001.(5) 10.08 Employment Agreement between the Company and Douglas B. Mackie.(2) 10.09 Employment Agreement between the Company and Richard Lowry.(2) 10.10 Great Lakes Annual Cash Bonus Plan(2) 10.11 Great Lakes Non-Union Hourly Employees 401(k) Savings Plan.(3) 10.12 Securities Purchase and Holders Agreement dated August 19, 1998 among the Company, Vectura and the Management Investors.(2) 10.13 Registration Rights Agreement dated August 19, 1998 among the Company, Vectura, and the Management Investors.(2) 21.01 Subsidiaries of the Registrant.(5) 23.01 Consent of Deloitte & Touche LLP (included on Page II-11). 23.02 Consent of J.H. Cohn LLP (included on Page II-12). 23.03 Consent of O'Conner & Drew P.C.(included on Page II-13). 23.04* Consent of Dechert (included in Exhibit 5.01). 24.01 Powers of Attorney (included on Signature Pages). 25.01 Statement of Eligibility and Qualification of The Bank of New York on Form T-1.(5) 99.01* Form of Letter of Transmittal. 99.02* Form of Notice of Guaranteed Delivery.
- ------------------------ * To be filed by amendment. (1) Incorporated by reference to Form S-4 Registration Statement of the Company (File No. 333-64687) filed with Securities and Exchange Commission on September 29, 1998. (2) Incorporated by reference to Amendment No. 1 to Form S-4 Registration Statement of the Company (File No. 333-64687) filed with Securities and Exchange Commission on December 14, 1998. II-2 (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1999 filed with Securities and Exchange Commission on March 29, 2000. (4) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with Securities and Exchange Commission on March 21, 2001. (5) Filed herewith. (b) Financial Statement Schedules: Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto. ITEM 22. UNDERTAKINGS. (a) The undersigned registrants hereby undertake: (1) file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to II-3 a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrants hereby undertake to supply by means of a post- effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook and State of Illinois on May 4, 2001. GREAT LAKES DREDGE & DOCK CORPORATION By: /s/ DOUGLAS B. MACKIE ----------------------------------------- Douglas B. Mackie PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel, each and individually, his or her attorneys-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement or any Registration Statement for the same offering that is effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorney-in-fact, or his agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001 ------------------------------------ Director (principal executive Douglas B. Mackie officer) /s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001 ------------------------------------ and Treasurer (principal financial Deborah A. Wensel officer and principal accounting officer) /s/ MICHAEL A. DELANEY Director May 4, 2001 ------------------------------------ Michael A. Delaney /s/ DAVID WAGSTAFF III Director May 4, 2001 ------------------------------------ David Wagstaff III
II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook and State of Illinois on May 4, 2001. GREAT LAKES DREDGE & DOCK COMPANY By: /s/ DOUGLAS B. MACKIE ------------------------------------------ Douglas B. Mackie PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel, each and individually, his or her attorneys-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement or any Registration Statement for the same offering that is effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorney-in-fact, or his agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001 ------------------------------------ Director (principal executive Douglas B. Mackie officer) /s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001 ------------------------------------ and Treasurer (principal financial Deborah A. Wensel officer and principal accounting officer) and Director /s/ LESLIE A. BRAUN Corporate Secretary and Director May 4, 2001 ------------------------------------ Leslie A. Braun
II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook and State of Illinois on May 4, 2001. NORTH AMERICAN SITE DEVELOPERS, INC. By: /s/ CHRISTOPHER A. BERARDI ------------------------------------------ Christopher A. Berardi PRESIDENT
POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel, each and individually, his or her attorneys-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement or any Registration Statement for the same offering that is effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorney-in-fact, or his agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ CHRISTOPHER A. BERARDI President and Director (principal May 4, 2001 ------------------------------------ executive officer) Christopher A. Berardi /s/ DEBORAH A. WENSEL Treasurer (principal financial officer May 4, 2001 ------------------------------------ and principal accounting officer) and Deborah A. Wensel Director /s/ DOUGLAS B. MACKIE Director May 4, 2001 ------------------------------------ Douglas B. Mackie
II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook and State of Illinois on May 4, 2001. DAWSON MARINE SERVICES COMPANY By: /s/ DOUGLAS B. MACKIE ------------------------------------------ Douglas B. Mackie PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel, each and individually, his or her attorneys-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement or any Registration Statement for the same offering that is effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorney-in-fact, or his agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001 ------------------------------------ Director (principal executive Douglas B. Mackie officer) /s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001 ------------------------------------ and Treasurer (principal financial Deborah A. Wensel officer and principal accounting officer) and Director /s/ LESLIE A. BRAUN Corporate Secretary and Director May 4, 2001 ------------------------------------ Leslie A. Braun
II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook and State of Illinois on May 4, 2001. GREAT LAKES CARIBBEAN DREDGING, INC. By: /s/ DOUGLAS B. MACKIE ----------------------------------------- Douglas B. Mackie PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas B. Mackie and Deborah A. Wensel, each and individually, his or her attorneys-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement or any Registration Statement for the same offering that is effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorney-in- fact, or his agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ DOUGLAS B. MACKIE President, Chief Executive Officer and May 4, 2001 ------------------------------------ Director (principal executive Douglas B. Mackie officer) /s/ DEBORAH A. WENSEL Vice President, Chief Financial Officer May 4, 2001 ------------------------------------ and Treasurer (principal financial Deborah A. Wensel officer and principal accounting officer) and Director /s/ LESLIE A. BRAUN Corporate Secretary and Director May 4, 2001 ------------------------------------ Leslie A. Braun
II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oak Brook and State of Illinois on May 4, 2001. FIFTY-THREE DREDGING CORPORATION By: /s/ WILLIAM H. HANSON ----------------------------------------- William H. Hanson PRESIDENT (PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William H. Hanson and Paul E. Dinquel, each and individually, his or her attorneys-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement or any Registration Statement for the same offering that is effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorney-in-fact, or his agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ PAUL E. DINQUEL Vice President (principal financial May 4, 2001 ------------------------------------ officer and principal accounting Paul E. Dinquel officer) and Director /s/ SUSAN WILLIAMS Corporate Secretary and Director May 4, 2001 ------------------------------------ Susan Williams /s/ BRUCE J. BIEMECK Director May 4, 2001 ------------------------------------ Bruce J. Biemeck
II-10 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Great Lakes Dredge & Dock Corporation on Form S-4 of our report dated January 29, 2001, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Chicago, Illinois May 4, 2001 II-11 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-4 being filed by Great Lakes Dredge & Dock Corporation of our report, dated January 22, 2001, on the financial statements of Amboy Aggregates (A Joint Venture) as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000. We also consent to the reference of our Firm under the caption "Experts." J. H. Cohn LLP Roseland, New Jersey May 4, 2001 II-12 INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT We consent to the inclusion in this Registration Statement on Form S-4 being filed by Great Lakes Dredge & Dock Corporation of our report, dated March 16, 2001, on the financial statements of North American Site Developers, Inc. as of and for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998. We also consent to the reference to our firm under the caption "Experts" in the Prospectus of the Registration Statement. O'Connor & Drew P.C. Quincy, Massachusetts May 4, 2001 II-13 EX-4.02 2 a2047496zex-4_02.txt REGISTRATION RIGHTS AGREEMENT Exhibit 4.02 EXECUTION COPY ================================================================================ REGISTRATION RIGHTS AGREEMENT DATED AS OF APRIL 24, 2001 BY AND AMONG GREAT LAKES DREDGE & DOCK CORPORATION THE SUBSIDIARY GUARANTORS SET FORTH HEREIN AND CREDIT SUISSE FIRST BOSTON CORPORATION ================================================================================ This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of April 24, 2001, by and among Great Lakes Dredge and Dock Corporation, a Delaware corporation (the "COMPANY"), the Subsidiary Guarantors set forth on the signature pages hereto (each, a "SUBSIDIARY GUARANTOR" and, collectively, the "SUBSIDIARY GUARANTORS"), and Credit Suisse First Boston Corporation, acting through its affiliate Donaldson, Lufkin & Jenrette Securities Corporation (the "INITIAL PURCHASER"), who has agreed to purchase the Company's 11 1/4% Senior Subordinated Notes due 2008 (the "SENIOR SUBORDINATED NOTES") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated April 24, 2001, (the "PURCHASE AGREEMENT"), by and among the Company, the Subsidiary Guarantors and the Initial Purchaser. In order to induce the Initial Purchaser to purchase the Senior Subordinated Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchaser set forth in Section 2 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Indenture, dated August 19, 1998, among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee, relating to the Senior Subordinated Notes and the New Senior Subordinated Notes (the "INDENTURE"). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: ACT: The Securities Act of 1933, as amended. AFFILIATE: As defined in Rule 144 of the Act. BROKER-DEALER: Any broker or dealer registered under the Exchange Act. CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture. CLOSING DATE: The date hereof. COMMISSION: The Securities and Exchange Commission. CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the New Senior Subordinated Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar under the Indenture of New Senior Subordinated Notes in the same aggregate principal amount as the aggregate principal amount of Senior Subordinated Notes tendered by Holders thereof pursuant to the Exchange Offer. CONSUMMATION DEADLINE: As defined in Section 3(b) hereof. EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. EXCHANGE OFFER: The registration by the Issuer under the Act of the New Senior Subordinated Notes pursuant to a Registration Statement pursuant to which the Issuer offers the Holders of all outstanding Transfer Restricted Securities and holders of the Old Notes the opportunity to exchange all such outstanding Transfer Restricted Securities and the Old Notes held by such Holders and holders of the Old Notes for New Senior Subordinated Notes in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities and the Old Notes tendered in such exchange offer by such Holders and holders of the Old Notes. EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating to the Exchange Offer, including the related Prospectus. EXEMPT RESALES: The transactions in which the Initial Purchaser proposes to sell the Senior Subordinated Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act and pursuant to Regulation S under the Act. FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof. HOLDERS: As defined in Section 2 hereof. NEW SENIOR SUBORDINATED NOTES: The Company's 11 1/4% Senior Subordinated Notes due 2008 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as contemplated by Section 4 hereof. OLD NOTES: The Company's 11 1/4% Senior Subordinated Notes due 2008 issued on August 19, 1998. PROSPECTUS: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. RECOMMENCEMENT DATE: As defined in Section 6(d) hereof. REGISTRATION DEFAULT: As defined in Section 5 hereof. 2 REGISTRATION STATEMENT: Any registration statement of the Company and the Subsidiary Guarantors relating to (a) an offering of New Senior Subordinated Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. REGULATION S: Regulation S promulgated under the Act. RULE 144: Rule 144 promulgated under the Act. SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof. SUSPENSION NOTICE: As defined in Section 6(d) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture. TRANSFER RESTRICTED SECURITIES: Each (A) Senior Subordinated Note, until the earliest to occur of (i) the date on which such Senior Subordinated Note is exchanged in the Exchange Offer for a New Senior Subordinated Note which is entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (ii) the date on which such Senior Subordinated Note has been disposed of in accordance with a Shelf Registration Statement (and the purchasers thereof have been issued New Senior Subordinated Notes), or (iii) the date on which such Senior Subordinated Note is distributed to the public pursuant to Rule 144 under the Act and each (B) New Senior Subordinated Note held by a Broker Dealer until the date on which such New Senior Subordinated Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including the delivery of the Prospectus contained therein). SECTION 2. HOLDERS (a) TRANSFER RESTRICTED SECURITIES AND OLD NOTES. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities and the Old Notes (only with respect to the Exchange Offer). (b) HOLDERS OF TRANSFER RESTRICTED SECURITIES. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "HOLDER") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company and the 3 Subsidiary Guarantors shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 60 days after the Closing Date (such 60th day being the "FILING DEADLINE"), (ii) use its best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 180 days after the Closing Date (such 180th day being the "EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the New Senior Subordinated Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting (i) registration of the New Senior Subordinated Notes to be offered in exchange for the Senior Subordinated Notes that are Transfer Restricted Securities and the Old Notes and (ii) resales of New Senior Subordinated Notes by Broker-Dealers that tendered into the Exchange Offer Senior Subordinated Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Senior Subordinated Notes acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. (b) The Company and the Subsidiary Guarantors shall use their respective best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; PROVIDED, HOWEVER, that in no event shall such period be less than 20 Business Days. The Company and the Subsidiary Guarantors shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the New Senior Subordinated Notes shall be included in the Exchange Offer Registration Statement. The Company and the Subsidiary Guarantors shall use their respective best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 business days thereafter (such 30th day being the "CONSUMMATION DEADLINE"). (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Senior Subordinated Notes acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. 4 Because such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any New Senior Subordinated Notes received by such Broker-Dealer in the Exchange Offer, the Company and the Subsidiary Guarantors shall permit the use of the Prospectus contained in the Exchange Offer Registration Statement by such Broker-Dealer to satisfy such prospectus delivery requirement. To the extent necessary to ensure that the prospectus contained in the Exchange Offer Registration Statement is available for sales of New Senior Subordinated Notes by Broker-Dealers, the Company and the Subsidiary Guarantors agree to use their respective reasonable best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 6(a) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of 180 days from the Consummation Deadline or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company and the Subsidiary Guarantors shall provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers, promptly upon request, and in no event later than two business days after such request, at any time during such period. SECTION 4. SHELF REGISTRATION (a) SHELF REGISTRATION. If (i) the Exchange Offer is not permitted by applicable law (after the Company and the Subsidiary Guarantors have complied with the procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company within 20 Business Days following the Consummation Deadline that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the New Senior Subordinated Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, as the case may be, or (C) such Holder is a Broker-Dealer and holds Senior Subordinated Notes acquired directly from the Company or any of its Affiliates, then the Company and the Subsidiary Guarantors shall: (x) cause to be filed, on or prior to 60 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a)(ii) above (such earlier date, the "FILING DEADLINE"), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement) (in either case, the "SHELF REGISTRATION STATEMENT"), relating to all Transfer Restricted Securities, and (y) use their respective best efforts to cause such Shelf Registration Statement to become effective on or prior to 180 days after the Filing Deadline for the Shelf Registration Statement (such 180th day the "EFFECTIVENESS DEADLINE"). 5 If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law (i.e., clause (a)(i) above), then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; PROVIDED that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). To the extent necessary to ensure that the Shelf Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a), the holders of the Old Notes as contemplated by clause (ii) above and the other securities required to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and the Subsidiary Guarantors shall use their respective best efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(b) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(c)(i)) following the Closing Date), or such shorter period as will terminate when all Transfer Restricted Securities and Old Notes covered by such Shelf Registration Statement have been sold pursuant thereto. Notwithstanding the foregoing, following the date on which such Shelf Registration Statement first becomes effective under the Act, the Company may suspend the effectiveness of the Shelf Registration Statement by prior written notice to the Holders for a period not to exceed 30 days in any twelve month period if (i) an event occurs and is continuing as a result of which the Shelf Registration Statement would, in the reasonable good faith judgment of the Company's Board of Directors, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading and (ii)(A) the Company's Board of Directors reasonably determines in good faith that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company and its subsidiaries, taken as a whole, or (B) the disclosure otherwise relates to a previously undisclosed pending material business transaction, the disclosure of which would, in the reasonable good faith judgment of the Company's Board of Directors, impede the Company's ability to consummate such transaction. (b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 15 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such information. Each selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. 6 SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the Consummation Deadline or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within 5 days by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective within 5 days of filing such post-effective amendment to such Registration Statement (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and the Subsidiary Guarantors hereby jointly and severally agree to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 in principal amount of Transfer Restricted Securities; PROVIDED that the Company and the Subsidiary Guarantors shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. Notwithstanding the fact that any securities for which liquidated damages are due cease to be Transfer Restricted Securities, all obligations of the Company and the Subsidiary Guarantors to pay liquidated damages with respect to securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the Exchange Offer, the Company and the Subsidiary Guarantors shall (x) comply with all applicable provisions of Section 7 6(c) below, (y) use their respective best efforts to effect such exchange and to permit the resale of New Senior Subordinated Notes by Broker-Dealers that tendered in the Exchange Offer Senior Subordinated Notes that such Broker-Dealer acquired for its own account as a result of its market making activities or other trading activities (other than Senior Subordinated Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and (z) comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company and the Subsidiary Guarantors hereby agree to seek a no-action letter or other favorable decision from the Commission allowing the Company and the Subsidiary Guarantors to Consummate an Exchange Offer for such Transfer Restricted Securities or the Old Notes. The Company and the Subsidiary Guarantors hereby agree to pursue the issuance of such a decision to the Commission staff level, but shall not be required to take commercially unreasonable actions to effect a change in Commission policy. In connection with the foregoing, the Company and the Subsidiary Guarantors hereby agree to take all such other reasonable actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities or holder of the Old Notes (including, without limitation, any Holder who is a Broker Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company and the Subsidiary Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the New Senior Subordinated Notes to be issued in the Exchange Offer and (C) it is acquiring the New Senior Subordinated Notes in its ordinary course of business. As a condition to its participation in the Exchange Offer each Holder using the Exchange Offer to participate in a distribution of the New Senior Subordinated Notes shall acknowledge and agree that, if the resales are of New Senior Subordinated Notes obtained by such Holder in exchange for Senior Subordinated Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of 8 the Commission enunciated in MORGAN STANLEY AND CO., INC. (available June 5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), as interpreted in the Commission's letter to SHEARMAN & STERLING dated July 2, 1993, and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Subsidiary Guarantors shall provide a supplemental letter to the Commission (A) stating that the Company and the Subsidiary Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC. (available June 5, 1991) as interpreted in the Commission's letter to SHEARMAN & STERLING dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that neither the Company nor any Subsidiary Guarantor has entered into any arrangement or understanding with any Person to distribute the New Senior Subordinated Notes to be received in the Exchange Offer and that, to the best of the Company's and each Subsidiary Guarantor's information and belief, each Holder or holder of the Old Notes participating in the Exchange Offer is acquiring the New Senior Subordinated Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the New Senior Subordinated Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) SHELF REGISTRATION STATEMENT. In connection with the Shelf Registration Statement, the Company and the Subsidiary Guarantors shall: (i) comply with all the provisions of Section 6(c) below and use their respective best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company and the Subsidiary Guarantors will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof, and 9 (ii) issue, upon the request of any Holder or purchaser of Senior Subordinated Notes covered by any Shelf Registration Statement contemplated by this Agreement, New Senior Subordinated Notes having an aggregate principal amount equal to the aggregate principal amount of Senior Subordinated Notes sold pursuant to the Shelf Registration Statement and surrendered to the Company for cancellation; the Company shall register New Senior Subordinated Notes on the Shelf Registration Statement for this purpose and issue the New Senior Subordinated Notes to the purchaser(s) of securities subject to the Shelf Registration Statement in the names as such purchaser(s) shall designate. (c) GENERAL PROVISIONS. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company and the Subsidiary Guarantors shall: (i) use their respective best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company and the Subsidiary Guarantors shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use their respective best efforts to cause such amendment to be declared effective as soon as practicable. (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise each Holder promptly and, if requested by such Holder, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the 10 Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company and the Subsidiary Guarantors shall use their respective best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to each selling Holder in connection with such sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders in connection with such sale, if any, for a period of at least five business days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such selling Holders shall reasonably object within five business days after the receipt thereof. A selling Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading or fails to comply with the applicable requirements of the Act; 11 (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to each selling Holder in connection with such sale, if any, make the Company's and the Subsidiary Guarantors' representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such selling Holders may reasonably request; (vii) make available, at reasonable times, for inspection by each Holder and any attorney or accountant retained by such Holders, all financial and other records, pertinent corporate documents of the Company and the Subsidiary Guarantors and cause the Company's and the Subsidiary Guarantors' officers, directors and employees to supply all information reasonably requested by any such Holder, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any Holders in connection with such exchange or sale, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Holders may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each Holder in connection with such exchange or sale, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each Holder without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company and the Subsidiary Guarantors hereby consent to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each selling Holder in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) upon the request of any Holder, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or 12 facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection, the Company and the Subsidiary Guarantors shall: (A) upon request of any Holder, furnish (or in the case of paragraphs (2) and (3), use its best efforts to cause to be furnished) to each Holder, upon Consummation of the Exchange Offer or upon the effectiveness of the Shelf Registration Statement, as the case may be: (1) a certificate, dated such date, signed on behalf of the Company and each Subsidiary Guarantor by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company and such Subsidiary Guarantor, confirming, as of the date thereof, the matters set forth in Sections 6(y), 9(a) and 9(b) of the Purchase Agreement and such other similar matters as such Holders may reasonably request; (2) opinions, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company and the Subsidiary Guarantors covering matters similar to those set forth in paragraphs (e) and (f) of Section 9 of the Purchase Agreement and such other matter as such Holder may reasonably request, and in any event including a statement (which may be provided in a letter separate from the opinion) to the effect that such counsel has participated in conferences with officers and other representatives of the Company and the Subsidiary Guarantors, representatives of the independent public accountants for the Company and the Subsidiary Guarantors and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Company and the Subsidiary Guarantors) and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration Statement, as of the date of Consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of 13 Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of Consummation of the Exchange Offer, or as of the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(j) of the Purchase Agreement; and (B) deliver such other documents and certificates as may be reasonably requested by the selling Holders to evidence compliance with the matters covered in clause (A) above and with any customary conditions contained in the any agreement entered into by the Company and the Subsidiary Guarantors pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; PROVIDED, HOWEVER, that neither the Company nor any Subsidiary Guarantor shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two business days prior to such sale of Transfer Restricted Securities; 14 (xiv) use their respective best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xv) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvi) otherwise use their respective best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); and (xvii) provide promptly to each Holder, upon request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. 15 SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's and the Subsidiary Guarantors' performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the New Senior Subordinated Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, the Subsidiary Guarantors and, subject to Section 7(b) below, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the New Senior Subordinated Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company and the Subsidiary Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its and the Subsidiary Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Subsidiary Guarantors. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company and the Subsidiary Guarantors will reimburse the Initial Purchaser and the Holders of Transfer Restricted Securities who are tendering Senior Subordinated Notes into in the Exchange Offer and/or selling or reselling Senior Subordinated Notes or New Senior Subordinated Notes pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins, unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company and the Subsidiary Guarantors agree, jointly and severally, to indemnify and hold harmless each Holder, its directors, officers and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities, judgments, (including without limitation, any reasonable legal or other reasonable expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of New Senior Subordinated Notes or registered Senior Subordinated 16 Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders; PROVIDED, HOWEVER, that the foregoing indemnity agreement with respect to any Registration Statement, preliminary prospectus or Prospectus shall not inure to the benefit of any Holder who failed to deliver a final Prospectus (as then amended or supplemented, provided by the Company to the several Holders in the requisite quantity and on a timely basis to permit proper delivery on or prior to written confirmation of such sale) to the person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in the final Prospectus and it shall have been determined that such person would not have incurred such losses, claims, damages and liabilities and judgments had the final Prospectus been delivered. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Subsidiary Guarantors, and their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, or the Subsidiary Guarantors to the same extent as the foregoing indemnity from the Company and the Subsidiary Guarantors set forth in section (a) above, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the 17 indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company and Subsidiary Guarantors, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its prior written consent or (ii) effected without its prior written consent if the settlement is entered into more than thirty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request for the fees and expenses of counsel (unless the reasonableness of such fees and expenses of counsel is being contested in good faith). No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company and the Subsidiary Guarantors, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, 18 liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and the Subsidiary Guarantors, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Subsidiary Guarantor, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Subsidiary Guarantors and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder, its directors, its officers or any Person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. SECTION 9. RULE 144A AND RULE 144 The Company and each Subsidiary Guarantor agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company or such Subsidiary Guarantor (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 10. MISCELLANEOUS 19 (a) REMEDIES. The Company and the Subsidiary Guarantors acknowledge and agree that any failure by the Company and/or the Subsidiary Guarantors to comply with their respective obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchaser or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchaser or any Holder may obtain such relief as may be required to specifically enforce the Company's and the Subsidiary Guarantors' obligations under Sections 3 and 4 hereof. The Company and the Subsidiary Guarantors further agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any Subsidiary Guarantor will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as disclosed in the Offering Memorandum of the Company dated April 18, 2001 with respect to the Senior Subordinated Notes, neither the Company nor any Subsidiary Guarantor has previously entered into any agreement granting any registration rights with respect to its securities to any Person which still provides such registration rights to such Person other than the 1998 Registration Rights Agreement which still provides such registration rights to such Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and the Subsidiary Guarantors' securities under any agreement in effect on the date hereof. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose Transfer Restricted Securities are being tendered pursuant to the Exchange Offer, and that does not affect directly or indirectly the rights of other Holders whose Transfer Restricted Securities are not being tendered pursuant to such Exchange Offer, may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) THIRD PARTY BENEFICIARY. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company and the Subsidiary Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. 20 (e) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company or the Subsidiary Guarantors: Great Lakes Dredge & Dock Company 2122 York Road Oak Brook, Illinois 60532 Telecopier No.: (708) 574-2981 Attention: Chief Financial Officer With a copy to: Dechert 4000 Bell Atlantic Tower 171 Arch Street Philadelphia, Pennsylvania 19103-2793 Telecopier No.: (215) 994-2222 Attention: John D. LaRocca All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; PROVIDED, HOWEVER, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor acquired Transfer Restricted Securities directly from such Holder, and that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the 21 restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. GREAT LAKES DREDGE & DOCK CORPORATION By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO GREAT LAKES DREDGE & DOCK COMPANY By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO DAWSON MARINE SERVICES COMPANY By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO GREAT LAKES CARIBBEAN DREDGING, INC. By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO FIFTY-THREE DREDGING CORPORATION By: /s/ Paul Dinquel -------------------------------------- Name: Paul Dinquel Title: Vice President NORTH AMERICAN SITE DEVELOPERS, INC. By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President CREDIT SUISSE FIRST BOSTON CORPORATION By: /s/ -------------------------------------- Name: Title: EX-4.05 3 a2047496zex-4_05.txt SUPPLEMENTAL INDENTURE Exhibit 4.05 EXECUTION COPY NORTH AMERICAN SITE DEVELOPERS, INC. SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as of the 24th of April, 2001, among North American Site Developers, Inc. (the "GUARANTEEING SUBSIDIARY"), a subsidiary of Great Lakes Dredge & Dock Corporation (or its permitted successor), a Delaware corporation (the "COMPANY"), the Company, the other Subsidiary Guarantors (as defined in the Indenture referred to herein) and The Bank of New York, as trustee under the indenture referred to below (the "TRUSTEE"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "INDENTURE"), dated as of August 19, 1998 providing for the issuance of an aggregate principal amount of up to $165,000,000 of 11 1/4% Senior Subordinated Notes due 2008 (the "NOTES"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "SUBSIDIARY GUARANTEE"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Subsidiary Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will 1 be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture, and the Guaranteeing Subsidiary accepts all obligations of a Subsidiary Guarantor under the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Subsidiary Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of this Subsidiary Guarantee. 2 (h) The Subsidiary Guarantors shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) Pursuant to Section 11.02 of the Indenture, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under Article 11 of the Indenture, this new Subsidiary Guarantee shall be limited to the maximum amount permissible such that the obligations of such Subsidiary Guarantor under this Subsidiary Guarantee will not constitute a fraudulent transfer or conveyance. 3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the Subsidiary Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. 4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Subsidiary Guarantor unless: (i) subject to Sections 11.05 and 11.06 of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than a Subsidiary Guarantor or the Company) unconditionally assumes all the obligations of such Subsidiary Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; provided, however, that this Section shall not apply to the merger of Great Lakes/North American Site Developers, Inc. with and into North American Site Developers, Inc. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All 3 the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 and Section 11.05 of Article 11 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor, or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor. 5. RELEASES. (a) In the event of a sale or other disposition of all of the assets of any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all to the capital stock of any Subsidiary Guarantor, in each case to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of the Company, then such Subsidiary Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Subsidiary Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Subsidiary Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; PROVIDED that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Subsidiary Guarantor from its obligations under its Subsidiary Guarantee. (b) Any Subsidiary Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Subsidiary Guarantor under the Indenture as provided in Article 11 of the Indenture. 6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 4 7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. COUNTERPARTS The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. 5 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: April 24, 2001 NORTH AMERICAN SITE DEVELOPERS, INC. By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President GREAT LAKES DREDGE & DOCK CORPORATION By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO GREAT LAKES DREDGE & DOCK COMPANY By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO DAWSON MARINE SERVICES COMPANY By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO GREAT LAKES CARIBBEAN DREDGING, INC. By: /s/ Deborah A. Wensel -------------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO FIFTY-THREE DREDGING CORPORATION By: /s/ Paul Dinquel -------------------------------------- Name: Paul Dinquel Title: Vice President 6 GREAT LAKES/NORTH AMERICAN SITE DEVELOPERS, INC. By: /s/ Leslie A. Braun -------------------------------------- Name: Leslie A. Braun Title: Clerk THE BANK OF NEW YORK, as Trustee By: /s/ Mary LaGunima -------------------------------------- Name: Mary LaGunima Title: Vice President 7 SCHEDULE I SCHEDULE OF SUBSIDIARY GUARANTORS The following schedule lists each Subsidiary Guarantor under the Indenture as of the date of the Indenture: Great Lakes Dredge & Dock Company Dawson Marine Services Company Great Lakes Caribbean Dredging, Inc. Fifty-Three Dredging Corporation Great Lakes/North American Site Developers, Inc. North American Site Developers, Inc. EX-10.04 4 a2047496zex-10_04.txt AMENDED & RESTATED CREDIT AGR Exhibit 10.04 EXECUTION COPY AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 24, 2001 among GREAT LAKES DREDGE AND DOCK CORPORATION, AS THE BORROWER, THE OTHER LOAN PARTIES, AS LOAN PARTIES, THE FINANCIAL INSTITUTIONS PARTY HERETO, AS THE LENDERS, AND BANK OF AMERICA, N.A., AS ISSUING LENDER AND THE ADMINISTRATIVE AGENT BANC OF AMERICA SECURITIES LLC, AS LEAD ARRANGER AND BOOK MANAGER AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT ("AGREEMENT") is being executed and delivered as of April 24, 2001, by and among Great Lakes Dredge & Dock Corporation, a Delaware corporation (the "BORROWER"), the other "Loan Parties" from time to time party to the Credit Agreement referred to and defined below (collectively, the "LOAN PARTIES"), the financial institutions from time to time party to such Credit Agreement referred to and defined below (collectively, the "LENDERS") and Bank of America, N.A. (as successor to Bank of America National Trust and Savings Association), as representative of the Lenders (in such capacity, the "ISSUING LENDER" and the "ADMINISTRATIVE AGENT"). Undefined Capitalized terms used herein shall have the meanings ascribed to such terms in such Credit Agreement. W I T N E S S E T H: WHEREAS, the Borrower, the other Loan Parties, the Lenders, the Administrative Agent and the Issuing Lender have entered into that certain Credit Agreement dated as of August 19, 1998, as heretofore amended by that certain Amendment No. 1 dated as of October 8, 1999 and that certain Amendment No.2 dated as of October 23, 2000 (the "CREDIT AGREEMENT"), pursuant to which, among other things, the Lenders have agreed to provide, subject to the terms and conditions contained therein, certain loans and other financial accommodations to the Borrower; WHEREAS, the Borrower has informed the Administrative Agent and the Lenders that it has entered into a certain Stock Purchase Agreement dated as of April 16, 2001, together with exhibits and schedules (as amended from time to time in accordance with this Agreement, the "ACQUISITION AGREEMENT"), pursuant to which Great Lakes/North American Site Developers, Inc., a newly organized wholly-owned Massachusetts direct corporate subsidiary of the Borrower ("NASDI NEWCO"), would purchase all of the issued and outstanding capital stock of North American Site Developers, Inc., a Massachusetts corporation ("NASDI"), in consideration to the former NASDI shareholders of $35,000,000 in cash, $3,000,000 in aggregate initial principal amount of junior subordinated promissory notes issued by Newco and guaranteed by the Borrower on a junior subordinated basis pursuant to the forms of promissory notes and guaranty attached to the Acquisition Agreement (such promissory note being hereinafter referred to as the "NASDI ACQUISITION NOTE"), and nonvoting capital stock of Newco representing 20% of the issued and outstanding equity capital of NASDI Newco; WHEREAS, the Borrower has informed the Administrative Agent and the Lenders that it desires to (i) issue and sell an additional $40,000,000 of its 11.25% Senior Subordinated Notes due 2008 under the existing Note Indenture (the "2001 NOTE ISSUANCE") as described in the Confidential Offering Circular dated as of April 18, 2001 (the "OFFERING CIRCULAR"), to lend approximately $32,000,000 to NASDI Newco to facilitate NASDI Newco's payment of the cash consideration due the former NASDI shareholders pursuant to the Acquisition Agreement and related fees and expenses, and cause NASDI Newco to execute and deliver to the Borrower a promissory note to evidence such loan (the "NASDI INTERCOMPANY NOTE"), and (ii) apply the balance of the proceeds of the 2001 Note Issuance to repay a portion of the outstanding principal balance of the Revolving Loans and to pay fees and expenses incurred by the Borrower in connection with the Acquisition Agreement, the 2001 Note Issuance and this Agreement, and the transactions contemplated thereby; WHEREAS, immediately following the consummation of the stock purchase contemplated by the Acquisition Agreement, NASDI Newco would merge with and into NASDI pursuant to that certain Agreement and Plan of Merger dated as of April 24, 2001 (the "MERGER AGREEMENT"), resulting in the former management NASDI shareholders directly owning 20% of the outstanding equity of NASDI, the Borrower directly owning 80% of such outstanding equity and all of the issued and outstanding Voting Stock of NASDI, and NASDI assuming by operation of law all of NASDI Newco's liabilities, including, without limitation, its obligations with respect to the NASDI Acquisition Note and the NASDI Intercompany Note (the transactions contemplated by the Acquisition Agreement and the Merger Agreement being hereinafter collectively refereed to as the "ACQUISITION"); WHEREAS, subject to the terms and conditions of this Agreement, the Lenders have agreed to amend the Credit Agreement to permit the Acquisition, the 2001 Note Issuance and the related transactions described above; and WHEREAS, in anticipation of the modifications to be effected pursuant to this Agreement, the Lenders have agreed to reallocate their respective Commitments and interests in the outstanding Loans and other outstanding financial accommodations under the Credit Agreement, and to sell and assign certain portions thereof to certain new Lenders, all pursuant to a certain Assignment and Acceptance Agreement of even date herewith among such Lenders, the Administrative Agent and the Borrower (the "2001 ASSIGNMENT AGREEMENT"), which agreement would become effective upon the satisfaction of the conditions to effectiveness of this Agreement, but immediately prior to the effectiveness of this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the terms and conditions stated herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Borrower, the other Loan Parties, the Lenders and the Administrative Agent, such parties hereby agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. Subject to the satisfaction of each of the conditions set forth in PARAGRAPH 2 of this Agreement, the Credit Agreement is amended as follows (unless otherwise specified, section, exhibit and schedule references refer to sections, exhibits and schedules of the Credit Agreement): (a) The last sentence of SECTION 2.8.1 is deleted in its entirety and replaced with the following provision: No mandatory or voluntary prepayment of principal of the Loans shall cause a reduction in the Revolving Commitment Amount, except as provided in SECTIONS 2.2 and 2.8.2. (b) SECTION 2.8.2 is amended to add the following provision to the end of such section: 2 To the extent such mandatory prepayments are applied to the outstanding principal balance of the Revolving Loans pursuant to this section (or amounts applied to cash collateralize Letter of Credit Obligations pursuant to this section are applied to satisfy such Letter of Credit Obligations), the Revolving Commitment shall be thereupon permanently reduced by the amounts so applied. (c) SECTION 6.1(c) is amended to delete the word "and" at the end of CLAUSE (H) of such section, to redesignate existing CLAUSE (I) as new CLAUSE (J) thereof, and to add the following new CLAUSE (I) to such section immediately following existing CLAUSE (H): (I) transactional contractors pollution coverage of not less than $20,000,000; and (d) SECTION 6.1(p) is amended to add the following parenthetical to such section immediately following the initial phrase "Upon a Person becoming, after the Closing Date, a Subsidiary of the Borrower": (other than NASDI Newco) (e) SECTION 6.1(p) is further amended to delete CLAUSE (i) thereof in its entirety and to replace such clause with the following provision: (i) such Person shall execute a Subsidiary Guaranty and other Collateral Documents in substantially the same forms as the other Subsidiary Guaranties and Collateral Documents then in existence and otherwise in form and substance reasonably satisfactory to the Administrative Agent (but only to the extent not prohibited by the Bonding Agreement or the Intercreditor Agreement, each as in effect on the Closing Date) (f) SECTION 6.2(a) is amended to delete the word "and" which appears at the end of CLAUSE (i) of such section, to replace the period at the end of CLAUSE (ii) of such section with ", and" and to add the following new CLAUSE (iii) to the end of such section: (iii) the NASDI Acquisition and NASDI Merger. (g) SECTION 6.2(b) is amended to delete CLAUSE (xi) in its entirety and to replace such clause with the following provisions: (xi) (A) the initial $5,000,000 capitalization of NASDI Newco and (B) an approximate $32,000,000 loan by the Borrower to NASDI Newco to facilitate the payment of the cash consideration due to NASDI's former shareholders in connection with the NASDI Acquisition, provided that such loan is evidenced by the NASDI Intercompany Note and pledged to the Administrative Agent pursuant to the Note Pledge Agreement; and (h) CLAUSE (iv) of SECTION 6.2(c) is deleted in its entirety (but not the PROVISO which immediately follows such clause) and replaced with the following provision: 3 (iv) any Subsidiary of the Borrower may make Restricted Payments ratably among all of its equity holders (i) SECTION 6.2(f) is amended to add the following new CLAUSE (vi) to such section immediately following existing CLAUSE (v) thereof, and to redesignate existing CLAUSE (vi) thereof as new CLAUSE (vii): (vi) a Guaranty by the Borrower of the indebtedness evidenced by the NASDI Acquisition Note pursuant to the NASDI Acquisition Note Guaranty (j) SECTION 6.2(g) is amended to delete CLAUSE (iii) of such section in its entirety and to replace such clause with the following provision: (iii) is a transfer by NASDI Newco of 20% of its capital stock in the form of nonvoting common stock to the former management stockholders of NASDI as part of its payment of the purchase price consideration pursuant to NASDI Acquisition Agreements. (k) SECTION 6.2(i) is amended to delete the phrase "subordinated to the Obligations in a manner reasonably satisfactory to the Administrative Agent and" set forth in CLAUSE (iv) of such section. (l) SECTION 6.2(i) is further amended to delete CLAUSE (x) in its entirety and to replace such clause with the following provision: (x) Debt evidenced by the NASDI Acquisition Note; (m) SECTION 6.2(i) is further amended to delete the figure "$115,000,000" set forth in CLAUSE (xi) of such section and to replace such figure with the figure "$155,000,000." (n) SECTION 6.2(i) is further amended to delete the cross reference to CLAUSE (vi) of SECTION 6.2(f) set forth in CLAUSE (xiv) of such section and to replace such cross reference with a cross reference to CLAUSE (vii) of SECTION 6.2(f). (o) SECTION 6.2(k) is amended to add the following provision to the end of CLAUSE (i) of such section: , or the commercial and industrial demolition business (p) SECTION 6.2(o) is amended to redesignate CLAUSE (a) thereof as CLAUSE (i), to delete CLAUSE (b) thereof in its entirety, and to replace such CLAUSE (b) with the following provisions: (ii) the Merger Agreement, the Shareholders Agreement, any of the NASDI Acquisition Agreements (other than amendments, supplements or other modifications of the NASDI Acquisition Agreements which are not adverse to the rights or interests of the Secured Parties under the Loan Documents), or the Note Indenture (other than modifications of the Note Indenture pursuant to the terms of Section 9.01 thereof). In addition, the 4 Borrower shall not consent to the transfer or assignment of the NASDI Acquisition Note or any interest therein by any payee thereunder without first providing written notice to the Administrative Agent of the date of such transfer or assignment and the name(s) and address(es) of the transferee(s) or assignee(s) with respect thereto. (q) SECTIONS 6.3(a) through 6.3(d) are deleted in their entirety and replaced with the following provisions: (a) CAPITAL EXPENDITURES AND PERMITTED BUSINESS ACQUISITIONS. The Borrower and its consolidated Subsidiaries shall not make or permit Capital Expenditures and Permitted Business Acquisitions in an aggregate amount in excess of $18,000,000 (excluding all expenditures incurred to consummate the NASDI Acquisition) during any Fiscal Year commencing with Fiscal Year 2001 (with respect to any such Fiscal Year, the "BASE CAPITAL EXPENDITURE AMOUNT"); PROVIDED, HOWEVER, that the Base Capital Expenditure Amount for any Fiscal Year after Fiscal Year 2001 may be increased by an amount equal to the lesser of (i) $6,000,000 and (ii) the excess, if any, of (A) the Base Capital Expenditure Amount for the immediately preceding Fiscal Year, over (B) the actual amount of Capital Expenditures and Permitted Business Acquisitions made by the Borrower and its Subsidiaries during such immediately preceding Fiscal Year. (b) MAXIMUM TOTAL LEVERAGE. The Borrower and its consolidated Subsidiaries shall not permit the ratio (the "TOTAL LEVERAGE RATIO") of (i) the aggregate unpaid principal amount of Total Funded Debt as of the last day of any Fiscal Quarter ending during the periods described below (each, a "TOTAL LEVERAGE RATIO TEST DATE") to (ii) EBITDA for the four (4) consecutive Fiscal Quarter period ending as of such Total Leverage Ratio Test Date, to exceed the corresponding ratio set forth below opposite such period:
Period Ratio ------ ----- Closing Date through and including December 31, 2002 4.50 to 1.00 January 1, 2003 through and including December 31, 2003 4.25 to 1.00 January 1, 2004 and thereafter 4.00 to 1.00
(c) MAXIMUM SENIOR LEVERAGE. The Borrower and its consolidated Subsidiaries shall not permit the ratio of (i) the aggregate unpaid principal amount of Senior Debt as of last day of any Fiscal Quarter ending during the periods described below to (ii) EBITDA for the four (4) consecutive Fiscal Quarter period ending as of such date, to exceed the corresponding ratio set forth below opposite such period:
Period Ratio ------ ----- Closing Date through and 5 including December 31, 2001 2.00 to 1.00 January 1, 2002 through and including December 31, 2002 1.75 to 1.00 January 1, 2003 and thereafter 1.50 to 1.00
(d) DEBT SERVICE COVERAGE RATIO. The Borrower and its consolidated Subsidiaries shall not permit the ratio of (i) EBITDA for any four (4) consecutive Fiscal Quarter period ending as of the last day of any Fiscal Quarter ending during the period described below to (ii) the sum of scheduled payments of principal (excluding mandatory and voluntary prepayments) with respect to Debt (including Capitalized Rentals attributable the principal portion of Capitalized Leases), plus Interest Expense, in each case for the four (4) consecutive Fiscal Quarter period ending as of such date, to be less than the corresponding ratio set forth below opposite such period:
Period Ratio ------ ----- Closing Date through and including December 31, 2001 1.25 to 1.00 January 1, 2002 through and including December 31, 2002 1.50 to 1.00 January 1, 2003 through and including December 31, 2003 1.75 to 1.00 January 1, 2004 and thereafter 2.00 to 1.00.
(r) SECTION 6.3 is further amended to add the following provisions to the end of such section: (f) INTEREST COVERAGE RATIO. The Borrower and its consolidated Subsidiaries shall not permit the ratio of (i) EBITDA for the four (4) consecutive Fiscal Quarter period ending as of March 31, 2001 to (ii) Interest Expense for such four (4) consecutive Fiscal Quarter period, to be less than the 2.00 to 1.00. (g) PRE-ACQUISITION EBITDA CALCULATIONS. Notwithstanding anything herein to the contrary, each calculation of EBITDA for the four (4) consecutive Fiscal Quarter periods ending June 30, September 30 and December 31, 2001 and March 31, 2002 pursuant to SECTIONS 6.3(b), 6.3(c) and 6.3(d) shall be determined on a combined historical basis for the Borrower and NASDI, shall exclude, in the case of NASDI's EBITDA, any deduction from such EBITDA for bonuses paid by NASDI during such periods (but prior to the consummation of the NASDI Acquisition), and otherwise shall be determined in accordance with GAAP. 6 (s) SECTION 7.1(d) is amended to add the following provision to the end of such section: ; or an "Event of Default" shall have occurred under and as defined in the NASDI Acquisition Note. (t) SECTION 7.1(j)(ii) is deleted in its entirety and replaced with the following provision: (ii) the failure of the Borrower (A) to own (directly or indirectly), free and clear of all Liens or other encumbrances (other than any Lien or encumbrance created by the Loan Documents), 100% of the outstanding shares of each class of capital stock of any Subsidiary Guarantor on a fully diluted basis, or, in the case of NASDI, at least 75% of the outstanding equity capital, or 100% of the outstanding Voting Stock, of NASDI, or (B) to have the power (directly or indirectly) to direct or cause the direction of the management or policies of any such Subsidiary Guarantor. (u) SECTION 9.1(a) is deleted in its entirety and replaced with the following provision: (a) [intentionally omitted]. (v) SECTION 9.1 is further amended to add the following provision to the end of such section: , and no amendment, waiver or consent shall effect an increase in any of the Commitments of any Lender without such Lender's express written approval. (w) EXHIBIT F is deleted in its entirety and replaced with the form attached hereto as ANNEX 1. (x) SCHEDULE I is amended to delete the definition(s) of "APPLICABLE BASE RATE MARGIN," "APPLICABLE COMMITMENT FEE PERCENTAGE," "APPLICABLE EURODOLLAR RATE MARGIN," "APPLICABLE FINANCIAL LETTER OF CREDIT FEE PERCENTAGE," and "APPLICABLE PERFORMANCE LETTER OF CREDIT FEE PERCENTAGE," in their entirety and to replace such definition(s) with the following provisions: "APPLICABLE BASE RATE MARGIN," "APPLICABLE COMMITMENT FEE PERCENTAGE," "APPLICABLE EURODOLLAR RATE MARGIN," "APPLICABLE FINANCIAL LETTER OF CREDIT FEE PERCENTAGE," and "APPLICABLE PERFORMANCE LETTER OF CREDIT FEE PERCENTAGE" respectively mean, during any Pricing Period, the amount set forth below for such Applicable Base Rate Margin, Applicable Commitment Fee Percentage, Applicable Eurodollar Rate Margin, Applicable Financial Letter of Credit Fee Percentage or Applicable Performance Letter of Credit Fee Percentage, as the case may be, depending upon the Total Leverage Ratio as of the last day of the Fiscal Quarter most recently ended prior to the first day of such Pricing Period (calculating EBITDA in the manner described in SECTION 6.3(g) for the periods ending June 30, September 30 and December 31, 2001 and March 31, 2002): 7
----------------------------------------------------------------------------------------------------------- Applicable Applicable Total Applicable Applicable Applicable Financial Performance Leverage Base Rate Commitment Eurodollar Rate Letter of Credit Letter of Credit Ratio Margin Fee Percentage Margin Fee Percentage Fee Percentage ----------------------------------------------------------------------------------------------------------- Less than or 0.00% 0.30% 1.25% 1.25% 0.625% equal to 2.25x ----------------------------------------------------------------------------------------------------------- Greater than 0.0% 0.35% 1.50% 1.50% 0.750% 2.25x but less than or equal to 2.75x ----------------------------------------------------------------------------------------------------------- Greater than 0.25% 0.40% 1.75% 1.75% 0.875% 2.75x but less than or equal to 3.25x ----------------------------------------------------------------------------------------------------------- Greater than 0.50% 0.45% 2.00% 2.00% 1.00 % 3.25x but less than or equal to 3.75x ----------------------------------------------------------------------------------------------------------- Greater than 0.75% 0.50% 2.25% 2.25% 1.125% 3.75x -----------------------------------------------------------------------------------------------------------
PROVIDED, HOWEVER, that (i) if and for so long as the Borrower shall have failed to timely deliver a Compliance Certificate under SECTION 6.4(b) or SECTION 6.4(c) with respect to such Fiscal Quarter most recently ended, the Applicable Base Rate Margin, Applicable Commitment Fee Percentage, Applicable Eurodollar Rate Margin, Applicable Financial Letter of Credit Fee Percentage, and Applicable Performance Letter of Credit Fee Percentage for such Pricing Period shall be determined as if the Total Leverage Ratio is greater than or equal to 3.75 to 1.00, (ii) notwithstanding the foregoing, for the period beginning on April 24, 2001 and ending on the last day of the first Pricing Period commencing after such date(I.E., pertaining to the Fiscal Quarter ending June 30, 2001), the Applicable Base Rate Margin, Applicable Commitment Fee Percentage, Applicable Eurodollar Rate Margin, Applicable Financial Letter of Credit Fee Percentage, and Applicable Performance Letter of Credit Fee Percentage for such Pricing Period shall be determined as if the Total Leverage Ratio is greater than 2.75 to 1.00 but less than or equal to 3.25 to 1.00, and (iii) notwithstanding the foregoing, the Applicable Performance Letter of Credit Fee Percentage shall be subject to change in accordance with SECTION 2.10(c). (y) SCHEDULE I is further amended to modify the definition of "NOTE INDENTURE" to add the phrase "and the 2001 Note Issuance" to the end of such definition. (z) SCHEDULE I is further amended to modify the definition of "NOTE INDENTURE OBLIGATIONS" to delete the phrase "Note Indenture and Note Issuance" set forth in CLAUSE (a) thereof and to replace such phrase with the phrase "Note Indenture, the Note Issuance and the 2001 Note Issuance." 8 (aa) SCHEDULE I is further amended to modify the definition of "NOTE ISSUANCE" to add the phrase "on August 19, 1998" thereto immediately following the existing phrase "means the issuance" set forth therein. (bb) SCHEDULE I is further amended to modify the definition of "RESTRICTED PAYMENTS" to add the following provision immediately following CLAUSE (iv) thereof and to redesignate existing CLAUSE (v) thereof as CLAUSE (vi): (v) any voluntary prepayment, redemption, or repurchase or other voluntary payment of principal with respect to the NASDI Acquisition Note, or any voluntary payment or other prepayment of interest with respect thereto, (cc) SCHEDULE I is further amended to add the following new definitions to such schedule in their respective alphabetical or numerical locations: "2001 NOTE ISSUANCE" means the issuance by the Borrower on April 24, 2001 of $40,000,000 in original aggregate principal amount of its 11.25% Senior Subordinated Notes due 2008 pursuant to the Note Indenture. "NASDI" means North American Site Developers, Inc., a Massachusetts corporation. "NASDI ACQUISITION" means the Borrower's acquisition of 80% (after giving effect to the NASDI Merger) the outstanding capital stock of NASDI (representing all of the issued and outstanding Voting Stock of NASDI) pursuant to the terms and conditions of the NASDI Acquisition Agreements. "NASDI ACQUISITION AGREEMENTS" means, collectively, that certain Stock Purchase Agreement dated as of April 16, 2001 (including disclosure schedules) among the Borrower, NASDI Newco, NASDI and the former stockholders of NASDI, that certain Stockholders Agreement dated as of April 24, 2001 among the Borrower, NASDI Newco, NASDI and certain of the former stockholders of NASDI, the NASDI Merger Agreement, the NASDI Acquisition Note, the NASDI Intercompany Note and NASDI Acquisition Note Guaranty. "NASDI ACQUISITION NOTE" means, collectively, those certain Junior Subordinated Promissory Notes dated as of April 24, 2001 in an aggregate initial principal amount of $3,000,000 executed and delivered by NASDI Newco (and assumed by NASDI by operation of the NASDI Merger) and made payable to certain of the former non-management stockholders of NASDI. "NASDI ACQUISITION NOTE GUARANTY" means that certain Subordinated Guaranty dated as of April 24, 2001 executed and delivered by the Borrower with respect to the NASDI Acquisition Note in favor of certain of the former non-management stockholders of NASDI. "NASDI INTERCOMPANY NOTE" means that certain promissory note dated as of April 24, 2001 in an aggregate initial principal amount of approximately $32,000,000 9 executed and delivered by NASDI Newco (and assumed by NASDI by operation of the NASDI Merger) in connection with the NASDI Acquisition and made payable to the Borrower. "NASDI MERGER" means the merger of NASDI Newco with and into NASDI pursuant to the NASDI Merger Agreement. "NASDI MERGER AGREEMENT" that certain Agreement and Plan of Merger dated as of April 24, 2001 between NASDI Newco and NASDI. "NASDI NEWCO" means Great Lakes/North American Site Developers, Inc., a Massachusetts corporation and direct Subsidiary of the Borrower. 2. EFFECTIVENESS OF THIS AGREEMENT; CONDITIONS PRECEDENT. The provisions of PARAGRAPH 1 of this Agreement shall be deemed to have become effective as of the date of this Agreement, but such effectiveness shall be expressly conditioned upon the satisfaction of each of the following: (a) the Administrative Agent's receipt of originally-executed counterparts of this Agreement executed by duly authorized officers of the Borrower, the other Loan Parties and each of the Lenders (after giving effect to the 2001 Assignment Agreement); (b) the Administrative Agent's receipt of originally-executed counterparts of the 2001 Assignment Agreement executed by each of the Lenders named as parties thereto, and the Borrower, and such 2001 Assignment Agreement shall have become effective; (c) the Administrative Agent's receipt of fully-executed copies of substituted and amended Notes executed and delivered by the Borrower and made payable to each Lender, reflecting each Lender's reallocated Revolving Commitment and outstanding Term Loan after giving effect to assignments and assumptions contemplated by the 2001 Assignment Agreement; (d) the Administrative Agent's receipt of originally-executed counterparts of the Accession Agreement, Collateral Documents and each of the other agreements, instruments, certificates, opinions and deliveries to be executed and or delivered by NASDI, the other Loan Parties and certain other Persons, as described in the list of closing documents attached hereto as ANNEX 2 (the "CLOSING LIST"); (e) the 2001 Note Issuance shall be consummated (subject to the effectiveness of this Agreement) in accordance with the Note Indenture, and with the Offering Circular, and the Borrower shall have received Net Cash Proceeds of not less than $35,000,000 in connection therewith; (f) (1) the Borrower shall have funded the approximate $32,000,000 loan to be evidenced by the NASDI Intercompany Note, (2) the Acquisition shall have been consummated, and the NASDI Acquisition Note issued, pursuant to the terms and conditions of the Acquisition Agreement and the form of NASDI Acquisition Note, (3) the cash and non-cash portions of the purchase price consideration of the Acquisition shall have been paid and delivered to NASDI's former shareholders, (4) the sum of the gross consideration and related 10 fees and expenses with respect to the Acquisition did not exceed $42,000,000, and (5) the sum of the gross cash consideration and related fees and expenses with respect to the Acquisition did not exceed $39,000,000; and (g) the Administrative Agent shall have received, in immediately available funds, payment in full of all fees then due and payable to the Administrative Agent, the Lenders and Banc of America Securities LLC pursuant to that certain fee letter agreement dated as of March 16, 2001 between the Borrower and Banc of America Securities, LLC. 3. REPRESENTATIONS AND WARRANTIES. (a) The Borrower and each other Loan Party hereby represents and warrants that this Agreement, the Credit Agreement as amended by this Agreement, and each of the Loan Documents described in the Closing List and to be executed and delivered by one or more Loan Parties (together with this Agreement and the Credit Agreement as amended hereby, collectively, the "AMENDMENT DOCUMENTS"), constitute legal, valid and binding obligations of the Borrower and the other Loan Parties enforceable against the Borrower and the other Loan Parties in accordance with their terms. (b) The Borrower and each other Loan Party hereby represents and warrants that its execution, delivery and performance of this Agreement and the other Amendment Documents have been duly authorized by all proper corporate action, do not violate any provision of its articles or certificate of incorporation or bylaws, will not violate any law, regulation, court order or writ applicable to it, and will not require the approval or consent of any governmental agency, or of any other third party under the terms of any contract or agreement to which it or any of its Affiliates is bound (which has not been previously obtained), including without limitation, the Note Indenture and the Reliance Agreement. (c) The Borrower and each other Loan Party hereby represents and warrants that, both before and after giving effect to the provisions of this Agreement, (i) no Default or Event of Default has occurred and is continuing or will have occurred and be continuing and (ii) all of the representations and warranties of the Borrower and each other Loan Party contained in the Credit Agreement and in each other Loan Document (other than representations and warranties which, in accordance with their express terms, are made only as of an earlier specified date) are, and will be, true and correct as of the date of its execution and delivery hereof or thereof in all material respects as though made on and as of such date. (d) (i) All material conditions precedent to, and all consents necessary to permit, the Acquisition pursuant to the "NASDI Acquisition Agreements" (as proposed to be defined in PARAGRAPH 1 hereof), and the 2001 Note Issuance pursuant to the Note Indenture, have been satisfied or delivered, (ii) no material breach of any term or provision of the NASDI Acquisition Agreements or the Note Indenture has occurred, (iii) the Acquisition and the 2001 Note Issuance each have been consummated (or are being consummated simultaneously with effectiveness of the Agreement), in accordance with all Applicable Laws, (iv) all material governmental and material third party approvals necessary in connection with the Acquisition and the 2001 Note Issuance shall have been obtained and are in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any Governmental 11 Authority which would restrain, prevent or otherwise impose materially adverse conditions of the Acquisition or the 2001 Note Issuance and (v) no actions, suits or proceedings are pending or threatened with respect to the Acquisition or the 2001 Note Issuance or any of the NASDI Acquisition Agreements which could reasonably be expected to have a Material Adverse Effect. (ii) The Offering Circular complies in all material respects with all applicable provisions of the 1933 Act, 1934 Act, all other federal securities laws, state securities or "Blue Sky" laws, foreign securities laws, general corporation law and all rules and regulations thereunder. 4. REAFFIRMATION, RATIFICATION AND ACKNOWLEDGMENT. The Borrower and each other Loan Party hereby (a) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, and each grant of security interests and liens in favor of the Administrative Agent, under each Loan Document to which it is a party, (b) agrees and acknowledges that such ratification and reaffirmation is not a condition to the continued effectiveness of such Loan Documents and (c) agrees that neither such ratification and reaffirmation, nor the Administrative Agent's, or any Lender's solicitation of such ratification and reaffirmation, constitutes a course of dealing giving rise to any obligation or condition requiring a similar or any other ratification or reaffirmation from the Borrower or such other Loan Parties with respect to any subsequent modifications to the Credit Agreement or the other Loan Documents. As modified hereby, the Credit Agreement is in all respects ratified and confirmed, and the Credit Agreement as so modified by this Amendment shall be read, taken and so construed as one and the same instrument. Each of the Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. Neither the execution, delivery nor effectiveness of this Agreement shall operate as a waiver of any right, power or remedy of the Administrative Agent or the Lenders, or of any Default or Event of Default (whether or not known to the Administrative Agent or the Lenders), under any of the Loan Documents. This Agreement and each of the other Amendment Documents shall constitute Loan Documents for purposes of the Credit Agreement. 5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. (a) Upon the effectiveness of this Agreement, (i) each reference in the Credit Agreement to "this Agreement, " "hereunder," "hereof," "herein" or words of like import and each reference to the Credit Agreement in each Loan Document shall mean and be a reference to the Agreement as amended and restated hereby and (ii) the Credit Agreement is amended as set forth herein and is hereby restated in its entirety to read as set forth in the Credit Agreement with the amendments specified herein. (b) Except as specifically amended above, all of the terms, conditions and covenants of the Credit Agreement shall remain unaltered and in full force and effect and are incorporated hereby by reference and shall be binding upon the Borrower and each other Loan Party in all respects and are hereby ratified and confirmed, and the Credit Agreement (as amended and restated by this Agreement) is hereby ratified and confirmed in all respects. (c) The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of (i) any right, power or remedy of the Administrative Agent or any Lender 12 under the Credit Agreement or any of the Loan Documents or (ii) any Default or Event of Default under the Agreement. (d) Notwithstanding anything herein to the contrary, the Borrower's Compliance Certificate with respect to its Fiscal Quarter ended March 31, 2001 shall be prepared and delivered pursuant to SECTION 6.4(d) of the Credit Agreement without giving effect to the amendments effected by this Agreement to SECTION 6.3 or to the form of EXHIBIT F to the Credit Agreement. 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws and decisions of the State of Illinois (including S.H.A. 735 ILCS 105/5-1, ET. SEQ., but without giving effect to any other conflicts of law provisions). 7. ADMINISTRATIVE AGENT'S EXPENSES. The Borrower hereby agrees to promptly reimburse the Administrative Agent for all of the reasonable out-of-pocket expenses, including, without limitation, attorneys' and paralegals' fees, it has heretofore or hereafter incurred or incurs in connection with the preparation, negotiation and execution of this Agreement and the other documents, agreements and instruments contemplated hereby. 8. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original and all of which together shall constitute one and the same agreement among the parties. 9. CONSENT. Subject to the satisfaction of each of the conditions set forth in PARAGRAPH 2 of this Agreement, and notwithstanding anything in the Credit Agreement, this Agreement or other Loan Documents to the contrary, the Lenders hereby consent to the continued existence of liens and security interests in favor of Eastern Bank in substantially all of the personal property of NASDI after the consummation of the Acquisition, PROVIDED, THAT (i) such liens and security shall at no time after the consummation of the Acquisition secure more than $770,000 in aggregate obligations owing to Eastern Bank with respect to an outstanding letter of credit issued by Eastern Bank and related fees and expenses owing to Eastern Bank in connection therewith, and no other obligations, (ii) such obligations shall have been satisfied in full, and such liens and security interests shall be terminated and released, on or before June 8, 2001 and (iii) the Borrower shall have delivered to the Administrative Agent on or before June 8, 2001 a payoff letter from Eastern Bank and lien and security interest release and termination documentation, in form and substance acceptable to the Administrative Agent, to evidence such satisfaction of obligations and termination and release of liens and security interests. * * * * 13 IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. GREAT LAKES DREDGE & DOCK CORPORATION By: /s/ Deborah A. Wensel ----------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO GREAT LAKES DREDGE & DOCK COMPANY By: /s/ Deborah A. Wensel ----------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO DAWSON MARINE SERVICES COMPANY (formerly, Dawson Dredging Company) By: /s/ Deborah A. Wensel ----------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO FIFTY-THREE DREDGING CORPORATION By: /s/ Paul Dinquel ----------------------------------- Name: Paul Dinqel Title: Vice President GREAT LAKES CARRIBEAN DREDGING, INC. By: /s/ Deborah A. Wensel ----------------------------------- Name: Deborah A. Wensel Title: Vice President and CFO SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT BANK OF AMERICA, N.A. (as successor to Bank of America National Trust and Savings Association), as Administrative Agent By: /s/ Kristine B. Hyde -------------------------------- Name: Kristine B. Hyde ----------------------- Title: Vice President ----------------------- BANK OF AMERICA, N.A. (as successor to Bank of America National Trust and Savings Association), as a Lender By: /s/ Jennifer L. Gerdes -------------------------------- Name: Jennifer L. Gerdes ----------------------- Title: Vice President ----------------------- FLEET NATIONAL BANK (as successor to Summit Bank) By: /s/ Bonnie Gershon -------------------------------- Name: Bonnie Gershon ----------------------- Title: Vice President ----------------------- LASALLE BANK NATIONAL ASSOCIATION By: /s/ Drew E. Burlak -------------------------------- Name: Drew E. Burlak ----------------------- Title: Assistant Vice President ----------------------- COMERICA BANK-DETROIT By: /s/ Chris Thompson -------------------------------- Name: Chris Thompson ----------------------- Title: Vice President ----------------------- THE NORTHERN TRUST COMPANY SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT By: /s/ Robin H. Brody -------------------------------- Name: Robin H. Brody ----------------------- Title: Vice President ----------------------- FIRSTAR BANK, N.A. By: /s/ Joseph E. Long II -------------------------------- Name: Joseph E. Long II ----------------------- Title: Senior Vice President NATIONAL CITY BANK OF MICHIGAN/ILLINOIS By: /s/ Mark R. Long -------------------------------- Name: Mark R. Long ----------------------- Title: Senior Vice President ----------------------- OAK BROOK BANK- OAK BROOK By: /s/ Henry Weasel -------------------------------- Name: Henry Weasel ----------------------- Title: Vice President ----------------------- WELLS FARGO BANK, NA By: /s/ R. Duncan Sinclair -------------------------------- Name: R. Duncan Sinclair ----------------------- Title: Vice President ----------------------- SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT ANNEX 1 AMENDED COMPLIANCE CERTIFICATE (Exhibit F to the Credit Agreement) Attached. EXHIBIT F FORM OF COMPLIANCE CERTIFICATE I, ________________________, hereby do certify on behalf of Great Lakes Dredge & Dock Corporation., a Delaware corporation ( the "BORROWER"), in my capacity solely as an officer of the Borrower and not in my individual capacity, pursuant to the Amended and Restated Credit Agreement dated as of April __, 2001[, as heretofore amended] (the "CREDIT AGREEMENT"), by and among the Borrower, the other Loan Parties (as defined in the Credit Agreement), the financial institutions party to the Credit Agreement (the "LENDERS"), and Bank of America, N.A. (as successor to Bank of America National Trust and Savings Association), in its capacity as the Issuing Lender and in its capacity as the Administrative Agent for the Lenders, as follows: 1. I am the duly elected, qualified and acting _______________ of the Borrower. 2. No Default or Event of Default has occurred and is continuing under the Credit Agreement on the date hereof. 3. This certificate is the "Compliance Certificate" required to be delivered pursuant to SECTION 6.4(d) of the Credit Agreement [for the Fiscal Quarter ending _________, ____] [for the Fiscal Year ending _________, ____]. For the fiscal period covered by this certificate, the Borrower and its consolidated Subsidiaries have complied with each of the covenants contained in SECTION 6.3 of the Credit Agreement. 4. Set forth on Schedules A through E hereto are the calculations which provide the basis for the certification in paragraph 3 above. Terms which are capitalized but not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the ____ day of _________, ____. GREAT LAKES DREDGE & DOCK CORPORATION By: ___________________________ Title: ______________________ EX-10.07 5 a2047496zex-10_07.txt SECOND AMENDMENT TO U/W AGREEMENT Exhibit 10.07 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED UNDERWRITING AND CONTINUING INDEMNITY AGREEMENT THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED UNDERWRITING AND CONTINUING INDEMNITY AGREEMENT dated as of April 24, 2001 (the "AMENDMENT") is entered into by and among (i) GREAT LAKES DREDGE & DOCK CORPORATION, a Delaware corporation ("HOLDINGS"), and the SUBSIDIARIES of HOLDINGS signatories hereto (collectively with HOLDINGS, the "INDEMNITORS"), and (ii) RELIANCE INSURANCE COMPANY, a Pennsylvania corporation, UNITED PACIFIC INSURANCE COMPANY, a Pennsylvania corporation, RELIANCE NATIONAL INSURANCE COMPANY, a Delaware corporation, and RELIANCE SURETY COMPANY, a Delaware corporation (collectively, the foregoing parties are referred to herein as "RELIANCE"). WITNESSETH: WHEREAS, the INDEMNITORS and RELIANCE are parties to a certain Second Amended and Restated Underwriting and Continuing Indemnity Agreement dated as of August 19, 1998 (the "AGREEMENT"); WHEREAS, in connection with the proposed acquisition by HOLDNGS of 80% of the equity interests of NORTH AMERICAN SITE DEVELOPERS, INC., a Massachusetts corporation ("NASDI"), (i) HOLDINGS will issue additional Debt (as such term is defined in the Agreement) in an aggregate principal amount of $40,000,000 pursuant to the terms of the 1998 Debt Indenture (as such term is defined in the Agreement), (ii) NASDI will issue promissory notes in an aggregate principal amount equal to $3,000,000 to management stockholders of NASDI, which promissory notes will be guaranteed by HOLDINGS, and (iii) NASDI will issue a promissory note in an aggregate principal amount equal to approximately $32,000,000 to HOLDINGS; WHEREAS, the INDEMNITORS have requested RELIANCE to consent to, and to amend certain provisions of the Agreement to permit, such acquisition, such incurrence of additional Debt and such issuance of promissory notes; and WHEREAS, RELIANCE is willing to amend certain provisions of the Agreement and to consent to such acquisition, such incurrence of additional Debt and such issuance of promissory notes, subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, and intending to be legally bound hereby, the INDEMNITORS and RELIANCE hereby agree as follows: SECTION 1. CONSENT TO INCURRENCE OF ADDITIONAL DEBT. RELIANCE hereby consents: (a) to HOLDING'S incurrence of additional Debt in a principal amount not to exceed $40,000,000, PROVIDED, HOWEVER, that (i) such incurrence of Debt shall be pursuant to the terms of the 1998 Debt Indenture, (ii) an amount not to exceed $35,000,000 from the proceeds received by HOLDINGS in connection with the incurrence of such Debt shall be used by HOLDINGS to acquire 80% of the equity interests of NASDI, and (iii) an amount not to exceed $5,000,000 from the proceeds received by HOLDINGS in connection with the incurrence of such Debt shall be used by HOLDINGS to pay fees and expenses in connection with such acquisition and to repay a portion of HOLDING'S outstanding revolving loan balance under the Bank Loan Facility (as defined in the Underwriting Agreement); and (b) pursuant to Section 6.21 of the Agreement, to HOLDING'S modifying the 1998 Debt Indenture to evidence the incurrence of such additional Debt pursuant to the existing terms of the 1998 Debt Indenture. SECTION 2. AMENDMENTS TO AGREEMENT. Subject to satisfaction of the conditions set forth in SECTION 2 of this Amendment and in reliance on the INDEMNITORS' warranties set forth in SECTION 3 below, the Agreement is hereby amended as follows: (a) The definition of "Limited Subsidiary" in Section 1.1 of the Agreement is amended by deleting the proviso at the end thereof in its entirety and inserting in lieu thereof: "PROVIDED, that none of NATCO Limited Partnership, North American TrailingCompany or North American Site Developers, Inc. shall be deemed to be a LIMITED SUBSIDIARY for purposes of this Agreement." (b) Section 3.1 of the Agreement is amended by adding the language "(other than North American Site Developers, Inc.)" immediately after the language "Notwithstanding anything to the contrary herein, any INDEMNITOR which is not a wholly-owned SUBSIDIARY of HOLDINGS" that appears in such Section. (c) Section 3.2 of the Agreement is amended by adding the language "(other than North American Site Developers, Inc.)" immediately after the language "Notwithstanding anything to the contrary herein, any INDEMNITOR which is not a wholly-owned SUBSIDIARY of HOLDINGS" that appears in such Section. (d) Section 6.12(f)(ii) of the Agreement is amended by deleting the reference therein to "$115,000,000" and inserting in lieu thereof "$155,000,000". 2 (e) Section 6.12(r) of the Agreement is deleted in its entirety and the following inserted in lieu thereof: "(r) DEBT of North American Site Developers, Inc. owing to management stockholders of North American Site Developers, Inc., PROVIDED, that the aggregate amount of such DEBT shall not exceed at any time the lesser of (i) $3,000,000 and (ii) the aggregate principal amount scheduled to be outstanding at such time in accordance with the terms of those certain promissory notes dated April 24, 2001 from North American Site Developers, Inc. to the order of such management stockholders;" (f) Section 6.13(b) of the Agreement is amended by (i) deleting the word "and" that appears immediately prior to subsection (iii) of such Section and (ii) by adding the following at the end of such Section: ", and (iv) shares of capital stock or equity interests issued by North American Site Developers, Inc. to Persons other than HOLDINGS or a wholly-owned SUBSIDIARY of HOLDINGS, PROVIDED, that the aggregate amount of such shares of capital stock or equity interests issued to such Persons shall not exceed twenty-five percent (25%) of the aggregate number of shares of capital stock or equity interests issued by North American Site Developers, Inc.;" (g) Section 6.15(e) of the Agreement is amended by adding the following at the end thereof: ", and PROVIDED FURTHER, that HOLDINGS or the appropriate SUBSIDIARY will provide RELIANCE with prior written notice of any investment, DEBT or CONTINGENT LIABILITY (other than an investment, DEBT or CONTINGENT LIABILITY made in the ordinary course of business consistent with past business practices) to be made by HOLDINGS or such SUBSIDIARY in NATCO, North American or any SUBSIDIARY thereof;" (h) Section 6.18 of the Agreement is amended by adding at the end thereof the following: ", including, without limitation, the provision of commercial and industrial demolition services." SECTION 3. CONDITIONS PRECEDENT. This Amendment shall be effective upon receipt by RELIANCE of the documents listed below, each, unless otherwise noted, dated the date hereof, duly executed, in form and substance satisfactory to RELIANCE and in quantities designated by RELIANCE: (a) This Amendment executed by all parties hereto. 3 (b) The INDEMNITORS shall have delivered such other documents as RELIANCE may reasonably request. SECTION 4. WARRANTIES. To induce RELIANCE to enter into this Amendment, the INDEMNITORS warrant to RELIANCE as of the date hereof and after giving effect to this Amendment that: (a) The representations and warranties contained in Article V of the Agreement, in Section 4 of each SECURITY AGREEMENT (A/R), in Section 4 of each SECURITY AGREEMENT (EQUIPMENT), in Section 4 of the PLEDGE AGREEMENT and in Article I of each of the VESSEL MORTGAGES, are correct in all material respects on and as of the date hereof as though made on and as of such date except to the extent stated to relate to an earlier date, in which case such representation and warranty shall be correct as of such earlier date; and (b) No EVENT OF DEFAULT has occurred and is continuing. SECTION 5. GENERAL. (a) Terms used but not otherwise defined herein are used herein as defined in the Agreement. (b) As hereby modified, the Agreement shall remain in full force and effect and is hereby ratified, approved and confirmed in all respects. (c) This Amendment shall be binding upon and shall inure to the benefit of the INDEMNITORS and RELIANCE and respective successors and assigns of RELIANCE. (d) This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. [the remainder of this page intentionally left blank] 4 IN WITNESS WHEREOF, this Agreement is executed by the parties on the day and date first set forth above. GREAT LAKES DREDGE & DOCK CORPORATION By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President and CFO GREAT LAKES DREDGE & DOCK COMPANY By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President and CFO LYDON DREDGING & CONSTRUCTION COMPANY, LTD. By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President and CFO NATCO DREDGING LIMITED PARTNERSHIP By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President NORTH AMERICAN TRAILING COMPANY By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President and CFO FIFTY-THREE DREDGING COMPANY By: ---------------------------------------- Its: Vice President DAWSON DREDGING COMPANY By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President and CFO IN WITNESS WHEREOF, this Agreement is executed by the parties on the day and date first set forth above. GREAT LAKES DREDGE & DOCK CORPORATION By: ---------------------------------------- Its: -------------------------------------- GREAT LAKES DREDGE & DOCK COMPANY By: ---------------------------------------- Its: -------------------------------------- LYDON DREDGING & CONSTRUCTION COMPANY, LTD. By: ---------------------------------------- Its: --------------------------------------- NATCO DREDGING LIMITED PARTNERSHIP By: ---------------------------------------- Its: --------------------------------------- NORTH AMERICAN TRAILING COMPANY By: ---------------------------------------- Its: --------------------------------------- FIFTY-THREE DREDGING COMPANY By: /s/ Paul Dinquel ---------------------------------------- Its: Vice President --------------------------------------- DAWSON DREDGING COMPANY By: ---------------------------------------- Its: --------------------------------------- GREAT LAKES CARIBBEAN DREDGING, INC. By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President and CFO --------------------------------------- NORTH AMERICAN SITE DEVELOPERS, INC. By: /s/ Deborah A. Wensel ---------------------------------------- Its: Vice President --------------------------------------- RELIANCE INSURANCE COMPANY UNITED PACIFIC INSURANCE COMPANY RELIANCE NATIONAL INSURANCE COMPANY RELIANCE SURETY COMPANY By: /s/ ---------------------------------------- Its: Attorney-in-Fact --------------------------------------- EX-21.01 6 a2047496zex-21_01.txt SUBSIDIARIES EXHIBIT 21.01
Jurisdiction of Name Incorporation or Organization Ownership ---- ----------------------------- --------- Great Lakes Dredge & Dock Company New Jersey 100% Dawson Marine Services Company Delaware 100% Fifty-Three Dredging Corporation New Jersey 100% Great Lakes Caribbean Dredging, Inc. Delaware 100% Lydon Dredging & Construction Company, Ltd. Canada 100% Amboy Aggregates (A Joint Venture) New Jersey 50% NATCO Limited Partnership Delaware 75% North American Trailing Company Delaware 80% North American Site Developers, Inc. Massachusetts 80%
EX-25.01 7 a2047496zex-25_01.txt BANK OF NEW YORK T-1 Exhibit 25.01 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ------------ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ------------ GREAT LAKES DREDGE & DOCK CORPORATION (Exact name of obligor as specified in its charter) Delaware 13-3634726 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Great Lakes Dredge & Dock Company (Exact name of obligor as specified in its charter) New Jersey 36-1163930 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Great Lakes Caribbean Dredging, Inc. (Exact name of obligor as specified in its charter) Deleware 36-3015839 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Dawson Marine Services Company (Exact name of obligor as specified in its charter) Delware 36-3503893 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) North American Site Developers, Inc. (Exact name of obligor as specified in its charter) Massachusetts 22-1539854 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Fifty-Three Dredging Corporation (Exact name of obligor as specified in its charter) New Jersey 36-3177787 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2122 York Road Oak Brook, Illinois 60523 (Address of principal executive offices) (Zip code) _______________________ Debt Securities (Title of the indenture securities) ================================================================================ 2 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
- -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes.
2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 2. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 3. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 4. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 3 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 1st day of May, 2001. THE BANK OF NEW YORK By: /s/ MING SHIANG -------------------------------------- Name: MING SHIANG Title: VICE PRESIDENT 4 - -------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 2000, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts In Thousands ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin........................... $3,083,720 Interest-bearing balances.................................................... 4,949,333 Securities: Held-to-maturity securities.................................................. 740,315 Available-for-sale securities................................................ 5,328,981 Federal funds sold and Securities purchased under agreements to resell......................................................... 5,695,708 Loans and lease financing receivables: Loans and leases, net of unearned income..................................... 36,590,456 LESS: Allowance for loan and lease losses.................................... 598,536 LESS: Allocated transfer risk reserve........................................ 12,575 Loans and leases, net of unearned income, allowance, and reserve............. 35,979,345 Trading Assets.................................................................. 11,912,448 Premises and fixed assets (including capitalized leases)........................ 763,241 Other real estate owned......................................................... 2,925 Investments in unconsolidated subsidiaries and associated companies............. 183,836 Customers' liability to this bank on acceptances outstanding.................... 424,303 Intangible assets............................................................... 1,378,477 Other assets.................................................................... 3,823,797 ----------- Total assets.................................................................... $74,266,429 =========== LIABILITIES Deposits: In domestic offices.......................................................... $28,328,548 Noninterest-bearing.......................................................... 12,637,384 Interest-bearing............................................................. 15,691,164 In foreign offices, Edge and Agreement subsidiaries, and IBFs................ 27,920,690 Noninterest-bearing.......................................................... 470,130 Interest-bearing............................................................. 27,450,560 Federal funds purchased and Securities sold under agreements to repurchase..................................................... 1,437,916 Demand notes issued to the U.S.Treasury......................................... 100,000 Trading liabilities............................................................. 2,049,818 Other borrowed money: With remaining maturity of one year or less.................................. 1,279,125 With remaining maturity of more than one year through three years............ 0 With remaining maturity of more than three years............................. 31,080 Bank's liability on acceptances executed and outstanding........................ 427,110 Subordinated notes and debentures............................................... 1,646,000 Other liabilities............................................................... 4,604,478 ----------- Total liabilities............................................................... $67,824,765 =========== EQUITY CAPITAL Common stock.................................................................... 1,135,285 Surplus......................................................................... 1,008,775 Undivided profits and capital reserves.......................................... 4,308,492 Net unrealized holding gains (losses) on available-for-sale securities.......... 27,768 Accumulated net gains (losses) on cash flow hedges.............................. 0 Cumulative foreign currency translation adjustments............................. (38,656) ----------- Total equity capital............................................................ 6,441,664 ----------- Total liabilities and equity capital............................................ $74,266,429 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi ) Alan R. Griffith ) Directors Gerald L. Hassell ) - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----