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_____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 0-2315
EMCOR GROUP, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2125338
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 MERRITT SEVEN CORPORATE PARK
NORWALK, CONNECTICUT 06851-1060
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of each class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filings pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge in definitive proxy or information statements
incorporated be reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
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The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant on February 29, 1996 was approximately
$101,301,000.
Number of shares of Common Stock outstanding as of the close of
business on February 29, 1996: 9,424,706 shares.
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for the annual meeting of stockholders
to be held on June 14, 1996, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1995.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business
General..................................................... 1
The Business................................................ 1
Businesses Held for Sale.................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders........... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data....................................... 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 13
Item 8. Financial Statements and Supplementary Data................... 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 57
PART III
Item 10. Directors and Executive Officers of the Registrant............ 58
Item 11. Executive Compensation........................................ 58
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 58
Item 13. Certain Relationships and Related Transactions................ 58
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K......................................... 59
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PART I
ITEM 1. BUSINESS
General
EMCOR Group, Inc. ("EMCOR" or the "Company") (formerly known as "JWP INC.") is
a leader in mechanical and electrical construction and facilities management
services. EMCOR, which conducts its business through subsidiaries, specializes
in the design, integration, installation, start-up, testing, operation and
maintenance of complex mechanical and electrical systems. In addition, certain
of its subsidiaries operate and maintain mechanical and/or electrical systems
for customers under contracts and provide other services to customers, at the
customer's facilities, which services are commonly referred to as facilities
management. Mechanical and electrical construction and facilities management
services are provided to a broad range of commercial, industrial and
institutional customers through offices located in major markets throughout the
United States, Canada, the United Kingdom, the Middle East and Hong Kong.
On December 15, 1994 (the "Effective Date"), the Company emerged from Chapter
11 of the United States Bankruptcy Code pursuant to its Third Amended Joint Plan
of Reorganization dated August 9, 1994, as amended (the "Plan of
Reorganization"), proposed by EMCOR and its subsidiary SellCo Corporation
("SellCo"). Under the Plan of Reorganization, pre-petition creditors of the
Company (other than holders of subordinated debt) received, in addition to
certain notes of EMCOR and SellCo, substantially all of the newly issued common
stock of EMCOR (the "New Common Stock"). Pre-petition holders of the Company's
subordinated debt, preferred stock, common stock and warrants of participation
received warrants to purchase New Common Stock of EMCOR in exchange for their
debt and equity interests.
The Company, which employs approximately 12,000 people worldwide, provides (i)
mechanical and electrical construction services directly to end-users (including
corporations, municipalities and other governmental entities, owners, developers
and tenants of buildings) and, indirectly, by acting as subcontractor, to
construction managers, general contractors, systems and equipment suppliers and
other subcontractors and (ii) facilities management services directly to end-
users such as corporations, owners, property managers and tenants of buildings.
EMCOR is a Delaware corporation, formed in 1987 to continue the business of its
predecessor, a New York corporation with the name JWP INC. The Delaware
corporation was also originally named JWP INC., but changed its name to EMCOR
Group, Inc. on the Effective Date. The Company's executive offices are located
at 101 Merritt Seven Corporate Park, Norwalk, Connecticut 06851-1060, and its
telephone number at those offices is (203) 849-7800.
The Business
The Company specializes in complex mechanical and electrical systems.
The broad scope of the Company's operations are more particularly described
below. The Company's consolidated 1995 revenues of $1,588.7 million were
derived exclusively from mechanical and electrical construction and facilities
management services inasmuch as the results of operations for the year ended
December 31, 1995 exclude the operating results of businesses held for sale,
many of which were engaged in other business. The Company had total revenues of
approximately $1,595.0 million, exclusive of $169.0 million attributable to
businesses held for sale or sold, in 1994 as compared to approximately $1,840.1
million, exclusive of $354.6 million attributable to business held for sale or
sold, in 1993.
Mechanical and electrical construction services primarily involve the design,
integration, installation, start-up, testing, operation and maintenance of (i)
distribution systems for electrical power (including power cables, conduits,
distribution panels, transformers, generators, uninterruptible power supply
systems and related switch gear and control); (ii) lighting systems, including
fixtures and controls; (iii) low-voltage systems, including fire alarm,
security, communications and process control systems; (iv) heating, ventilation,
air conditioning, refrigeration and clean-room process ventilation systems; and
(v) plumbing, process and high purity piping systems. EMCOR believes its
mechanical and electrical construction services business is the largest of its
kind in the United States and Canada and one of the largest in the United
Kingdom.
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Mechanical and electrical construction services are principally of three types:
(i) large installation projects, with contracts generally in the multi-million
dollar range, in connection with construction of industrial, institutional and
public works facilities and commercial buildings and fit-out of large blocks of
space within commercial buildings; (ii) smaller installation projects typically
involving fit-out, renovation and retrofit work; and (iii) testing and service
of completed facilities.
The Company's largest installation projects include those (i) for institutional
use (such as water and wastewater treatment facilities, hospitals, correctional
facilities, schools and research laboratories); (ii) for industrial use (such as
pharmaceutical, semiconductor, steel, pulp and paper, chemical, and automotive
manufacturing plants and oil refining and water and waste treatment facilities);
(iii) for transportation systems (such as airports and transit systems); and
(iv) for commercial use (such as office buildings, hotels and casinos,
convention centers, shopping malls and resorts). These can be multi-year
projects ranging in size up to, and occasionally in excess of, $50.0 million.
Major projects are performed pursuant to contracts with owners, such as
corporations and municipalities and other governmental entities, general
contractors, construction managers, owners, developers and tenants of commercial
properties. Institutional and public works projects are frequently long-term,
complex projects requiring significant technical and management skills and
financial strength to, among other things, obtain bid and performance bonds,
which are often a condition to bidding for, and award of, contracts for such
projects.
Smaller projects, which are typically completed in less than a year, involve
mechanical and electrical construction services in connection with the fit-out
of space when an end-user or owner undertakes construction or modification of a
facility to accommodate a specific use, such as a trading floor in a financial
services business, a new production line in a manufacturing plant, a process
modification in a refinery, or an office arrangement at an existing office
building. These projects frequently require particular mechanical and
electrical systems to meet special needs such as redundant power supply systems,
special environmental controls, or high purity air systems. These projects are
not typically dependent upon the new construction market; their demand is often
prompted by the expiration of leases, changes in technology or changes in the
customer's plant or office layout in the normal course of business.
The Company also installs and maintains street, highway, bridge and tunnel
lighting, traffic signals, computerized traffic control systems and signal and
communication systems for mass transit systems in several metropolitan areas.
In addition, in the United States, the Company operates sheet metal fabrication
facilities which manufacture and install sheet metal systems for both its own
mechanical construction operations and for unrelated mechanical contractors. The
Company also maintains welding and pipe fabrication shops for its own mechanical
operations.
In addition to mechanical and electrical construction services, the Company
provides facilities management services which principally includes the testing,
operation, maintenance and service of mechanical and electrical installations of
customers under contracts ranging from one to several years, which vary widely
in scope. These services frequently require a number of the Company's
employees being permanently assigned to, and located at, the customer's building
or facility being serviced, occasionally on a 24 hour basis. In the United
Kingdom, the Company also provides a wide range of services including building
maintenance, housekeeping, reprographics and catering services to customers, in
addition to operation and maintenance of mechanical and electrical systems.
The facilities management business has expanded as customers seek to "outsource"
services not specifically related to the core services or products its customers
offer for sale. In addition, with the increase in privatization of government
functions, particularly in the United Kingdom, private enterprise has been
afforded the opportunity to operate, maintain, and often modernize and expand
government facilities.
Backlog. The Company had a backlog as of December 31, 1995 of approximately
$1,060.7 million, exclusive of businesses sold or held for sale, compared with a
backlog of approximately $1,046.4 million, exclusive of businesses sold or held
for sale, as of December 31, 1994.
Employees. The Company presently employs approximately 12,000 people,
approximately 75% of whom are represented by various unions. The Company
believes that its employee relations are generally satisfactory.
Competition. The business in which the Company engages is extremely
competitive. A majority of the Company's revenues are derived from jobs
requiring competitive bids; however, an invitation to bid is often
2
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conditioned upon prior experience, technical capability and financial strength.
The Company competes with national, regional and local companies. The Company
believes that, at present, it is the largest provider of mechanical and
electrical construction and facilities management services in the United States
and Canada and one of the largest in the United Kingdom.
Segment information relating to the geographic areas in which the Company
operates is included in Note Q to the consolidated financial statements.
Businesses Held for Sale
EMCOR is in the process of selling those of its subsidiaries generally not
involved in mechanical and electrical construction and facilities management
services. Its principal business held for sale is its water supply business
conducted through its subsidiaries Jamaica Water Supply Company ("JWS") and Sea
Cliff Water Company ("Sea Cliff").
The Company owns all of the common stock of JWS and all the capital stock of
Sea Cliff (sometimes referred to herein collectively as the "Water Companies").
The Water Companies are regulated public utilities that own and operate water
supply systems on Long Island, New York. JWS is the largest investor-owned
water utility in New York State, supplying water to a densely populated
residential area of approximately 40 square miles in the Borough of Queens in
The City of New York and in southwestern Nassau County, an area with an
aggregate population of approximately 650,000. Sea Cliff supplies water to a
four square mile area on the north shore of western Nassau County with a
population of approximately 20,000. The business of the Water Companies
consists of the purification, distribution and sale of water for residential and
commercial purposes including water used for fire sprinkler systems service and
public protection fire service.
The Company has entered into agreements to sell substantially all of the assets
of JWS and has entered into an agreement to sell all of the capital stock of Sea
Cliff.
3
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ITEM 2.PROPERTIES
The operations of the Company are conducted primarily in leased properties. The
following table lists the major facilities:
Approximate Lease Expiration
Square Feet Date, Unless Owned
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CORPORATE HEADQUARTERS
101 Merritt Seven Corporate Park 15,725 4/8/00
Norwalk, Connecticut
OPERATING FACILITIES
1200 North Sickles Road 29,000 Owned
Tempe, Arizona
3208 Landco Drive 49,875 4/30/96
Bakersfield, California
4462 Corporate Center Drive 41,400 12/31/00
Los Alamitos, California
4464 Alvarado Canyon Road 53,800 10/31/00
San Diego, California
9505 Chesapeake Drive 44,000 1/30/01
San Diego, California
345 Sheridan Boulevard 63,000 Owned
Lakewood, Colorado
5697 New Peachtree Road 27,200 11/30/98
Atlanta, Georgia
2100 South York Road 77,700 1/09/00
Oak Brook, Illinois
2655 Garfield Road 34,600 7/08/96
Highland, Indiana
3555 W. Oquendo Road 100,000 11/30/98
Las Vegas, Nevada
111-01 14th Avenue 77,000 2/28/06
College Point, New York
30 N. MacQuesten Parkway 25,300 11/30/98
Mount Vernon, New York
111 West 19th Street 27,200 5/31/98
New York, New York
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Approximate Lease Expiration
Square Feet Date, Unless Owned
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Two Penn Plaza
New York, New York 57,200 2/01/06
165 Robertson Road
Ottawa, Ontario, Canada 35,400 4/01/02
5550 Airline Road
Houston, Texas 74,500 6/30/96
515 Norwood Road
Houston, Texas 29,700 Month to Month
Canary Wharf
One Canada Square
London, U.K 27,800 12/31/96
1574 South West Temple
Salt Lake City, Utah 38,800 12/31/99
22930 Shaw Road
Sterling, Virginia 32,600 7/31/99
109-D Executive Drive
Sterling, Virginia 49,000 7/31/96
The Company believes that all of its property, plant and equipment is well
maintained, in good operating condition and suitable for purposes for which they
are used.
See Note L to the consolidated financial statements for additional information
regarding lease costs. The Company believes there will be no difficulty either
in negotiating the renewal of its real property leases as they expire or in
finding other satisfactory space.
5
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ITEM 3. LEGAL PROCEEDINGS
NEW YORK COUNTY DISTRICT ATTORNEY INVESTIGATIONS
In February 1995 as part of an investigation by the New York County District
Attorney's office into the business affairs of Herbert Construction Company
("Herbert"), a general contractor that does business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On July 11,
1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company
allegedly owned by Kohl were indicted by a New York County grand jury for grand
larceny, fraud, repeated failure to file New York City Corporate Tax Returns and
related money laundering charges. Kohl was also charged with filing false
personal income and earnings tax returns, perjury and offering false instruments
for filing with the New York City School Construction Authority. In a press
release announcing the indictment, the Manhattan District Attorney said that the
investigation disclosed that Mr. Kohl allegedly received more than $7.0 million
in kickbacks from subcontractors through a scheme in which he allegedly inflated
subcontracts on Herbert's construction contracts. At a press conference
following the indictment, the District Attorney announced that the investigation
is continuing, and he expects further indictments in the investigation.
Forest performs electrical contracting services primarily in the New York City
commercial market and is one of EMCOR's largest subsidiaries.
DYNALECTRIC LITIGATION
The Dynalectric Company, a subsidiary of the Company, ("Dynalectric") is a
defendant in an action entitled Computran v. Dynalectric, et al., pending in
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Superior Court of New Jersey, Bergen County, arising out of its participation in
a joint venture. In the action, which was instituted in 1988, the plaintiff,
Computran, a participant in, and a subcontractor to, the joint venture, alleges
that Dynalectric wrongfully terminated its subcontract, fraudulently diverted
funds due it, misappropriated its trade secrets and proprietary information,
fraudulently induced it to enter into the joint venture and conspired with other
defendants to commit certain acts in violation of the New Jersey Racketeering
Influence and Corrupt Organization Act. Dynalectric believes that Computran's
claims are without merit and intends to defend this matter vigorously.
Dynalectric has filed counterclaims against Computran. Discovery is ongoing; no
trial date is scheduled.
LITIGATION REGARDING WARRANTS OF PARTICIPATION
On September 26, 1994 certain holders of Warrants of Participation ("Warrants")
that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the
Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a
declaratory judgment action against EMCOR's subsidiary Jamaica Water Securities
Corp. ("JWSC") by filing a complaint in the Supreme Court of the State of New
York, Westchester County, bearing the caption, Harold F. Scattergood, Jr., et
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al, v. Jamaica Water Securities Corp. (Index No. 15992/94). On October 17, 1994,
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an amended complaint was served adding additional plaintiffs.
The plaintiffs sought a declaration that JWSC succeeded to the Company's
obligations on the Warrants by reason of its 1977 acquisition of the Company's
96% stock interest in Jamaica Water Supply Company ("JWS"). The plaintiffs also
claimed that certain events constituted a disposition of the assets of JWS which
triggered the Warrants, obligating JWSC to issue shares of its own stock to
plaintiffs. In the alternative, plaintiffs claimed that the December 31, 1994
expiration date of the Warrants should be extended for some indefinite period of
time.
By a Decision and Order, entered on June 22, 1995, the court granted the
Company's motion to dismiss the plaintiffs' action holding that the assets of
JWS had not been "disposed of" under the express terms of the Warrants prior to
their stated expiration on December 31, 1994. The court also held that it
lacked the power to rewrite the "clear and unambiguous provisions" of the
Warrant Agreement to extend the December 31, 1994 deadline. The plaintiffs have
appealed the court's decision.
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CONDEMNATION PROCEEDING
In September 1986, the State of New York enacted a law that requires The City
of New York (the "City") to acquire by condemnation all of the property of JWS
"constituting or relating to [its] water distribution system located in the City
of New York" only in the event of a decision by a Supreme Court of the State
of New York that the amount of compensation to be paid JWS for that system
"shall be determined solely by the income capitalization method of valuation,
based on the actual net income as allowed [to JWS] by the [New York State]
public service commission". In addition, the law provides that if any court
determines "that a method of compensation other than the income capitalization
method be utilized, or if the proposed award is more than the [JWS] rate base of
the [condemned] assets as utilized by the public service commission in setting
rates", the City may withdraw the condemnation proceeding without prejudice or
costs.
In April 1988, the City instituted a proceeding in the Supreme Court of the
State of New York, Queens County, pursuant to the 1986 statute. Subsequent to
the trial, the Court requested that the parties address the constitutionality of
the statute. After a joint post-hearing submission from JWS and the City
contending that the statute was constitutional, the court, by decision dated
June 21, 1993, dismissed the City's petition and held, inter alia, that "insofar
as the legislature has directed this Court to make . . . a decision on
valuation only prior to any taking through General City Law 20(2), that statute
is unconstitutional", because such a decision would be advisory. Aware that a
constitutional challenge to a nearly identical condemnation statute involving
Saratoga County was pending in the appellate courts, neither JWS nor the City
served a notice of entry of the dismissal order that would commence the period
within which an appeal could be taken.
On February 24, 1994, the New York Court of Appeals held the nearly-identical
Saratoga County related statute to be constitutional. On April 6, 1994, a
conference was held with the court pursuant to the City's request to reconsider
its JWS decision in light of the Court of Appeals February 24, 1994 decision. At
the April 6, 1994 conference, the court stated it would, as requested by the
City, reconsider its June 21, 1993 decision. The court further stated that in
the event it decided to withdraw its June 21, 1993 decision that it would then
take the proceedings under further consideration.
EMCOR cannot predict when or if the court will conduct further proceedings
under the statute, what the decision of the court might be if it decides to
value the JWS property, or the effect of the pending litigation on the ability
to sell or the timing of the sale of JWS.
However, as discussed above under Business - "Businesses Held for Sale", JWS
and the City have entered into an agreement pursuant to which the City, by
condemnation, would acquire JWS's New York City water distribution system. In
addition, as discussed under Business - "Businesses Held for Sale", JWS and the
Water Authority of Western Nassau County (the "Authority") have entered into an
agreement (the "Nassau Agreement") pursuant to which the Authority, by
condemnation, would acquire that portion of JWS' water distribution system which
is located in Nassau County. Pursuant to the Nassau Agreement, the Authority
has commenced a condemnation proceeding in the Supreme Court of the State of
New York, Nassau County.
In addition, the Company is involved in other legal proceedings and claims
which have arisen in the ordinary course of business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On November 17, 1995 the Registrant held an annual meeting of stockholders.
(b) At the annual meeting all of the seven directors of the Company stood for
re-election, and each of them was re-elected for the ensuing year. Each of
Messrs. Stephen W. Bershad, David A.B. Brown, Thomas D. Cunningham, Albert
Fried, Jr., Malcolm T. Hopkins, and Kevin C. Toner received 7,520,122 votes, and
Mr. Frank T. MacInnis received 7,519,580 votes. The only votes withheld were
the 542 which did not vote for Mr. MacInnis. There were no broker non-votes.
(c) (i) At the annual meeting the stockholders also voted upon and approved the
adoption of an amendment to the Company's Restated Certificate of Incorporation
which amended Article Fourth thereof now (i) to authorize the Company to issue,
in addition to its authorized shares of New Common Stock, 1,000,000 shares of
Preferred Stock, in such series and with such designations, powers, preferences,
and rights as may be fixed from time to time by the Board of Directors of the
Company for each series and (ii) to delete (x) certain provisions specifying the
voting, dividend and liquidation rights of holders of Common Stock, the
substance of which are provided for in the General Corporation Law of the State
of Delaware and are, accordingly, not required to be included in the Company's
Restated Certificate of Incorporation, (y) certain provisions regarding a
prohibition on the issuance of non-voting equity securities which were required
to be included therein by Section 1123(a)(b) of the Bankruptcy Code in order for
the Company's Plan of Reorganization to be confirmed by the Bankruptcy Court,
but which management believes are no longer applicable to the Company following
its emergence from Chapter 11, and (z) certain provisions which were necessary
to extinguish and cancel the outstanding shares of pre-petition common stock and
preferred stock in accordance with the Plan of Reorganization, but which are no
longer required to be included in the Restated Certificate of Incorporation.
5,520,000 shares were voted in favor of adoption of the proposed amendment to
the Restated Certificate of Incorporation, 982,550 shares were voted against
adoption of the proposed amendment, and 264,130 shares abstained from voting
thereon; there were 753,422 broker non-votes.
(ii) In addition, the stockholders voted upon a proposal to approve the
Company's 1994 Management Stock Option Plan (the "1994 Plan") which provides for
the granting of incentive stock options and non-qualified stock options to key
employees of the Company and its subsidiaries. 6,080,022 shares were voted in
favor of approval of 1994 Plan, 436,973 shares were voted against approval of
the 1994 Plan, and 261,132 shares abstained from voting thereon; there were
741,995 broker non-votes.
(iii) The stockholders also voted upon a proposal to approve the Company's 1995
Non-Employee Directors' Non-Qualified Stock Option Plan (the "1995 Plan") which
provides for automatic grants of non-qualified stock options to directors of the
Company who are not also employees of the Company or a subsidiary, in
consideration of the services of such directors to the Company. 6,243,590
shares were voted in favor of approval of the 1995 Plan, 273,805 shares were
voted against approval of the 1995 Plan, and 260,732 shares abstained from
voting thereon; there were 741,995 broker non-votes.
(iv) The stockholders also voted upon a proposal to ratify the appointment by
the Audit Committee of the Board of Directors of Arthur Andersen LLP,
independent public accountants, as the Company's independent auditors for 1995.
7,516,321 shares were voted in favor of ratification, no shares were voted
against ratification, and 3,801 shares abstained from voting thereon; there were
no broker non-votes.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Frank T. MacInnis, Age 49; Chairman of the Board, President and Chief Executive
Officer of the Company since April 18, 1994. From April 1990 to April 1994 Mr.
MacInnis served as President and Chief Executive Officer, and from August 1990
to April 1994 as Chairman of the Board of Comstock Group, Inc., a nationwide
electrical contracting company. From 1986 to April 1990, Mr. MacInnis was
Senior Vice President and Chief Financial Officer of Comstock Group Inc. In
addition, from 1986 to April 1994 Mr. MacInnis was also President of Spie Group
Inc., which owns or owned Comstock Group Inc., Spie Construction Inc., a
Canadian pipeline construction company, and Spie Horizontal Drilling Inc., a
U.S. company engaged in under the water drilling for pipelines and
communications cable.
Sheldon I. Cammaker, Age 56; Executive Vice President and General Counsel of
the Company for more than the past five years.
Leicle E. Chesser, Age 49; Executive Vice President and Chief Financial Officer
of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser served
as Executive Vice President and Chief Financial Officer of Comstock Group, Inc.
and from 1986 to May 1994 he was also Executive Vice President and Chief
Financial Officer of Spie Group Inc.
Jeffrey M. Levy, Age 43; Executive Vice President of the Company since November
1994, Senior Vice President of the Company from December 1993 to November 1994
and Chief Operating Officer of the Company since February 1994. From May 1992
to December 1993, Mr. Levy was President and Chief Executive Officer of the
Company's subsidiary EMCOR Mechanical/Electrical Services (East) Inc. From
January 1991 to May 1992 Mr. Levy served as Executive Vice President and Chief
Operating Officer of Lehrer McGovern Bovis, Inc., a construction management and
construction company. From December 1984 to December 1990 Mr. Levy was Vice
President of Stone & Webster Engineering Corporation which is engaged in the
design and construction of power, industrial and petrochemical facilities.
Joseph A. Gallo, Age 44; Senior Vice President of the Company since April 1993,
a Vice President of the Company from November 1991 to April 1993, and Treasurer
of the Company for more than the past five years.
Mark A. Pompa, Age 31; Vice President and Controller of the Company since
September 1994. From June 1992 to September 1994, Mr. Pompa was an Audit and
Business Advisory Manager of Arthur Andersen LLP, an accounting firm, and from
June 1988 to June 1992 Mr. Pompa was a Senior Accountant at that firm.
9
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's New Common Stock has been traded on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "EMCG" since December 28, 1995.
From December 15, 1994, the Effective Date of the Company's Plan of
Reorganization, through December 27, 1995 the New Common Stock was traded in the
over-the-counter market.
The following table sets forth the high and low bid quotations (as reported in
the "pink sheets" of the National Quotation Bureau, Inc.) for the New Common
Stock for each calendar quarter during the period from January 6, 1995, when bid
quotations were first readily available, through December 27, 1995. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions. For the period
commencing December 28, 1995, when the New Common Stock began trading on the
Nasdaq Stock Market, through December 31, 1995, the following table sets forth
high and low sales prices for the New Common Stock.
High Low
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1995
----
First Quarter (commencing January 6, 1995) 5 1/2 4
Second Quarter 7 3/4 4 1/2
Third Quarter 9 6 3/4
Fourth Quarter (through December 27, 1995) 9 3/8 7
December 28, 1995 through December 31, 1995 9 5/8 9 3/8
HOLDERS
The number of holders of record of New Common Stock as of February 29, 1996
was 88 and the number of beneficial Stockholders was approximately 600 at that
same date.
DIVIDENDS
The Company did not pay dividends on its pre-petition common stock during 1994
or on its New Common Stock during 1994 or 1995, and it does not anticipate that
it will pay any dividends on the New Common Stock in the foreseeable future.
The Company's working capital credit facility and its Series A Notes prohibit
the payment of dividends on the New Common Stock; the Company's Series C Notes
provide that dividends are limited to 50% of consolidated net income (as
defined) for the period from the Effective Date to the most recently ended
fiscal quarter.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data has been derived from audited financial
statements and should be read in conjunction with the consolidated financial
statements, the related notes thereto and the reports of independent public
accountants thereon, included elsewhere in this annual report on Form 10-K. The
consolidated financial statements for the year ended December 31, 1992 were
audited by Ernst & Young LLP whose report of independent public accountants
thereon dated June 30, 1994 includes a disclaimer of opinion due to going
concern considerations. A disclaimer of opinion due to going concern
considerations nevertheless provides assurance that there were no limitations on
the scope of the audit and that the accounting principles applied in the
preparation of the consolidated financial statements are in conformity with
generally accepted accounting principles. See Note A to the consolidated
financial statements regarding the basis of presentation and the Company's
emergence from bankruptcy.
<TABLE>
<CAPTION>
INCOME STATEMENT DATA (a) (d)
REORGANIZED
COMPANY
PREDECESSOR COMPANY
YEAR ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $1,588,744 $1,763,961 $2,194,735 $2,404,577 $2,318,112
Gross profit 143,147 156,372 151,177 243,854 344,551
Reorganization items -- 91,318 -- -- --
(Loss) income
from continuing operations
including reorganization
items (10,853) (118,934) (113,991) (363,515) 4,712
Income (loss) from
discontinued operations -- 10,216 (9,087) (253,230) 24,263
Extraordinary item -
gain on debt discharge -- 413,249 -- -- --
Cumulative effect
of change in method of
accounting for:
-Income taxes -- -- -- 4,315 --
-Post-employment
benefits -- (2,100) -- -- --
---------- ---------- ---------- ---------- ----------
Net (loss) income $ (10,853) $ 302,431 $ (123,078) $ (612,430) $ 28,975
========== ========== ========== ========== ==========
Supplemental net
(loss) income per share (b): -
continuing operations $(1.13) $(12.62)
Discontinued operations -- 1.08
Extraordinary item - gain on debt
discharge -- 43.85
Cumulative effect of change in
method of accounting for:
Post-employment
benefits -- (0.22)
---------- ----------
Net (loss)income per
share $(1.13) $32.09
========== ==========
</TABLE>
11
<PAGE>
BALANCE SHEET DATA (d)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
As of December 31, As of December 31,
1995 1994 1993 1992 1991
---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Stockholders' equity
(deficit)(c) $ 70,610 $ 81,130 $(302,262) $ (175,979) $ 456,136
Total assets 710,945 707,498 806,442 907,584 2,233,827
Net assets held for sale 61,969 55,401
Notes payable 14,665 4,803 172 6,452 110,600
Borrowings under working
capital credit lines 25,000 40,000 -- -- --
7% Senior Secured Notes 61,969 55,401 -- -- --
Long-term debt, including
current maturities 68,831 61,290 4,465 6,040 463,071
Debt in default -- -- 501,007 501,007 --
Capital lease obligations 1,284 2,029 2,561 3,935 26,995
Redeemable preferred
stock $ -- $ -- $ -- $ -- $5,242
</TABLE>
(a) The income statement data for the year ended December 31, 1995 excludes the
operating results of businesses held for sale since the operations of these
businesses will only accrue to the benefit of holders of the notes issued by
the Company's subsidiary SellCo Corporation after payment in full of the
Company's Series A Notes and certain other obligations (See Note G and H to
the consolidated financial statements). Income statement data has been
reclassified for all periods presented prior to 1995 to reflect the
Company's information services and water supply businesses as discontinued
operations (See Note M to the consolidated financial statements).
(b) Historical per share data for periods prior to December 31, 1994 have not
been presented as it is not meaningful since the Company has been
recapitalized and adopted Fresh-Start Accounting as of December 31, 1994.
(c) No cash dividends on the Company's common stock have been paid during the
past five years.
(d) Selected financial data for periods as of and after the adoption of Fresh-
Start Accounting are not comparable to selected financial data of periods
presented prior to December 31, 1994 and have been separated by a black
line.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended (the "Plan
of Reorganization"), and proposed by the Company and its subsidiary SellCo
Corporation ("SellCo"). Under the Plan of Reorganization, pre-petition
creditors of the Company (other than holders of subordinated debt) received
certain notes of EMCOR and SellCo and substantially all of the newly issued
shares of common stock of EMCOR (the "New Common Stock"). The pre-petition
holders of the Company's subordinated debt, common and preferred stock and
warrants of participation received warrants to purchase New Common Stock in
exchange for their debt and equity interests.
The Company's results of operations and financial condition as of and for the
year ended December 31, 1995 reflect the adoption of the American Institute of
Certified Public Accountants' Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The
Company has accounted for its reorganization by using the principles of Fresh-
Start Accounting as required by SOP 90-7. For accounting purposes, the Company
assumed that the Plan of Reorganization was consummated on December 31, 1994.
Under the principles of Fresh-Start Accounting, the Company's total net assets
were recorded at their assumed reorganization value, with the reorganization
value allocated to identifiable assets on the basis of their estimated fair
value. The primary valuation methodology employed by the Company, with the
assistance of its financial advisors to determine the reorganization value of
the Company, was a net present value approach. The valuation was based on the
Company's forecasts of unleveraged, after-tax cash flows calculated for each
year over the four-year period from 1994 to 1997, capitalizing projected
earnings before interest, taxes, depreciation and amortization at multiples
ranging from 3 to 10 selected to value earnings and cash flows beyond 1997, and
discounting the resulting amounts to present value at rates ranging from 10% to
30% selected to approximate the Company's projected weighted average cost of
capital. The excess of reorganization value over the value of identifiable
assets of $5.0 million is included in the Consolidated Balance Sheets as of
December 31, 1995 and 1994 in Other Assets as "Miscellaneous" and is being
amortized over 15 years.
As a result of the implementation of Fresh-Start Accounting, the consolidated
financial statements of the Company for periods subsequent to consummation of
the Plan of Reorganization will not be comparable to the Company's consolidated
financial statements for prior periods. Accordingly, a black line has been used
to separate the consolidated financial statements of the Company after the
consummation of the Plan of Reorganization from those of the Company prior to
the consummation of the Plan of Reorganization. The operating results of
businesses held for sale have been excluded from the consolidated financial
statements for the year ended December 31, 1995 since the operations of these
businesses will only accrue to the benefit of the holders of the notes issued by
the Company's subsidiary SellCo after payment in full of the Company's Series A
Notes and certain other obligations (See Note G and H to the consolidated
financial statements) and the operating results substantially offset interest
accrued on the Company's Series A Notes which interest has been recognized
within the caption "Net assets held for sale" in the Consolidated Balance Sheet
as of December 31, 1995.
RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994
Revenues for the years ended December 31, 1995 and 1994 were $1,588.7 million
and $1,595.0 million, respectively, exclusive of $169.0 million attributable to
businesses held for sale or sold in 1994. Net loss for the year ended December
31, 1995 was $10.9 million or $1.13 per share compared to net income of $302.4
million or $32.09 per share for the year ended 1994. Net income for 1994
includes an extraordinary item for the gain on debt discharge of $413.2 million
as well as a charge for the required adoption of Financial Accounting Standards
No. 112, "Employers' Accounting for Post-employment Benefits" ("SFAS 112") of
$2.1 million. In addition, net income for 1994 includes charges for
reorganization items totaling $91.3 million consisting of professional fees of
$12.5 million and fresh-start adjustments of $78.8 million to record the
Company's assets and liabilities at fair value in accordance with the adoption
of Fresh-Start Accounting as prescribed by SOP 90-7. Net income for the year
ended December 31, 1994 includes income from discontinued operations of $10.2
million as well as a loss of $13.7 million attributable to other businesses held
for sale or sold.
Loss from continuing operations before reorganization items, income taxes,
extraordinary items and cumulative effect of accounting change was $9.9 and
$27.9 million for the years ended December 31, 1995 and
13
<PAGE>
1994, respectively. The 1995 loss includes $14.8 million of net interest expense
associated with borrowings outstanding during 1995 under the Company's New
Credit Agreements (hereafter defined) compared to $2.5 million in 1994 which
amount excluded interest on debt in default which the Company ceased accruing in
December 1993. In addition the 1995 loss includes a third quarter loss of $0.9
million associated with the disposition of a subsidiary engaged in the
installation of industrial boilers. The 1994 loss reflects, among other things:
a gain of $1.9 million for the settlement of a construction claim; a net gain of
$1.2 million on the sale of certain businesses; a loss of $13.7 million
attributable to other businesses held for sale or sold; a loss of $4.5 million
due to the write-down of an investment; a loss of $10.8 million attributable to
job write-downs and provisions for loss contingencies on certain industrial and
municipal projects; a loss of $1.4 million for lender fees associated with the
Company's new working capital and debtor-in-possession credit facilities; and a
loss of $0.6 million for severance of certain employees. The losses associated
with job write-downs in 1994 were primarily attributable to adverse weather
conditions, inadequate estimating of job costs and labor problems.
The Company generated operating income of $5.9 million for the year ended
December 31, 1995 compared with an operating loss of $22.2 million for the year
ended December 31, 1994, inclusive of $13.7 million of operating losses
attributable to businesses held for sale or sold. The increase in operating
income is attributable to: a $41.3 million reduction in selling, general and
administrative ("SG&A") expenses, inclusive of $30.6 million of SG&A expenses
attributable to businesses held for sale or sold, as a result of the
implementation of the Company's cost reduction plans; an increase in gross
profit in absolute dollars ($3.7 million) and as percentage of revenue
attributable to successful completion and close out of lower margin pre-
emergence contracts as well as higher profitability of post-emergence contracts
completed or currently in process, exclusive of $16.9 million of gross profit
attributable to businesses held for sale or sold in 1994. Professional fees
associated with the bankruptcy proceeding are classified as "Reorganization
Items" in the 1994 Consolidated Statement of Operations. Net interest expense
for the year ended December 31, 1995 was $14.8 million compared to $2.5 million
in the year earlier period. The Company ceased accruing interest on debt in
default in December 1993 upon the filing of an involuntary bankruptcy petition
against the Company. Accordingly, no interest expense on debt in default is
included in the Consolidated Statement of Operations for the year ended December
31, 1994.
MECHANICAL AND ELECTRICAL CONSTRUCTION SERVICES AND FACILITIES MANAGEMENT
SERVICES
Revenues of the mechanical and electrical construction and facilities
management services business units for the year ended December 31, 1995 were
$1,588.7 million compared to $1,595.0 million for the year ended December 31,
1994, exclusive of $169.0 million attributable to businesses held for sale or
sold. Operating income of these business units (before deduction of general
corporate and other expenses discussed below) for the year ended December 31,
1995 was $21.6 million compared to an operating loss of $6.4 million, inclusive
of $13.7 million of operating loss attributable to businesses held for sale or
sold, for the year ended December 31, 1994. In connection with the Company's
restructuring plan adopted in connection with its Plan of Reorganization,
certain mechanical and electrical business units have been sold or identified
for sale. The operating results of these units are excluded from operating
results for the year ended December 31, 1995.
Revenues for the year ended December 31, 1995 relating to business units which
the Company plans to retain remained substantially unchanged compared with the
year earlier period. While 1995 revenues of business units operating in the
Eastern United States and Central United Kingdom increased due to improved
economic conditions, this increase was offset by decreased revenues in the
Midwestern and Western regions of the United States, Canada, Northern and
Southern parts of the United Kingdom due to, among other things, continuing poor
market conditions and downsizing.
Selling, general and administrative expenses, excluding general corporate and
other expenses, for the years ended December 31, 1995 and 1994 were $121.6
million and $162.8 million, respectively. The 1994 SG&A expenses include $132.3
million attributable to the continuing electrical and mechanical construction
and facilities management services companies. The decrease in SG&A expenses was
attributable to cost cutting and downsizing.
At December 31, 1995, the mechanical and electrical construction and facilities
management services business backlog was approximately $1,060.7 million compared
to approximately $1,046.4 million at December 31, 1994, exclusive of businesses
sold or held for sale. The Company's backlog in the United States increased by
$43.1 million between December 31, 1994 and December 31, 1995, whereas its
backlog in Canada and the United Kingdom decreased by $18.3 million and $10.5
million, respectively, during that same period. The decline in
14
<PAGE>
Canadian backlog is principally attributable to the downsizing of the Canadian
operations, while the United Kingdom decline is attributable to poor market
conditions.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the years ended December 31, 1995 and 1994 were
$15.7 million and $28.3 million, respectively, inclusive of $12.5 million of
legal and other professional fees incurred in connection with the Company's
reorganization in 1994. The higher amount of general corporate expenses,
exclusive of legal, consulting and other professional fees, in 1994 is
attributable to debt issuance costs related to the Company's debtor-in-
possession credit facility ("DIP Loan"), severance paid to terminated employees
and insurance costs.
NET ASSETS HELD FOR SALE
The operating results of businesses held for sale, which included the Company's
water supply business classified as discontinued operations prior to the
consummation of the Plan of Reorganization, have been excluded from the
consolidated financial statements for the year ended December 31, 1995 since the
operation of these businesses will only accrue to the benefit of the holders of
notes issued by SellCo after payment in full of the Company's Series A Notes and
certain other obligations (See Note G and H to the consolidated financial
statements). Businesses held for sale are recorded in the accompanying
Consolidated Balance Sheets at the lower of cost or estimated net realizable
value and are classified as current based on their estimated disposition dates.
Agreements for the sale of substantially all the assets of the Company's
principal water supply subsidiary, Jamaica Water Supply Company ("JWS"), have
been executed and an agreement for the sale of all of the capital stock of Sea
Cliff Water Company ("Sea Cliff"), the Company's other water supply subsidiary,
has also been executed.
RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED
DECEMBER 31, 1993
Revenues for the years ended December 31, 1994 and 1993 were $1,764.0 million
and $2,194.7 million, respectively. Net income for the year ended December 31,
1994 was $302.4 million or $32.09 per share compared to a net loss of $123.1
million for the year ended 1993. Net income for 1994 includes an extraordinary
item for the gain on debt discharge of $413.2 million as well as a charge for
the required adoption of SFAS 112 of $2.1 million. In addition, net income for
1994 includes charges for reorganization items totaling $91.3 million consisting
of professional fees of $12.5 million and fresh-start adjustments of $78.8
million to record the Company's assets and liabilities at fair value in
accordance with the adoption of Fresh-Start Reporting as prescribed by SOP 90-7.
Income from discontinued operations was $10.2 million for the year ended
December 31, 1994 compared to a loss of $9.1 million for the year ended December
31, 1993. The loss from discontinued operations for the year ended December 31,
1993 reflects a charge of $8.1 million related to an adjustment in the carrying
value of liabilities as a result of the bankruptcy filing under Chapter 7 of the
U.S. Bankruptcy Code by the Company's subsidiary that formerly carried on the
Company's U.S. information services business. The loss from discontinued
operations in 1993 also includes a charge of $7.4 million to write down the net
assets of the Company's water supply business to estimated net realizable value,
as determined with the assistance of the Company's financial advisors, in
connection with the Company's reinstatement of its plan of disposition in early
1994.
Loss from continuing operations before reorganization items, income taxes,
extraordinary items and cumulative effect of accounting change was $27.9 million
for the year ended December 31, 1994. The loss includes: a gain of $1.9 million
for the settlement of a construction claim; a net gain of $1.2 million on the
sale of certain businesses; a loss of $4.5 million due to the write-down of an
investment; a loss of $10.8 million attributable to job write-downs and
provisions for loss contingencies on certain industrial and municipal projects;
a loss of $1.4 million for lender fees associated with the Company's new working
capital and debtor-in-possession credit facilities; and a loss of $0.6 million
for severance of certain employees. The losses associated with job write-downs
were primarily attributable to adverse weather conditions, inadequate
estimating of job costs and labor problems. The loss from continuing operations
before income taxes for the year ended December 31, 1993 was $114.7 million
which includes $50.2 million of interest expense primarily for interest at
default rates on debt in default.
The Company ceased accruing interest on debt in default in December 1993 upon
the filing of an involuntary bankruptcy petition against the Company.
Accordingly, no interest expense on debt in default is
15
<PAGE>
included in the Consolidated Statement of Operations for the year ended December
31, 1994. The Company incurred an operating loss of $22.2 million for the year
ended December 31, 1994 compared with an operating loss of $65.5 million for the
year ended December 31, 1993. The operating loss for 1993 includes a $38.5
million provision for estimated losses on uncompleted construction contracts and
approximately $12.0 million of legal, consulting and other professional fees
arising from shareholder litigation and debt restructuring efforts. Professional
fees associated with the bankruptcy proceedings are classified as Reorganization
Charges in the 1994 Consolidated Statement of Operations.
MECHANICAL AND ELECTRICAL CONSTRUCTION SERVICES AND FACILITIES MANAGEMENT
SERVICES
Revenues of the mechanical and electrical construction and facilities
management services business units for the year ended December 31, 1994
decreased by 19.6% to $1,764.0 million from $2,194.7 million for the year ended
December 31, 1993. Operating losses of this business (before deduction of
general corporate and other expenses discussed below) for the years ended
December 31, 1994 and 1993 were $6.4 million and $39.1 million, respectively. In
connection with the Company's restructuring plan, certain mechanical and
electrical construction services business units have been sold or identified for
sale. The operating results of these units are included in the operating results
discussed herein. Revenues of the mechanical and electrical construction
services units sold or held for sale for the years ended December 31, 1994 and
1993 were $169.0 million and $354.6 million, respectively. Such units incurred
an operating loss of $13.7 million for the year ended December 31, 1994 compared
to an operating loss of $13.8 million for 1993.
The decrease in revenues for the year ended December 31, 1994 was partially
attributable to the disposition of certain businesses held for sale and the
downsizing of certain other businesses. Revenues for the year ended December 31,
1994 relating to businesses which the Company plans to retain decreased by
approximately 13% when compared to 1993. This decrease resulted primarily from
those business units operating in the Western and Midwestern United States and
in Eastern Canada. In 1994 these units experienced difficulties in obtaining new
construction contracts because of, among other things, continued poor market
conditions and the inability of the Company's subsidiary Dynalectric Specialty
Contractors, Inc. ("Dyn") and its subsidiaries to obtain surety bonds to secure
new work because their surety bonding company ceased to engage, as of January 1,
1994, in the business of issuing surety bonds. Another surety bonding company
began providing them with bonds in November 1994.
The operating results for the years ended December 31, 1994 and 1993 reflect,
among other things, the continued negative impact of the recession in the
construction industry and oversupply in the commercial real estate market which
caused intense competition for new commercial work. As a result of the reduction
of work in the commercial real estate market, many of the Company's
mechanical and electrical construction services business units pursued and
secured work in the institutional and public works markets, typically for
federal, state and municipal government agencies. This work was often
characterized by lower margins and different contract practices than in the
commercial real estate market. In addition, the continued recession in the
construction industry resulted in lower margins on all available work than had
been the case in previous years. Certain of these business units had limited
experience in institutional and public works projects, and, as a result,
incurred losses, particularly on certain large, long-term projects. Operating
margins in 1994 and 1993 were also adversely affected by the continuing
recessions in the United Kingdom and Canada.
SG&A expenses, excluding general corporate and other expenses, for the years
ended December 31, 1994 and 1993 were $162.8 million and $190.3 million,
respectively. The amount of SG&A expenses for 1994 was lower than 1993 SG&A
expenses as a result of the implementation of the Company's downsizing plans and
the disposition of certain businesses.
At December 31, 1994, the mechanical and electrical construction and facilities
management services business backlog was approximately $1,145.3 million compared
to approximately $1,045.4 million at December 31, 1993. Such backlog included
$1,046.4 million at December 31, 1994 and $946.8 million at December 31, 1993
relating to companies which the Company intended to retain. The Company's
backlog in the United States declined by $60.9 million between December 31, 1993
and December 31, 1994, whereas its backlog in the United Kingdom and Canada
increased by $145.7 million and $22.5 million, respectively, during that same
period. The Company's United Kingdom and Canadian subsidiaries received major
long-term contracts during the second and third quarters of 1994. During the
year ended December 31, 1994, the Company experienced a reduction in backlog in
the Western region of the United States. The decline of backlog in the United
States was attributable to the downsizing of the Company's operations, the
Company's weakened financial condition which adversely affected its ability to
obtain new surety bonds and contracts and the inability of Dyn and Dyn
subsidiaries to obtain surety
16
<PAGE>
bonds during most of 1994. In addition, during 1994 the Company's surety bonding
companies reviewed and continue to review requests for surety bonds on a case-
by-case basis.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate expenses for the years ended December 31, 1994 and 1993 were
$28.3 million, inclusive of legal and other professional fees of $12.5 million
incurred in connection with the Company's reorganization in 1994, and $26.4
million, inclusive of $12.0 million related to legal, consulting and other
professional fees arising from shareholder litigation, the debt restructuring
and the restatement of the Company's 1991 and 1990 financial statements,
respectively. The higher amount of general corporate expenses, exclusive of
legal, consulting and other professional fees, in 1994 is attributable to debt
issuance costs related to the Company's debtor-in-possession credit facility
during its Chapter 11 proceeding and new working capital credit facility,
severance paid to terminated employees and an increase in insurance costs. Net
interest expense for the year ended December 31, 1994 was $2.5 million compared
to $50.2 million in the year earlier period. The Company ceased accruing
interest related to debt in default on December 21, 1993, the date on which an
involuntary bankruptcy petition was filed against the Company.
DISCONTINUED OPERATIONS
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993, the Company's Board of Directors decided not to
proceed with the sale due to the then pending rate related proceedings and
litigation. In December 1993, JWS entered into an agreement that became
effective on February 2, 1994, upon approval by the New York State Public
Service Commission, with respect to rate related proceedings and litigation
thereby eliminating significant uncertainties relating to the Company's water
supply business. Accordingly, the Company reinstated its plan of divestiture in
the first quarter of 1994 and retained investment bankers to assist in the sale
of its water supply business. Agreements for the sale of substantially all the
assets of JWS have been executed and an agreement for the sale of all of the
capital stock of Sea Cliff has also been executed. The consolidated financial
statements reflect the water supply business as a discontinued operation for all
periods presented prior to 1995.
In 1993 the Company sold substantially all of its information services
businesses.
Revenues and income from discontinued operations, excluding the $20.4 million
loss from the sale of its information services businesses during 1993, for the
years ended December 31, 1994 and 1993 were as follows (in thousands):
1994 1993
(UNAUDITED)
----------------------
Revenues:
Water Supply $64,993 $ 66,755
Information Services -- 876,700
------- --------
$64,993 $943,455
======= ========
Net Income:
Water Supply $10,216 $ 11,427
Information Services -- (164)
------- --------
$10,216 $ 11,263
======= ========
The water supply business operating results are impacted by seasonal factors.
Its revenues are generally higher in the second and third quarters which
reflects the warmer weather conditions in the Northeast United States.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash balance increased by $0.5 million from $52.5
million at December 31, 1994 to $53.0 million at December 31, 1995. The
December 31, 1995 cash balance includes $5.8 million in foreign bank accounts
and $25.0 million borrowed under the New Credit Agreements referred to below as
compared to $3.0 million and $40.0 million, respectively, at December 31, 1994.
The bank accounts of the Company's foreign subsidiaries and Dyn and Dyn
subsidiaries are only available to support their respective operations.
17
<PAGE>
The positive cash flow provided by operations of approximately $10.7 million in
1995 was principally due to management of accounts receivable collections and of
payments of vendors.
Pursuant to the Plan of Reorganization, the Company and its wholly-owned
subsidiary SellCo issued, or reserved for issuance, four series of notes (the
"New Notes") and 9,424,083 shares of stock of the Company's New Common Stock
(constituting 100% of outstanding shares as of the Effective Date) to pre-
petition creditors of the Company, other than holders of the Company's pre-
petition subordinated debt, in settlement of their pre-petition claims and to
Belmont Capital Partners II, L.P. ("Belmont"), which provided a debtor-in-
possession credit facility ("DIP Loan"), in payment of additional interest under
the terms of the DIP Loan. The entire $11.9 million principal amount of Series
B Notes, a series of the New Notes, and approximately $4.1 million principal
amount of Series A Notes, a series of the New Notes, were redeemed on the
Effective Date with the net cash proceeds derived from the sale of certain of
the Company's subsidiaries, the stock of which would have been pledged as part
of the collateral securing the Series B Notes had such subsidiaries not been
sold (and an additional $600,000 of such proceeds were reserved for prepayment
of certain of the Series A Notes which have been reserved for issuance in
respect of disputed and unliquidated claims). It is contemplated that, subject
to the rights of the lenders under the Company's New Credit Agreements,
discussed below, to receive the first $15.0 million of proceeds of the sale of
stock or assets of the Company's water supply subsidiaries, JWS and Sea Cliff
(collectively, the "Water Companies"), the balance of the Series A Notes will be
prepaid with the net cash proceeds (as defined) derived from the sale of
subsidiaries of SellCo ("Net Sales Proceeds"), including the Water Companies,
and five other non-core subsidiaries pledged as collateral for the Series A
Notes (the "Other Non-Core Subsidiaries') and that the SellCo Notes, a series of
the New Notes, will only be paid from and to the extent of any remaining Net
Sales Proceeds of SellCo's subsidiaries and the proceeds of a $5.5 million
promissory note issued by the Company to SellCo pursuant to the Plan of
Reorganization (the "EMCOR Supplemental SellCo Note"). Interest on the EMCOR
Supplemental SellCo Note is payable on maturity.
On December 14, 1994, the Company and certain of its subsidiaries entered into
two credit agreements (the "New Credit Agreements") with Belmont and other
lenders providing the Company and certain of its subsidiaries with working
capital facilities of up to an aggregate of $45.0 million which became available
upon the Effective Date. The MES Credit Agreement, one of the New Credit
Agreements, is among the Company, its subsidiary, MES Holdings Corporation
("MES"), substantially all of the U.S. subsidiaries of MES, as guarantors, and
the lenders and provides the Company and MES with loans in an aggregate amount
of up to $35.0 million. The Dyn Credit Agreement, the other New Credit Agreement
is among the Company, Dyn, Dyn's subsidiaries, as guarantors, and the lenders
and provides Dyn with loans in an aggregate amount of up to $10 million. All the
loans bear interest on the principal amount thereof at the rate of 15% per annum
and mature on June 14, 1996.
The loans under the MES Credit Agreement are guaranteed by most of the U.S.
subsidiaries of MES and are secured by, among other things, substantially all of
the assets of the Company, MES and most of its U.S. subsidiaries, including
their respective accounts receivable, inventories, general intangibles and
equipment and the capital stock of the U.S. MES subsidiaries (as defined) (but
not the stock of MES, Dyn, SellCo, SellCo's subsidiaries or the five Other Non-
Core Companies) and the proceeds of the sale of stock or assets of the Water
Companies to the extent of the first $15.0 million of such proceeds, subject to
the rights to such proceeds of the lenders under the Dyn Credit Agreement. The
Dyn loans are guaranteed by the Dyn subsidiaries and are secured by
substantially all of the assets of Dyn and the Dyn subsidiaries, including their
respective accounts receivable, inventories, general intangibles and equipment
and the capital stock of Dyn and the Dyn subsidiaries and the proceeds of the
sale of stock or assets of the Water Companies to the extent of the first $15.0
million of such proceeds, subject to the rights to such proceeds of the lenders
under the MES Credit Agreement. The Dyn loans are also secured by the collateral
securing the MES loans, subject to the rights to such collateral of the lenders
under the MES Credit Agreement.
The proceeds of the MES loans under the MES Credit Agreement were used to repay
amounts outstanding under the DIP Loan and pay fees and expenses in connection
with the MES Credit Agreement and the Plan of Reorganization and the balance is
being used for the general working capital of MES, the MES subsidiaries and the
Company. The proceeds of the Dyn loans were used to pay fees and expenses in
connection with the Dyn Credit Agreement and is being used for the general
working capital of Dyn and the Dyn subsidiaries.
Each of the New Credit Agreements, which expire on June 14, 1996, contain
various affirmative and negative covenants. The negative covenants limit the
ability of the Company, MES, Dyn and their respective subsidiaries' to take
certain actions without the lenders' approval. Such actions include, among other
things: (i) merger or consolidation, (ii) incurrence of indebtedness, (iii)
placing of liens upon their property, (iv) making of
18
<PAGE>
loans, investments or guarantees and (v) transfer of assets. The negative
covenants require MES, Dyn and their subsidiaries to maintain their backlogs and
work-in-progress at not less than specified levels and to prevent their losses
from operations from exceeding specified amounts in any month. The MES Credit
Agreement also requires the Company, MES and its subsidiaries, and Dyn and its
subsidiaries to maintain certain financial coverage ratios. Borrowings
outstanding as of December 31, 1995 under the MES Credit Agreement and Dyn
Credit Agreement were $25.0 million and $0, respectively.
In June 1995, the Company's Canadian subsidiary, Comstock Canada Limited
("Comstock Canada"), entered into a credit agreement providing for an overdraft
facility of up to Canadian $2.0 million. The facility is secured by certain
assets of Comstock Canada and deposit instruments of a Canadian subsidiary of
the Company. The facility provides for interest at the bank's prime rate (7.5%
at December 31, 1995) plus .75% and expires on June 30, 1996. As of December 31,
1995, Comstock Canada had no borrowings outstanding under this credit facility.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a United Kingdom bank for
a credit line of Brit. Pound 17.1 million (approximately U.S. $26.6 million).
The credit facility consists of the following components with the individual
credit limits as indicated: an overdraft line of up to Brit. Pound 9.0 million
(approximately U.S. $14.0 million); a facility for the issuance of guarantees,
bond and indemnities of up to Brit. Pound7.3 million (approximately U.S. $11.3
million); and other credit facilities of up to Brit. Pound 0.8 million
(approximately U.S. $1.3 million). The facility is secured by substantially all
of the assets of the Company's principal United Kingdom subsidiaries. The
overdraft facility provides for interest at the bank's base rate, as defined
(6.5% as of December 31, 1995), plus 3% on the first Brit. Pound 5.0 million of
borrowings and at the bank's base rate plus 4% for borrowings over Brit. Pound
5.0 million. This credit facility, as amended, expires June 30, 1996.
As of December 31, 1995, the Company's United Kingdom subsidiaries had utilized
approximately $23.0 million of the credit facilities as follows: approximately
$13.4 million of borrowings under the overdraft line, approximately $8.3 million
for the issuance of guarantees and approximately $1.3 million under other credit
facilities.
The Company is actively seeking to replace or extend its existing credit
facilities that expire in 1996.
On November 4, 1994, JWS and Sea Cliff entered into a credit agreement
providing for a credit facility to JWS of $17.9 million and for a credit
facility to Sea Cliff of $2.1 million at an interest rate based upon either
prime rate, LIBOR plus 5/8% or bid rate, as those terms are defined in the
credit agreement. These borrowings are reflected as current liabilities in the
condensed consolidated balance sheet relating to discontinued operations (the
water supply business) and other businesses held for sale which is presented in
Note N to the consolidated financial statements. This credit agreement was
extended from November 4, 1995 to May 3, 1996. During the period from November
4, 1995 to May 3, 1996, the Company's borrowings are limited to $12.0 million
for JWS. JWS' obligations under the credit agreement become due and payable on
the earlier of (a) May 3, 1996, (b) the tenth business day following any
disposition by JWS outside the ordinary course of business of assets with an
aggregate value in excess of $5,000,000. Sea Cliff's obligations under the
credit agreement become due and payable on the earlier of (a) May 3, 1996 or (b)
the tenth business day following any disposition by JWS outside the ordinary
course of business of assets with an aggregate fair market value in excess of
$5,000,000, (c) a distribution by JWS to its stockholders of the proceeds of
such disposition, or (d) a disposition by Sea Cliff outside the ordinary course
of business of assets with an aggregate fair market value in excess of $50,000.
As reported in the Company's Report on Form 8-K, dated February 29, 1996, an
aggregate majority of principal amount of the outstanding Series A Notes and an
aggregate majority of principal amount of the outstanding Series C Notes,
consented to the Company's proposed amendments to the Series A Indenture and
Series C Indenture under which the Series A Notes and the Series C Notes,
respectively, were issued. The amendments (i) will reduce the ratio required to
be maintained by the Company and certain of its subsidiaries
19
<PAGE>
under a Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as defined,
contained in each of the Indentures and (ii) will exclude from the Ratio
calculation certain non-cash interest payments which are payable by the issuance
of additional Series A Notes and Series C Notes.
The Company has no significant plans or commitments for capital expenditures
outside of those required for normal operations. Such expenditures are
anticipated to be funded by cash generated through continuing operations.
The Company believes that projected cash flow from operations combined with the
available funds under the MES and Dyn Credit Agreements and any successor credit
facility, will provide sufficient liquidity to meet the Company's operating,
capital and scheduled debt service requirements through at least 1996. Factors
supporting this belief include the terms of the New Notes, including the
interest and amortization payment terms, and the contemplated prepayment of
certain of the New Notes from the proceeds of sales of subsidiaries held for
sale.
CERTAIN INSURANCE MATTERS
Since October 1992, neither the Company nor its indirect wholly-owned captive
insurance subsidiary has been able to obtain additional letters of credit to
secure their insurance obligations, and, as a result they have been required to
make cash collateral deposits to an unrelated insurance company. The deposits
totaled $30.8 million and $37.6 million as of December 31, 1995 and 1994,
respectively, and are classified as a long-term asset in the accompanying
Consolidated Balance Sheets under the caption "Insurance cash collateral" in
Other Assets. The Company expects to continue to be required to post cash
collateral or letters of credit for insurance claims.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
REORGANIZED COMPANY
DECEMBER 31,
-----------------------
1995 1994
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 53,007 $ 52,505
Accounts receivable, less allowance for
doubtful accounts of $14,892 and
$19,820, respectively 435,974 438,958
Costs and estimated earnings in excess
of billings on uncompleted contracts 65,551 52,347
Inventories 8,031 6,910
Prepaid expenses and other 8,365 8,115
Net assets held for sale 61,969 55,401
-------- --------
Total current assets 632,897 614,236
INVESTMENTS, NOTES AND OTHER
LONG-TERM RECEIVABLES 4,684 6,122
PROPERTY, PLANT AND EQUIPMENT, NET 27,137 33,670
OTHER ASSETS:
Insurance cash collateral 30,812 37,577
Funds held in escrow 8,271 8,649
Miscellaneous 7,144 7,244
-------- --------
46,227 53,470
-------- --------
TOTAL ASSETS $710,945 $707,498
======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
21
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
REORGANIZED COMPANY
DECEMBER 31,
-----------------------
1995 1994
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 14,665 $ 4,803
Borrowings under working capital credit 25,000 40,000
lines
Current maturities of long-term debt
and capital lease obligations 1,875 2,089
7% Senior Secured Notes (Series A) 61,969 55,401
Accounts payable 224,002 219,564
Billings in excess of costs and
estimated earnings on
uncompleted contracts 113,590 115,567
Accrued payroll and benefits 38,928 38,914
Other accrued expenses and liabilities 45,445 45,660
-------- --------
Total current liabilities 525,474 521,998
LONG-TERM DEBT 68,240 61,230
OTHER LONG-TERM OBLIGATIONS 46,621 43,140
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value,
1,000,000 shares -- --
authorized, zero issued and
outstanding
Common Stock, $.01 par value,
13,700,000 shares and 9,424,083
authorized, 9,424,706 shares issued
and outstanding, respectively 94 94
Warrants 2,179 2,179
Capital surplus 78,863 78,857
Cumulative translation adjustment 327 --
Accumulated deficit (10,853) --
-------- --------
Total stockholders' equity 70,610 81,130
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $710,945 $707,498
======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
22
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR COMPANY
COMPANY
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES $1,588,744 $1,763,961 $2,194,735
COSTS AND EXPENSES:
Cost of sales 1,445,597 1,607,589 2,043,558
Selling, general and administrative 137,254 178,575 216,709
---------- ---------- ----------
1,582,851 1,786,164 2,260,267
---------- ---------- ----------
OPERATING INCOME (LOSS) 5,893 (22,203) (65,532)
Interest expense (17,453) (3,867) (51,075)
Interest income 2,633 1,391 888
Net (loss) gain on businesses sold or (926) 1,183 1,028
held for sale
Loss on investment -- (4,452) --
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE
REORGANIZATION ITEMS, INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (9,853) (27,948) (114,691)
---------- ---------- ----------
REORGANIZATION ITEMS:
Professional fees -- (12,535) --
Fresh-start adjustments -- (78,783) --
---------- ---------- ----------
-- (91,318) --
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS
INCLUDING
REORGANIZATION ITEMS, BEFORE INCOME
TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (9,853) (119,266) (114,691)
INCOME TAX PROVISION (BENEFIT) 1,000 (332) (700)
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS
INCLUDING REORGANIZATION
ITEMS, BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (10,853) (118,934) (113,991)
---------- ---------- ----------
DISCONTINUED OPERATIONS:
Income from operations, net of
income taxes -- 10,216 11,263
Loss from disposal of businesses, net
of income taxes -- -- (20,350)
---------- ---------- ----------
Income (loss) from discontinued
operations -- 10,216 (9,087)
EXTRAORDINARY ITEM - GAIN ON DEBT
DISCHARGE -- 413,249 --
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR:
Post-employment benefits -- (2,100) --
---------- ---------- ----------
NET (LOSS) INCOME $ (10,853) $ 302,431 $ (123,078)
========== ========== ==========
SUPPLEMENTAL (LOSS) INCOME PER COMMON
SHARE
AND COMMON SHARE EQUIVALENT(1):
Continuing operations before
extraordinary item $(1.13) $ (12.62) *
Income from discontinued operations -- 1.08 *
Extraordinary item -- 43.85 *
Cumulative effect of change in method
of accounting for post-employment benefits -- (0.22) *
---------- ---------- ----------
Net (Loss) Income $(1.13) $ 32.09 *
========== ========== ==========
</TABLE>
(1) Historical per share data have not been presented prior to December 31,
1994 as it is not meaningful since the Company has been recapitalized and
adopted Fresh-Start Reporting as of December 31, 1994.
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
23
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(10,853) $ 302,431 $(123,078)
Adjustments to reconcile net (loss)
income to net cash
provided by (used in) operating
activities:
Depreciation and amortization 8,912 15,724 35,246
Net loss (gain) from businesses sold or
held for sale 926 (1,183) (1,028)
Provision for losses on accounts and -- -- 13,663
other receivables
Write-down of investment -- 4,452 --
Stock compensation 6 -- 727
Deferred income taxes -- -- 4,138
Loss from disposal of discontinued
operations -- -- 20,350
Cumulative effect of change in accounting for
post-employment benefits -- 2,100 --
Non-cash interest expense 7,690 -- --
Other, net 465 -- 2,411
-------- --------- ---------
7,146 323,524 (47,571)
Change in Operating Assets and
Liabilities Excluding
Effect of Businesses Disposed of and
Acquired:
Decrease in accounts receivable, net 2,635 9,172 41,286
(Increase) decrease in inventories and
contracts in progress (16,320) (6,879) 35,292
Increase (decrease) in accounts payable
and other accrued expenses and liabilities 5,312 22,703 (73,563)
Changes in other assets and
liabilities, net 11,928 (20,703) 17
Charges due to reorganization
activities:
Reorganization charges - professional fees -- 12,535 --
Reorganization charges - fresh-start adjustments -- 78,783 --
Gain on discharge of debt -- (413,249) --
-------- --------- ---------
Net Cash Provided by (Used in) Operations $ 10,701 $ 5,886 $ (44,539)
-------- --------- ---------
</TABLE>
(continued)
24
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)(CONTINUED)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
1995 1994 1993
----------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from working capital credit
lines $ -- $ 40,000 $ --
Payments of working capital credit lines (15,000)
Proceeds from debtor-in-possession
financing -- 30,000 --
Payment of debtor-in-possession
financing -- (30,000) --
Cash deposited in trust account for
funding of post-bankruptcy debt -- (15,940) --
Proceeds from long-term debt 180 -- 710
Payments of long-term debt and capital
lease obligations (1,379) (1,430) (6,027)
Repayment of Series B Notes and partial
Series A Note repayment -- (16,054) --
Redemption of preferred stock of
subsidiary company -- -- (500)
Proceeds from notes payable 21,266 4,646 7,900
Payments of notes payable (11,404) (172) (27,169)
Debt issuance costs -- (900) --
-------- -------- --------
Net Cash (Used in) Provided by
Financing Activities (6,337) 10,150 (25,086)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses and 650 13,620 43,400
other assets
Purchase of property, plant and (4,512) (4,164) (17,329)
equipment
Net disbursements for other investments -- (2,442) --
Change in cash balances of businesses
held for sale or sold -- (10,079) (3,748)
-------- -------- --------
Net Cash (Used in) Provided by
Investing Activities (3,862) (3,065) 22,323
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents 502 12,971 (47,302)
Cash and Cash Equivalents at Beginning
of Year 52,505 39,534 86,836
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 53,007 $ 52,505 $ 39,534
======== ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
25
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Retained
New Old Old Old Warrants Cumulative Earnings Stockholders'
Common Preferred Common of New Capital Translation (Accumulated Equity
Stock Stock Stock Participation Warrants Surplus Adjustments Deficit) (Deficit)
------ --------- ------ -------------- -------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY
1, 1993 $ -- $ 21,250 $ 4,075 $ 576 $ -- $ 203,505 $ (3,930) $(401,455) $(175,979)
Deferred
compensation -- -- 9 -- -- 718 -- -- 727
Foreign currency
translation
adjustment -- -- -- -- -- -- (2,138) -- (2,138)
Preferred stock
dividends -- -- -- -- -- -- -- (1,806) (1,806)
Other, net -- -- (12) -- -- 24 -- -- 12
Net loss -- -- -- -- -- -- -- (123,078) (123,078)
---- -------- ------- ----- ------ --------- ------- --------- ---------
BALANCE,
DECEMBER
31, 1993 -- 21,250 4,072 576 -- 204,247 (6,068) (526,339) (302,262)
Foreign currency
translation
adjustment -- -- -- -- -- -- (173) -- (173)
Exchange of
preferred stock
for common
stock -- (345) 1 -- -- 344 -- -- --
Net income -- -- -- -- -- -- -- 302,431 302,431
Exchange of
stock and fresh-
start
adjustments 94 (20,905) (4,073) (576) 2,179 (125,734) 6,241 223,908 81,134
---- -------- ------- ----- ------ --------- ------- --------- ---------
BALANCE,
DECEMBER
31, 1994 94 -- -- -- 2,179 78,857 -- -- 81,130
Foreign currency
translation
adjustment -- -- -- -- -- -- 327 -- 327
Other -- -- -- -- -- 6 -- -- 6
Net loss -- -- -- -- -- -- -- (10,853) (10,853)
---- -------- ------- ----- ------ --------- ------- --------- ---------
BALANCE,
DECEMBER
31, 1995 $ 94 $ -- $ -- $ -- $2,179 $ 78,863 $ 327 $ (10,853) $ 70,610
==== ======== ======= ===== ====== ========= ======= ========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
26
<PAGE>
EMCOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION
JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on
December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group,
Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third
Amended Joint Plan of Reorganization dated August 9, 1994, as amended and
proposed by the Company and its subsidiary SellCo Corporation (the "Plan of
Reorganization"). Under the Plan of Reorganization, pre-petition creditors of
the Company (other than holders of subordinated debt) received certain notes of
EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of
the newly issued shares of common stock of EMCOR ("New Common Stock"). The pre-
petition holders of the Company's subordinated debt, common and preferred stock
and warrants of participation received warrants ("New Warrants") to purchase New
Common Stock of EMCOR in exchange for their debt and equity interests.
Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued or
reserved for issuance to pre-petition creditors of EMCOR (other than holders of
EMCOR's subordinated debentures and notes) in exchange for approximately $525.7
million of EMCOR senior bank and institutional indebtedness and substantially
all other general unsecured claims, both allowed and disputed, against the
Company, and to Belmont Capital Partners II, L.P. ("Belmont"), which provided a
debtor-in-possession credit facility to the Company during its Chapter 11
proceeding, the following securities: (i) 9,424,083 shares of New Common Stock
of the Company (constituting 100% of the issued or issuable shares as of the
Effective Date); (ii) approximately $62.2 million principal amount of 7% Senior
Secured Notes, Series A, due 1997 of the Company ("Series A Notes") issued on
the Effective Date and up to a maximum of $8.8 million additional principal
amount of Series A Notes which were reserved for issuance to holders of general
unsecured claims and to Belmont upon resolution of disputed and unliquidated
pre-petition general unsecured claims (assuming such claims are ultimately
allowed in full); (iii) approximately $11.9 million principal amount of 7%
Senior Secured Notes, Series B, due 1997 ("Series B Notes"); (iv) approximately
$62.8 million principal amount of 11% Notes, Series C, due 2001, of the Company
("Series C Notes"); and (v) approximately $48.1 million principal amount of 12%
Subordinated Contingent Payment Notes, due 2004, of SellCo (the "SellCo Notes").
The entire $11.9 million principal amount of Series B Notes and approximately
$4.1 million principal amount of the Series A Notes issued on the Effective Date
were immediately redeemed on that date at their face amount in accordance with
their terms from the proceeds realized from the sale and liquidation of certain
subsidiaries, the stock of which would have been pledged as part of the
collateral securing the Series B Notes had such subsidiaries not been sold (and
an additional $600,000 of such proceeds was reserved for redemption of certain
of the Series A Notes reserved for disputed and unliquidated claims).The Company
recorded the Series A Notes based upon an assumed total of $100.0 million of
pre-petition general unsecured claims after settlement of disputed and
unliquidated pre-petition general unsecured claims.
From February 14, 1994 to the Effective Date, the Company was a debtor-in-
possession under Chapter 11 of the U.S. Bankruptcy Code. The accompanying 1994
and 1993 consolidated financial statements were prepared on the basis of the
principles prescribed by the American Institute of Certified Public Accountants'
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7"). As a result, during 1994, the
liabilities compromised in the bankruptcy proceeding were classified to "Pre-
consent date bankruptcy claims subject to compromise". As of December 21, 1993,
and through the Effective Date, the Company ceased to accrue interest on its
debt in default.
As of December 31, 1994, in accordance with SOP 90-7, the Company adopted
Fresh-Start Accounting. As a result of the implementation of Fresh-Start
Accounting, the financial statements of the Company for periods subsequent to
consummation of the Plan of Reorganization are not comparable to the Company's
consolidated financial statements for prior periods. Accordingly, a black line
has been used to separate the consolidated financial statements of the Company
after the consummation of the Plan of Reorganization from those of the Company
prior to the consummation of the Plan of Reorganization. The operating results
of businesses held for sale have been excluded from the consolidated financial
statements for the year ended December 31, 1995 since the operations of these
businesses will only accrue to the benefit of the holders of the notes issued by
the Company's subsidiary SellCo after payment in full of the Company's Series A
Notes and certain other obligations (See Note G and H) and the operating results
substantially offset interest accrued on the Company's Series A Notes which
interest has
27
<PAGE>
been recognized within the caption "Net assets held for sale" in the
Consolidated Balance Sheet as of December 31, 1995.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits" ("SFAS 112"). See Note T.
As indicated in Notes M and N, during its bankruptcy proceeding the Company
developed and implemented a business restructuring plan which includes the sale
of its water supply business and other non--core businesses. The net assets of
businesses to be sold have been classified in the Consolidated Balance Sheets as
of December 31, 1995 and 1994 as "Net assets held for sale" ("NAHFS"). In 1993,
the Company sold substantially all of its information services businesses.
Operating results for all periods presented prior to 1995 reflect the Company's
information services and water supply businesses as discontinued operations.
NOTE B NATURE OF OPERATIONS
EMCOR is a multinational corporation involved in mechanical and electrical
construction and facilities management services. EMCOR's subsidiaries specialize
in the design, integration, installation, start-up, testing, operation and
maintenance of (i) distribution systems for electrical power (including power
cables, conduits, distribution panels, transformers, generators, uninterruptible
power supply systems and related switch gear and control); (ii) lighting
systems, including fixtures and controls; (iii) low-voltage systems, including
fire alarm, security, communications and process control systems; (iv) heating,
ventilation, air conditioning, refrigeration and clean-room process ventilation
systems; and (v) plumbing, process and high purity piping systems. EMCOR's
subsidiaries provide mechanical and electrical construction and facilities
management services directly to end-users (including corporations,
municipalities and other governmental entities, owners/developers, and tenants
of buildings) and, indirectly, by acting as a subcontractor for construction
managers, general contractors and other subcontractors. Mechanical and
electrical construction services are principally either, large installation
projects with contracts generally in the multi-million dollar range; smaller
system installations involving renovation and retrofit work, and maintenance and
service. In addition, certain of its subsidiaries operate and maintain
mechanical and/or electrical systems for customers under contracts and provide
other services to customers, at the customer's facilities, which services are
commonly referred to as facilities management. Mechanical and electrical
construction and facilities management services are provided to a broad range of
commercial, industrial and institutional customers through offices located in
major markets throughout the United States, Canada, the United Kingdom, the
Middle East and Hong Kong.
NOTE C SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has implemented the recommended accounting for entities emerging
from Chapter 11 reorganization set forth in SOP 90--7 (See Note A).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
Reclassifications of prior year data have been made in the accompanying
consolidated financial statements where appropriate to conform to the 1995
presentation.
PRINCIPLES OF PREPARATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that effect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues on long-term contracts are recognized on the percentage-of-completion
method. Percentage-of-completion for the mechanical contracting business is
measured principally by the percentage of costs incurred and accrued to date for
each contract to the estimated total costs for each contract at completion.
Certain of the Company's electrical contracting business units measure
percentage-of-completion by the percentage of labor costs incurred and accrued
to date for each contract to the estimated labor costs for such contract, while
others are on the cost to cost method. Revenues on facilities management
services are recognized when the earnings process is complete.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. In forecasting ultimate profitability on
certain contracts, estimated recoveries are included for work performed under
customer change orders to contracts for which firm prices have not yet been
negotiated. Due to
28
<PAGE>
uncertainties inherent in the estimation process, it is reasonably possible that
completion costs, including those arising from contract penalty provision and
final contract settlements, will be revised in the near-term. Such revision to
costs and income are recognized in the period in which the revisions are
determined.
COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings on uncompleted contracts
arise when revenues have been recorded but the amounts cannot be billed under
the terms of the contracts. Such amounts are recoverable from customers upon
various measures of performance, including achievement of certain milestones,
completion of specified units or completion of the contract.
Also included in costs and estimated earnings on uncompleted contracts are
amounts the Company seeks or will seek to collect from customers or others for
errors or changes in contract specifications or design, contract change orders
in dispute or unapproved as to both scope and price, or other customer-related
causes of unanticipated additional contract costs (pending change orders and
claims). These amounts are recorded at their estimated net realizable value when
realization is probable and can be reasonably estimated. No profit is recognized
on the construction costs incurred in connection with these amounts. Pending
change orders involve the use of estimates and it is reasonably possible that
revisions to the estimated recoverable amounts of recorded pending change orders
may be made in the near-term. Claims made by the Company involve negotiation
and, in certain cases, litigation. The Company expenses such costs as incurred
although it may seek to recover these costs as part of the claim. The Company
believes that it has established legal bases for pursuing recovery of recorded
claims, and it is management's intention to pursue and litigate these claims, if
necessary, until a decision or settlement is reached. Claims also involve the
use of estimates and it is reasonably possible that revisions to the estimated
recoverable amounts of recorded claims may be made in the near-term. Claims
against the Company are recognized when a loss is considered probable and
amounts are reasonably determinable.
Costs and estimated earnings on uncompleted contracts and related amounts
billed as of December 31, 1995 and 1994 are as follows (in thousands):
REORGANIZED COMPANY
1995 1994
---------- ----------
Costs incurred on uncompleted contracts $2,528,864 $2,853,799
Estimated earnings 175,490 195,508
---------- ----------
2,704,354 3,049,307
Less billings to date 2,752,393 3,112,527
---------- ----------
$ (48,039) $ (63,220)
========== ==========
Such amounts are included in the accompanying Consolidated Balance Sheets at
December 31, 1995 and 1994 under the following captions (in thousands):
REORGANIZED COMPANY
1995 1994
---------- ----------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 65,551 $ 52,347
Billings in excess of costs and
estimated earnings on uncompleted
contracts (113,590) (115,567)
---------- ----------
$ (48,039) $ (63,220)
========== ==========
Included in accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts are pending change orders and claims in the
process of negotiation which aggregate approximately $47.4 million and $69.0
million at December 31, 1995 and 1994, respectively. Also included in accounts
receivable are billed
29
<PAGE>
receivables and retainage of approximately $25.8 million at December 31, 1995
related to contracts involving claims. Such amounts generally will not be paid
by the customer to the Company until final resolution of the related claims.
CLASSIFICATION OF CONTRACT AMOUNTS
In accordance with industry practice, the Company classifies as current all
assets and liabilities related to the performance of long-term contracts. The
contracting cycle for certain long-term contracts may extend beyond one year
and, accordingly, collection or payment of amounts related to these contracts
may extend beyond one year. Accounts receivable at December 31, 1995 and 1994
include $64.8 million and $67.2 million, respectively, of retainage billed under
terms of the contracts. The Company estimates that approximately 85% of
retainage recorded at December 31, 1995 will be collected during 1996.
RESTRICTED CASH
In connection with the credit agreement of the Company's Canadian subsidiary,
Comstock Canada Limited ("Comstock Canada"), approximately $1.4 million of cash
and cash equivalents, included in the accompanying Consolidated Balance Sheet as
of December 31, 1995 is security against draw downs on this credit facility. The
Company is precluded from withdrawing portions of this amount if there are
borrowings outstanding under the credit facility. Comstock Canada has no
borrowings under this facility at December 31, 1995 and accordingly, the
restricted amount has been classified as a current asset.
As further described in Note G, under the Company's various revolving credit
agreements, restrictions are placed on the transfer of assets, including cash
and cash equivalents, between the Company and its foreign subsidiaries, as well
as a certain domestic subsidiary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments", requires disclosure of the year-end value of
significant financial instruments, including long-term debt. At December 31,
1995, cash and cash equivalents, current long-term debt and long-term debt have
fair values that approximate their carrying amounts.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is recorded
principally using the straight--line method over estimated useful lives ranging
from 3 to 40 years.
Property, plant and equipment as of December 31, 1995 and 1994 consists of (in
thousands):
REORGANIZED
COMPANY
1995 1994
------- -------
Machinery and equipment $19,398 $18,069
Furniture and fixtures 3,802 3,334
Land, buildings and leasehold
improvements 12,516 12,267
------- -------
35,716 33,670
Accumulated depreciation and
amortization (8,579) --
------- -------
$27,137 $33,670
======= =======
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INVENTORIES
Inventories, which consist primarily of construction materials, are stated at
the lower of cost or market. Cost is determined by principally using average
costs.
NET ASSETS HELD FOR SALE
NAHFS are stated at the lower of cost or estimated net realizable value and
carried as current assets on the basis of their actual or expected disposition
dates.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
totaling $5.0 million as of the Effective Date is being amortized on a
straight--line basis over 15 years. This amount is classified as Other Assets
under the caption "Miscellaneous" in the accompanying Consolidated Balance
Sheets.
FOREIGN OPERATIONS
The financial statements and transactions of the Company's foreign subsidiaries
are maintained in their functional currency and translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52. Translation
adjustments have been accumulated as a separate component of stockholders'
equity.
SUPPLEMENTAL NET (LOSS) INCOME PER COMMON SHARE AND COMMON EQUIVALENT SHARE
Per share data has not been presented for periods prior to the Effective Date
as it is not meaningful since the Company has been recapitalized and adopted
Fresh Start Reporting as of December 31, 1994. Supplemental net (loss) income
per common share and common equivalent share data have been calculated based on
the assumed issuance of the New Common Stock (9,424,083 shares) as of January 1,
1994 and the weighted average number of shares outstanding as of December 31,
1995 (9,580,418 shares). When dilutive, stock options and warrants are included
in weighted average number of shares outstanding using the treasury stock
method.
STATEMENTS OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid instruments with original maturities of three months
or less to be cash equivalents.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
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<PAGE>
NOTE D DEBTOR-IN-POSSESSION FINANCING
In February 1994, the Company and most of its subsidiaries entered into an
agreement with Belmont to provide for a debtor-in-possession credit facility to
the Company (the "DIP Loan"). The agreement made available to the Company a
credit facility of $35.0 million at an interest rate of 12% per annum during the
Chapter 11 proceeding. Among other things, the agreement also provided that
Belmont was to receive, as additional interest, a percentage of the securities
to be issued under the Plan of Reorganization. The DIP Loan was secured by a
first lien on substantially all of the assets of the Company and most of its
subsidiaries. As of the Effective Date, the Company had drawn down $30.0 million
under the DIP Loan.
The Company received waivers of certain covenants under the DIP Loan dated
April 27, 1994, May 6, 1994, August 2, 1994 and November 4, 1994. Pursuant to
those waivers the Company was permitted by Belmont to draw on the line of
credit.
The DIP Loan was repaid on the Effective Date from borrowings under the MES
Credit Agreement (as that term is hereafter defined)(See Note G).
NOTE E REORGANIZATION ITEMS
For the year ended December 31, 1994, the Company recorded $12.5 million of
reorganization charges in the accompanying Consolidated Statement of Operations
for various legal and other professional fees associated with its Chapter 11
proceeding. Such reorganization charges are expensed as incurred as prescribed
by SOP 90-7. In addition, "Reorganization Items" in the accompanying
Consolidated Statement of Operations for the year ended December 31, 1994
include fresh-start adjustments (see Note V) which reflect the net charge to
state assets and liabilities at fair value.
NOTE F EXTRAORDINARY ITEM -- DISCHARGE OF DEBT
The Plan of Reorganization resulted in the discharge of pre--consent date
liabilities totaling approximately $623.0 million. The value of securities
distributed was $413.2 million, less allowed claims, and, accordingly, the
resulting gain was recorded as an extraordinary item in 1994.
NOTE G CURRENT DEBT
MES CREDIT AGREEMENT
On December 14, 1994, the Company and certain of its subsidiaries entered into
a credit agreement (the "MES Credit Agreement") with Belmont, certain directors
of the Company and/or their affiliates and other lenders (the "Lenders")
providing the Company and MES Holdings Corporation ("MES"), a wholly--owned
subsidiary of the Company, with revolving credit loans (the "MES Loans") of up
to an aggregate amount of $35.0 million. The MES Loans are guaranteed by certain
direct or indirect subsidiaries of MES (the "MES Subsidiaries") and are secured
by, among other things, substantially all of the assets of the Company, MES and
the U.S. MES Subsidiaries, including the proceeds of the sale of all of the
assets of the Company, MES and the U.S. MES Subsidiaries and the proceeds of the
sale of stock or assets of the Company's two water supply companies (the "Water
Companies") to the extent of the first $15.0 million of such proceeds, subject
to the rights to such proceeds of the Lenders under the Dyn Credit Agreement (as
that term is hereafter defined). The MES Loans bear interest on the principal
amount thereof at the rate of 15% per annum and mature on June 14, 1996.
DYN CREDIT AGREEMENT
On December 14, 1994, the Company, Dyn Specialty Contracting, Inc. ("Dyn"), a
wholly--owned subsidiary of the Company, and Dyn's subsidiaries entered into a
credit agreement (the "Dyn Credit Agreement") with the Lenders providing
revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10.0
million. The Dyn Loans are guaranteed by the Dyn subsidiaries and are secured by
substantially all of the assets of Dyn and the Dyn subsidiaries, including the
proceeds of the sale of stock or assets of the Water Companies to the extent of
the first $15.0 million of such proceeds, subject to the rights to such proceeds
of the Lenders under the MES Credit Agreement. The Dyn Loans bear interest on
the principal amount thereof at the rate of 15% per annum, and mature on June
14, 1996.
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<PAGE>
Borrowings under the MES and Dyn Credit Agreements (collectively, the "New
Credit Agreements"), $25.0 million and $0 million, respectively, at December 31,
1995, are classified as Current Liabilities under the caption "Borrowings
under working capital credit lines" in the accompanying Consolidated Balance
Sheets. Albert Fried, Jr., a director of the Company, is Managing Partner of
Albert Fried & Company, which agreed to loan up to $7.0 million as one of the
lenders under the New Credit Agreements. Kevin C. Toner, a director of the
Company, agreed to loan up to $1.0 million as one of the lenders under the New
Credit Agreements. In addition, UBS Mortgage Finance Inc., an affiliate of UBS
Securities Inc., Mr. Toner's former employer, agreed to loan up to $2.0 million
as one of the Lenders under the New Credit Agreements. Borrowings outstanding
as of December 31, 1995 related to the above individual lenders were $3.9
million, $0.6 and $1.1 million, respectively, under the New Credit Agreements.
Each of the New Credit Agreements, contains various affirmative and negative
covenants. The negative covenants limit the ability of the Company, MES, Dyn
and their respective subsidiaries to take certain actions without the lenders'
approval. Such actions include, among other things; (i) merger or
consolidation, (ii) incurrence of indebtedness, (iii) placing of liens upon
their property, (iv) making of loans, investments or guarantees and (v) transfer
of assets. The negative covenants require MES, Dyn and their subsidiaries to
maintain their backlogs and work-in-progress at not less than specified levels
and to prevent their losses from operations from exceeding specified amounts in
any month. The MES Credit Agreement also requires the Company, MES and its
subsidiaries, and Dyn and its subsidiaries to maintain certain financial
coverage ratios.
SERIES A NOTES
Pursuant to the Plan of Reorganization, on December 15, 1994 the Company issued
or reserved for issuance approximately $62.2 million principal amount of Series
A Notes and reserved for issuance up to a maximum of $8.8 million additional
principal amount of Series A Notes upon resolution of disputed and unliquidated
pre-petition general unsecured claims. A maximum of $7.2 million of Series A
Notes are available as of December 31, 1995 for issuance. The Series A Notes are
guaranteed by MES and SellCo. The terms of the Series A Notes require that the
net proceeds realized from the sale of the stock or assets of the Company's
subsidiaries be applied to the prepayment of the Series A Notes (subject to the
rights of the lenders under the MES and Dyn Credit Agreements to receive
proceeds from the sale of the stock or assets of the Company's mechanical and
electrical subsidiaries and the first $15.0 million of proceeds of the sale of
stock or assets of the Water Companies). The recorded amount includes the
estimated amount of Series A Notes to be issued upon resolution of the disputed
and unliquidated pre-petition general unsecured claims. The Company recorded the
Series A Notes based upon an assumed total of $100.0 million of pre-- petition
general unsecured claims after settlement of disputed and unliquidated pre--
petition general and unsecured claims. Approximately $4.7 million of the issued
Series A Notes were redeemed prior to December 31, 1995. The Series A Notes have
been recorded at a discount to the face amount to yield an estimated effective
interest rate of 12%. The Series A Notes have been classified as a current
liability based on the expected disposition of assets held for sale. Interest on
the Series A Notes is payable semiannually by issuance of additional Series A
Notes until maturity. The outstanding balance of the Series A Notes included in
the Consolidated Balance Sheet as of December 31, 1995 is $62.0 million.
On February 29, 1996, an aggregate majority of principal amount of the
outstanding Series A Notes consented to the Company's proposed amendments to the
Series A Indenture under which the Series A Notes were issued. The amendments
(i) will reduce the ratio required to be maintained by the Company and certain
of its subsidiaries under a Consolidated Fixed Charge Coverage Ratio (the
"Ratio"), as defined, contained in the Indenture and (ii) will exclude from
the Ratio calculation certain non-cash interest payments which are payable by
the issuance of additional Series A Notes.
FOREIGN BORROWINGS
In June 1995, Comstock Canada entered into a credit agreement providing for an
overdraft facility of up to Canadian $2.0 million. The facility is secured by
certain assets of Comstock Canada and deposit instruments of a Canadian
subsidiary of the Company. The facility provides for interest at the bank's
prime rate (7.5% at
33
<PAGE>
December 31, 1995) plus .75% and expires on June 30, 1996. As of December 31,
1995, Comstock Canada had no borrowings outstanding under this credit facility.
Comstock Canada is negotiating the terms of an extension of the credit facility;
however, there can be no assurance the credit facility will be extended or, if
so, its terms.
In September 1995, a number of the Company's United Kingdom subsidiaries
renegotiated and renewed a demand credit facility with a United Kingdom bank for
a credit line of Brit. Pound 17.1 million (approximately U.S. $26.6 million).
The credit facility consists of the following components with the individual
credit limits as indicated: an overdraft line of up to Brit. Pound 9.0 million
(approximately U.S. $14.0 million); a facility for the issuance of guarantees,
bond and indemnities of up to Brit. Pound 7.3 million (approximately U.S. $11.3
million); and other credit facilities of up to Brit. Pound 0.8 million
(approximately U.S. $1.3 million). The facility is secured by substantially all
of the assets of the Company's principal United Kingdom subsidiaries. The
overdraft facility provides for interest at the bank's base rate, as defined
(6.5% as of December 31, 1995), plus 3% on the first Brit. Pound 5.0 million of
borrowings and at the bank's base rate plus 4% for borrowings over Brit. Pound
5.0 million. This credit facility, as amended, expires June 30, 1996.
As of December 31, 1995, the Company's United Kingdom subsidiaries had
utilized approximately $23.0 million of the credit facilities as follows:
approximately $13.4 million of borrowings under the overdraft line,
approximately $8.3 million for the issuance of guarantees and approximately $1.3
million under other credit facilities.
The Company is actively seeking to replace or extend its existing credit
facilities that expire in 1996.
NOTE H LONG-TERM DEBT
Long-Term Debt in the accompanying Consolidated Balance Sheets consists of the
following amounts at December 31, 1995 and 1994(in thousands):
REORGANIZED COMPANY
1995 1994
------- --------
Series C Notes, original face value
of $62,827 at 11.0%,
discounted to a 14% effective rate,
due 2001 $61,494 $53,450
Supplemental SellCo Note, original face
value of $5,464 at 8.0%,
discounted to a 14.0% effective rate,
due 2004 4,112 4,112
Capitalized Lease Obligations at
weighted average interest rates
from 7.25% to 11.0%, payable in
varying amounts through 2004 1,284 2,029
Other, at weighted average interest
rates of approximately 10.75%, payable
in varying amounts through 2012 3,225 3,728
------- --------
70,115 63,319
Less current maturities (1,875) (2,089)
------- --------
$68,240 $61,230
======= ========
SERIES C NOTES
Pursuant to the Plan of Reorganization, on December 15, 1994 the Company issued
approximately $62.8 million principal amount of Series C Notes. Interest on the
Series C Notes is payable semiannually by the issuance of additional Series C
Notes for eighteen months from the Effective Date and thereafter is payable
quarterly in cash. The Series C Notes are unsecured senior indebtedness of the
Company but subordinate to (i) the Series A Notes and (ii) up to $100 million of
working capital indebtedness of the Company or MES, and are guaranteed by MES
subject to payment in full of the Series A Notes. The Series C Notes have been
recorded at a discount to their face amount to yield an estimated effective
interest rate of 14%.
On February 29, 1996, an aggregate majority of principal amount of the
outstanding Series C Notes consented to the Company's proposed amendments to the
Series C Indenture under which the Series C Notes were issued. The amendments
(i) will reduce the ratio required to be maintained by the Company and certain
of its
34
<PAGE>
subsidiaries under a Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as
defined, contained in the Indenture and (ii) will exclude from the Ratio
calculation certain non-cash interest payments which are payable by the issuance
of additional Series C Notes.
SUPPLEMENTAL SELLCO NOTE
Pursuant to the Plan of Reorganization, EMCOR issued to SellCo its 8%
promissory note in the principal amount of approximately $5.5 million (the
"Supplemental SellCo Note"). The note matures on the earlier of (i) December 15,
2004 or (ii) one day prior to the date on which the SellCo Notes are deemed
canceled. If at any time after the fifth anniversary of the Effective Date and
prior to the maturity date of the SellCo Notes the value of the consolidated
assets of SellCo and its subsidiaries (excluding the Supplemental SellCo Note)
is determined by independent appraisal to be less than $250,000, the balance of
the SellCo Notes (not theretofore paid from net sales proceeds from the sale of
the stock or assets of SellCo subsidiaries and the proceeds of the Supplemental
SellCo Note which will have become due and payable) will be deemed canceled.
Interest on the Supplemental SellCo Note is payable upon maturity.
SERIES B NOTES
Pursuant to the Plan of Reorganization, on December 15, 1994 the Company issued
approximately $11.9 million principal amount of Series B Notes. The entire $11.9
million principal amount was immediately redeemed on that date at the face
amount in accordance with the terms of the Series B Notes from the proceeds
realized from the sale and liquidation of certain subsidiaries.
SELLCO NOTES
Pursuant to the Plan of Reorganization, on December 15, 1994, SellCo issued
approximately $48.1 million principal amount of SellCo Notes. Interest is
payable semiannually in additional SellCo Notes. Subject to the prior payment in
full of the Series A Notes and establishment of a cash reserve for the payment
of capital gains taxes arising from the sale of subsidiaries of SellCo and the
rights of the lenders under the New Credit Agreements with respect to the first
$15.0 million of such proceeds from the sale of the Water Companies, the SellCo
Notes are mandatorily prepayable to the extent of net sales proceeds (as
defined) from the sale of stock or assets of SellCo subsidiaries. Since the
SellCo Notes will only be satisfied to the extent that assets of SellCo and its
subsidiaries generate sufficient cash in excess of what is required to redeem
the Series A Notes and to prepay a portion of indebtedness under the MES and Dyn
Credit Agreements, the SellCo Notes have been netted in the caption "Net assets
held for sale" in the accompanying Consolidated Balance Sheets at December 31,
1994. The holders of the SellCo Notes may only look to EMCOR to the extent of
EMCOR's obligation to pay the Supplemental SellCo Note plus accrued interest. At
this time, the Company cannot determine the amount of net sale proceeds, as
defined, if any, from the sale of SellCo's subsidiaries that will be available
to redeem SellCo Notes.
OTHER LONG-TERM DEBT
Other long-term debt consists primarily of loans for real estate, office
equipment, automobiles and building improvements. As of December 31, 1995 and
1994, respectively, long--term debt, excluding current maturities, totaling $1.9
million and $2.2 million was owed by certain of the Company's subsidiaries. The
aggregate amount of long--term debt maturing during the next five years is $0.3
million in 1996, $0.2 million in 1997 and 1998, $0.3 million in 1999 and $1.2
million thereafter.
35
<PAGE>
NOTE I INCOME TAXES
The Company files a consolidated federal income tax return including all U.S.
subsidiaries. At December 31, 1995, the Company had a net operating loss carry--
forward ("NOL") for U.S. income tax purposes expiring in years 2007 through 2010
which approximates $225.0 million. In addition, the Company has a U.S. capital
loss carryover of approximately $15.0 million expiring in years 1998 and 1999.
However, a subsequent ownership change within two years from the Effective Date
would reduce to zero the future NOL benefits under Internal Revenue Code Section
382(1)(5).
As a result of the adoption of Fresh-Start Accounting, the tax benefit of any
net operating loss carryforwards or net deductible temporary differences which
existed as of the date of emergence from Chapter 11 will result in a charge to
the tax provision (provision in lieu of income taxes) and are used first to
reduce the reorganization value in excess of amounts allocable to identifiable
assets and then is applied to capital surplus.
SFAS 109 requires a valuation allowance against deferred tax assets if, based
on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. The Company has provided a
valuation allowance as of December 31, 1995 and 1994 of $97.2 million and $114.5
million, respectively, for the full amount of the tax benefit of its NOLs and
other deferred tax assets.
The income tax provision (benefit) relating to continuing operations for the
years ended December 31, 1995, 1994 and 1993 consist of (in thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- -------------------
1995 1994 1993
------ ------ -------
Current:
Federal $ -- $ -- $(4,138)
State and local 925 1,000 1,000
Foreign 75 -- (1,700)
------ ------ -------
1,000 1,000 (4,838)
------ ------ -------
Deferred:
Federal -- -- 4,138
State and Local -- (1,332) --
------ ------ -------
-- (1,332) 4,138
------ ------ -------
$1,000 $ (332) $ (700)
====== ====== =======
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<PAGE>
Factors accounting for the variation from U.S. statutory income tax rates
relating to continuing operations for the years ended December 31, 1995, 1994
and 1993 are as follows (in thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- ---------------------
1995 1994 1993
------- ------- --------
Federal income taxes at the
statutory rate $(3,449) $(9,782) $(40,142)
State and local income taxes,
net of federal tax 650 650 650
Valuation allowance against
deferred tax asset 3,799 8,800 38,792
------- ------- --------
$ 1,000 $ (332) $ (700)
======= ======= ========
Factors accounting for the variation from U.S. statutory income tax rates
relating to discontinued operations for the years ended December 31, 1994 and
1993, are as follows (in thousands):
PREDECESSOR COMPANY
-------------------
1994 1993
------- -------
Federal income taxes at the
statutory rate $ 3,576 $(3,180)
Valuation allowance against
deferred tax asset (3,576) 3,180
------- -------
$ -- $ --
======= =======
The components of the net deferred income tax liability for the years ended
December 31, 1995 and 1994 are as follows (1995 and 1994 net deferred income tax
liability related to NAHFS have been netted against such caption) (in
thousands):
REORGANIZED
COMPANY COMPANY
----------- -----------
1995 1994
-------- ---------
Deferred tax assets:
Net operating loss carry-forward $ 91,987 $ 95,231
Excess of amounts expensed for
financial statement
purposes over amounts deducted for 42,593 46,522
income tax purposes
Other 2,899 2,899
-------- ---------
Total deferred tax asset 137,479 144,652
-------- ---------
Deferred tax liabilities:
Costs capitalized for financial
statement purposes
and deducted for income tax purposes 40,233 28,790
Foreign deferred tax liability -- 1,403
-------- ---------
Total deferred tax liability 40,233 30,193
-------- ---------
Net deferred tax asset before valuation
allowance 97,246 114,459
Valuation allowance for net deferred
tax asset (97,246) (114,459)
-------- ---------
Net deferred income tax liability $ -- $ --
======== =========
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<PAGE>
Loss before income taxes from continuing operations for the years ended
December 31, 1995, 1994 and 1993 consists of the following (in thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- ----------------------
1995 1994 1993
-------- -------- ---------
United States $(10,063) $(10,897) $(106,672)
Foreign 210 (17,051) (8,019)
-------- -------- ---------
$ (9,853) $(27,948) $(114,691)
======== ======== =========
Income (loss) before income taxes from discontinued operations for the years
ended December 31, 1994 and 1993, consists of the following (in thousands):
PREDECESSOR COMPANY
--------------------
1994 1993
------- -------
United States $10,216 $(6,270)
Foreign -- (2,817)
------- -------
$10,216 $(9,087)
======= =======
The above amounts applicable to discontinued operations in 1993 include a loss
from disposal of businesses of $20.4 million.
NOTE J CAPITAL STOCK AND WARRANTS
AUTHORIZED CAPITAL STOCK
As of December 31, 1995, the Company's Restated Certificate of Incorporation,
as amended, provides that the total number of all classes of stock which the
Company shall have authority to issue is 13,700,000 shares of New Common Stock,
par value $.01 per share, and 1,000,000 shares of Preferred Stock (the "New
Preferred Stock"), par value $.10 per share, issuable in series. As of February
29, 1996, 9,424,706 shares of New Common Stock had been issued and were
outstanding. As of February 29, 1996, there were no issued or outstanding shares
of Preferred Stock.
1994 MANAGEMENT STOCK OPTION PLAN
In connection with the Plan of Reorganization the Company adopted a Management
Stock Option Plan (the "1994 Plan"), which was approved by the stockholders of
the Company.
The aggregate number of shares of New Common Stock that may be issued pursuant
to options under the 1994 Plan may not exceed 1,000,000. The maximum number of
shares which may be the subject of options granted to any individual in any
calendar year may not exceed 500,000 shares.
Options may be granted by the Compensation Committee of the Board of Directors
to eligible employees as incentive stock options or as non--qualified stock
options.
The exercise price of an incentive stock option and a non-qualified stock
option must be at least equal to the fair market value of the New Common Stock
on the date of grant; provided, however, that the exercise price for the initial
grant of options with respect to 500,000 shares was required under the Plan of
Reorganization to be equal to the average market price of New Common Stock over
the 20 day trading period immediately preceding the date of issuance of the
option; and provided, further, that if the average market price of New Common
Stock for the applicable period could not be determined, the exercise price was
to be determined by an investment advisor selected by the Compensation
Committee. Notwithstanding the foregoing, the exercise price of any such option
38
<PAGE>
which is an incentive stock option could not be less than the fair market value
of the New Common Stock on the date of grant of the option.
Options may not be exercised more than ten years after the date of grant.
Options may be exercisable at such rate and times as may be fixed by the
Compensation Committee of the Board of Directors on the date of grant; however,
the rate at which the option first becomes exercisable may not be more rapid
than 33-1/3% on each of the first, second and third anniversaries.
APPROVAL OF 1995 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
On March 20, 1995, the Company adopted the 1995 Non-Employee Directors' Non-
Qualified Stock Option Plan (the "1995 Plan"), which was approved by
stockholders of the Company.
The 1995 Plan provides for automatic grants of non-qualified stock options to
directors of the Company who are not also employees of the Company or a
subsidiary. Pursuant to the 1995 Plan, each non-employee director on March 20,
1995 was granted an option to purchase 7,500 shares of New Common Stock at an
exercise price of $5.125 per share and each non-employee director on November
17, 1995 was granted an option to purchase 3,000 shares of New Common Stock at
an exercise price of $9.375 per share. Under the 1995 Plan, each person who is
elected to serve as a non-employee director after March 20, 1995 (including
those persons who were non-employee directors on March 20, 1995) is to be
granted an option during each calendar year (beginning with 1995) to purchase
3,000 shares of New Common Stock on the date on which the Board of Directors
holds its first meeting following the annual meeting of stockholders held during
such calendar year; however, if, beginning with 1996, an annual stockholders'
meeting does not occur within the period ending on the last day of the 16th
month following the month in which the prior year's annual meeting was held,
such option is to be granted on the last day of such 16th month.
The aggregate number of shares of New Common Stock that may be issued pursuant
to options under the 1995 Plan may not exceed 200,000.
The exercise price of an option granted under the 1995 Plan is equal to the
fair market value of the New Common Stock on the date of grant. Such options
are fully exercisable as of the date of grant. However, no option may be
exercised more than ten years after the date of grant.
No options may be granted under the 1995 Plan after ten years following the
date of its adoption. The Board of Directors may at any time withdraw or amend
the 1995 Plan and may, with the consent of the affected holder of an outstanding
option, at any time withdraw or amend the terms and conditions of outstanding
options. Any amendment which would increase the number of shares issuable
pursuant to options, change the class of persons who are eligible to be granted
options or materially increase the benefits to participants in the 1995 Plan are
subject to the approval of the stockholders of the Company. In addition, no
amendment may be made more than once every six months to any provision of the
1995 Plan that specifies the directors to whom options may be granted, the
timing of option grants, the number or purchase price of shares of New Common
Stock that can be purchased under options or the time when options may be
exercised, except any amendment that is necessary to conform with changes in the
Internal Revenue Code or the Employee Retirement Income Security Act of 1974, as
amended.
The following table summarizes the Company's stock option activity since
the Effective Date.
Stock Options Average Price
------------- -------------
Balance, December 15, 1994 -- $ --
Activity -- --
Balance, December 31, 1994 -- --
Options granted 748,000 5.13
-------
Balance, December 31, 1995 748,000 $5.13
======= -----
At December 31, 1995, no options were exercisable.
39
<PAGE>
WARRANTS
1,450,000 shares of New Common Stock were reserved for issuance upon exercise
of New Warrants (described below) issued pursuant to the Plan of Reorganization
as described below.
Pursuant to the Plan of Reorganization, the Company issued to the holders of
$7,040,000 principal amount of its pre-petition 7-3/4% Convertible Subordinated
Debentures, due 2012, and $9,600,000 principal amount of its pre-petition 12%
Subordinated Notes due 1996, their pro rata share of each of two series of five-
year warrants to purchase shares of New Common Stock, namely, 600,000 Series X
Warrants and 600,000 Series Y Warrants (which together with the Series Z
Warrants described below are referred to herein as the "New Warrants"), with an
exercise price of $12.55 per share and $17.55 per share, respectively. In
addition, the Company issued to pre-petition holders of other contingent and
statutory subordinate claims and to holders of EMCOR's pre-petition common
stock, preferred stock and warrants of participation, as well as to the
plaintiffs in a stockholder class action lawsuit, their pro rata share of
250,000 Series Z Warrants to purchase shares of New Common Stock, which Series Z
Warrants have an exercise price of $50 per share and must be exercised within
two years of their issuance.
In addition to the warrants issued above, approximately 28,000 Series X
Warrants, 28,000 Series Y Warrants and 12,000 Series Z Warrants were issued to
Belmont as a portion of additional interest under the DIP Loan.
As of December 31, 1995, the number of X Warrants, Y Warrants and Z Warrants
(collectively, the "New Warrants") issued and outstanding were 605,012, 605,012
and 169,459, respectively.
NOTE K RETIREMENT PLANS
A foreign subsidiary has a defined benefit pension plan covering substantially
all eligible employees. The benefits under the plan are based on wages and years
of service with the subsidiary. The Company's policy is to fund the minimum
amount required by law.
Net pension expense for the foreign defined benefit plan for the years ended
December 31, 1995, 1994 and 1993 consists of the following components (in
thousands):
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- -------------------
1995 1994 1993
------- ------- -------
Service costs--benefits earned $ 1,726 $ 1,725 $ 1,479
Interest on projected benefit 2,166 2,772 2,478
obligations
Actual return on plan assets (4,214) 2,554 (7,955)
Net amortization and deferral 1,866 (6,296) 5,129
------- ------- -------
Net pension expense $ 1,544 $ 755 $ 1,131
======= ======= =======
40
<PAGE>
The benefit obligations and funded status of the plan at December 31, 1995 and
1994 are as follows (in thousands):
1995 1994
------- -------
Accumulated benefit obligations:
Vested $25,000 $29,824
Non-Vested -- --
Impact of future salary increases 4,100 4,769
------- -------
Projected benefit obligations 29,100 34,593
Plan assets at market value 29,300 33,997
------- -------
Excess (deficiency) of plan assets over
projected benefit obligations 200 (596)
Unrecognized prior service cost 509 867
Unrecognized net (gain) loss from past
experience different from that assumed
and effect of changes in assumptions (578) 795
Unrecognized net (asset) from initial
application of SFAS No. 87 (437) (759)
------- -------
(Accrued) prepaid pension $ (306) $ 307
======= =======
The assumptions used as of December 31, 1995, 1994 and 1993 in determining the
pension cost and liability shown above were as follows:
1995 1994 1993
-------------------
Discount rate 8.5% 9.0% 9.0%
Rate of salary progressions 6.5% 7.0% 7.0%
Rate of return on assets 10.0% 10.0% 10.0%
The unrecognized net asset of the foreign plan is being amortized over 15
years. The plan assets are invested approximately 80% in equity securities and
20% in fixed income securities.
The Company contributes to various union pension funds based upon wages paid to
union employees of the mechanical and electrical construction and facilities
management services business units. Such contributions approximated $35.1
million, $41.4 million and $45.5 million for the years ended December 31, 1995,
1994 and 1993, respectively.
The Company has defined contribution retirement plans that cover its U.S. non--
union eligible employees. Contributions to these plans are based on a percentage
of the employee's base compensation. The expense recognized for the years ended
December 31, 1995, 1994 and 1993, relating to continuing operations for the
defined contribution plans was $2.1 million, $6.9 million and $3.5 million,
respectively.
41
<PAGE>
NOTE L COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease land, buildings and equipment under
various leases. The leases frequently include renewal options and require the
Company to pay for utilities, taxes, insurance and maintenance expenses.
Future minimum payments, by year and in the aggregate, under capital leases,
non-cancelable operating leases and related sub-leases with initial or
remaining terms of one or more years relating to continuing operations at
December 31, 1995 are as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES SUB-LEASES
------- --------- ----------
Year 1 $ 521 $10,704 $ 2,373
Year 2 150 9,294 1,549
Year 3 101 6,679 1,186
Year 4 98 4,881 1,048
Year 5 98 3,502 1,019
Thereafter 316 10,099 5,562
------ ------- -------
Total minimum lease payments 1,284 $45,159 $12,737
======= =======
Amounts representing interest 269
------
Present value of net minimum lease
payments $1,015
======
Rent expense relating to continuing operations for the years ended December 31,
1995, 1994 and 1993 was $17.5 million, $20.2 million and $21.5 million,
respectively. Rent expense for the years ended December 31, 1995, 1994 and 1993
includes sub-lease rentals of $1.7 million, $1.4 million and $0.8 million,
respectively. Rent expense relating to discontinued operations for the years
ended December 31, 1994 and 1993 was $2.8 million and $7.5 million,
respectively.
The Company has employment agreements with certain of its executive officers
and management personnel. These agreements generally continue until terminated
by the executive or the Company and provide for salary continuation for a
specified number of months under certain circumstances. Certain of the
agreements provide the employees with certain additional rights after a change
in control, as defined, of the Company occurs.
NOTE M DISCONTINUED OPERATIONS
In March 1993, the Company's Board of Directors approved the disposition of the
Company's U.S. information services business. The Board of Directors had
previously decided to sell the Company's overseas information services
businesses. Accordingly, operating results of the information services
businesses have been classified as discontinued operations. In August 1993, the
Company sold substantially all of the assets of the principal subsidiary
carrying on its U.S. information services ("IS Subsidiary") business at which
time no material gain or loss was realized. Subsequent to the sale, the Company
recorded a loss of $8.1 million in the third quarter of 1993 for uncertainties
remaining at the time of sale including the elimination of non-cash charges,
recognition of additional liabilities of the subsidiary and the disposition of
certain of its lease obligations. Such amount is included in Loss from disposal
of businesses, net of income taxes in the accompanying Consolidated Statements
of Operations. Under the terms of the sales agreement, the purchaser assumed the
debt and other liabilities relating to the ongoing operations of the business.
The IS Subsidiary received warrants to buy up to 10% of the purchaser's common
stock for a nominal amount. The Company assigned no value to these warrants.
In October 1993, the IS Subsidiary filed a voluntary petition under Chapter 7
of the U.S. Bankruptcy Code. Additionally, in 1993 the Company recorded a loss
of $1.5 million to further write-down the net assets of the IS Subsidiary to
its estimated net realizable value based upon current market conditions and sold
substantially all of the assets of its foreign information services businesses.
The sale of its foreign information services businesses resulted in a loss of
$3.3 million in 1993. Such amounts are included under the caption Loss from
42
<PAGE>
disposal of businesses, net of income taxes in the accompanying Consolidated
Statements of Operations. As of December 31, 1993, all of the information
services businesses had been sold.
Revenues of the information services businesses in 1993 were $876.7 million.
In April 1992, the Company announced its intention to sell its water supply
business. However, in July 1993 the Company's Board of Directors decided not to
proceed with the sale due to uncertainties created by the then pending rate
related proceedings and litigation. In December 1993, JWS entered into an
agreement with respect to the rate related proceedings and litigation which was
approved by the New York State Public Service Commission on February 2, 1994.
Accordingly, in the first quarter of 1994 the Company reinstated its plan of
disposition and a $7.4 million loss was recorded in 1993 to write-down the net
assets of the water supply business to estimated net realizable value, as
determined with the assistance of the Company's financial advisors. The
financial statements for all periods presented prior to 1995 reflect the water
supply business as discontinued operations.
The assets of the water supply business consist primarily of utility plant and
equipment which are located in Nassau and Queens Counties in the State of New
York. The net assets of the water supply business are classified in the
accompanying Consolidated Balance Sheets under the caption Net assets held for
sale.
Agreements for the sale of substantially all the assets of JWS have been
executed and an agreement for the sale of all the capital stock of Sea Cliff has
also been executed.
Revenues of the water supply business were $65.0 million and $66.8 million for
the years ended December 31, 1994 and 1993, respectively. Operating income of
the water supply business was $14.3 million and $15.4 million for the years
ended December 31, 1994 and 1993, respectively.
Combined operating results of discontinued operations including both the
information services and water supply business for the years ended December 31,
1994 and 1993 (in thousands):
PREDECESSOR COMPANY
-------------------
1994 1993
------- --------
Revenues $64,993 $943,455
Costs and expenses 50,725 917,872
------- --------
Operating income 14,268 25,583
Interest expense (4,052) (14,320)
------- --------
Income before taxes 10,216 11,263
Provision for income taxes -- --
------- --------
Income from
discontinued operations $10,216 $ 11,263
======= ========
As discussed above, in August 1993, the Company sold substantially all of its
information services businesses. The operating results of discontinued
operations in 1994 consists only of the water supply business.
NOTE N BUSINESSES SOLD AND OTHER NET ASSETS HELD FOR SALE
For the year ended December 31, 1994, the Company received cash proceeds of
$13.6 million, from the sale of certain non-core businesses and other assets.
The assets sold included the sale of the Company's telephone systems business,
its minority ownership in an environmental business and other non-core
businesses.
43
<PAGE>
Revenues and operating losses of businesses sold and other net assets held for
sale for the years ended December 31, 1994 and 1993 are as follows (in
thousands):
PREDECESSOR COMPANY
-----------------------
DECEMBER 31,
1994 1993
-------- --------
Revenues $168,939 $257,910
Operating (loss) $(13,651) $(11,802)
A condensed combined balance sheet relating to discontinued operations (the
water supply business) and other net assets held for sale at December 31, 1995
is as follows (in thousands):
Cash $ 5,082
Accounts receivable, net 26,107
Costs and estimated
earnings in excess of billings 9,207
Inventories 1,158
Other current assets 1,451
--------
43,005
Property, plant and
equipment, net 156,236
Other assets 9,092
--------
$208,333
========
Current maturities of
long-term debt and capital
lease obligations $ 12,613
Accounts payable 18,261
Billings in excess of costs and
estimated earnings 5,856
Other accrued expenses 36,796
--------
73,526
Long-term debt 42,789
Other long-term liabilities 30,049
Net assets held for sale 61,969
--------
$208,333
========
NOTE O INSURANCE RESERVES
The Company's insurance liability is determined actuarially based on claims
filed and an estimate of claims incurred but not yet reported. The present value
of such claims was determined at December 31, 1995 and 1994 using a 4% discount
rate. The estimated current portion of the insurance liability was $4.9 million
and $1.5 million at December 31, 1995 and 1994, respectively. Such amounts are
included in Other accrued expenses and liabilities in the accompanying
Consolidated Balance Sheets. The non-current portion of the insurance liability
was $32.2 million and $29.9 million at December 31, 1995 and 1994, respectively.
Such amounts are included in Other Long-Term Obligations. The undiscounted
liability was approximately $42.3 million and $35.9 million at December 31, 1995
and 1994, respectively.
Since October 1992, in order to secure these insurance obligations, the Company
and its indirect wholly-owned captive insurance subsidiary has made cash
collateral deposits to an unrelated insurance company. These deposits totaled
$30.8 million and $37.6 million as of December 31, 1995 and 1994, respectively,
and are classified as a long-term asset in the accompanying Consolidated
Balance Sheets under the caption Insurance cash collateral in Other Assets.
The Company is subject to regulation with respect to the handling of certain
materials used in construction which are classified as hazardous or toxic by
agencies at Federal, State and local levels. The Company's practice is to avoid
participation in projects principally involving the remediation or removal of
such materials. However, where remediation is a required part of contract
performance, the Company believes it complies with all applicable regulations
governing the discharge of material into the environment or otherwise relating
to the protection of the environment.
The Company believes that it maintains adequate insurance coverage for its
current operations.
44
<PAGE>
NOTE P ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------ -------------------
DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------ -------
Cash paid (refunded) during the year for:
Interest $6,797 $7,250 $26,126
Income taxes 886 720 (2,177)
Significant non--cash financing
and investment transactions are as
follows:
Notes receivable and other assets
received from sale of assets -- -- 10,875
Fixed assets acquired under
capital lease obligations $ -- $ -- $ 46
NOTE Q SEGMENT INFORMATION
The following presents information about continuing operations by geographic
areas for the years ended December 31, 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
NET (LOSS)
GAIN ON
OPERATING BUSINESSES NET ASSETS
INCOME SOLD OR HELD IDENTIFIABLE HELD FOR
REVENUES (LOSS) FOR SALE ASSETS SALE
---------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
1995
United States $1,035,975 $ 4,847 $ (926) $ 447,790 $61,969
United Kingdom 379,691 2,383 -- 139,000 --
Canada 135,031 1,307 -- 41,376 --
Other 38,047 (2,644) -- 20,810 --
---------- -------- ------ --------- -------
$1,588,744 $ 5,893 $ (926) $ 648,976 $61,969
========== ======== ====== ========= =======
1994
United States $1,334,537 $ (9,773) $1,183 $487,438 $55,401
United Kingdom 287,372 (5,274) -- 119,461 --
Canada 113,331 (6,966) -- 35,681 --
Other 28,721 (190) -- 12,588 --
---------- -------- ------ -------- -------
$1,763,961 $(22,203) $1,183 $655,168 $55,401
========== ======== ====== ======== =======
1993
United States $1,692,470 $(57,906) $ 747 $572,468 $83,615
United Kingdom 293,507 (2,494) 511 102,784 --
Canada 180,633 (3,223) -- 38,066 --
Other 28,125 (1,909) (230) 9,509 --
---------- -------- ------ -------- -------
$2,194,735 $(65,532) $1,028 $722,827 $83,615
========== ======== ====== ======== =======
</TABLE>
Other includes European locations outside the United Kingdom as well as the Far
East and Middle East.
45
<PAGE>
NOTE R SELECTED UNAUDITED QUARTERLY INFORMATION (IN THOUSANDS, EXCEPT PER
SHARE DATA)
1995 QUARTERLY RESULTS MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- ------- ------- ------
[S] [C] [C] [C] [C]
Revenues $386,015 $381,562 $403,941 $417,226
Gross profit 31,867 31,934 38,709 40,637
Net (loss) income $ (6,959) $ (5,718) $ 593 $ 1,231
======== ======== ======== ========
Net (loss) income per share $ (0.74) $ (0.61) $ 0.06 $ 0.13
======== ======== ======== ========
1994 QUARTERLY RESULTS MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- -------- -------- --------
Revenues $435,554 $433,541 $444,355 $450,511
Gross profit 42,297 42,825 35,998 35,252
Reorganization items (3,600) (3,300) (3,200) (81,218)
Loss from continuing
operations including
reorganization items,
before extraordinary
item, cumulative effect
of accounting change (7,418) (6,289) (15,589) (89,638)
Income from discontinued
operations 1,144 2,683 5,559 830
Extraordinary item -- gain
on debt discharge -- -- -- 413,249
Cumulative effect of
change in method of
accounting for
post-employment benefits (2,100) -- -- --
-------- -------- -------- --------
Net (loss) income $ (8,374) $ (3,606) $(10,030) $324,441
======== ======== ======== ========
Supplemental (loss) income
per share:
Continuing operations $ (0.79) $ (0.67) $ (1.65) $ (9.51)
Discontinued operations 0.12 0.28 0.59 0.09
Extraordinary item -- gain
on debt discharge -- -- -- 43.85
Cumulative effect of
change in method of
accounting for post-
employment benefits (0.22) -- -- --
-------- -------- -------- --------
Net (loss) income per share $ (0.89) $ (0.39) $ (1.06) $ 34.43
======== ======== ======== ========
The loss from continuing operations, including reorganization items in the
fourth quarter of 1994, reflects $2.4 million of reorganization charges for
various legal and professional fees associated with the Chapter 11 proceeding.
In addition a charge of approximately $78.8 million was recorded to state assets
and liabilities at fair value in accordance with the principles of Fresh--Start
Accounting as required by SOP 90--7.
All per share data has been restated to reflect the assumed issuance of New
Common Stock as of January 1, 1994.
NOTE S LEGAL PROCEEDINGS
In September 1995, the Company reached a comprehensive settlement with the SEC
relating to the matters underlying its previously announced accounting
adjustments and write-offs for the fiscal year ended December 31, 1992, and the
restatement of its net income for the fiscal year ended December 31, 1991. The
settlement is the culmination of an investigation the SEC commenced in 1992.
46
<PAGE>
The SEC allegations were contained in a Complaint filed September 21, 1995 in
the United States District Court for the Southern District of New York, against
the Company and four individuals, none of whom is currently employed by the
Company, who served as officers and/or directors of JWP INC. and/or certain of
its subsidiaries at various times in 1991 and 1992. Without admitting or
denying any of those allegations, the Company entered into a formal Consent to
the entry of a Final Judgment of Permanent Injunction, which was filed
simultaneously with the Complaint. The Company consented to the entry of an
order permanently enjoining the Company from, among other things, committing
violations of various antifraud provisions of the federal securities laws, and
failing to make and keep books and records which accurately reflect the
Company's transactions and disposition of assets. The SEC's Complaint did not
seek, nor does the Consent require, payment of any monetary penalties by the
Company.
In February 1995 as part of an investigation by the New York County District
Attorney's office into the business affairs of Herbert Construction Company
("Herbert"), a general contractor that does business with the Company's
subsidiary, Forest Electric Corporation ("Forest"), a search warrant was
executed at Forest's executive offices. At that time, the Company was informed
that Forest and certain of its officers are targets of the continuing
investigation. Neither the Company nor Forest has been advised of the precise
nature of any suspected violation of law by Forest or its officers. On July 11,
1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company
allegedly owned by Kohl, were indicted by a New York County grand jury for grand
larceny, fraud, repeated failure to file New York City Corporate Tax Returns and
related money laundering charges. Kohl was also charged with filing false
personal income and earnings tax returns, perjury and offering false instruments
for filing with the New York City School Construction Authority. In a press
release announcing the indictment, the Manhattan Direct Attorney said that the
investigation disclosed that Mr. Kohl allegedly received more than $7 million in
kickbacks from subcontractors through a scheme in which he allegedly inflated
subcontracts on Herbert's construction contracts. At a press conference
following the indictment, the District Attorney announced that the investigation
is continuing, and he expects further indictments in the investigation. Forest
performs electrical contracting services primarily in the New York City
commercial market and is one of the largest of the Company's subsidiaries.
The Dynalectric Company ("Dynalectric") is a defendant in an action entitled
Computran v. Dynalectric, et. al., pending in Superior Court of New Jersey,
- --------------------------------
Bergen County, arising out of its participation in a joint venture. In the
action, which was instituted in 1988, the plaintiff, Computran, a participant in
and a subcontractor to the joint venture, alleges that Dynalectric wrongfully
terminated it from the subcontract, fraudulently diverted funds due it,
misappropriated its trade secrets and proprietary information, fraudulently
induced it to enter into the joint venture and conspired with other defendants
to commit certain acts in violation of the New Jersey Racketeering Influence and
Corrupt Organization Act. Dynalectric believes that Computran's claims are
without merit and intends to defend this matter vigorously. Dynalectric has
filed counterclaims against Computran. Discovery is ongoing, no trial date is
scheduled.
On September 26, 1994 certain holders of Warrants of Participation ("Warrants")
that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the
Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a
declaratory judgment action against a subsidiary of the Company Jamaica Water
Securities Corp. ("JWSC") by filing a complaint in the Supreme Court of the
State of New York, Westchester County, bearing the caption, Harold F.
---------
Scattergood Jr., et al. v. Jamaica Water Securities Corp. (Index No. 15992/94).
- ---------------------------------------------------------
On October 17, 1994, an amended complaint was served adding additional
plaintiffs.
The plaintiffs sought a declaration that JWSC succeeded to the Company's
obligations on the Warrants by reason of its 1977 acquisition of the Company's
96% stock interest in JWS. The plaintiffs also claimed that certain events
constituted a disposition of the assets of JWS which triggered the Warrants,
obligating JWSC to issue shares of its own stock to plaintiffs. In the
alternative, plaintiffs claimed that the December 31, 1994 expiration date of
the Warrants should be extended for some indefinite period of time.
By a Decision and Order, entered on June 22, 1995, the court granted the
Company's motion to dismiss the plaintiffs' action holding that the assets of
JWS had not been "disposed of" under the express terms of the Warrants prior to
their stated expiration on December 31, 1994. The court also held that it
lacked the power to rewrite the "clear and unambiguous provisions" of the
Warrants Agreement to extend the December 31, 1994 deadline. The plaintiffs
have appealed the court's decision.
47
<PAGE>
In addition to the above, the Company is involved in other legal proceedings
and claims, asserted by and against the Company, which have arisen in the
ordinary course of business.
The Company believes it has a number of valid defenses to these actions and the
Company intends to vigorously defend or assert itself in these claims and does
not believe that a significant liability will result. However, the Company
cannot predict the outcome thereof or the impact that an adverse result of the
matters discussed above will have upon the Company's financial position or
results of operations.
NOTE T ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1994, the Company adopted the provisions of SFAS 112.
This standard requires that the cost of benefits provided to former or inactive
employees be recognized on an accrual basis of accounting. Previously the
Company recognized such post--employment benefit costs (primarily short--term
disability and severance costs) when paid. The cumulative effect of adopting
SFAS 112 was to record a charge of $2.1 million as of January 1, 1994. Such
amount has been reflected in the Consolidated Statements of Operations for the
year ended December 31, 1994 under the caption "Cumulative Effect of Change in
Method of Accounting for Post--employment Benefits". The adoption of SFAS 112
did not have a material effect on the 1994 loss before extraordinary item and
cumulative effect of accounting changes.
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, Accounting For Post--retirement Benefits
Other Than Pensions ("SFAS 106"). The actuarial present value of the accumulated
post--retirement benefit obligations under SFAS 106 approximated $7.0 million as
of December 31, 1993. Such amount relates to the Company's water supply business
which is included in "Net assets held for sale" in the accompanying Consolidated
Balance Sheets and Discontinued Operations in the accompanying Consolidated
Statements of Operations.
NOTE U OTHER
During the third and fourth quarters of 1994, the Company wrote down its
investment in Health Care International Ltd. ("HCI"), a Scottish hospital, due
to its deteriorating financial condition. HCI was placed in receivership in
November, 1994.
NOTE V FRESH-START REPORTING
The Company has accounted for its reorganization by using the principles of
Fresh--Start Accounting as required by SOP 90--7. For accounting purposes, the
Company assumed that the Plan of Reorganization was consummated on December 31,
1994. Under the principles of Fresh--Start Accounting, the Company's total net
assets were recorded at their assumed reorganization value, with the
reorganization value allocated to identifiable assets on the basis of their
estimated fair value. Accordingly, the Company's accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts were
reduced by approximately $11.6 million. In addition, its intangible assets of
approximately $60.5 million were written off. The Company's accumulated
stockholders' deficit of approximately $334.5 million, including its old common
stock of $4.1 million, old Series A Preferred Stock of $20.9 million, and old
warrants of participation of $0.6 million and cumulative translation adjustments
of $6.2 million were eliminated. The excess of reorganization value over the
value of identifiable assets is reported as "Reorganization value in excess of
amounts allocable to identifiable assets" (the "Excess Reorganization Value").
The primary valuation methodology employed by the Company, with the assistance
of its financial advisors to determine the reorganization value of the Company
was a net present value approach. The valuation was based on the Company's
forecasts of unleveraged, after--tax cash flows calculated for each year over
the four--year period from 1994 to 1997, capitalizing projected earnings before
interest, taxes, depreciation and amortization at multiples ranging from 3 to 10
selected to value earnings and cash flows beyond 1997, and discounting the
resulting amounts to present value at rates ranging from 10% to 30% selected to
approximate the Company's projected weighted average cost of capital. The above
calculations resulted in an estimated reorganization value of approximately
$81.1 million, of which the Excess Reorganization Value was $5.0 million.
48
<PAGE>
As a result of the implementation of Fresh--Start Accounting, the consolidated
financial statements of the Company after consummation of the Plan of
Reorganization are not comparable to the Company's consolidated financial
statements of prior periods, and have been separated by a black line.
The effect of the Plan of Reorganization, including the discharge of debt, and
the implementation of Fresh-Start Accounting on the Company's Consolidated
Balance Sheet as of December 31, 1994 was as follows (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD PLAN OF REORGANIZATION
-------------------------------------------------------------------
DEBT
PRE-FRESH-START DISCHARGE FRESH-START
BALANCE SHEET & FRESH-START BALANCE SHEET
DECEMBER 31, EXCHANGE ADJUSTMENTS DECEMBER 31,
1994 OF STOCK (a) (f) 1994
--------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 52,505 $ -- $ -- $ 52,505
Accounts receivable, net 441,958 -- (3,000) 438,958
Costs and estimated
earnings in excess of billings
on uncompleted contracts 60,912 -- (8,565) 52,347
Inventories 6,910 -- -- 6,910
Prepaid expenses and other 8,115 -- -- 8,115
Net assets held for sale 83,113 -- (27,712)(g) 55,401
--------- ---- --------- --------
TOTAL CURRENT ASSETS 653,513 -- (39,277) 614,236
--------- ---- --------- --------
INVESTMENTS, NOTES,
AND OTHER LONG TERM
RECEIVABLES 6,122 -- -- 6,122
PROPERTY, PLANT AND
EQUIPMENT, NET 33,670 -- -- 33,670
OTHER ASSETS:
Excess of cost of acquired
business over net assets 57,435 -- (57,435) --
Reorganization value in
excess of amounts allocable to
identifiable assets -- -- 5,000 5,000
Miscellaneous 51,595 -- (3,125) 48,470
--------- ---- --------- --------
109,030 -- (55,560) 53,470
--------- ---- --------- --------
TOTAL ASSETS $ 802,335 $ -- $ (94,837) $707,498
========= ==== ========= ========
</TABLE>
(continued)
49
<PAGE>
<TABLE>
<CAPTION>
ADJUSTMENTS TO RECORD PLAN OF REORGANIZATION
-------------------------------------------------------------------
DEBT
PRE-FRESH-START DISCHARGE FRESH-START
BALANCE SHEET & FRESH-START BALANCE SHEET
DECEMBER 31, EXCHANGE ADJUSTMENTS DECEMBER 31,
1994 OF STOCK (a) (f) 1994
--------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 4,803 $ -- $ -- $ 4,803
Borrowings under working
capital credit line 40,000 -- -- 40,000
Current maturities of long
term debt and capital lease
obligations 2,627 (538)(b) -- 2,089
Series A Senior Notes -- 63,785 (b) (8,384)(g) 55,401
Accounts payable 219,564 -- -- 219,564
Billings in excess of
costs and estimated earnings on
uncompleted contracts 115,567 -- -- 115,567
Accrued expenses and other
liabilities 84,574 -- -- 84,574
--------- ------- --------- --------
TOTAL CURRENT
LIABILITIES 467,135 63,247 (8,384) 521,998
--------- ------- --------- --------
LONG TERM DEBT 3,667 68,292(b) (10,729) 61,230
--------- ------- --------- --------
OTHER LONG TERM
OBLIGATIONS 43,140 -- -- 43,140
--------- ------- --------- --------
PRE-CONSENT DATE
LIABILITIES SUBJECT TO
COMPROMISE 622,859 (622,859)(b)(c) -- --
--------- ------- --------- --------
STOCKHOLDERS'
(DEFICIT) EQUITY:
Old Series A Preferred Stock 20,905 (20,905)(d) -- --
Old Common Stock 4,073 (4,073)(d) -- --
New Common Stock -- 94 (d) -- 94
Old Warrants of Participation 576 (576)(d) -- --
New Warrants -- -- 2,179 2,179
Capital Surplus 204,591 25,460 (151,194) 78,857
Cumulative translation
adjustment (6,241) -- 6,241 --
(Deficit) (558,370) 491,320 (e) 67,050 --
--------- ------- --------- --------
TOTAL STOCKHOLDERS'
(DEFICIT) EQUITY (334,466) 491,320 (75,724) 81,130
--------- ------- --------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS'
(DEFICIT) EQUITY $ 802,335 $ -- $ (94,837) $707,498
========= ======= ========= ========
</TABLE>
(a) Reflects adjustments relating to discharge of debt and exchange of newly
issued debt and equity securities pursuant to the Plan of Reorganization.
50
<PAGE>
(b) Reflects the discharge of old debt and issuance of new debt under the Plan
of Reorganization as follows (In thousands):
<TABLE>
<CAPTION>
HISTORICAL RESTRUCTURE FRESH
CARRYING DISCHARGE/ START
AMOUNT EXCHANGE BALANCE*
---------- ----------- --------
<S> <C> <C> <C>
Senior Notes Payable under Revolving
Credit Facility $155,795 $(155,795) $ --
Senior Notes Payable under Various
Indentures 328,572 (328,572) --
Subordinated Note Payable 9,600 (9,600) --
Convertible Subordinated Debentures 7,040 (7,040) --
-------- --------- -------
Total Debt in Default $501,007 $(501,007) --
======== ========= =======
Other Senior Notes (included in current
maturities of long--term debt) $ 538 $ (538) $ --
======== ========= =======
New 7% Series A Senior Secured Notes $ -- $ 63,785(1) $63,785
======== ========= =======
New 11% Series C Notes (included in
long--term debt) $ -- $ 62,827 $62,827
======== ========= =======
New 8% Supplemental SellCo Note
(included in long-term debt) $ -- $ 5,464 $ 5,464
======== ========= =======
</TABLE>
* The pro forma adjustments to the recorded debt balances reflect the
differences between the historical carrying amounts of the old debt
securities and the face amount of the new debt securities issued pursuant
to the Plan of Reorganization before fresh--start adjustments.
(1) The amount of Series A Notes to be issued are based upon an assumed total
of $100.0 million of pre-petition general unsecured claims after settlement
of disputed and unliquidated pre-petition general unsecured claims. An
additional $7.2 million of Series A Notes were available to be issued to
holders of general unsecured claims calculated as follows (in millions):
Authorized value of Series A Notes $71.0
Series A Notes issued or estimated to be issued 63.8
-----
Series A Notes available for issue $ 7.2
=====
(c) Reflects reduction of recorded amounts of accrued interest, insurance
reserves, other impaired liabilities and unexpired leases rejected by the
Company during its bankruptcy proceeding classified as pre--consent
liabilities subject to compromise (in thousands):
<TABLE>
<CAPTION>
LONG
ACCOUNTS ACCRUED TERM
PAYABLE EXPENSES LIABILITIES TOTAL
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Accrued interest $ -- $43,315 $ -- $ 43,315
Insurance reserves -- 9,600 26,800 36,400
Amount due to JWP Information
Services, Inc. -- 24,933 -- 24,933
Foreign debt guarantees -- 6,037 -- 6,037
Stock price guarantees -- 5,118 -- 5,118
Preferred dividends in arrears -- 2,257 -- 2,257
Unexpired leases -- -- 1,718 1,718
Directors' retirement benefits -- -- 975 975
Other impaired claims 400 699 -- 1,099
---- ------- ------- --------
Total $400 $91,959 $29,493 $121,852
==== ======= ======= ========
</TABLE>
51
<PAGE>
(d) Reflects the elimination of the recorded book value of old common stock,
old preferred stock and warrants of participation upon consummation of the
Plan of Reorganization and the issuance of 1,518,000 New Warrants and
9,424,083 shares of New Common Stock, $.01 par value.
(e) The deficit was reduced by the net reduction in debt due to the discharge
of old debt and issuance of new debt instruments at face value, as well as
the reduction of recorded amounts of impaired liabilities as described in
Note (c). Reconciliation to "Gain on debt discharge" shown in the
Consolidated Statement of Operations (in thousands):
$ 491,320 Equity adjustment to record plan of
reorganization
14,951 Debt discount recorded as Fresh-start
adjustment
(81,130) Fair value of Equity securities issue
recorded as fresh--start adjustment
(11,892) Series B Notes which were paid on the
--------- Effective Date
$ 413,249 Gain on debt discharge
=========
(f) To record the adjustments to state assets and liabilities at fair value and
to eliminate the deficit in accumulated earnings against additional paid--
in capital. Reconciliation to "Fresh--start adjustments" shown in the
Consolidated Statement of Operations (in thousands):
$ 75,724 Equity adjustment to record plan of
reorganization
14,951 Debt discount included in calculation
of gain on debt discharge
(11,892) Series B Notes which were paid on the
--------- Effective Date
$ 78,783 Fresh--start adjustments
=========
(g) Amount includes approximately $4.1 million of principal reduction of Series
A Notes on the Effective Date.
52
<PAGE>
NOTE W PRO FORMA STATEMENT OF OPERATIONS
The following unaudited Consolidated Pro Forma Statement of Operations reflects
the financial results of the Company as if the reorganization had been effective
January 1, 1994 (in thousands, except per share data):
<TABLE>
<CAPTION>
OPERATIONS OTHER
SOLD OR HELD PRO FORMA PRO FORMA
HISTORICAL FOR SALE (a) ADJUSTMENTS REORGANIZED
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $1,763,961 $(168,939) $ -- $1,595,022
---------- --------- ------- ----------
COSTS AND EXPENSES:
Cost of sales 1,607,589 (152,023) -- 1,455,566
Selling, general and
administrative 178,575 (30,567) (3,646)(b) 144,362
---------- --------- ------- ----------
1,786,164 (182,590) (3,646) 1,599,928
---------- --------- ------- ----------
OPERATING LOSS: (22,203) 13,651 3,646 (4,906)
Interest expense, net (2,476) 120 (13,211)(c) (15,567)
Net gain on businesses sold
or held for sale 1,183 -- (1,183)(d) --
Loss on investment (4,452) -- -- (4,452)
REORGANIZATION ITEMS:
Professional fees (12,535) -- 12,535(e) --
Fresh--start adjustments (78,783) -- 78,783(e) --
---------- --------- ------- ----------
(119,266) 13,771 80,570 (24,925)
INCOME TAX BENEFIT (332) -- -- (332)
---------- --------- ------- ----------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY
ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE $ (118,934) $ 13,771 $80,570 $ (24,593)
========== ========= ======= ==========
NET INCOME (LOSS) PER
SHARE FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $(12.62) $1.46 $ 8.55 $(2.61)
========== ========= ======= ==========
</TABLE>
53
<PAGE>
(a) Reflects adjustments to the Company's historical
Consolidated Statement of Operations to
eliminate revenues, cost and expenses and interest.
(b) Reflects the following adjustments to selling,
general and administrative expenses
To eliminate amortization of goodwill and other
intangibles $ 3,646
=======
(c) Reflects the following adjustments to interest
expense, net:
To record interest expense on 11% Series C Notes $ 7,745
based upon the pro forma discounted carrying
value and assuming a discount rate of 14%
To record interest expense on 8% SellCo 596
Supplemental Note (as that term is hereafter
defined) based upon the pro forma discounted
carrying value and assuming a discount rate of
14%
To record interest expense on new working 4,500
capital credit facilities assuming an average of
$30.0 million outstanding at 15%(f)
To reverse interest on debtor-in-possession (2,030)
credit facility
To record debt issuance costs at closing 2,400
-------
$13,211
=======
Interest expense on the 7% Series A Notes and
Series B Notes is not included as a component of
interest expense as amounts will be paid from
the net cash proceeds of sale of stock or assets
of subsidiaries of SellCo and other net assets
held for sale. Under the terms of the Series A
Notes, interest expense would have been $6.8
million for the year ended December 31, 1994
(d) To eliminate net gain on sale of businesses $ 1,183
=======
(e) To eliminate various legal and other
professional fees associated with the Chapter 11
proceeding and to record fair value adjustments
in accordance with SOP 90-7.
(f) The amount of borrowings under credit lines made
available to the Company on the Effective Date
is contingent upon the cash requirements of the
Company. The following table reflects the impact
of various borrowing levels on the proforma
statement of operations:
<TABLE>
<CAPTION>
PRO FORMA REORGANIZED
- -------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE FROM
CONTINUING OPERATIONS
TOTAL NET INCOME (LOSS) FROM CONTINUING BEFORE EXTRAORDINARY
BORROWING INTEREST OPERATIONS BEFORE EXTRAORDINARY ITEM ITEM AND CUMULATIVE
LEVEL EXPENSE AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE EFFECT OF ACCOUNTING CHANGE
- ---------- ------- ------------------------------------------ ---------------------------
<S> <C> <C> <C>
$35 million $16,317 ($25,343) ($2.69)
40 million 17,067 (26,093) (2.77)
$45 million $17,817 ($26,843) ($2.85)
</TABLE>
54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of EMCOR Group, Inc.
We have audited the accompanying Consolidated Balance Sheet of EMCOR Group,
Inc. and its subsidiaries (the "Company") as of December 31, 1995, and the
related Consolidated Statements of Operations, Cash Flows and Stockholders'
Equity (Deficit) for the year then ended. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as as whole. The schedule of Valuation and Qualifying Accounts
is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 11, 1996
55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of EMCOR Group, Inc.
We have audited the accompanying Consolidated Balance Sheets of EMCOR Group,
Inc. (formerly JWP INC.) and its subsidiaries (the "Company") as of December 31,
1994 and 1993, and the related Consolidated Statements of Operations,
Stockholders' Equity (Deficit) and Cash Flows for the years then ended. Our
audit also included the financial statement schedule for the year ended December
31, 1994 and 1993 listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibity of the
Company's management. Our responsibility is to report on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our report dated July 8, 1994, we did not express an opinion on the 1993
consolidated financial statements due to the material uncertainties related to
the Company's ability to continue as a going concern because the Company had
experienced significant losses from operations for each of the years ended
December 31, 1993 and 1992, had negative working capital and a deficit in
stockholders' equity and because of the possible material effects of
uncertainties related to the net realizable value of assets of discontinued
operations, claims filed against the Company, and the possible consequences of
the bankruptcy proceedings. As discussed in Note A to the consolidated
financial statements, during December 1994 the Company emerged from Chapter 11
of the Federal Bankruptcy Code. The emergence from bankruptcy resulted in a
significant reduction in debt, the obtaining of a new credit agreement and the
valuing of the Company at its new reorganization value resulted in positive
stockholders' equity versus a pre-emergence deficit of $324.0 million.
Accordingly, our present opinion on the 1993 consolidated financial statements,
as expressed herein, is different from our prior report on the 1993 consolidated
financial statements.
As discussed in Notes A and V to the consolidated financial statements, the
Company emerged from Chapter 11 of the U.S. Bankruptcy Code on December 15,
1994. Accordingly, the accompanying financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. The Company accounted for the Reorganization as of December
31, 1994 and adopted Fresh-Start Reporting. As a result, the December 31, 1994
consolidated balance sheet is not comparable to prior periods since it presents
the consolidated financial position of the reorganized entity.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1994
and 1993 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As more fully described in Note S to the consolidated financial statements, the
Company is involved with certain legal proceedings. The Company is presently
unable to predict the outcome of these proceedings, and the impact, if any, that
the ultimate resolution of such matters will have upon the Company and its
consolidated financial statements. No provision for any liability that may
result from the resolution of these uncertainties has been made in the
accompanying consolidated financial statements.
As discussed in Note T to the consolidated financial statements, the Company
changed its method of accounting for post-employment benefits effective January
1, 1994.
DELOITTE & TOUCHE LLP
New York, New York
March 17, 1995
56
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 19, 1995 the Audit Committee of the Board of Directors of the
Company appointed Arthur Andersen LLP as independent accountants for its fiscal
year ending December 31, 1995 to replace Deloitte & Touche LLP effective with
such appointment.
Deloitte & Touche LLP's report, dated March 17, 1995, on the financial
statements of the Company for its two most recent fiscal years ended December
31, 1994 did not contain an adverse opinion, disclaimer of opinion, or
qualification as to uncertainty, audit scope, or accounting principles.
However, in its report dated July 8, 1994 on the financial statements of the
Company for its fiscal year ended December 31, 1993, Deloitte & Touche LLP did
not express an opinion on the Company's 1993 consolidated financial statements
due to then material uncertainties related to the Company's ability to continue
as a going concern because the Company had experienced significant losses from
operations for each of the years ended December 31, 1993 and 1992 and then had
negative working capital and a deficit in stockholders' equity and because of
the then possible material effects of uncertainties related to the net
realizable value of assets of discontinued operations, claims filed against the
Company, and the possible consequences of the Company's Chapter 11 proceeding.
The Company's emergence from bankruptcy on December 15, 1994 resulted in a
significant reduction in the Company's indebtedness, its obtaining of a new
credit agreement and the valuing of the Company at a new reorganization value
resulting in positive stockholders' equity permitting Deloitte & Touche LLP in
its report dated March 17, 1995 to express an opinion on the 1993 consolidated
financial statements as well as the 1994 consolidated financial statements.
During the Company's two most recent fiscal years ended December 31, 1994 and
the interim period from January 1, 1995 to September 22, 1995, the date on which
the Company filed its Report on Form 8-K announcing the appointment of Arthur
Andersen LLP, there were no disagreements with Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which caused that firm to make reference to the
subject matter of such disagreements in connection with its reports.
During the Company's two most recent fiscal years ended December 31, 1994 and
the interim period from January 1, 1995 to September 22, 1995, the date on which
the Company filed its Report on Form 8-K announcing the appointment of Arthur
Andersen LLP, there were no reportable events of the type described in
paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulations S-K under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended.
57
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICES OF THE REGISTRANT
The information required by Item 10 with respect to identification of directors
is incorporated herein by reference to the material to be included under the
caption "Election of Directors" in the Company's definitive proxy statement for
its Annual Meeting of Stockholders, at which Directors are to be elected, which
definitive proxy statement is to be filed not later than 120 days of the end of
the Company's fiscal year ended December 31, 1995.
The information called for by Item 10 with respect to "Executive Officers of
the Registrant" is included in Part I under the caption "Executive Officers of
the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 with respect to executive compensation is
incorporated herein by reference to the material to be included in the Company's
definitive proxy statement for its Annual Meeting of Stockholders, at which
Directors are to be elected, which definitive proxy statement is to be filed not
later than 120 days after the end of the Company's fiscal year ended December
31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 with respect to certain beneficial owners
and management is incorporated herein by reference to the material under the
captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the Company's definitive proxy statement for its
Annual Meeting of Stockholders, at which Directors are to be elected, which
definitive proxy statement is to be filed not later than 120 days after the end
of the Company's fiscal year ended December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 with respect to certain transactions with
management and directors is incorporated herein by reference to the material
under the caption "Certain Relationships and Related Transactions" in the
Company's definitive proxy statement for its Annual Meeting of Stockholders, at
which Directors are to be elected, which definitive proxy statement is to be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1995.
58
<PAGE>
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of EMCOR Group, Inc.
and subsidiaries are included in Part II, Item 8:
Report of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations - Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity
(Deficit) - Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedules are included in this
Form 10-K report:
Schedule II - Valuation And Qualifying Accounts
All other schedules are omitted because they are not required, are
inapplicable, or the information is otherwise shown in the
consolidated financial statements or notes thereto.
(a)(3) The exhibits listed on the Exhibit Index following the consolidated
financial statements hereof are filed herewith in response to
this Item.
(b) Reports on Form 8-K filed during the last quarter of 1995:
Form 8-K dated November 13, 1995 reporting the financial statements
of Dyn Specialty Contracting, Inc. and its subsidiaries.
59
<PAGE>
SCHEDULE II
EMCOR GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged To
Beginning of Costs and Other Balance End
Description Year Expenses Accounts Deductions (1) of Year
----------- ------------ --------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year Ended December 31, 1995 $19,820 $ 2,538 $(3,553) $ (3,913) $14,892
Year Ended December 31, 1994 $31,170 $ 2,909 $(7,695) $ (6,564) $19,820
Year Ended December 31, 1993 $42,630 $13,663 $ (892) $(24,231) $31,170
</TABLE>
(1) Deductions represent uncollectible balances of accounts receivable written
off, net of recoveries.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
EMCOR GROUP, INC.
---------------------------
(Registrant)
Date: March 13, 1996 By Frank T. MacInnis
---------------------------
FRANK T. MacINNIS
Chairman of the Board of
Directors, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on March 13, 1996.
/s/Frank T. MacInnis* Chairman of the Board of
- ------------------------ Directors, President and
FRANK T. MacINNIS Chief Executive Officer
/s/Stephen W. Bershad* Director
- ------------------------
STEPHEN W. BERSHAD
/s/David A.B. Brown* Director
- ------------------------
DAVID A.B. BROWN
/s/Thomas D. Cunningham* Director
- ------------------------
THOMAS D. CUNNINGHAM
/s/Albert Fried, Jr.* Director
- ------------------------
ALBERT FRIED, JR
/s/Malcolm T. Hopkins* Director
- ------------------------
MALCOLM T. HOPKINS
/s/Leicle E. Chesser Executive Vice President and
- ------------------------ Chief Financial Officer
LEICLE E. CHESSER
/s/Mark A. Pompa Vice President and Controller
- ------------------------
MARK A. POMPA
* Constituting a majority of the members of the Board of Directors of EMCOR
Group, Inc.
<PAGE>
EMCOR GROUP, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
<S> <C> <C>
2(a) Disclosure Statement and Exhibit 2(a) to the
Third Amended Joint Plan Company's
of Reorganization (the Registration
"Plan of Reorganization") Statement on Form
proposed by EMCOR Group, 10 as originally
Inc. (formerly JWP INC.) filed March 17,
(the "Company" or "EMCOR") 1995 (the "Form 10")
and its subsidiary SellCo
Corporation ("SellCo"), as
approved for dissemination
by the United States
Bankruptcy Court, Southern
District of New York (the
"Bankruptcy Court"), on
August 22, 1994
2(b) Modification to the Plan Exhibit 2(b) to
of Reorganization dated Form 10
September 29, 1994
2(c) Second Modification to the Exhibit 2(c) to
Plan of Reorganization Form 10
dated September 30, 1994
2(d) Confirmation Order of the Exhibit 2(d) to
Bankruptcy Court dated Form 10
September 30, 1994 (the
"Confirmation Order")
confirming the Plan of
Reorganization, as amended
2(e) Amendment to the Exhibit 2(e) to
Confirmation Order dated Form 10
December 8, 1994
2(f) Post--confirmation Exhibit 2(f) to
modification to the Plan Form 10
of Reorganization entered
on December 13, 1994
2(g) Asset Acquisition Page
Agreement dated as of
February 9, 1996 between
The City of New York,
Jamaica Water Supply
Company and EMCOR*
2(h) Asset Acquisition Page
Agreement dated as of
February 9, 1996 between
Water Authority of
Western Nassau County,
Jamaica Water Supply
Company and EMCOR*
3(a-1) Restated Certificate of Exhibit 3(a-5)
Incorporation of EMCOR
3(a-2) Amendment dated November Page
28, 1995 to Restated
Certificate of Incorpora-
tion of EMCOR*
3(b) By-Laws Exhibit 3(b) to
Form 10
4.1 Form of Credit Agreement Exhibit 4.14 to the
dated as of February Company's Annual
14, 1994 among EMCOR Report on Form 10-K
certain of its subsidiaries for fiscal year
and Belmont Capital ended December 31,
Partners II, L.P. 1992
</TABLE>
* Filed Herewith
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
<S> <C> <C>
4.2 Indenture, dated as of Exhibit 4.2 to Form
December 15, 1994, among 10
EMCOR, its subsidiary
MES Holdings Corporation
("MES") and SellCo, as
guarantors, and IBJ
Schroder Bank & Trust
Company, as trustee, in
respect of EMCOR's 7%
Senior Secured Notes,
Series A, Due 1977
4.3 Indenture, dated as of Exhibit 4.3 to Form
December 15, 1994, 10
among EMCOR, MES, as
guarantor, and Shawmut
Bank Connecticut, National
Association, as trustee,
in respect of 11% Series C
Notes, Due 2001 ("Series C
Indenture")
4.4 First Supplemental Page
Indenture dated as of
January 28, 1995 to Series
C Indenture*
4.5 Indenture, dated as of Exhibit 4.4 to Form
December 15, 1994, between 10
SellCo and Shawmut Bank
Connecticut, National
Association, as trustee,
in respect of SellCo's 12%
Subordinated Contingent
Payment Notes, Due 2004
10(a--1) First Mortgage Indenture Exhibit B-1 to JWS'
("Mortgage") dated Registration
December 1, 1936 of a Statement on Form
subsidiary of EMCOR S-1, No. 2-3995
Jamaica Water Supply
Company ("JWS"), a
subsidiary of the Company
10(a--2) Supplemental Indenture to Exhibit 1 to JWS'
First Mortgage dated Annual Report on
December 1, 1953 of JWS Form 10-K for
fiscal year ended
December 31, 1953
10(a--3) Supplemental Indenture to Exhibit 1 to JWS
First Mortgage dated May Current Report on
1, 1962 of JWS Form 8-K for
10(a--4) Supplemental Indenture to Exhibit 4.21 to
First Mortgage dated May JWS' Registration
1, 1970 to JWS Statement on Form
S-1, No. 2-62590
10(a--5) Supplemental Indenture to Exhibit 4.22 to
First Mortgage dated Form S--1,
February 15, 1975 of JWS Registration
Statement No.
2--62590
10(a--6) Supplemental Indenture to Exhibit 4.23 to
Mortgage dated as of JWS' Registration
January 1, 1978 Statement on Form
S-1, Registration
Statement No.
2-62590
10(a--7) Supplemental Indenture to Exhibit 10(a--7) to
Mortgage dated as of April JWS' Registration
1, 1981 of JWS Statement on Form
S--1 Registration
Statement No.
2--86988
10(a--8) Supplemental Indenture to Exhibit 10(a--8)
Mortgage dated as of to JWS'
August 1, 1983 of JWS Registration
Statement on Form
S-1 Registration
Statement No.
2-86988
</TABLE>
* Filed Herewith
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
<S> <C> <C>
10(a--9) Supplemental Indenture to Exhibit 10(a-9) to
Mortgage dated as of the Company's
December 1, 1984 Annual Report on
10--K for fiscal
year ended December
31, 1985
10(b-1) Employment Agreement dated Exhibit 10(e) to
as of September 14, 1987 the Company's
between the Registrant and Annual Report on
Sheldon I. Cammaker 10--K for fiscal
year ended December
31, 1992
10(b-2) Amendment dated March 15, Exhibit 10(f) to
1988 to Employment the Company's
Agreement dated as of Annual Report on
September 14, 1987 between 10--K for fiscal
Registrant and Sheldon I. year ended December
Cammaker 31, 1992
10(c) Employment Agreement dated Exhibit 10(t) to
as of April 8, 1994 the Company's
between Registrant and Annual Report on
Frank T. MacInnis 10--K for fiscal
year ended December
31, 1992
10(d) 1994 Management Stock Exhibit 10(o) to
Option Plan Form 10
10(e) 1995 Non-Employee Exhibit 10(p) to
Directors' Non-Qualified Form 10
Stock Option Plan
10(f) Form of Indemnification Exhibit 10(q) to
Agreement Form 10
10(g) Reliance Insurance Exhibit 10(r) to
Companies' Underwriting Form 10
and Continuing Indemnity
Agreement dated as of
November 22, 1994, among
the Company, Dyn Specialty
Contracting, Inc. ("Dyn"),
B&B Contracting & Supply
Company ("B&B"),
Dynalectric Company ("Dyn
Co."), Dynalectric Company
of Nevada ("Dyn--
Nevada"), Contra Costa
Electric, Inc. ("Contra
Costa"), Kirkwood Electric
Co., Inc. ("Kirkwood") and
Reliance Surety Company,
Reliance Insurance
Company, United Pacific
Insurance Company,
Reliance National
Indemnity Company,
Reliance National
Insurance Company of New
York and Reliance
Insurance Company of
Illinois
10(h) Form of Security Agreement Exhibit 10(s) to
dated as of November 22, Form 10
1994 made by each of Dyn,
B&B, Dyn Co., Dyn--Nevada,
Contra Costa, and
Kirkwood, in favor of and
for the benefit of
Reliance Surety Company,
Reliance Insurance
Company, United Pacific
Insurance Company,
Reliance National
Indemnity Company and
Reliance Insurance Company
of Illinois
10(i) Pledge Agreement dated Exhibit 10(t) to
November 22, 1994 between Form 10
the Company and Reliance
Surety Company, Reliance
Insurance Company, United
Pacific Insurance Company,
Reliance National
Indemnity Company and
Reliance Insurance Company
of Illinois
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO, OR
EXHIBIT NO DESCRIPTION PAGE NUMBER
- ---------- ----------- ----------------
<S> <C> <C>
10(j) Pledge Agreement dated Exhibit 10(u) to
November 22, 1994 between Form 10
Dyn and Reliance Surety
Company, Reliance
Insurance Company, United
Pacific Insurance Company
Reliance National
Indemnity Company and
Reliance Insurance Company
of Illinois
10(k) Subordination Agreement Exhibit 10(v) to
dated November 22, 1994 Form 10
among Dyn, Dyn Co., B&B,
Dyn--Nevada, Contra Costa
and Kirkwood and Reliance
Surety Company, Reliance
Insurance Company, United
Pacific Insurance Company,
Reliance National
Indemnity Company and
Reliance Insurance Company
of Illinois
10(l) Credit Agreement dated Exhibit 10(w) to
December 14, 1994 among Form 10
the Company, MES, certain
direct and indirect
subsidiaries of MES and
Belmont Capital Partners
II, L.P. and other lenders
(collectively, the
"Lenders")
10(m) Guarantor Security Exhibit 10(x) to
Agreement dated December Form 10
14, 1994 by and among
certain direct and
indirect subsidiaries of
MES, the Lenders and
CoreStates Bank, N.A., as
agent for the Lenders (the
"Agent")
10(n) Pledge and Security Exhibit 10(y) to
Agreement dated December Form 10
14, 1994 by and among the
Company, MES, the Lenders
and the Agent
10(o) Credit Agreement dated Exhibit 10(z) to
December 14, 1994 among Form 10
the Company, Dyn, certain
direct subsidiaries of Dyn
and the Lenders
10(p) Guarantor Security Exhibit 10(aa) to
Agreement dated December Form 10
14, 1994 by and among
certain direct
subsidiaries of Dyn, the
Lenders and the Agent
10(q) Pledge and Security Exhibit 10(bb) to
Agreement dated December Form 10
14, 1994 by and among the
Company, Dyn, the Lenders
and the Agent
11 Computation of Primary Page
Earnings Per Common Share
and Common Share
Equivalent for the years
ended December 31, 1995
and 1994*
21 List of Subsidiaries* Page
27 Financial Data Schedule* Page
</TABLE>
* Filed Herewith
<PAGE>
Pursuant to Item 601(b)(4)(iii) of Regulation S--K, upon request of the
Securities and Exchange Commission, the Registrant hereby undertakes to furnish
a copy of any unfiled instrument which defines the rights of holders of long--
term debt of the Registrant's subsidiaries.
<PAGE>
EXHIBIT 2 (g)
-------------
ASSET ACQUISITION AGREEMENT
between
THE CITY OF NEW YORK,
JAMAICA WATER SUPPLY COMPANY
and
EMCOR GROUP, INC.
Dated February 9, 1996
______________________________________________________________________________
<PAGE>
[Conformed]
Table of Contents
-----------------
Page
----
ARTICLE I: ACQUISITION....................................... 2
1.1 Acquisition............................................. 3
1.2 Excluded Assets......................................... 3
1.3 Acquisition Price; Adjustments.......................... 3
1.4 Excluded Liabilities.................................... 14
1.5 Assignment of Contracts and Rights...................... 15
1.6 Apportionment of Expenses............................... 16
ARTICLE II: CLOSING.......................................... 17
2.1 The Closing............................................. 17
2.2 Deliveries by the City.................................. 18
2.3 Deliveries by JWS....................................... 18
2.4 Additional Transactions At or Following the
Closing................................................ 18
2.5 Allocation of the Acquisition Price..................... 19
ARTICLE III: REPRESENTATIONS AND WARRANTIES.................. 19
3.1 Representations and Warranties of JWS and
the Parent............................................. 19
(a) Due Organization.................................... 19
(b) Authorization and Validity of Agreement............. 20
(c) No Conflict; Consents............................... 20
(d) Title to Acquired Assets; Liens and
Encumbrances....................................... 22
(e) Agreements and Contracts............................ 22
(f) Legal Proceedings................................... 23
(g) Government Licenses, Permits and Related
Approvals.......................................... 23
(h) Conduct of the System in Compliance with
Regulatory Requirements............................ 24
(i) Environmental Matters............................... 24
(j) Financial Statements................................ 25
(k) Absence of Certain Liabilities and Changes.......... 25
(l) Receivables......................................... 27
3.2 Representations and Warranties of the City.............. 28
(a) Due Organization and Power of the City.............. 28
(b) Authorization and Validity of Agreement............. 28
(c) No Conflict; Consents............................... 29
<PAGE>
(d) Disclosure.......................................... 30
(e) Financing........................................... 31
-ii-
<PAGE>
Page
----
3.3 Survival of Representations and Warranties.............. 31
3.4 Schedules............................................... 31
3.5 No Implied Representation............................... 31
ARTICLE IV: COVENANTS AND TRANSACTIONS PRIOR TO CLOSING...... 32
4.1 Access to Information Concerning Properties and
Records; Confidentiality............................... 32
4.2 Conduct of the System Prior to the Closing Date......... 33
4.3 Shareholders' Meeting; Approval......................... 35
4.4 Cooperation............................................. 35
4.5 PSC Approval............................................ 36
4.6 DEC and Department of Health Approval................... 36
4.7 Condemnation Proceeding................................. 37
4.8 Non-Solicitation........................................ 38
4.9 Retained Employees...................................... 38
4.10 Compliance with WARN.................................... 39
4.11 Meter Leases............................................ 39
4.12 Further Actions......................................... 39
4.13 Nassau Agreement........................................ 39
ARTICLE V: CONDITIONS PRECEDENT.............................. 40
5.1 Conditions Precedent to Obligations of the Parties...... 40
(a) No Injunction....................................... 40
(b) Regulatory Approvals................................ 40
(c) Condemnation Proceeding............................. 40
5.2 Conditions Precedent to Obligation of the City.......... 41
(a) Accuracy of Representations and Warranties.......... 41
(b) Performance of Agreement............................ 41
(c) Certificate......................................... 41
(d) Burdensome Condition................................ 41
(e) No Action Pending................................... 42
5.3 Conditions Precedent to the Obligation of JWS
and the Parent......................................... 42
(a) Accuracy of Representations and Warranties.......... 42
(b) Performance of Agreement............................ 42
(c) Certificate......................................... 42
(d) Shareholder Approval................................ 42
(e) Burdensome Condition................................ 42
(f) No Action Pending................................... 43
(g) Performance of Nassau Agreement..................... 43
-iii-
<PAGE>
Page
----
ARTICLE VI: TERMINATION AND ABANDONMENT...................... 43
6.1 General................................................. 43
6.2 Procedure Upon Termination.............................. 44
6.3 Survival of Certain Provisions.......................... 45
ARTICLE VII: POST-CLOSING COVENANTS AND
TRANSACTIONS............................................ 45
7.1 Access to Books and Records............................. 45
7.2 Dissolution or Merger of JWS............................ 46
7.3 Certain Tax Matters..................................... 46
7.4 Deposits................................................ 47
ARTICLE VIII: ASSUMPTION OF CERTAIN OBLIGATIONS AND
LIABILITIES; INDEMNIFICATION............................ 47
8.1 Assumption and Indemnification.......................... 48
8.2 Procedure............................................... 50
8.3 Payment................................................. 52
ARTICLE IX: MISCELLANEOUS.................................... 52
9.1 Certain Definitions..................................... 53
9.2 Fees and Expenses....................................... 53
9.3 Notices................................................. 54
9.4 Severability............................................ 56
9.5 Entire Agreement........................................ 56
9.6 Binding Effect; Benefit................................. 56
9.7 Assignability........................................... 56
9.8 Amendment and Modification; Waiver...................... 56
9.9 Public Announcements.................................... 57
9.10 Section Headings........................................ 58
9.11 Counterparts............................................ 58
9.12 Jurisdiction............................................ 58
9.13 GOVERNING LAW........................................... 58
-iv-
<PAGE>
ASSET ACQUISITION AGREEMENT
----------------------------
ASSET ACQUISITION AGREEMENT, dated February 9, 1996 (this
"Agreement"), between Jamaica Water Supply Company, a New York corporation
- ----------
("JWS"), EMCOR Group, Inc., a Delaware corporation (the "Parent"), and The City
------
of New York (the "City").
WHEREAS, JWS is engaged in, among other things, the business of
providing for the residential and commercial distribution and sale of water to
service areas in Queens County, New York (the "Business"), through the operation
and maintenance of a water system (hereinafter referred to as the "System"); and
------
WHEREAS, JWS desires to dispose of and the City desires to acquire
certain of the assets related to the System, all as more fully set forth
herein, on the terms and subject to the conditions set forth herein; and
WHEREAS, as a condition and inducement to its willingness to enter
into this Agreement and to consummate the transactions contemplated hereby, the
City has required that JWS and the Parent agree to join in certain
representations, warranties and indemnities as hereinafter set forth;
WHEREAS, it is the desire of the parties hereto that the Closing (as
defined in Section 2.1) of the transactions contemplated by this Agreement shall
occur simultaneously with the closing of the transactions contemplated under the
Asset Acquisition Agreement, dated February 9, 1996 (the "Nassau Agreement"),
----------------
between JWS, the Parent and the Water Authority of Western Nassau County (the
"Water Authority");
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I: ACQUISITION
1 Acquisition. On the terms and subject to the conditions of this
-----------
Agreement, JWS consents to the acquisition by condemnation and the City agrees
to acquire by condemnation all of JWS's right, title and interest in and to the
System and the Business including, without limitation, those assets of JWS
described on Schedule A hereto and subject to the terms of Schedule A relating
to the System, or used in connection with the Business (the "Acquired Assets"),
except as otherwise provided herein, free and clear of any mortgage, pledge,
security interest, encumbrance, lien, claim or charge of any kind ("Lien"),
other than Permitted Exceptions (as defined in Section 3.1(d)), (the acquisition
of the Acquired Assets being referred to herein as the "Asset Acquisition"),
provided that the Acquired Assets shall not include the assets described in
Section 1.2. Schedule A may be amended from time to time pursuant to agreement
between the City and the Water Authority to shift Acquired Assets from one
acquiring public entity to the other, provided that neither JWS nor the Parent
shall be responsible for any shift in Acquired Assets pursuant to such agreement
between the City and the Water Authority, and provided further that the
Acquisition Price (as defined in Section 1.3) shall under no circumstances be
adjusted as a result of such a shift in assets.
-2-
<PAGE>
2 Excluded Assets. It is expressly understood and agreed that the
---------------
Acquired Assets shall not include the following:
(a) Cash and cash equivalents (including money on deposit in banks and
other institutions) or similar type investments, such as certificates of
deposit, Treasury bills and other marketable securities, and commercial paper,
stocks, bonds and similar investments received by JWS prior to the Vesting Date
(as defined in Section 5.1(c)); and
(b) the assets of JWS listed on Schedule B hereto.
3 Acquisition Price; Adjustments. (a) In consideration of the
------------------------------
transfer and acquisition of the Acquired Assets hereunder, the City shall pay to
JWS, in the manner set forth in Section 2.2, the amount of $148,000,000, (the
"Acquisition Price") subject to adjustment as provided in Sections 1.3(b),
1.3(c) and 1.3(d), and other closing adjustments as described in Section 1.6.
(b) The total amount to be paid by the City in the manner set forth
in Section 2.2 at the Closing shall equal the Acquisition Price, plus
$7,400,000, representing the agreed-upon price of water meters to be acquired by
the City, less $1,800,000, representing the value of a computer system not to be
acquired by the City, subject to adjustment as provided in Sections 1.3(c) and
(d).
(i) JWS shall, as soon as practicable following its 1995 fiscal year
end and prior to the Closing, cause to be prepared, and deliver to the City, a
statement (the "Projected Statement") setting forth: the estimated calculation
-------------------
of (x) the book value (net of accumulated depreciation and amortization) of
-3-
<PAGE>
the net utility plant of JWS relating to the System, plus (y) accounts
receivable and accrued revenues attributable to the City of New York and
customers located in Queens County (collectively, "Accounts Receivable") plus
(z) 80.52% of the total value of materials and supplies of JWS (the sum of the
amounts in clauses (x), (y), and (z) referred to as the "Book Value"), based on
----------
accounting procedures, practices and policies that have been consistently
applied by JWS. The Projected Statement shall be prepared in accordance with
generally accepted accounting principles and shall present the projected Book
Value as of December 31, 1995 on the same basis as the calculations thereof
which are attached hereto as Exhibit A. On or prior to the Closing Date, JWS
shall also cause to be prepared and delivered to the City a statement (the
"Preliminary Statement") setting forth the Book Value, in a manner consistent
---------------------
with the calculations which are attached hereto as Exhibit A, as of the close of
business of JWS on the Business Day (as defined in Section 9.1) immediately
preceding the Closing Date. At the Closing, JWS shall also cause to be delivered
to the City an opinion of Arthur Andersen LLP stating that the allocations of
the net utility plant to Queens County and Nassau County (i) as of December 31,
1995, which appear on the Projected Statement, and (ii) as of the close of
business on the Business Day immediately preceding the Closing Date, which
appear on the Preliminary Statement, were arrived at using a methodology
consistent with JWS's past practice of arriving at such allocations for cost of
service studies with the New York State Public Service Commission since June,
1986. At the same time, JWS shall also cause to be prepared and delivered to the
City a statement (the "Net Change Statement") setting forth the
--------------------
-4-
<PAGE>
calculation of the Book Value as shown on the Preliminary Statement minus the
Book Value as shown on the Projected Statement (such sum referred to hereinafter
as the "Net Change"). If the Net Change as shown on the Net Change Statement is
----------
a positive number, then the amount payable on the Closing Date shall be
increased by such amount. If the Net Change as shown on the Net Change Statement
is a negative number, then the amount payable on the Closing Date shall be
reduced by such amount. At the Closing, the City shall deliver to the Escrow
Agent (as defined below) an amount of the Acquisition Price equal to $1,000,000
plus an amount equivalent to the aggregate amount of JWS's increase in rates
attributable to customers located in Queens County (the "Rate Increase") for the
period of January 1, 1996 through the Closing Date (the "Escrowed Sum"), which
------------
sum shall be applied to any reductions in the Acquisition Price resulting from
application of this Section 1.3(c) or Section 1.3 (d), or to refund amounts
payable to customers pursuant to rate adjustments by the New York Public Service
Commission (the "PSC"), as described in Section 1.3(c)(v) . If the Acquisition
Price is not reduced in accordance with this Section 1.3(c) or Section 1.3(d),
or is reduced in an amount less than the Escrowed Sum, the balance of the
Escrowed Sum after deduction of all reductions and all amounts owing pursuant to
Section 1.3(c)(v) shall be paid to JWS, in addition to the amount owed to JWS,
if any, as a result of an increase in the Acquisition Price pursuant to this
Section 1.3(c), at the time set for payment pursuant to Section 1.3(c)(iv). On
or prior to the Closing, the parties hereto shall have entered into an escrow
agreement (the "Escrow Agreement")
----------------
-5-
<PAGE>
with a mutually acceptable third party (the "Escrow Agent") substantially in the
------------
form attached hereto as Exhibit B.
(ii) Within 35 days after the Closing Date, or as soon as practicable
thereafter, JWS shall cause to be prepared and delivered to the City a statement
(the "Statement") setting forth the Book Value as of the close of business of
---------
JWS on the Business Day immediately preceding the Closing Date. The Statement
shall be prepared in accordance with generally accepted accounting principles
and on the same basis as the calculations set forth on the Projected Statement
and the Preliminary Statement. At the same time, JWS shall also cause to be
prepared and delivered to the City a statement (the "Adjustment Statement")
--------------------
setting forth the calculation of the difference between the Book Value as shown
on the Statement minus the Book Value as shown on the Preliminary Statement
(such sum referred to hereinafter as the "Adjustment Amount"). The Statement
-----------------
and the Adjustment Statement shall be prepared in consultation with the City.
The City shall provide JWS with access to the relevant books and records to the
extent required to prepare the Statement and the Adjustment Statement.
(iii) After receipt of the Statement and the Adjustment Statement,
the City will have 14 days to review such statements together with the
workpapers used in their preparation. Unless the City delivers written notice
to JWS on or prior to the fourteenth day after its receipt of the Statement and
the Adjustment Statement, the City will be deemed to have accepted and agreed to
the Statement and the Adjustment Statement and such agreement will be final and
binding. If the City so notifies JWS of
-6-
<PAGE>
its objections to either the Statement or the Adjustment Statement, the City and
JWS will, within fourteen days following the notice (the "Resolution Period"),
-----------------
attempt to resolve their differences. Any resolution by the City and JWS during
the Resolution Period as to any disputed amounts will be final, binding and
conclusive. If the City and JWS do not resolve all disputed items by the end of
the Resolution Period, then all items remaining in dispute will be submitted
within fourteen days after the expiration of the Resolution Period to an
independent accounting firm of national reputation mutually acceptable to the
parties hereto (the "Neutral Auditor"). If, within such fourteen-day period
---------------
referred to in the previous sentence, the City and JWS are unable to agree on
the Neutral Auditor, then the City and JWS will each immediately request the
American Arbitration Association to appoint the Neutral Auditor. All fees and
expenses relating to the work, if any, to be performed by the Neutral Auditor
will be borne equally by the City and JWS. The Neutral Auditor will deliver to
the parties hereto a written determination (such determination to include a work
sheet setting forth all material calculations used in arriving at such
determination and to be based solely on information provided to the Neutral
Auditor by JWS and the City) of the disputed items within 30 days of receipt of
the disputed items, which determination will be final, binding and conclusive.
The final, binding and conclusive Statement and Adjustment Statement, which
either are agreed upon by the parties hereto or are delivered by the Neutral
Auditor in accordance with this Section 1.3(c) will be the "Conclusive
----------
Statement" and the "Conclusive Adjustment Statement," respectively.
- --------- -------------------------------
-7-
<PAGE>
(iv) If the Adjustment Amount as shown on the Conclusive Adjustment
Statement is a negative number, then the Acquisition Price will be reduced by
such amount, and the Escrow Agent shall be authorized, pursuant to the Escrow
Agreement, to pay (x) to the City from the Escrowed Sum an amount in cash equal
to such Adjustment Amount, plus interest accrued thereon in accordance with the
Escrow Agreement and (y) to JWS the balance of the Escrowed Sum as determined in
accordance with Section 1.3(c)(i), if any, plus accrued interest thereon in
accordance with the Escrow Agreement. If the Adjustment Amount is a negative
number, the absolute value of which exceeds the amount held by the Escrow Agent,
then the entire Escrowed Sum, plus interest accrued thereon in accordance with
the Escrow Agreement, shall be delivered to the City and JWS or the Parent will
pay to the City the excess amount. If the Adjustment Amount as shown on the
Conclusive Adjustment Statement is a positive number, then the Acquisition Price
will be increased by such amount, and the City shall pay to JWS an amount in
cash equal to such Adjustment Amount, and the Escrow Agent shall be authorized,
pursuant to the Escrow Agreement, to pay to JWS the balance of the Escrowed Sum
as determined in accordance with Section 1.3(c)(i), if any, plus accrued
interest in accordance with the Escrow Agreement. All payments to be made
pursuant to this Section 1.3(c) (iv) will be made on the second Business Day
following the date on which the parties agree to, or the Neutral Auditor
delivers, the Conclusive Statement and the Conclusive Adjustment Statement. Any
payment required to be made by JWS or the City (other than payments from the
Escrowed Sum) pursuant to this Section 1.3(c) (iv) shall bear interest from the
-8-
<PAGE>
Closing Date through the date of payment at a rate of 6.0% per annum, and shall
be payable by federal funds or wire transfer of immediately available funds to
an account or accounts designated by the party entitled to receive such funds
prior to the date when such payment is due.
(v) If the PSC shall determine that the customers of JWS located in
Queens County have overpaid JWS by reason of the Rate Increase, then the balance
of the Escrowed Sum, to the extent available, shall be applied to refund such
overpayments, it being understood that funds shall be released from the Escrow
Account from time to time in order to permit JWS to make refund payments to
customers located in Queens County at such times as are required by order of the
PSC. Then, after all amounts determined to be owing by JWS to customers located
in Queens County by reason of such PSC order have been paid, the Escrow Agent
shall be authorized, pursuant to the Escrow Agreement, to pay to JWS the
remaining balance held by the Escrow Agent (plus interest accrued thereon in
accordance with the Escrow Agreement). If the amount held by the Escrow Agent
is insufficient to pay such amounts, JWS and/or the Parent shall make all
additional payments required by the PSC.
1.3(d). Adjustment for Avoided Severance Costs. (i) JWS shall, prior
--------------------------------------
to the Closing cause to be prepared, and on the Closing Date deliver to the
City, a statement (the "Preliminary Reduction Statement") setting forth the
-------------------------------
calculation of the sum of (A) the amount of statutory interest accrued in
accordance with Section 2.2(a), plus (B) the amount equal to 50% of the
difference between (1) the total amount of all
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<PAGE>
severance payments ("Avoided Severance Payments") that JWS would have otherwise
--------------------------
been obligated to pay to its non-bargaining unit employees, pursuant to its
severance policy to be adopted after the date hereof, and to its bargaining unit
employees pursuant to the effects bargaining agreement (the "Effects Bargaining
------------------
Agreement") to be entered into between JWS and the Utility Workers Union of
- ---------
America AFL-CIO, Local 374 (the "Union") in connection with the Asset
Acquisition, each as of the Closing Date, but for the fact that such employees
(such employees hereinafter referred to as "Offered Employees") were offered
-----------------
employment by the City, to commence on and after the Closing Date, minus (2) the
product of (x) 75 times (y) the average of the Avoided Severance Payments per
Offered Employee (such sum of (A) and (B) referred to hereinafter as the
"Reduction Amount"), as determined as of the close of business of JWS on the
----------------
Business Day immediately preceding the Closing Date. In any case where an
Offered Employee has been offered employment by the City, on the one hand, and
by the Water Authority or a third party under contract with the Water Authority
to operate the Nassau System (a "Third-Party Contractor"), on the other hand,
----------------------
and either such offer independently would result in JWS's not being obligated to
make severance payments to the Offered Employee, then the Preliminary Reduction
Statement and the Reduction Statement (hereinafter defined) shall give effect to
the severance payments so avoided only if the Offered Employee accepts such
offer and is employed by the City after the Closing Date, unless the Offered
------
Employee accepts neither the offer of employment by the City, on the one hand,
nor of the Water Authority or a Third-Party Contractor, on the other hand, in
which event the Preliminary Reduction Statement and
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<PAGE>
the Reduction Statement shall give effect to 50% of the severance payments so
avoided. The Preliminary Reduction Statement shall be prepared by Reduction
Amount calculated on the Preliminary Reduction Statement.
(ii) Within 35 days after the Closing, JWS shall cause to be prepared
and delivered to the City a statement (the "Reduction Statement") setting forth
-------------------
the calculation of the Reduction Amount, as of the close of business of JWS on
the Business Day immediately preceding the Closing Date. At the same time, JWS
shall also cause to be prepared and delivered to the City a statement (the "Net
---
Reduction Statement") setting forth the calculation of the difference between
- -------------------
the Reduction Amount as shown on the Reduction Statement minus the Reduction
Amount as shown on the Preliminary Reduction Statement (such sum referred to
hereinafter as the "Net Reduction Amount"). The Reduction Statement and the Net
--------------------
Reduction Statement shall be prepared in consultation with the City. The City
shall provide JWS with access to the relevant books and records to the extent
required to prepare the Reduction Statement and the Net Reduction Statement.
(iii) After receipt of the Reduction Statement and the Net Reduction
Statement, the City will have 14 days to review such statements together with
the workpapers used in their preparation. Unless the City delivers written
notice to JWS on or prior to the fourteenth day after its receipt of the
Reduction Statement and the Net Reduction Statement, the City will be deemed to
have accepted and agreed to the Reduction Statement and the Net Reduction
Statement and such agreement will be
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<PAGE>
final and binding. If the City so notifies JWS of its objections to either the
Reduction Statement or the Net Reduction Statement, the City and JWS will,
within fourteen days of the notice (the "Reduction Resolution Period") attempt
---------------------------
to resolve their differences. Any resolution by the City and JWS during the
Reduction Resolution Period will be final, binding and conclusive. If the City
and JWS do not resolve all disputed items by the end of the Reduction Resolution
Period, then all items remaining in dispute will be submitted within fourteen
days after the expiration of the Reduction Resolution Period to the Neutral
Auditor. If within such fourteen-day period referred to in the previous
sentence, the City and JWS are unable to agree on the Neutral Auditor, then the
City and JWS will each immediately request the American Arbitration Association
to appoint the Neutral Auditor. All fees and expenses relating to the work, if
any, to be performed by the Neutral Auditor will be borne equally by the City
and JWS. The Neutral Auditor will deliver to the parties hereto a written
determination (such determination to include a work sheet setting forth all
material calculations used in arriving at such determination and to be based
solely on information provided to the Neutral Auditor by JWS and the City) of
the disputed items within 30 days of receipt of the disputed items, which
determination will be final, binding, and conclusive. The final, binding and
conclusive Reduction Statement and Net Reduction Statement, which either are
agreed upon by the parties hereto or are delivered by the Neutral Auditor in
accordance with this Section 1.3(d), will be the "Conclusive Reduction
--------------------
Statement" and the "Conclusive Net Reduction Statement", respectively.
- --------- ----------------------------------
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<PAGE>
(iv) If the Net Reduction Amount as shown on the Conclusive Net
Reduction Statement is a positive number, then the Acquisition Price will be
reduced by such amount, and the Escrow Agent shall be authorized, pursuant to
the Escrow Agreement, to pay (x) to the City from the Escrowed Sum an amount in
cash equal to such Net Reduction Amount, plus interest accrued thereon in
accordance with the Escrow Agreement and (y) to JWS the balance of the Escrowed
Sum as determined in accordance with Section 1.3(c)(i), if any, plus accrued
interest thereon in accordance with the Escrow Agreement. If the Net Reduction
Amount as shown on the Conclusive Net Reduction Statement is a positive number
that exceeds the amount held by the Escrow Agent, then the entire Escrowed Sum
plus interest accrued thereon in accordance with the Escrow Agreement shall be
delivered to the City and JWS or the Parent will pay to the City the excess
amount. If the Net Reduction Amount as shown on the Conclusive Net Reduction
Statement is a negative number, then the Acquisition Price shall be increased by
the absolute value of such amount, and the City shall pay to JWS an amount in
cash equal to the absolute value of the Net Reduction Amount as shown on the
Conclusive Net Reduction Statement, and the Escrow Agent shall be authorized,
pursuant to the Escrow Agreement, to pay to JWS the balance of the Escrowed Sum
as determined in accordance with Section 1.3(c)(i), if any, plus accrued
interest thereon in accordance with the Escrow Agreement. All payments to be
made pursuant to this Section 1.3(d)(iv) will be made on the second Business Day
following the date on which the City and JWS agree to, or the Neutral Auditor
delivers, the Conclusive Reduction Statement and the Conclusive Net Reduction
Statement. Any
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<PAGE>
payment required to be made by JWS or the City (other than from the Escrowed
Sum) pursuant to this Section 1.3(d)(iv) shall bear interest from and including
the Closing Date through the date of payment at a rate of 6.0% per annum, and
shall be payable by wire transfer of immediately available funds to an account
or accounts designated by the party entitled to receive such funds prior to the
date when such payment is due.
1.4. Excluded Liabilities. Notwithstanding anything to the contrary
-------- -----------
contained herein, the City shall not assume, become liable for, or agree to
discharge any obligation or liability of JWS or the Parent including without
limitation, (a) any current liabilities, accounts payable or trade liabilities,
(b) any liability or obligation under, related to or arising from any Contract
associated with the assets described in Section 1.2, provided, that the City
shall, as of the Closing Date, assume all obligations of JWS that may arise
after the Closing Date under the Contracts listed on Schedule 3.1(e)(i) hereto,
(c) any liability or obligation of JWS to any former or current employee of JWS,
(d) any obligation or liability of JWS arising from a violation of any law or
governmental regulation, including without limitation violation of any
Environmental Law (as defined in Section 3.1(i)), (e) any liabilities resulting
from claims against JWS or the Parent arising prior to the Closing Date, (f)
any other obligation or liability of JWS relating to the Acquired Assets for
which the City would otherwise be responsible, to the extent amounts in respect
thereof are recovered at any time by JWS or an Affiliate thereof pursuant to
insurance policies in effect on the Closing Date, (g) any liability or
obligation of JWS that would be classified as a long-term liability under
generally accepted accounting practices and reflected on a balance sheet
prepared in
-14-
<PAGE>
accordance with generally accepted accounting principles, (h) any
guaranty by JWS of any debt, obligation or dividend of any person or entity,
(i) any liability or obligation of the Business to JWS or any of its Affiliates
(except obligations of the City under this Agreement), or (j) any obligation of
JWS to make refunds to its customers (all of the foregoing being hereinafter
referred to as the "Excluded Liabilities").
1.5 Assignment of Contracts and Rights. To the extent that
----------------------------------
assignment hereunder by JWS to the City of any Contract or license is not
permitted or is not permitted without the consent of a third party, this
Agreement shall not be deemed to constitute an undertaking to assign the same if
such consent is not given or if such an undertaking otherwise would constitute a
breach of, or cause a loss of benefits under, any such Contract or license, and
the City shall not assume any obligation or liability thereunder. JWS shall use
its best efforts to obtain any and all such consents required for assignment of
any Contracts and licenses included in the Acquired Assets (without having to
pay any consideration therefor). JWS shall advise the City promptly in writing
with respect to any Contract or license which it knows or has reason to believe
will not receive any required consent.
Without in any way limiting JWS's obligation to seek to obtain all
consents and waivers necessary for the acquisition by the City of any Contracts
and licenses included in the Acquired Assets, if such consent is not obtained
or if such assignment is not permitted irrespective of consent, JWS shall
cooperate with the City in any reasonable arrangement designed to provide for
the City the benefit under such Contract or license, as the case may be,
including enforcement for the benefit of the
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<PAGE>
City of any or all rights of JWS against any other person arising out of breach
or cancellation by such other person and including, if so requested by the City,
acting as an agent on behalf of the City, or as the City shall otherwise
reasonably require; and any transfer or assignment to the City by JWS of any
property or property rights or any Contract or agreement that shall require the
consent or approval of any third party, shall be made subject to such consent or
approval being obtained.
1.6 Apportionment of Expenses and Hydrant Rentals. (a) All operating
---------------------------------------------
expenses relating to the Business, including, without limitation, utilities and
materials and supplies not included in the balance sheet of JWS, such as
chemicals and gasoline, but excluding real estate rentals, (collectively,
"Operating Expenses"), and all prepaid rental revenue in respect of water
hydrants, shall be prorated between JWS and the City as of the close of business
on the day immediately preceding the Closing Date, and the City and JWS shall
each submit to the other an accounting thereof. To the extent practicable, any
such apportionments shall be settled, as is appropriate under the circumstances,
by a payment or credit between the parties within 35 days after the Closing.
(b) Operating Expenses and Revenues. All Operating Expenses
-------------------------------
attributable to the period through the close of business on the day immediately
preceding the Closing Date shall be the obligation and paid for by JWS and all
Operating Expenses attributable to the period from and after the close of
business on the day immediately preceding the Closing Date shall be the
obligation of and paid for by the City. Operating Expenses attributable to any
period including and extending
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<PAGE>
beyond the Closing Date shall be prorated as of the close of business
immediately preceding the Closing Date between JWS and the City. In the event
that either party collects or receives any income, revenues or receipts to which
the other party is entitled pursuant hereto, it shall hold such amounts in trust
for the other and promptly pay such amounts to the other party.
ARTICLE II: CLOSING
(a) Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
6.1 hereof, subject to the provisions of Article V, the closing with respect to
the Asset Acquisition (the "Closing") shall take place at the offices of
-------
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, at 10:00
a.m. on April 30, 1996 (or as soon as practicable thereafter as all of the
conditions to Closing set forth in Article V hereof are satisfied or waived and
all of the conditions to closing set forth in the Nassau Agreement are satisfied
or waived), or such other place, time and date as the parties may agree. The
actual time and date of the Closing are herein referred to as the "Closing
-------
Date." The parties hereto agree to use their best efforts to cause the Closing
- ----
Date to occur on or as soon as practicable after the Vesting Date consistent
with the provisions of this Agreement.
2.2 Deliveries by the City. On the terms and subject to
----------------------
the conditions of this Agreement, at the Closing , the City shall deliver to JWS
the following:
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<PAGE>
(a) The Acquisition Price, adjusted as provided in Sections 1.3(b),
(c) and (d), with statutory interest thereon at a rate of 6% per annum from the
Vesting Date to the Closing Date, less the Escrowed Sum, by federal funds or
wire transfer of immediately available funds to an account or accounts of JWS
designated by JWS by notice given to the City at least two Business Days prior
to the Closing Date, as may be agreed between the parties; and
(b) the executed Escrow Agreement in substantially the form attached
hereto as Exhibit B; and
(c) such other instruments or documents, in form and substance
reasonably acceptable to JWS, as may be necessary to effect the Closing.
2.3 Deliveries by JWS. On the terms and subject to the
-----------------
conditions of this Agreement, at the Closing on the Closing Date, JWS shall
deliver to the City the following:
(a) assignments, if any required, in form and substance reasonably
acceptable to the City, assigning to the City all Contracts (as defined in
Section 9.1) included in the Acquired Assets; and
(b) such other instruments or documents, including but not limited to
proof of payment of applicable New York Real Property Transfer Gains Tax, in
form and substance reasonably acceptable to the City, as may be necessary to
effect the Closing.
2.4 Additional Transactions At or Following the Closing. At any time
---------------------------------------------------
and from time to time, at or after the Closing, the City and JWS and the Parent
shall
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<PAGE>
cooperate with each other and execute and deliver, or cause to be executed
and delivered, all such instruments, including instruments of assignment,
transfer and conveyance and instruments of assumption, and take all such other
actions as such party may reasonably be requested to take by the other party or
parties hereto, consistent with the terms of this Agreement, in order to
effectuate the provisions and purposes of this Agreement.
2.5 Allocation of the Acquisition Price. As soon as practicable
-----------------------------------
following final determination of all acquisition price adjustments, the parties
hereto shall enter into an agreement setting forth the manner in which the
Acquisition Price, as adjusted, is allocated among the Acquired Assets. No party
hereto shall take any position for federal or state income tax purposes which is
inconsistent with such allocation, unless required to do so under applicable
law. The parties hereto acknowledge that the City will not agree to an
allocation of the Acquisition Price, as adjusted, which, under applicable
federal tax laws and regulations, would restrict the average maturity of the tax
exempt bonds to be issued by the New York City Municipal Water Finance Authority
to finance this acquisition to less than thirty years.
ARTICLE III: REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of JWS and the Parent. JWS and
----------------------------------------------------
the Parent, jointly and severally, represent and warrant to the City as follows:
(a) Due Organization. Each of JWS and the Parent is a corporation
----------------
duly incorporated, validly existing and in good standing under the laws of the
State of New York (in the case of JWS) and Delaware (in the case of the Parent)
and each has
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<PAGE>
full corporate power and authority to own all of its properties and assets and
to carry on its business as it is now being conducted.
(b) Authorization and Validity of Agreement. Each of JWS and the
---------------------------------------
Parent has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereunder. The
execution, delivery and performance by JWS and the Parent of this Agreement and
the consummation by JWS and the Parent of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action and no
other corporate action on the part of JWS or the Parent is necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation by JWS and the Parent of the transactions contemplated hereby
(other than the approval and adoption of the Asset Acquisition and this
Agreement by the holders of the outstanding shares of common stock (the "Common
------
Shares"), no par value, of JWS). This Agreement has been duly executed and
- ------
delivered by JWS and the Parent and, assuming the due authorization, execution
and delivery hereof by the City, is a valid and legally binding obligation of
each, enforceable against it in accordance with its terms, except to the extent
that its enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting creditors'
rights generally and by general equity principles regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(c) No Conflict; Consents. Except as set forth on Schedule 3.1(c)
---------------------
hereto , the execution, delivery and performance by JWS and the Parent of this
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<PAGE>
Agreement and the consummation by JWS and the Parent of the transactions
contemplated hereby: (i) will not violate, or result in the violation of, any
provision of any law, rule, regulation, order, judgment or decree applicable to
JWS or the Parent; (ii) will not require any consent, authorization or approval
of, or filing with or notice to, any governmental or regulatory authority under
any provision of any law applicable to JWS or the Parent, except for the
approval of the PSC, and except for any consent, approval, filing or notice
requirements which become applicable solely as a result of the specific
regulatory status of the City or which the City is otherwise required to obtain;
(iii) will not violate any provision of the respective certificates of
incorporation or by-laws or other organizational documents of JWS or the Parent;
and (iv) will not require any consent, approval or notice under, and will not
conflict with, or result in the breach or termination of, or constitute a
default under, or result in the acceleration of the performance by JWS or the
Parent or the creation of any Lien under, any indenture, mortgage, deed of
trust, lease, license, franchise, contract, agreement, warrant or other
instrument to which JWS or any of its Affiliates or the Parent is a party or by
which either of them, or any of their assets, are bound or encumbered, except
with respect to clauses (i), (ii) and (iv) above for any consent, authorization,
approval, filing or notice that would not, if not given or made, or any
violation, conflict, breach, termination, default or acceleration which does
not, and is not likely to, either impair the ability of JWS and the Parent to
consummate the transactions contemplated hereby or have a Material Adverse
Effect.
-21-
<PAGE>
For purposes of this Agreement, "Material Adverse Effect" means any
-----------------------
effect that is, either individually or together with other effects, materially
adverse to the assets, properties, business, operations, or financial
condition of the Business, taken as a whole.
(d) Title to Acquired Assets; Liens and Encumbrances. Except as set
------------------------------------------------
forth on Schedule 3.1(d), as of the date of this Agreement, JWS has good, valid
and, except for immaterial exceptions in the case of real property which
exceptions have no material effect on the operation or function of the System or
the Business and no material effect on the value of the System or the Business,
or JWS's interest in the value of the real property acquired ("Permitted
Exceptions"), marketable title to all the Acquired Assets (other than rights of
way and easements) and all such Acquired Assets are free and clear of all Liens
except (i) Liens that are eliminated on or prior to the Closing Date, (ii)
statutory Liens arising or incurred in the ordinary course of business with
respect to which the underlying obligations are not delinquent , or the validity
of which is being contested in good faith by appropriate proceedings,(iii) Liens
disclosed or reflected in the audited financial statements of JWS as of and for
the year ended December 31, 1994 (the "Financial Statements"), and (iv) Liens
which constitute valid leases or subleases from JWS to third parties as listed
on Schedule 3.1(d). JWS will clear all Liens (including those set forth on
Schedule 3.1(d) hereto) other than Permitted Exceptions prior to or
contemporaneously with payment of the Acquisition Price and shall provide
documentation of the discharge of said Liens at the Closing.
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<PAGE>
(e) Agreements and Contracts. Schedule 3.1(e) (i) hereto sets forth a
------------------------
list, as of the date hereof, of each written Contract included in the Acquired
Assets that is material to the Business. Except as set forth in Schedule 3.1(e)
(ii) hereto, each Contract listed on Schedule 3.1(e)(i) is a valid and binding
agreement of JWS and is in full force and effect. Except as otherwise provided
in Schedule 3.1(e) (ii) hereto, there has been no breach or default under any
Contract listed on Schedule 3.1(e) (i) hereto except for breaches or defaults
that have been cured or waived and breaches or defaults which could not
reasonably be expected to have a Material Adverse Effect.
(f) Legal Proceedings. There is no action, proceeding or, to the best
-----------------
knowledge of JWS and the Parent, any governmental investigation currently
pending against JWS which seeks to restrain or enjoin the consummation of the
transactions contemplated by this Agreement. Except as described on Schedule
3.1(f) hereto, there is no action, proceeding or, to the best knowledge of JWS
and the Parent, any governmental investigation currently pending against JWS or
the Parent which could reasonably be expected to have a Material Adverse Effect.
JWS is not in violation of any term of any judgment, decree, injunction or order
entered by any court of competent jurisdiction and outstanding against it, which
violation could reasonably be expected to have a Material Adverse Effect.
(g) Government Licenses, Permits and Related Approvals. Schedule
--------------------------------------------------
3.1(g)(i) is a list, together with a brief description, of all licenses and
permits material to the Business, issued or registered in the name of JWS. All
licenses listed on Schedule 3.1(g)(i) are in full force and effect. Except as
disclosed on Schedule 3.1(g)(ii) hereto,
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<PAGE>
the System and the Business are being conducted in compliance with all
applicable laws, rules and regulations, except where the failure to so comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. JWS has all licenses, permits, certificates and other
authorizations and approvals necessary for the operation of the System and
conduct of the Business as presently operated and conducted under applicable
laws, ordinances and regulations of any governmental authority, other than those
the absence of which could not reasonably be expected to have a Material Adverse
Effect.
(h) Conduct of the System in Compliance with Regulatory Requirements.
----------------------------------------------------------------
JWS is in substantial compliance with each law, regulation, ordinance and code
promulgated by any federal, state or local governmental authority applicable to
the operation, conduct or ownership of the System (including, without
limitation, any Environmental Laws), except where the failure to comply
substantially with any such law, regulation, ordinance or code could not
reasonably be expected to have a Material Adverse Effect.
(i) Environmental Matters. Except as set forth in Schedule 3.1(i)(1),
---------------------
there are no Environmental Liabilities (as defined below) relating to the
Business or the Acquired Assets which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. As used in this
Agreement, "Environmental Laws" means any and all applicable federal, state,
------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, injunctions, orders or decrees regulating or imposing liability or
standards of conduct concerning pollution, Hazardous Materials or
-24-
<PAGE>
protection of the environment, in effect as of the date hereof. "Environmental
-------------
Liabilities" means any and all liabilities, costs and expenses which (i) arise
- -----------
under or are incurred pursuant to Environmental Laws and (ii) are based upon
actions occurring or conditions existing on or prior to the Closing Date,
provided that Environmental Liabilities shall not include conditions of water
- --------
quality or the existence of Hazardous Materials in water at any well site of JWS
listed on Schedule 3.1(i)(2) hereof or any conditions of water quality or the
existence of Hazardous Materials in water, in any such case, that are not the
result of any acts or omissions of JWS. "Hazardous Materials" means any
-------------------
hazardous or toxic substances, materials or wastes, defined as such in or under
any Environmental Laws, including, without limitation, asbestos, petroleum or
petroleum products (including gasoline, crude oil or any fraction thereof),
polychlorinated biphenyls, and ureaformaldehyde insulation.
(j) Financial Statements. The Financial Statements have been prepared
--------------------
in accordance with books and records of JWS and present fairly in all material
respects the results of operations and the financial condition of JWS as of the
date thereof. The unaudited financial statements of JWS, as of and for the nine
months ended September 30, 1995, heretofore delivered to City, were prepared in
the ordinary course of business of JWS in accordance with generally accepted
accounting principles. The percentage allocation of "Net Utility Plant" and
"Accounts Receivable" attributable to the Queens portion of JWS's water system
to be set forth on the Projected Statement, the Preliminary Statement and the
Statement will be arrived at using a methodology
-25-
<PAGE>
consistent with JWS's past practice of arriving at such allocations for cost of
service studies with the New York State Public Service Commission since June,
1986.
(k) Absence of Certain Liabilities and Changes. Except (1) to the
------------------------------------------
extent reflected or reserved for in the September 30, 1995 Financial Statements
and (2) for liabilities or obligations incurred in the ordinary course of
business since September 30, 1995, there are no material obligations or
liabilities of JWS, except liabilities disclosed herein or in the schedules
hereto, and obligations and liabilities that could not reasonably be expected to
have a Material Adverse Effect. Since September 30, 1995, JWS has operated its
business in the ordinary course and there has not been, except as set forth in
Schedule 3.1(k), (i) any transaction, occurrence or commitment (for capital
expenditures or otherwise) that was not in the ordinary course of business; (ii)
any material adverse change in the business, affairs or financial condition of
JWS; (iii) any lease, sale, abandonment or transfer of, or the creation of any
Lien (other than Permitted Exceptions) on any properties or assets material to
the Business; (iv) a grant of, or an agreement to grant, any general increase
other than pursuant to the Collective Bargaining Agreement (the "Collective
Bargaining Agreement") between JWS and the Union, which was effective March,
1994 ("general increase", for purposes hereof, means an increase in any rates of
salaries or compensation generally applicable to a class or group of employees
of a company, but not including increases granted to individual employees for
merit, length of services, change in position or responsibility or other reasons
applicable to specific employees and not generally to a class or group) in any
rate or rates of salaries or compensation to directors, officers or employees or
-26-
<PAGE>
agents or, since September 30, 1995, any specific increase in the salary or
compensation to any officer, agent or employee whose total salary and
compensation after such increase would be at an annual rate in excess of
$50,000; (v) any damage, destruction or loss to any asset or property which
would have a Material Adverse Effect, whether or not covered by insurance; (vi)
establishment of any new Plan or material modification or amendment or provision
for material increases in any existing Plans, except pursuant to the Effects
Bargaining Agreement, or in accordance with the terms of such Plans in effect
prior to the date hereof (which modifications or increases, if any, are
disclosed in Schedule 3.1(k)), or written interpretation or announcement by JWS
under any Plan which would materially increase the expense of maintaining such
Plan over the level of expense thereof for the fiscal year ended December 31,
1994; (vii) any claim, action, suit or proceeding commenced or, to the best
knowledge of JWS, threatened against JWS, which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect; (viii) any grant by
JWS of recognition to any labor organization (other than ongoing effects
bargaining with a previously recognized union); and (ix) any occurrence, event
or condition (including, without limitation, any strike or labor trouble) which
could reasonably be expected to have a Material Adverse Effect. For purposes of
this section, "Plan" means any plan, program, policy, fund, arrangement or
agreement providing for benefits for employees of JWS including, without
limitation, any "employee benefit plan" as that term is defined in Section 3(3)
of the Employee Retirement Income Security Act (" ERISA"), all retirement,
pension benefit, profit sharing, medical, dental, disability, vacation,
hospitalization,
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<PAGE>
incentive, bonus, executive compensation, deferred compensation and any other
similar material fringe or employee benefit plan, fund, program or arrangement,
whether or not covered by ERISA, which is maintained by JWS for the benefit of,
or relates to, any or all present or former employees or directors of JWS.
(l) Receivables. All Accounts Receivable, whether billed or accrued,
-----------
which either are reflected on the balance sheet dated September 30, 1995 (the
"Balance Sheet") or which have arisen since the date of the Balance Sheet (as
reflected on the books and records of JWS) have arisen in the ordinary course of
business in connection with bona fide transactions. Allowances for bad debts
have been reflected in the Balance Sheet with respect to the Accounts Receivable
shown thereon, and with respect to Accounts Receivable acquired subsequent to
the date of the Balance Sheet, allowances for bad debts have been set up on the
books of JWS in a manner consistent with the policies used to establish the
allowances reflected in the Balance Sheet. To the best knowledge of JWS and
Parent, as of the date hereof, the Accounts Receivable are (or will be) fully
collectible, net of the allowances referred to in the preceding sentence.
3.2 Representations and Warranties of the City. The City
------------------------------------------
represents and warrants to JWS as follows:
(a) Due Organization and Power of the City. The City is a municipal
--------------------------------------
corporation, duly established and validly existing under the constitution and
laws of the State of New York and The City of New York and is authorized by the
laws of the State of New York and The City of New York (i) to own all of its
properties and assets and
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carry on its business as it is now being conducted, (ii) to enter into this
Agreement and perform its obligations hereunder and (iii) to acquire the
Acquired Assets.
(b) Authorization and Validity of Acquisitions. Pursuant to General
------------------------------------------
City Law (S) 20(2), the City is authorized and directed to acquire by
condemnation, and to maintain and operate, all or part of the plants, properties
and mains, pipes, facilities, easements, franchises and other real or personal
property of JWS constituting or related to the water distribution system located
in the City of New York, notwithstanding the fact that such property or part
thereof was or is devoted to a public use. This acquisition is subject to
conditions set forth in General City Law (S) 20(2). The City has all requisite
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereunder upon approval of the New York City
Comptroller and the court in the Condemnation Proceeding (as defined in Section
4.7). The execution and delivery by the City of this Agreement have been duly
authorized by all necessary action, and no other action on the part of the City,
other than the approval of the Comptroller, as well as the approval of the court
in the Condemnation Proceeding, is necessary to authorize the performance by the
City of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
City and, assuming the due authorization, execution and delivery hereof by JWS
and the Parent, is a valid and legally binding obligation of the City upon
approval of the Comptroller and the court in the Condemnation Proceeding,
enforceable against the City in accordance with its terms, except to the extent
that enforceability may be limited by bankruptcy, insolvency,
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reorganization, moratorium or other laws relating to or affecting creditors'
rights generally and by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(i) will not violate, or result in the violation of, any provision of any law,
rule, regulation, order, judgment or decree applicable to the City; (ii)
will not require any consent, authorization or approval of, or filing or
notice to, any governmental or regulatory authority under any provision of
any law applicable to the City, except for the approval of the New York
City Comptroller and possibly the approval of the New York State Department
of Environmental Conservation and the New York State Department of Health,
and except for any consent, approval, filing or notice requirements which
become applicable solely as a result of the specific regulatory status of
JWS or which JWS is otherwise required to obtain; and (iii) will not
conflict with or violate any provision of the laws of the State of New York
or The City of New York;
(d) Disclosure. No Responsible Officer of the City has withheld from
----------
JWS or the Parent any information discovered in the course of the due diligence
investigation of JWS and the Parent that would indicate that one or more of the
representations and warranties of JWS and the Parent contained in this Agreement
is inaccurate. For purposes of the foregoing, "Responsible Officer" means the
New York City Department of Environmental Protection's ("DEP") Acting Chief
Engineer, DEP's Deputy Commissioner for the Bureau of Management and Budget,
DEP's Deputy Commissioner for the Bureau of Water and Energy Conservation, and
DEP's General
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Counsel. To the best knowledge of said Responsible Officers, no other employees
of the City have discovered any such information.
(e) Financing. The City has sufficient funds, or has the authority
---------
without further administrative or legislative action (other than the approvals
of the New York City Comptroller and the board of directors of the New York City
Municipal Water Finance Authority necessary to the issuance of bonds) to obtain
any required financing, in an aggregate amount not less than the amount
necessary for the City to be able to consummate the Asset Acquisition on the
Closing Date, which funds or financing will be available at the Closing to pay
the Acquisition Price. The agreements or authorizations which govern such
financing neither contain any condition nor are subject to any consent or
approval which the City does not reasonably expect to obtain prior to the
Closing Date.
3.3 Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of JWS and the Parent and of the City contained
in this Article III shall survive for two years from the Closing Date, provided
that upon the termination of this Agreement pursuant to Section 6.1, the
respective representations and warranties of JWS and the Parent and the City
shall immediately terminate.
3.4 Schedules. Disclosure of any fact or item in any Schedule
---------
hereto referenced by a particular paragraph or section in this Agreement shall,
should the existence of the fact or item or its contents be relevant to any
other paragraph or section, be deemed to be disclosed with respect to that other
paragraph or section whether or not a specific cross reference appears.
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3.5 No Implied Representation. Notwithstanding anything contained in
-------------------------
this Article III or any other provision of this Agreement, neither JWS nor the
Parent is making any representation or warranty whatsoever, express or implied,
other than those representations and warranties of JWS and the Parent expressly
provided for in this Agreement or in any Schedule hereto. It is understood that
any cost estimates, projections or other predictions which have been provided
to the City are not and shall not be deemed to be representations or warranties
of JWS or the Parent. The City acknowledges that there are uncertainties
inherent in attempting to make such estimates, projections and other
predictions, that the City is familiar with such uncertainties, that the City is
taking full responsibility for making its own evaluation of the adequacy and
accuracy of all estimates, projections and other predictions so furnished to it,
and that the City shall have no claim against anyone with respect thereto.
ARTICLE IV: COVENANTS AND TRANSACTIONS PRIOR TO CLOSING
(a) During the period commencing on the date hereof and ending on the
Closing Date, JWS shall, upon reasonable request, afford to the City, its
counsel, accountants and other authorized representatives reasonable access
during normal business hours to JWS employees and to the properties, books and
records with respect to the Acquired Assets, in order that the City may have the
opportunity to make such reasonable investigations as it shall desire to make of
the Acquired Assets. JWS will furnish to the City such additional financial and
operating data and
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information as the City may from time to time reasonably request with respect to
the Acquired Assets
(b) During the period commencing on the date hereof and ending on the
Closing Date, the City agrees to continue to observe and be bound by the terms
of the June 21, 1995 confidentiality agreement between the parties; provided,
however, that the City shall be permitted to disclose information to the public
in connection with any public hearing that may be required pursuant to
applicable law or regulations.
4.2 Conduct of the System Prior to the Closing Date.
------------------------------------------------
JWS agrees that, except as permitted, required or specifically
contemplated by this Agreement or as otherwise consented to or approved in
writing by the City, during the period commencing on the date hereof and ending
at the Closing Date:
(a) the System shall be conducted only in the ordinary course
consistent with past practice;
(b) JWS will not (i) dispose of or encumber, or agree to dispose
of or encumber, any interest in the Acquired Assets other than (A) in the
ordinary course of business, consistent with past practice, and (B) pursuant to
the after-acquired property clause of an existing indenture or mortgage; (ii)
acquire, or agree to acquire, any asset material to the System, taken as a
whole, other than in the ordinary course of business, consistent with past
practice; (iii) cancel any debts or waive any claims or rights, other than in
the ordinary course of business, consistent with past practice; (iv) make any
capital expenditure or commitment, other than (A) in the ordinary course of
business, consistent with past practice,(B) pursuant to existing commitments or
(C) which is not material to the System, taken as a whole, and, in any event,
will not make any capital commitment or expenditure that is, individually, in
excess of $100,000, except in the case of an emergency, without the prior
written approval of the City, which approval shall not be unreasonably withheld
or delayed, or (v) make any commitment or expenditure for office furniture and
equipment, LAN and information systems, transportation equipment or tools and
work equipment in excess of the amounts set forth in JWS's 1996 Construction
Plan, Schedule 4.2(b) attached hereto, without the prior written approval of the
City, which approval shall not be unreasonably withheld or delayed;
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<PAGE>
(c) JWS shall promptly notify the City in writing of, and furnish to
City information reasonably requested by it with respect to, the occurrence of
any event or the existence of any state of facts that would result in any of
JWS's representations and warranties not being true;
(d) JWS shall not alter in any material respect the terms on which
services are provided and shall use all reasonable efforts to (i) maintain and
preserve the Business,(ii) retain its present employees and agents provided,
that JWS may terminate employees and agents in the ordinary course of business,
and (iii) preserve and maintain its relationships with customers, suppliers and
others until the Closing; provided, however, that JWS may, but shall not be
required to, increase compensation, pay special bonuses, or otherwise modify
benefits, all as set forth on Schedule 3.1(k);
(e) JWS shall use all reasonable efforts to maintain in full force
and effect all existing insurance and renewals thereof, and will give all
notices and present all claims under all policies of insurance in a due and
timely fashion;
(f) JWS shall maintain its books, accounts and records in the usual,
regular and ordinary manner, consistent with past practice, and make no material
change in the accounting methods or practices with respect to the Business or
the Acquired Assets, unless mandated by law, regulation or the PSC, in which
case JWS will provide notice of such change to the City;
(g) JWS shall not alter in any material respect its practices with
respect to collection of Accounts Receivable and shall not sell, discount or
dispose of Accounts Receivable (except that JWS may take appropriate action to
increase its efforts to collect Accounts Receivable);
(h) JWS, prior to undertaking any negotiation or discussion with any
labor union as to recognition, labor contracts, or other matters of like import
relating to the Business, other than ongoing effects bargaining with
representatives of the Union, will first notify the City and furnish to the City
such information relating thereto as the City may reasonably request. In no
event shall JWS enter into any agreement or understanding that would have a
material adverse impact on the Business with any union without the written
consent of City;
(i) JWS will not engage in any transaction with any of its Affiliates
other than as contemplated by this Agreement or in the ordinary course of
business on an arm's-length basis.
(j) JWS agrees that all Queens data processing production
functions must continue to be performed by the current information systems.
This includes, but is not limited to, all Queens customer service, billing,
collections, meter reading and field
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work functions. If any Queens production functions are to be transferred to any
new system application, including, but not limited to, the MUPS application,
they must continue to function properly on the current system.
(k) JWS agrees that the customer billing data, programs and
equipment to be transferred under this Agreement for the purpose of operating
the billing system shall function adequately and appropriately to serve their
intended purposes, consistent with past practice.
(l) JWS shall deliver to the City copies of its severance policy and
the Effects Bargaining Agreement as soon as practicable after each document is
adopted in final form.
4.3 Shareholders' Meeting; Approval. (a) JWS and the Parent
-------------------------------
will take all action necessary in accordance with and subject to applicable law
and JWS's certificate of incorporation and by-laws to convene a meeting of JWS's
shareholders (the "Shareholders' Meeting") as soon as practicable after the date
---------------------
of this Agreement to consider and vote upon the adoption and authorization of
this Agreement and the Asset Acquisition.
(b) At the Shareholders' Meeting, the Parent, as the sole shareholder
of Jamaica Water Securities Corp. ("JW Securities"), shall cause the Common
Shares held by JW Securities (which constitute 96.12% of the issued and
outstanding Common Shares) to be voted in favor of adoption and authorization of
this Agreement and the Asset Acquisition.
4.4 Cooperation. Subject to the provisions of Section 4.1(b),
-----------
during the period commencing on the date hereof and ending at the Closing Date,
upon such terms as may be agreed upon between the parties, JWS shall cooperate
with the City
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to assist the City so that the City can provide continuous, uninterrupted
service to its customers subsequent to the Closing Date by:
(a) providing the City's representatives access to JWS's sites,
facilities and installations;
(b) providing the City's representatives access to accounting and
billing information; and
(c) providing such information, data and technical assistance as
is reasonably required by the City's representatives in order to accomplish the
technical changes, staff acquisition and training as may be necessary to assure
uninterrupted service;
provided, however, that JWS shall not be required to disclose any
- --------
confidential information relating to employees of JWS without the prior written
approval of such employees.
4.5 PSC Approval. JWS and the Parent shall take all steps
------------
necessary or advisable to effectuate the approval of the PSC ("PSC approval"),
if any is required, pursuant to any law, regulation or other authority and/or
pursuant to the settlement agreement dated December 22, 1993 (the "PSC
Settlement Agreement") between JWS, the PSC and certain other parties, for the
transactions contemplated hereby. The City agrees that it shall, without undue
delay (i) furnish JWS with all information requested by JWS that is reasonably
necessary to assist JWS in effecting all necessary registrations and filings and
submissions of information required to complete its application for PSC
Approval, if any, and (ii) cooperate in complying with all orders
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<PAGE>
and requests of the PSC as are reasonably necessary to obtain PSC Approval, if
any is required.
4.6 DEC and Department of Health Approval. The City shall
-------------------------------------
promptly take all steps necessary to effectuate the approval of the New York
State Department of Environmental Conservation ("DEC") and the New York State
Department of Health, if any such approvals are required, for any permits that
may be necessary for the transactions contemplated hereby. JWS agrees that it
shall, without undue delay, (i) furnish the City with all information requested
by the City that is reasonably necessary to assist the City in effecting all
necessary registrations, filings and submissions of information required to
complete its application for such approvals and permits, if any are required,
and (ii) cooperate in complying with all orders and requests of the DEC or
Department of Health as are reasonably necessary to obtain such approvals and
permits, if any are required.
4.7 Condemnation Proceeding. Prior to the execution and
-----------------------
submission to the Court of a stipulation of settlement providing for acquisition
of the Acquired Assets, the City must obtain approval of such settlement from
the Comptroller of the City of New York. After approval of the Comptroller, the
City, JWS and the Parent agree that the parties shall file in the condemnation
proceeding filed by the City and pending in Supreme Court, Queens County (the
"Condemnation Proceeding") a stipulation and agreement of settlement in a form
to be agreed on as to the value of the Acquired Assets. Such stipulation shall
provide for the acquisition of the Acquired Assets by condemnation and for the
Acquisition Price as the amount of just
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compensation to be paid. The judgment of the court in accordance with the
stipulation in the Condemnation Proceeding shall be final, binding and
conclusive with respect to all terms, including the amount of the Acquisition
Price, and neither party shall appeal such judgment. The parties hereto shall
use their respective best efforts to assure that the Vesting Date shall occur
on, or as close as possible to, the Vesting Date as defined in the Nassau
Agreement.
4.8 Non-Solicitation. If this Agreement is terminated, the
----------------
City's Department of Environmental Protection will not, for a period of three
years thereafter, without the prior written approval of JWS, encourage, entice
or induce any Person who is an employee of JWS on the date hereof or at any time
hereafter that precedes such termination, to terminate his or her employment
with JWS, provided that the City shall not be prohibited from hiring any
employee of JWS absent any such solicitation by the City , and that this section
shall not apply in the case of a subsequent attempt by the City to acquire the
property of JWS. The City agrees that any remedy at law for any breach by it of
this Section 4.8 would be inadequate, and JWS would be entitled to injunctive
relief in such a case. If it is ever held that the restriction placed on the
City by this Section 4.8 is too onerous, the City agrees that any court of
competent jurisdiction may impose lesser restrictions to the maximum extent
permitted by law, and the City hereby consents and agrees that such scope may be
judicially modified accordingly in any proceeding brought to enforce such
restriction.
4.9 Retained Employees. Within a reasonable time, the City
------------------
shall provide JWS with a list (the "Employees List") containing the name of each
--------------
employee
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of JWS to whom the City will offer employment commencing on the Closing Date.
The City shall include on the Employees List the job title and description,
salary and benefits offered to each such employee.
4.10 Compliance with WARN. JWS shall give all notices, if any,
--------------------
required by the Worker Adjustment and Retraining Notification Act of 1988.
4.11 Meter Leases. At or prior to the Closing, JWS shall obtain,
------------
and deliver to the City, a release from each of the lessors under its leases of
water meters of any and all Liens with respect to said leases.
4.12 Further Actions. Subject to the terms and conditions
---------------
hereof, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including, but not limited to, using its best
efforts: (i) to obtain any licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities as are
required in connection with the consummation of the transactions contemplated
hereby; (ii) to effect all necessary registrations and filings; (iii) to defend
any lawsuits or other legal proceedings, whether judicial or administrative,
whether brought derivatively or on behalf of third parties (including
governmental agencies or officials), challenging this Agreement or the
consummation of the transactions contemplated hereby; and (iv) to furnish to
each other such information and assistance as is reasonably requested in
connection with the foregoing.
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<PAGE>
4.13. Nassau Agreement. Prior to the effectiveness of any amendment
------ ---------
to the Nassau Agreement, other than with respect to the amount of the
Acquisition Price to be paid for the assets to be acquired, which (i) grants
rights and remedies to the Water Authority which are not granted to the City
herein, (ii) imposes obligations on JWS or the Parent which are not imposed
hereby or (iii) otherwise amends the Nassau Agreement so that the Water
Authority is afforded the benefit of any term, condition or provision (including
any provision relating to the manner of adjustment of the Acquisition Price to
the extent applicable) not afforded to the City hereunder, the Parent shall give
the City written notice describing such proposed amendment and shall offer to
amend this Agreement to provide the City with the same benefits as are proposed
to be provided to the Water Authority pursuant to such amendment.
ARTICLE V: CONDITIONS PRECEDENT
5.1 Conditions Precedent to Obligations of the Parties. The
--------------------------------------------------
respective obligations of the parties hereto are subject to the satisfaction (or
waiver by each of the City and JWS and the Parent) at or prior to the Closing of
each of the following conditions:
(a) No Injunction. No preliminary or permanent injunction or
-------------
other order issued by any court or by any governmental or regulatory
body nor any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority which restrains, enjoins or
otherwise prohibits the transactions contemplated hereby shall be in
effect.
(b) Regulatory Approvals. The approval of the PSC, if necessary,
--------------------
all permits and approvals required by the DEC and the NYS Department
of Health, if any, and all other regulatory approvals necessary
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<PAGE>
for the Asset Acquisition shall have been obtained and be in full
force and effect, and all required waiting periods shall have expired
or been terminated.
(c) Condemnation Proceeding. Following the submission to the
-----------------------
court and the filing of a stipulation of settlement as set forth in
Section 4.7, and the filing of the decision of the court and the final
judgment and final decree of the court in the amount of the
Acquisition Price, subject to adjustment as provided in Section 1.3,
an order of condemnation (the "Order of Condemnation") shall be
entered and thereupon (the date of entry of such Order of Condemnation
referred to as the "Vesting Date") title shall vest in the City
pursuant to General City Law (S) 20(2).
5.2 Conditions Precedent to Obligation of the City. The
----------------------------------------------
obligations of the City to consummate the transactions contemplated by this
Agreement are also subject to the satisfaction (or waiver by the City) at or
prior to the Closing of each of the following additional conditions:
(a) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of JWS and the Parent contained herein
shall have been true and correct in all material respects on and as of
the date hereof and (except to the extent such representations and
warranties speak of an earlier date) shall continue to be true and
correct as of the Closing Date, except as otherwise contemplated by
this Agreement.
(b) Performance of Agreement. Each of JWS and the Parent
------------------------
shall have performed and complied in all material respects with all
obligations and agreements, and complied in all material respects with
all covenants and conditions, contained in this Agreement to be
performed or complied with by it prior to or on the Closing Date.
(c) Certificate. The City shall have received (i) a
-----------
certificate of JWS, dated the Closing Date, executed on behalf of JWS
by its President or any Vice President to the effect that the
conditions specified in paragraphs (a) and (b) above with respect to
JWS have been fulfilled and (ii) a certificate of the Parent, dated
the Closing Date, executed on behalf of the Parent by its President or
any Vice President to the effect that the conditions specified in
paragraphs (a) and (b) above with respect to the Parent have been
fulfilled.
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(d) Burdensome Condition. There shall not be any action
--------------------
taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Asset Acquisition , by any
governmental or regulatory body which (i) imposes any condition or
restriction upon the City which would materially adversely affect the
economic or business benefits to the City of the transactions
contemplated by this Agreement or (ii) would be reasonably likely to
result in a material adverse effect with respect to the City.
(e) No Action Pending. No action shall have been filed and
-----------------
remain pending in any court which, in connection with this Agreement
or any of the transactions contemplated hereby, seeks a judgment which
if awarded would materially adversely affect the economic or business
benefits to the City of the transactions contemplated by this
Agreement.
5.3 Conditions Precedent to the Obligation of JWS and the
-----------------------------------------------------
Parent. The obligations of JWS and the Parent to consummate the transactions
- ------
contemplated by this Agreement are also subject to the satisfaction (or waiver
by JWS and the Parent) at or prior to the Closing of each of the following
additional conditions:
(a) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of the City contained herein shall have
been true and correct in all material respects on and as of the date
hereof and (except to the extent such representations and warranties
speak of an earlier date) shall continue to be true and correct as of
the Closing Date, except as otherwise contemplated by this Agreement.
(b) Performance of Agreement. The City shall have performed
------------------------
in all material respects all obligations and agreements, and complied
in all material respects with all covenants and conditions, contained
in this Agreement to be performed or complied with by it prior to or
on the Closing Date.
(c) Certificate. JWS and the Parent shall have received a
-----------
certificate of the City, dated the Closing Date, executed on behalf of
the City by its authorized officers, to the effect that the conditions
specified in paragraphs (a) and (b) above have been fulfilled.
(d) Shareholder Approval. The Asset Acquisition shall have
--------------------
been approved by the affirmative vote of the holders of the
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outstanding Common Shares entitled to vote at annual or special
meetings of shareholders of JWS.
(e) Burdensome Condition. There shall not be any action
--------------------
taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Asset Acquisition, by any
governmental or regulatory body which (i) in connection with the grant
of a regulatory approval or permit, imposes any condition or
restriction upon the Parent or JWS which would materially adversely
affect the economic or business benefits, to the Parent or JWS, of the
transactions contemplated by this Agreement or (ii) in connection
with the grant of a regulatory approval or permit or otherwise, would
be reasonably likely to result in a material adverse effect with
respect to JWS.
(f) No Action Pending. No action shall have been filed and
-----------------
remain pending in any court which, in connection with this Agreement
or any of the transactions contemplated hereby, seeks a judgment which
if awarded would materially adversely affect the economic or business
benefits, to the Parent or JWS, of the transactions contemplated by
this Agreement.
(g) Performance of Nassau Agreement. All covenants and
-------------------------------
conditions to closing contained in the Nassau Agreement shall have
been satisfied (or waived by the Parent and JWS), it being expressly
understood between the parties hereto that the Closing shall occur
simultaneously with the closing of the transactions contemplated under
the Nassau Agreement.
ARTICLE VI: TERMINATION AND ABANDONMENT
6.1 General. This Agreement may be terminated and the transactions
-------
contemplated hereby may be abandoned at any time, but not later than the Vesting
Date:
(a) by mutual written consent of the City, JWS, and the Parent;
or
(b) by any party upon written notice given to the other parties
if the Vesting Date has not occurred by May 31, 1996; provided,
--------
however, that if prior to the Vesting Date, any court of competent
-------
jurisdiction or any governmental or regulatory body with jurisdiction
over the subject hereof shall have issued an order, decree or ruling
or taken any other action, or
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if an action shall have been commenced seeking an order, decree or
ruling, restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby, either the City or JWS, or both,
shall have 30 days from the date of filing of such order, decree or
ruling or the taking of such action, or the commencement of such
action, to have such order, decree or ruling reversed or vacated, or
such action dismissed; or
(c) by either the City or JWS and the Parent, upon written notice
given to the other party in the event of a breach or default in the
performance by such other party of any representation or warranty, or
a material breach of a covenant or agreement contained in this
Agreement, provided that, in the case of a default in the performance
of a covenant or agreement contained in this Agreement, such default
has not been or cannot be cured within 30 days after written notice of
such breach or default has been given by the terminating party to the
breaching party and describing such breach or default in reasonable
detail; or
(d) by either the City, the Parent, or JWS, if any court of
competent jurisdiction or any governmental or regulatory body with
jurisdiction over the subject hereof shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such
order, decree, ruling or other action shall have become final and
nonappealable; or
(e) if, at any time prior to the Vesting Date, any party to
the Nassau Agreement terminates the Nassau Agreement in accordance
with its terms, provided that upon such termination JWS and the Parent
will make all reasonable attempts to secure another buyer ("Other
Buyer") for the Nassau portion of JWS's business on terms reasonably
comparable to those contained in the Nassau Agreement. In such a case,
JWS and the Parent shall proceed with all transactions contemplated
hereby contemporaneously with the sale to the Other Buyer.
6.2 Procedure Upon Termination. In the event of the termination and
--------------------------
abandonment of this Agreement, written notice thereof specifying in sufficient
detail the basis for such termination (including, in respect of any termination
pursuant to Section 6.1(c), reasonably sufficient detail of the breaches of
representation, warranty or covenant) shall promptly be given to the other party
hereto and this Agreement shall
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<PAGE>
terminate and the transactions contemplated hereby shall be abandoned without
further action by any of the parties hereto. Termination of this Agreement shall
not preclude either party from suing the other party for breach of this
Agreement; provided, however, that each of the parties hereto agrees that no
such lawsuit for breach of this Agreement shall be brought against any officer,
director or employee of any of the parties hereto.
6.3 Survival of Certain Provisions. The respective obligations of
------------------------------
the parties hereto pursuant to this Article VI and Sections 4.1(b), 4.8, and 9.2
hereof shall survive any termination of this Agreement.
ARTICLE VII: POST-CLOSING COVENANTS AND TRANSACTIONS
7.1 Access to Books and Records. Following the Closing, the City
---------------------------
will afford to JWS, the Parent, their respective counsel and accountants, during
normal business hours, reasonable access to the books, records and other data
pertaining to the System with respect to the period prior to the Closing Date to
the extent that such access may be reasonably required by JWS or the Parent to
facilitate (a) the preparation by JWS or the Parent of such tax returns as JWS
or the Parent may be required to file with respect to the operations of the
System or the Asset Acquisition or in connection with any audit, amended return,
claim for refund or any proceeding with respect thereto, (b) the investigation,
litigation and final disposition of any claims which may have been or may be
made against JWS, and (c) the payment of any amount pursuant to Section 8.1(b)
or the payment of any liabilities or obligations of JWS (including refunds, if
any, to the former customers of JWS and the settlement of all obligations of JWS
under the PSC Settlement Agreement). The City will not dispose of,
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<PAGE>
alter or destroy any such books, records and other data without giving 30 days'
prior written notice to JWS and the Parent to permit JWS or the Parent, at its
expense, to examine, duplicate, or repossess such records, files, documents and
correspondence, or any portion thereof.
7.2 Dissolution or Merger of JWS. It is agreed and understood
----------------------------
between the parties hereto that after the Closing Date, the Parent and JWS will
have the option to dissolve JWS, or to merge JWS with or into another
corporation, and to discontinue JWS's corporate existence. It is also agreed
and understood that all obligations of JWS hereunder are, whether or not
expressly so stated, joint and several obligations of JWS and the Parent. It is
also agreed and understood that JWS and the Parent will make all payments to
former customers of JWS that are required pursuant to the PSC Settlement
Agreement.
(a) After the Closing Date, the City shall provide notice to JWS or the Parent
in writing within 30 days after its receipt of any correspondence, notice,
or other communication from a taxing authority or any representative
thereof of any pending or threatened tax audits, or any pending or
threatened judicial or administrative proceeding that involves taxes, for
taxable periods for which JWS may have a liability under this Agreement,
including tax accounting changes that may create a future liability, and
furnish JWS or the Parent with copies of all correspondence received from
any taxing authority in connection with any audit or information request
with respect to any such taxable period for which JWS or the Parent may be
liable to pay any taxes under this Agreement.
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<PAGE>
(b) Notwithstanding any provision of this Agreement to the contrary,
with respect to any claim for refund, audit, examination, notice of deficiency
or assessment or any judicial or administrative proceeding that involves taxes
of JWS (other than a tax claim relating solely to taxes for a tax period
subsequent to the Closing Date) (a "Tax Claim"), JWS shall control all
---------
proceedings taken in connection with such Tax Claim. JWS and the City shall
reasonably cooperate in contesting any Tax Claim of any jurisdiction other than
the City, which cooperation shall include, without limitation, the retention and
the provision upon reasonable request of records and information which are
reasonably relevant to such Tax Claim, and making employees available on a
mutually convenient basis to provide additional information or explanation of
any material provided hereunder or to testify at proceedings relating to such
Tax Claim. In no event shall the City settle or otherwise compromise any Tax
Claim without JWS's or the Parent's prior written consent.
(c) JWS shall be entitled to any refunds or credits of taxes
attributable to JWS arising in any tax periods prior to the Closing Date. The
City shall promptly notify and forward to JWS the amounts of any refunds,
credits or benefits due to JWS hereunder within 10 Business Days after receipt
thereof.
(d) All transfer, documentary, sales, use, registration and other such
taxes (including, but not limited to, all applicable real estate transfer or
gains taxes) and fees (including any penalties, interest and addition to such
taxes), if any, incurred in connection with the transactions contemplated
hereby shall be the obligation of JWS and shall be paid at or prior to the
Closing.
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<PAGE>
7.4 Deposits. JWS and Parent agree that they will refund all customer
--------
deposits which JWS is holding or credit such customer deposits against the
corresponding customer accounts within 30 days after the Closing.
ARTICLE VIII: ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES;
INDEMNIFICATION
(a) The City hereby agrees to indemnify and hold, to the extent permitted by
law, JWS, the Parent and their respective directors, officers, employees,
agents and other Affiliates (collectively, the "JWS Indemnified Parties")
-----------------------
harmless against and in respect of all losses, liabilities, damages, costs
and expenses (including costs of suit and reasonable attorneys' fees),
(collectively, "Liabilities"), incurred by any of them on or after the
-----------
Closing Date arising from, in connection with or relating to the following:
(i) the operation of the System and use or ownership of the
Acquired Assets on or after the Closing Date;
(ii) any Liability arising out of a claim for severance by any Offered
Employee with respect to whom an adjustment to the Acquisition Price was made
pursuant to Section 1.3(d), to the extent of the amount of said adjustment with
respect to said Offered Employee; and
(iii) any misrepresentation, breach or inaccuracy of any
representation or warranty or failure to comply with any
agreement, condition or covenant on the part of the City under
this
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<PAGE>
Agreement; provided, however, that as a condition precedent
-----------------
to any indemnification pursuant to this clause (iii), the City
shall have received written notice of a claim from the JWS
Indemnified Party pursuant to Section 8.2 within the applicable
statute of limitations period, or, with respect to Liabilities
relating to any misrepresentation, breach or inaccuracy of any
representation or warranty, within the period specified in
Section 3.3 hereof.
(b) JWS, the Parent and SellCo Corporation, a Delaware corporation
("SellCo") hereby agree, jointly and severally, to indemnify and hold, to the
extent permitted by law, the City, the New York City Water Board, and the New
York City Municipal Water Finance Authority, and their respective directors,
officers, employees, agents and other Affiliates (collectively, the "City
----
Indemnified Parties") harmless against and in respect of all Liabilities (as
- -------------------
defined above) incurred by any of them on or after the Closing Date arising
from, in connection with or relating to the following (it being expressly
understood by the City that the indemnification provisions in this Section
8.1(b) shall not cover Liabilities, if any, that may arise as the result of a
modification by the City in the operation of the System upon the separation of
the Queens portion of the water distribution system from the Nassau portion):
(i) the operation of the System and use or ownership of the
Acquired Assets prior to the Closing Date;
(ii) any liability of JWS;
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<PAGE>
(iii) any misrepresentation, breach or inaccuracy of any
representation or warranty or failure to comply with any
agreement, condition or covenant on the part of JWS or the Parent
under this Agreement; provided, however, that as a condition
-----------------
precedent to any indemnification pursuant to this clause (iii)
JWS, the Parent, or SellCo, as the case may be, shall have
received written notice of a claim from the City Indemnified
Party pursuant to Section 8.2 within the applicable statute of
limitations period, or, with respect to Liabilities relating to
any misrepresentation, breach or inaccuracy of any representation
or warranty, within the period specified in Section 3.3 hereof;
or
(iv) any Environmental Liabilities relating to the Business or the
Acquired Assets, except for those disclosed on Schedule 3.1(i)(1) and (2)
that did not result from acts or omissions of JWS or the Parent;
provided, however, that JWS, the Parent and SellCo shall only be
- -------- -------
obligated to indemnify, defend and hold the City Indemnified Parties harmless
for Liabilities arising pursuant to this Section 8.1(b) in the event and to the
extent that all such Liabilities for which indemnification may be sought
hereunder shall exceed 0.65 of 1% of the aggregate amounts payable pursuant to
Sections 1.3(a) and (b), prior to any adjustment.
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<PAGE>
(c) All Liabilities referred to in the foregoing paragraphs (a) and
(b) are collectively referred to as "Indemnified Liabilities" and "Indemnified
----------------------- -----------
Party" shall mean either a JWS Indemnified Party or a City Indemnified Party.
- -----
8.2 Procedure. If any claim or demand by any Person is made against
---------
an Indemnified Party, and if such Indemnified Party intends to seek indemnity
with respect thereto under this Article VI, such Indemnified Party shall notify
the indemnifying party in writing of such claim or demand, provided that the
failure to notify the indemnifying party shall not relieve the indemnifying
party from any liability which it may have hereunder unless it is actually
prejudiced thereby. The indemnifying party shall have 30 days after receipt of
such notice to undertake, conduct and control, through counsel of its own
choosing and at its own expense, the settlement or defense thereof, and the
Indemnified Party shall cooperate with the indemnifying party in connection
therewith; provided that the Indemnified Party may participate at its own
--------
expense in such settlement or defense through counsel chosen by such Indemnified
Party. So long as the indemnifying party is reasonably contesting any such
claim in good faith, the Indemnified Party shall not pay or settle any such
claim. Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay or settle any such claim; provided that in such event it shall
--------
waive any right to indemnity therefor by the indemnifying party. If the
indemnifying party does not notify the Indemnified Party within 30 days after
the receipt of the Indemnified Party's notice of a claim of indemnity hereunder
that it elects to undertake the defense thereof, the Indemnified Party shall
have the right to contest, settle or compromise the claim in its
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<PAGE>
sole discretion and shall not thereby waive any right to indemnity therefor
pursuant to this Agreement. The indemnifying party shall not, except with the
consent of the Indemnified Party, enter into any settlement that does not
include as an unconditional term thereof the giving by the Person or Persons
asserting such claim to all Indemnified Parties an unconditional release from
all liability with respect to such claim or consent to entry of any judgment.
Notwithstanding the foregoing, following the Closing, each Indemnified Party
will afford to the indemnifying party and its counsel, accountants and other
authorized representatives reasonable access during normal business hours to
relevant properties, books and records (and permit the indemnifying party and
its counsel, accountants and other authorized representatives to make copies of
such books and records at their own expense), to the extent that such access may
be reasonably required to facilitate the investigation, litigation and final
disposition of any claim which may have been or may be made against any
Indemnified Party relating to the System, the Acquired Assets or any of the
transactions contemplated by this Agreement. The City Indemnified Parties shall
hold any such confidential information in confidence on the same terms and
subject to the same conditions as set forth in Section 4.1(b) hereof, and the
JWS Indemnified Parties shall hold any such confidential information in
confidence on the same terms and subject to the same conditions applicable to
the City in Section 4.1(b) hereof.
8.3 Payment. On each occasion that an Indemnified Party shall be
-------
entitled to indemnification or reimbursement under this Article VI, the
indemnifying party shall, at each such time, promptly pay the amount of such
indemnification or
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reimbursement. If the Indemnified Party shall be entitled to indemnification
under this Article VI and the indemnifying party shall not elect to control any
legal proceeding in connection therewith, the indemnifying party shall pay upon
request from time to time to the Indemnified Party an amount equal to the
Indemnified Party's costs and expenses arising as a result of such proceeding
which have not been previously reimbursed.
ARTICLE IX: MISCELLANEOUS
(a) As used in this Agreement, the term "Affiliate" when used with respect to
---------
another Person shall mean any Person controlling, controlled by or under
common control with such Person.
(b) As used in this Agreement, the term "Business Day" means any day
------------
that is not a Saturday, Sunday or other day on which banks are required or
authorized by law to be closed in New York, New York.
(c) As used in this Agreement, the term "Contracts" means all
---------
agreements, contracts, leases, purchase orders, arrangements, commitments and
licenses that are related to the System or to which the Acquired Assets are
subject.
(d) As used in this Agreement, the term "Person" means and includes
------
any natural person, corporation, limited liability company, partnership, limited
partnership, firm, joint venture, association, joint-stock company, trust,
business trust, unincorporated organization, governmental or regulatory body, or
other entity of whatever nature.
9.2 Fees and Expenses. (a) Whether or not the transactions
-----------------
contemplated hereby are consummated, each of the parties hereto shall pay its
own
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<PAGE>
fees and expenses incident to the negotiation, preparation and execution of
this Agreement, including attorneys', accounts' and other advisors' fees and the
fees and expenses of any broker, finder or agent retained by such party in
connection with the transactions contemplated by this Agreement.
(b) The parties respectively represent and warrant to each other that
they have not employed or utilized the services of any broker, finder or
investment banker in connection with this Agreement or the transactions
contemplated by it, other than, in the case of JWS and the Parent, Bear, Stearns
& Co. Inc. ("Bear Stearns"), and in the case of the City, PaineWebber
Incorporated ("PaineWebber"), Peter Kind, and Andrew Collens. Attached as
Schedule 9.2(b) is the acknowledgment of Bear Stearns relating to the City's
non-responsibility for any fees of Bear Stearns in connection with this
Agreement or the transactions contemplated hereunder, and the acknowledgments of
PaineWebber, Peter Kind, and Andrew Collens relating to JWS's and the Parent's
non-responsibility for any fees of PaineWebber, Peter Kind, or Andrew Collens in
connection with this Agreement or the transactions contemplated hereunder.
9.3 Notices. All notices, requests, demands, waivers and other
-------
communications required or permitted to be given under this Agreement shall be
in writing delivered by hand, telex, facsimile or registered letter with return
receipt requested and shall be deemed to have been duly given or made when
delivered by hand, or, in the case of telex notice, when sent, answerback
received, or, in the case of facsimile note or registered letter, when received
by the addressee, addressed as follows:
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<PAGE>
(a) if to JWS, to it at:
Jamaica Water Supply Company
410 Lakeville Rd.
Lake Success, NY11042
Attention: Edward J. Haye
Vice President, Corporate Secretary, and
General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue, 28th Floor
New York, New York 10017-3909
Attention: Vincent Pagano, Jr., Esq.
(b) if to the Parent or to SellCo, to them at:
EMCOR Group, Inc.
101 Merritt Seven, 7th Floor
Norwalk, CT 06851
Attention: Sheldon I. Cammaker
Executive Vice President and
General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue, 28th Floor
New York, New York 10017-3909
Attention: Vincent Pagano, Jr., Esq.
(c) if to the City, to it at:
Department of Environmental Protection
59-17 Junction Boulevard
Corona, NY 11368
Attention: Steven F. Ostrega, Deputy Commissioner
New York City Municipal Water Finance Authority
75 Park Place, 6th Floor
New York, NY 10007
Attention: Mark Page, Executive Director
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<PAGE>
with a copy to:
New York City Law Department
100 Church Street
New York, NY 10007
Attention: Mary Richman, Assistant Corporation Counsel
or to such other persons or addresses as any party shall specify as to
itself by notice in writing to the other parties.
9.4 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
9.5 Entire Agreement. This Agreement (including the Schedules
----------------
hereto) constitutes the entire agreement between the parties hereto and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
9.6 Binding Effect; Benefit. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any Person
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<PAGE>
other than the parties hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.7 Assignability. This Agreement shall not be assigned by any
-------------
of the parties hereto without the prior written consent of the other parties.
9.8 Amendment and Modification; Waiver. This Agreement may not
----------------------------------
be amended, modified and supplemented except by a written instrument authorized
and executed on behalf of the parties at any time prior to the Closing Date with
respect to any of the terms contained herein. No waiver by any party of any of
the provisions hereof shall be effective unless explicitly set forth in writing
and executed by the party so waiving. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or agreements contained herein, and in
any documents delivered or to be delivered pursuant to this Agreement and in
connection with the Closing hereunder. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any other or subsequent breach.
9.9 Public Announcements. Unless otherwise required by law or
--------------------
any regulation or rule binding upon JWS or the Parent or the City, prior to the
Closing, no news release or other public announcement pertaining to the
transactions contemplated by this Agreement will be made by or on behalf of any
party hereto without the prior written approval of the other parties (such
consent not to be
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<PAGE>
unreasonably withheld or delayed). Where any announcement, communication or
circular concerning the transactions referred to in this Agreement is required
by law or any regulation or rule it shall be made by the relevant party after
consultation, where reasonably practicable, with the other parties and taking
into account the reasonable requirements (as to timing, contents and manner of
making or dispatch of the announcement, communication or circular) of the other
parties.
9.10 Section Headings. The section headings contained in this
----------------
Agreement are inserted for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
9.11 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
9.12 Jurisdiction. Each of the parties hereto irrevocably and
------------
unconditionally consents to the exclusive jurisdiction of the courts of the
State of New York and the United States District Courts located in the City and
State of New York for any actions, claims or other proceedings arising out of or
related to this Agreement, consents to service of process of such courts and
agrees not to commence any such action, claim or other proceeding except in such
courts.
9.13 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS
-------------
BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY AND
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<PAGE>
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES THEREOF.
-59-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
JAMAICA WATER SUPPLY COMPANY
By: /s/ Frank T. MacInnis
----------------------
Name: Frank T. MacInnis
Title: Chairman of the Board
EMCOR GROUP, INC.
By: /s/ Frank T. MacInnis
---------------------
Name: Frank T. MacInnis
Title: Chairman of the Board
THE CITY OF NEW YORK
By: /s/ Peter J. Powers
-------------------
Name: Peter J. Powers
Title: First Deputy Mayor
For purposes of Article VIII:
SELLCO CORPORATION
By: /s/ Frank T. MacInnis
---------------------
Name: Frank T. MacInnis
Title: Chairman of the Board
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<PAGE>
EXHIBIT 2(H)
------------
ASSET ACQUISITION AGREEMENT
between
WATER AUTHORITY OF WESTERN NASSAU COUNTY,
JAMAICA WATER SUPPLY COMPANY
and
EMCOR GROUP, INC.
Dated as of February 9, 1996
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I: ACQUISITION...................................................... 2
1.1 Acquisition............................................................ 2
1.2 Excluded Assets........................................................ 3
1.3 Acquisition Price; Lease Repayment Amount; Adjustments................. 3
1.4 Excluded Liabilities................................................... 16
1.5 Assignment of Contracts and Rights..................................... 17
1.6 Apportionment of Expenses.............................................. 18
ARTICLE II: CLOSING......................................................... 19
2.1 The Closing............................................................ 19
2.2 Deliveries by the Water Authority...................................... 20
2.3 Deliveries by JWS...................................................... 21
2.4 Additional Transactions At or Following the Closing.................... 21
2.5 Allocation of the Acquisition Price.................................... 22
ARTICLE III: REPRESENTATIONS AND WARRANTIES................................. 22
3.1. Representations and Warranties of JWS and the Parent................... 22
(a) Due Organization.................................................. 22
(b) Authorization and Validity of Agreement........................... 23
(c) No Conflict; Consents............................................. 24
(d) Title to Acquired Assets; Liens and Encumbrances.................. 25
(e) Agreements and Contracts.......................................... 26
(f) Legal Proceedings................................................. 26
(g) Government Licenses, Permits and Related Approvals................ 27
(h) Conduct of the Nassau System in Compliance with Regulatory
Requirements ................................................. 27
(i) Environmental Matters............................................. 28
(j) Financial Statements.............................................. 29
(k) Absence of Certain Liabilities and Changes........................ 29
3.2 Representations and Warranties of the Water Authority.................. 31
(a) Due Organization and Power of the Water Authority................. 31
(b) Authorization and Validity of Agreement........................... 32
(c) No Conflict; Consents............................................. 33
(d) Disclosure........................................................ 34
(e) Financing......................................................... 34
3.3 Survival of Representations and Warranties............................. 35
3.4 Schedules.............................................................. 35
3.5 No Implied Representation.............................................. 35
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV: COVENANTS AND TRANSACTIONS PRIOR TO
CLOSING......................................................... 36
4.1 Access to Information Concerning Properties and Records; Confidentiality 36
4.2 Conduct of the Nassau System Prior to the Closing Date................. 37
4.3 Shareholders' Meeting; Approval........................................ 39
4.4 Cooperation............................................................ 39
4.5 PSC Approval........................................................... 40
4.6 DEC Approval........................................................... 41
4.7 Condemnation Proceeding................................................ 41
4.8 Non-Solicitation....................................................... 44
4.9 Business Plan.......................................................... 45
4.1 Retained Employees..................................................... 46
4.1 Compliance with WARN................................................... 46
4.1 Bond Issuance.......................................................... 46
4.1 JWS Capital Budget..................................................... 47
4.1 Customer Deposits...................................................... 47
4.1 Sublease Option........................................................ 47
4.1 Further Actions........................................................ 48
4.1 City Agreement......................................................... 48
ARTICLE V: CONDITIONS PRECEDENT............................................. 49
5.1 Conditions Precedent to Obligations of the Parties..................... 49
(a) No Injunction..................................................... 49
(b) Regulatory Approvals.............................................. 49
(c) Condemnation Proceeding........................................... 49
5.2 Conditions Precedent to Obligation of the Water Authority.............. 50
(a) Accuracy of Representations and Warranties........................ 50
(b) Performance of Agreement.......................................... 50
(c) Certificate....................................................... 50
(d) Bond Authorization and Sale....................................... 50
(e) Cooperation Agreement............................................. 51
(f) Burdensome Condition.............................................. 51
(g) No Action Pending................................................. 51
5.3 Conditions Precedent to the Obligation of JWS and the Parent........... 51
(a) Accuracy of Representations and Warranties........................ 51
(b) Performance of Agreement.......................................... 51
(c) Certificate....................................................... 52
(d) Shareholder Approval.............................................. 52
(e) Burdensome Condition.............................................. 52
(f) No Action Pending................................................. 52
(g) Performance of City Agreement..................................... 52
ARTICLE VI: TERMINATION AND ABANDONMENT..................................... 52
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
6.1 General................................................................. 52
6.2 Procedure Upon Termination.............................................. 54
6.3 Survival of Certain Provisions.......................................... 55
ARTICLE VII: POST-CLOSING COVENANTS
AND TRANSACTIONS.............................................. 55
7.1 Access to Books and Records............................................. 55
7.2 Collection of Accounts Receivable....................................... 56
7.3 Dissolution or Merger of JWS............................................ 59
7.4 Certain Tax Matters..................................................... 59
ARTICLE VIII: ASSUMPTION OF CERTAIN OBLIGATIONS
AND LIABILITIES; INDEMNIFICATION.............................. 62
8.1 Assumption and Indemnification.......................................... 62
8.2 Procedure............................................................... 65
8.3 Payment................................................................. 66
ARTICLE IX: MISCELLANEOUS................................................... 67
9.1 Certain Definitions..................................................... 67
9.2 Fees and Expenses....................................................... 68
9.3 Notices................................................................. 69
9.4 Severability............................................................ 70
9.5 Entire Agreement........................................................ 70
9.6 Binding Effect; Benefit................................................. 71
9.7 Assignability........................................................... 71
9.8 Amendment and Modification; Waiver...................................... 71
9.9 Public Announcements.................................................... 72
9.1 Section Headings........................................................ 72
9.1 Counterparts............................................................ 72
9.1 Jurisdiction............................................................ 73
9.1 GOVERNING LAW........................................................... 73
</TABLE>
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<PAGE>
ASSET ACQUISITION AGREEMENT, dated as of February __, 1996 (this
"Agreement"), between Jamaica Water Supply Company, a New York corporation
---------
("JWS"), EMCOR Group, Inc., a Delaware corporation (the "Parent"), and the Water
--- ------
Authority of Western Nassau County, a public authority of the State of New York
(the "Water Authority").
---------------
WHEREAS, JWS is engaged in, among other things, the business of
providing for the residential and commercial distribution of water to service
areas in parts of western Nassau County, New York (the "Business") through the
--------
operation and maintenance of a water distribution system similarly located in
parts of western Nassau County, New York (hereinafter referred to as the "Nassau
------
System"); and
- ------
WHEREAS, JWS desires to dispose of and the Water Authority desires to
acquire certain of the assets related to the Nassau System, all as more fully
set forth herein, on the terms and subject to the conditions set forth herein;
and
WHEREAS, as a condition and inducement to its willingness to enter
into this Agreement and to consummate the transactions contemplated hereby, the
Water Authority has required that JWS and the Parent agree to join in certain
representations, warranties and indemnities as hereinafter set forth;
<PAGE>
2
WHEREAS, it is the desire of the parties hereto that the Closing (as
defined in Section 2.1 of the transactions contemplated by this Agreement shall
occur simultaneously with the closing of the transactions contemplated under the
Asset Acquisition Agreement, dated January __, 1996 (the "City Agreement"),
--------------
between JWS, the Parent and The City of New York (the "City");
----
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
I ACQUISITION
1. Acquisition. On the terms and subject to the conditions of this
-----------
Agreement, JWS consents to the acquisition by condemnation, and
the Water Authority agrees to acquire by condemnation, all of
JWS's right, title and interest in and to the assets of JWS
described on Schedule A hereto, and subject to the terms of
Schedule A, relating to the Nassau System, or used in
connection with the Business (the "Acquired Assets"), except
---------------
as otherwise provided herein, free and clear of any mortgage,
pledge, security interest, encumbrance, lien, claim or charge of
any kind ("Lien") (the acquisition of the Acquired Assets being
----
referred to herein
<PAGE>
3
as the "Asset Acquisition"); provided, that the Acquired Assets
----------------- --------
shall not be free and clear of any Permitted Exceptions (as
defined in Section 3.1(d)); and provided, further, that the
--------
Acquired Assets shall not include the assets described in
-------
Section 1.2. Schedule A may be amended from time to time
pursuant to agreement between the Water Authority and the City
to shift Acquired Assets from one acquiring public entity to the
other; provided that neither JWS nor the Parent shall be
responsible for any shift in Acquired Assets pursuant to such
agreement between the Water Authority and the City; and provided
--------
further, that the Acquisition Price shall under no circumstances
be adjusted as a result of such shift of Assets.
2. Excluded Assets. It is expressly understood and agreed that
---------------
Acquired Assets shall not the include the following:
(a) Cash and cash equivalents (including money on deposit in banks and
other institutions) or similar type investments, such as certificates of
deposit, Treasury bills and other marketable securities, and commercial paper,
stocks, bonds and similar investments received by JWS prior to the Closing Date
(as defined in Section 5.1(c));
(b) Accounts receivable of JWS and accrued revenues of JWS on or prior
to the close of business on the Closing Date (as defined in Section 2.1)
(collectively, the "Accounts Receivable"); and
-------------------
<PAGE>
4
(c) the assets of JWS listed on Schedule B hereto.
2. Acquisition Price; Lease Repayment Amount; Adjustments". (a) In
------------------------------------------------------
consideration of the transfer and acquisition of the Acquired Assets
hereunder, the Water Authority shall pay to JWS in the manner set forth
in Section 2.2 the amount of $23,230,000 (the "Acquisition Price"),
-----------------
subject to adjustment as provided in Sections 1.3(b)(i) and (c) and
Section 1.3(d)) (with respect to the purchase of all equipment under the
Master Equipment Lease Agreement, dated August 6, 1982 (the
"Wheelabrator Lease"), between JWS and Wheelabrator Financial
------------------
Corporation (a copy of which is attached hereto as Exhibit B-1) and the
Master Lease Agreement, dated April 6, 1988 (the "Center Capital
--------------
Lease"), between JWS and Center Capital Corporation (a copy of which is
-----
attached hereto as Exhibit B-2) (the Wheelabrator Lease and the Center
Capital Lease hereinafter referred to together as the "Meter Leases").
------------
(a) (i) JWS shall, as soon as practicable following 1995 fiscal year
end and prior to the Closing Date, cause to be prepared, and deliver to the
Water Authority, a statement (the "December 31, 1995 Statement") setting forth,
---------------------------
as of December 31, 1995, the calculation of (x) the book value (net of
accumulated depreciation and amortization) of the net utility plant of the
Nassau System plus (y) 19.48% of the total value of materials and supplies of
JWS (the sum of the amounts in clauses (x) and (y) referred to as the "Book
----
Value"). The December 31, 1995
- -----
<PAGE>
5
Statement shall be prepared in accordance with generally accepted accounting
principles and on the same basis as the calculations thereof which are attached
hereto as Exhibit A, and the figures included in the December 31, 1995 Statement
shall be derived from the audited financial statements of JWS as of and for the
year ended December 31, 1995. Immediately prior to the Closing, JWS shall cause
to be prepared, and deliver to the Water Authority, a statement (the
"Preliminary Statement") setting forth the Book Value as of the close of
---------------------
business of JWS on the Business Day (as defined in Section 9.1) immediately
preceding the Closing Date. The Preliminary Statement shall be prepared in
accordance with generally accepted accounting principles and on the same basis
as the calculations thereof which are attached hereto as Exhibit A and the
calculations thereof which are included in the December 31, 1995 Statement. At
the Closing, JWS shall cause to be delivered to the Water Authority an opinion
of Arthur Anderson LLP stating that the allocations of the net utility plant of
JWS to Queens County and to the Nassau System (i) as of December 31, 1995, which
appear on the December 31, 1995 Statement, and (ii) as of the close of business
of JWS on the Business Day immediately preceding the Closing Date, which appear
on the Preliminary Statement, were arrived at using a methodology consistent
with JWS's past practice of arriving at such allocations for cost of service
studies with the New York Public Service Commission (the "PSC") since June,
---
1996. Immediately prior to the Closing, JWS shall also cause to be prepared
and
<PAGE>
6
delivered to the Water Authority a statement (the "Net Change Statement")
--------------------
setting forth the calculation of the Book Value as shown on the Preliminary
Statement minus the Book Value as shown on the December 31, 1995 Statement (such
sum referred to hereinafter as the "Net Change"). If the Net Change as shown on
----------
the Net Change Statement is a positive number, then the Acquisition Price
payable on the Closing Date shall be increased by such amount. If the Net Change
as shown on the Net Change Statement is a negative number, then the Acquisition
Price shall be reduced by such amount. At the Closing, the Water Authority shall
deliver to the Escrow Agent (as defined below) an amount of the Acquisition
Price equal to $160,000 plus an amount equivalent to the aggregate amount of
JWS's increase in rates attributable to customers of JWS located in Nassau
County (the "Rate Increase") for the period of January 1, 1996 through the
-------------
Closing Date (the "Escrowed Sum"), which sum shall be applied to any reductions
------------
in the Acquisition Price resulting from application of this Section 1.3(b) or
Section 1.3(c), or to refund amounts payable to customers of JWS pursuant to
rate adjustments by the PSC, as described in Section 1.3(b)(v). If the
Acquisition Price is not reduced in accordance with this Section 1.3(b) or
Section 1.3(c), or is reduced in an amount less than the Escrowed Sum, the
balance of the Escrowed Sum after deduction of all reductions and all amounts
owing pursuant to Section 1.3(b)(v) shall be paid to JWS, in addition to the
amount owed to JWS, if any, as a result of an increase in the Acquisition Price
pursuant to this
<PAGE>
7
Section 1.3(b), at the time set for payment pursuant to Section 1.3(b)(iv). On
or prior to the Closing, the parties hereto shall have entered into an escrow
agreement (the "Escrow Agreement") with a mutually acceptable third party (the
----------------
"Escrow Agent") substantially in the form attached hereto as Exhibit C.
------------
(i) Within 35 days after the Closing Date, or as soon as practicable
thereafter, JWS shall cause to be prepared and delivered to the Water Authority
a statement, together with copies of supporting workpapers (the "Statement"),
---------
setting forth the Book Value as of the close of business of JWS on the Business
Day immediately preceding the Closing Date. The Statement shall be prepared in
accordance with generally accepted accounting principles and on the same basis
as the calculations thereof which are attached hereto as Exhibit A and the
calculations thereof which are included in the December 31, 1995 Statement. At
the same time, JWS shall also cause to be prepared and delivered to the Water
Authority a statement, together with copies of supporting workpapers (the
"Adjustment Statement"), setting forth the calculation of the difference between
--------------------
the Book Value as shown on the Statement minus the Book Value as shown on the
Preliminary Statement (such sum referred to hereinafter as the "Adjustment
----------
Amount"). The Statement and the Adjustment Statement shall be prepared in
- ------
consultation with the Water Authority. The Water Authority shall provide JWS
with access to the relevant books and records to the extent required to prepare
the Statement and the Adjustment Statement.
<PAGE>
8
(ii) After receipt of the Statement and the Adjustment Statement, the Water
Authority will have 14 days to review such statements together with the
workpapers used in their preparation. Unless the Water Authority delivers
written notice to JWS on or prior to the fourteenth day after its receipt of the
Statement and the Adjustment Statement, the Water Authority will be deemed to
have accepted and agreed to the Statement and the Adjustment Statement and such
agreement will be final and binding. If the Water Authority so notifies JWS of
its objections to either the Statement or the Adjustment Statement, the Water
Authority and JWS will, within fourteen days following the notice (the
"Resolution Period"), attempt to resolve their differences. Any resolution by
- ------------------
the Water Authority and JWS during the Resolution Period as to any disputed
amounts will be final, binding and conclusive. If the Water Authority and JWS
do not resolve all disputed items by the end of the Resolution Period, then all
items remaining in dispute will be submitted within fourteen days after the
expiration of the Resolution Period to an independent accounting firm of
national reputation mutually acceptable to the parties hereto (the "Neutral
-------
Auditor"). If within such fourteen-day period referred to in the previous
- -------
sentence, the Water Authority and JWS are unable to agree on the Neutral
Auditor, then the Water Authority and JWS will each immediately request the
American Arbitration Association to appoint the Neutral Auditor. All fees and
expenses relating to the work, if any, to be performed by the
<PAGE>
9
Neutral Auditor will be borne equally by the Water Authority and JWS. The
Neutral Auditor will deliver to the parties hereto a written determination (such
determination to include a work sheet setting forth all material calculations
used in arriving at such determination and to be based solely on information
provided to the Neutral Auditor by JWS and the Water Authority) of the disputed
items within 30 days of receipt of the disputed items, which determination will
be final, binding and conclusive. The final, binding and conclusive Statement
and Adjustment Statement, which either are agreed upon by the parties hereto or
are delivered by the Neutral Auditor in accordance with this Section 1.3(b)(i)
will be the "Conclusive Statement" and the "Conclusive Adjustment Statement,"
-------------------- -------------------------------
respectively.
(iii) If the Adjustment Amount as shown on the Conclusive Adjustment
Statement is a negative number, then the Acquisition Price will be reduced by
such amount, and the Escrow Agent shall be authorized, pursuant to the Escrow
Agreement, to pay (x) to the Water Authority from the Escrowed Sum an amount in
cash equal to such Adjustment Amount, plus interest accrued thereon in
accordance with the Escrow Agreement and (y) to JWS the balance of the Escrowed
Sum as determined in accordance with Section 1.3(b)(i), if any, plus accrued
interest in accordance with the Escrow Agreement. If the Adjustment Amount is a
negative number, the absolute value of which exceeds the amount held by the
Escrow Agent, then the entire Escrowed Sum, plus interest accrued thereon in
accordance with the Escrow Agreement,
<PAGE>
10
shall be delivered to the Water Authority, and JWS or the Parent will pay to the
Water Authority the excess amount. If the Adjustment Amount as shown on the
Conclusive Adjustment Statement is a positive number, then the Acquisition Price
will be increased by such amount, and the Water Authority shall pay to JWS an
amount in cash equal to such Adjustment Amount, and the Escrow Agent shall be
authorized, pursuant to the Escrow Agreement, to pay to JWS the balance of the
Escrowed Sum as determined in accordance with Section 1.3(b)(i), if any, plus
accrued interest in accordance with the Escrow Agreement. All payments to be
made pursuant to this Section 1.3(b)(iv) will be made on the second Business Day
following the date on which the parties agree to, or the Neutral Auditor
delivers, the Conclusive Statement and the Conclusive Adjustment Statement. Any
payment required to be made by JWS or the Water Authority (other than payments
from the Escrowed Sum) pursuant to this Section 1.3(b)(iv) shall bear interest
from and including the Closing Date through the date of payment at a rate of
6.0% per annum, and shall be payable by wire transfer of immediately available
funds to an account or accounts designated by the party entitled to receive such
funds prior to the date when such payment is due.
(v) If the PSC shall determine that the customers of JWS residing in
Nassau County have overpaid JWS by reason of the Rate Increase, then the balance
of the Escrowed Sum, to the extent available, shall be applied to refund such
overpayments, it being understood that funds shall be released
<PAGE>
11
from the Escrow Account from time to time in order to permit JWS to make refund
payments to customers located in Nassau County at such times as are required by
order of the PSC. Then, after all amounts determined to be owing by JWS to
customers of JWS residing in Nassau County by reason of such PSC order have been
paid, the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to
pay to JWS the remaining balance held by the Escrow Agent (plus interest accrued
thereon in accordance with the Escrow Agreement). If the amount held by the
Escrow Agent is insufficient to pay such amounts, JWS and/or the Parent shall
make all additional payments required by the PSC.
<PAGE>
12
(b) (i) JWS shall, prior to the Closing, cause to be prepared, and on the
Closing Date deliver to the Water Authority, a statement (the "Preliminary
-----------
Reduction Statement") setting forth the calculation of the sum of (i) the amount
- -------------------
of statutory interest accrued in accordance with Section 2.2(a), plus (ii) the
total amount of all severance payments that JWS would have otherwise been
obligated to pay, as determined by JWS, (A) to its nonbargaining unit employees
pursuant to its severance policy to be adopted after the date hereof and (B) to
its bargaining unit employees pursuant to the effects bargaining agreement (the
"Effects Bargaining Agreement") to be entered into between JWS and the Utility
----------------------------
Workers Union of America AFL-CIO, Local 374 (the Union") in connection with the
-----
Asset Acquisition, each as of the Closing Date, but for the fact that such
employees (such employees hereinafter referred to as "Offered Employees") were
-----------------
offered employment, to commence on and after the Closing Date, by either the
Water Authority or a third-party under contract with the Water Authority to
operate the Nassau System (a "Third-party Contractor"), as determined as of the
----------------------
close of business of JWS on the Business Day immediately preceding the Closing
Date (such sum referred to hereinafter as the "Reduction Amount"). In any case
----------------
where an Offered Employee has been offered employment by either the Water
Authority or a Third-party Contractor, on the one hand, and the City, on the
other hand, and either such offer independently would result in JWS's not being
obligated to make severance payments to the Offered Employee, then the
Preliminary
<PAGE>
13
Reduction Statement and the Reduction Statement shall give effect to
the severance payments so avoided only if the Offered Employee accepts such
offer and is employed by the Water Authority or the Third-Party Contractor on
and after the Closing Date, unless the Offered Employee accepts neither the
------
offer of employment by the Water Authority or a Third-party Contractor, on the
one hand, or the City, on the other hand, in which event the Preliminary
Reduction Statement and the Reduction Statement shall give effect to 50% of the
severance payments so avoided. The Acquisition Price payable on the Closing
Date shall be reduced by the Reduction Amount as calculated on the Preliminary
Reduction Statement.
(i) Within 35 days after the Closing, JWS shall cause to be prepared and
delivered to the Water Authority a statement (the "Reduction Statement") setting
-------------------
forth the calculation of the Reduction Amount, as of the close of business of
JWS on the Business Day immediately preceding the Closing Date. At the same
time, JWS shall also cause to be prepared and delivered to the Water Authority a
statement (the "Net Reduction Statement") setting forth the calculation of the
-----------------------
difference between the Reduction Amount as shown on the Reduction Statement
minus the Reduction Amount as show on the Preliminary Reduction Statement (such
sum referred to hereinafter as the "Net Reduction Amount"). The Reduction
--------------------
Statement and the Net Reduction Statement shall be prepared in consultation with
the Water Authority. The Water Authority shall provide JWS with access to
<PAGE>
14
the relevant books and records to the extent required to prepare the Reduction
Statement and the Net Reduction Statement.
(ii) After receipt of the Reduction Statement and the Net Reduction
Statement, the Water Authority will have 14 days to review such statements
together with the workpapers used in their preparation. Unless the Water
Authority delivers written notice to JWS on or prior to the fourteenth day after
its receipt of the Reduction Statement and the Net Reduction Statement, the
Water Authority will be deemed to have accepted and agreed to the Reduction
Statement and the Net Reduction Statement and such agreement will be final and
binding. If the Water Authority so notifies JWS of its objections to either the
Reduction Statement or the Net Reduction Statement, the Water Authority and JWS
will, within fourteen days following the notice (the "Reduction Resolution
--------------------
Period"), attempt to resolve their differences. Any resolution by the Water
- ------
Authority and JWS during the Reduction Resolution Period as to any disputed
amounts will be final, binding and conclusive. If the Water Authority and JWS
do not resolve all disputed items by the end of the Reduction Resolution Period,
then all items remaining in dispute will be submitted within fourteen days after
the expiration of the Reduction Resolution Period to the Neutral Auditor. If
within such fourteen-day period referred to in the previous sentence, the Water
Authority and JWS are unable to agree on the Neutral Auditor, then the Water
Authority and JWS will each immediately request the American Arbitration
Association to
<PAGE>
15
appoint the Neutral Auditor. All fees and expenses relating to the work, if any,
to be performed by the Neutral Auditor will be borne equally by the Water
Authority and JWS. The Neutral Auditor will deliver to the parties hereto a
written determination (such determination to include a work sheet setting forth
all material calculations used in arriving at such determination and to be based
solely on information provided to the Neutral Auditor by JWS and the Water
Authority) of the disputed items within 30 days of receipt of the disputed
items, which determination will be final, binding and conclusive. The final,
binding and conclusive Reduction Statement and Net Reduction Statement, which
either are agreed upon by the parties hereto or are delivered by the Neutral
Auditor in accordance with this Section 1.3(c), will be the "Conclusive
----------
Reduction Statement" and the "Conclusive Net Reduction Statement," respectively.
- ------------------- ----------------------------------
(iii) If the Net Reduction Amount as shown on the Conclusive Net Reduction
Statement is a positive number, then the Acquisition Price will be reduced by
such amount, and the Escrow Agent shall be authorized, pursuant to the Escrow
Agreement, to pay (x) to the Water Authority from the Escrowed Sum an amount in
cash equal to such Net Reduction Amount, plus interest accrued thereon in
accordance with the Escrow Agreement and (y) to JWS the balance of the Escrowed
Sum as determined in accordance with Section 1.3(b)(i), if any, plus accrued
interest thereon in accordance with the Escrow Agreement. If the Net Reduction
Amount as shown on the Conclusive Net Reduction Statement is a
<PAGE>
16
positive number that exceeds the amount held by the Escrow Agent, then the
entire Escrowed Sum plus interest accrued thereon in accordance with the Escrow
Agreement shall be delivered to the Water Authority, and JWS or the Parent will
pay to the Water Authority the excess amount. If the Net Reduction Amount as
shown on the Conclusive Net Reduction Statement is a negative number, then the
Acquisition Price will be increased by the absolute value of such amount, and
the Water Authority shall pay to JWS an amount in cash equal to the absolute
value of the Net Reduction Amount as shown on the Conclusive Net Reduction
Statement, and the Escrow Agent shall be authorized, pursuant to the Escrow
Agreement, to pay to JWS the balance of the Escrowed Sum as determined in
accordance with Section 1.3(b)(i), if any, plus accrued interest thereon in
accordance with the Escrow Agreement. All payments to be made pursuant to this
Section 1.3(c)(iv) will be made on the second Business Day following the date on
which the Water Authority and JWS agree to, or the Neutral Auditor delivers, the
Conclusive Reduction Statement and the Conclusive Net Reduction Statement. Any
payment required to be made by JWS or the Water Authority (other than from the
Escrowed Sum) pursuant to this Section 1.3(c)(iv) shall bear interest from and
including the Closing Date through the date of payment at a rate of 6.0% per
annum, and shall be payable by wire transfer of immediately available funds to
an account or accounts designated by the party entitled to receive such funds
prior to the date when such payment is due.
<PAGE>
17
(c) JWS shall, immediately prior to the Closing, cause to be prepared, and
on the Closing Date deliver to the Water Authority, a statement (the
"Preliminary Lease Repurchase Statement") setting forth an allocation of
- ---------------------------------------
original capital cost and remaining principal balance with respect to water
meters located in Nassau County subject to the Wheelabrator Lease (a copy of
which is attached hereto as Exhibit B-1) and the Center Capital Lease (a copy of
which is attached hereto as Exhibit B-2) consistent with the analysis prepared
by JWS and annexed hereto as Exhibit B-3, determined as of the close of business
of JWS on the Business Day immediately preceding the Closing Date (such sum
referred to hereinafter as the "Lease Repurchase Amount"). The Preliminary
-----------------------
Lease Repurchase Statement shall be prepared by JWS. The amount of the Lease
Repurchase Amount attributable to the equipment under the Wheelabrator Lease
shall be determined in accordance with the terms set forth in clause 4 of the
Second Addendum to the Wheelabrator Lease providing for JWS's option to purchase
the equipment under the Wheelabrator Lease for a purchase price in the amount of
102% of the principal outstanding under the Wheelabrator Lease, and the amount
of the Lease Repurchase Amount attributable to the equipment under the Center
Capital Lease shall be determined in accordance with the terms set forth in
clause 5 of the Addendum to the Center Capital Lease providing for JWS's option
to purchase the equipment under the Center Capital Lease for a purchase price in
the amount of 102.5% of the principal outstanding under the Center Capital
Lease. The
<PAGE>
18
Acquisition Price payable on the Closing Date shall be increased by the Lease
Repurchase Amount as shown on the Preliminary Lease Repurchase Statement.
3. Excluded Liabilities. Notwithstanding anything to the contrary
--------------------
contained herein, the Water Authority shall not assume, become liable for, or
agree to discharge any obligation or liability of JWS or the Parent, including
without limitation, (a) any current liabilities, accounts payable or trade
liabilities, (b) any liability or obligation under, related to or arising from
any Contract associated with the assets described in Section 1.2, provided, that
the Water Authority shall, as of the Closing Date, assume all obligations of JWS
that may accrue after the Closing Date under the Contracts listed on Schedule
3.1(e)(i) hereto, (c) any liability or obligation of JWS to any former or
current employee of JWS, (d) any obligation or liability of JWS arising from a
violation of any law or governmental regulation, including without limitation
violation of any Environmental Law (as defined in Section 3.1(i)), (e) any
liabilities resulting from claims against JWS or the Parent arising prior to or
after the Closing Date, (f) any liability or obligation of JWS that would be
classified as a long-term liability under generally accepted accounting
practices and reflected on a balance sheet prepared in accordance with generally
accepted accounting principles, (g) any guaranty by JWS of any debt, obligation
or dividend of any person or entity, (h) any liability or obligation of the
Business to JWS
<PAGE>
19
or any of its Affiliates (except obligations of the Water Authority under this
Agreement) or (i) any obligation of JWS to make refunds to its customers (all of
the foregoing being hereinafter referred to as the "Excluded Liabilities").
--------------------
4. Assignment of Contracts and Rights. To the extent that assignment
----------------------------------
hereunder by JWS to the Water Authority of any Contract or license is not
permitted or is not permitted without the consent of a third party, this
Agreement shall not be deemed to constitute an undertaking to assign the same if
such consent is not given or if such an undertaking otherwise would constitute a
breach of, or cause a loss of benefits under, any such Contract or license, and
the Water Authority shall not assume any obligation or liability thereunder. JWS
shall use its best efforts to obtain any and all such consents required for
assignment of any Contracts and licenses included in the Acquired Assets
(without having to pay any consideration therefor). JWS shall advise the Water
Authority promptly in writing with respect to any Contract or license which it
knows or has reason to believe will not receive any required consent.
Without in any way limiting JWS's obligation to seek to obtain all
consents and waivers necessary for the acquisition by the Water Authority of any
Contracts and licenses included in the Acquired Assets, if such consent is not
obtained or if such assignment is not permitted irrespective of consent, JWS
shall cooperate with the Water Authority in any reasonable
<PAGE>
20
arrangement designed to provide for the Water Authority the benefit under such
Contract or license, as the case may be, including enforcement for the benefit
of the Water Authority of any or all rights of JWS against any other person
arising out of breach or cancellation by such other person and including, if so
requested by the Water Authority, acting as an agent on behalf of the Authority,
or as the Water Authority shall otherwise reasonably require; and any transfer
or assignment to the Water Authority by JWS of any property or property rights
or any Contract or agreement that shall require the consent or approval of any
third party, shall be made subject to such consent or approval being obtained.
.5 Apportionment of Expenses. (a) All operating expenses associated with
-------------------------
the Acquired Assets and the Business, except for rent associated with the
leasehold interest at 410 Lakeville Road, and all rental revenue in respect of
water hydrants (collectively, "Operating Expenses") shall be prorated between
------------------
JWS and the Water Authority as of the close of business on the day immediately
preceding the Closing Date, and the Water Authority and JWS shall each submit to
the other an accounting thereof. To the extent practicable, any such
apportionments shall be settled, as is appropriate under the circumstances, by a
payment or credit between the parties within 35 days after the Closing.
(b) Operating Expenses and Revenues. All Operating Expenses
-------------------------------
attributable to the period through the close
<PAGE>
21
of business on the day immediately preceding the Closing Date shall be the
obligation and paid for by JWS and all Operating Expenses attributable to the
period from and after the close of business on the day immediately preceding the
Closing Date shall be the obligation of and paid for by the Water Authority.
Operating Expenses attributable to any period including and extending beyond the
Closing Date shall be prorated as of the close of business immediately preceding
the Closing Date between JWS and the Water Authority. In the event that either
party collects or receives any income, revenues or receipts to which the other
party is entitled pursuant hereto, it shall hold such amounts in trust for the
other and promptly pay such amounts to the other party.
ARTICLE II
CLOSING
1. The Closing. Unless this Agreement shall have been terminated and the
-----------
transactions herein contemplated shall have been abandoned pursuant to Section
6.1 hereof, subject to the provisions of this Agreement. provisions of Article
V, the closing with respect to the Asset Acquisition (the "Closing") shall take
-------
place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York, at 10:00 a.m. on April 30, 1996 (or as soon as practicable
thereafter as all of the conditions to Closing set forth in Article V hereof are
satisfied or waived and all of the conditions to closing set forth in the City
Agreement are satisfied or waived), or such other place, time and date as
<PAGE>
22
the parties may agree. The actual time and date of the Closing are herein
referred to as the "Closing Date." The parties hereto agree to use their best
efforts to cause the Closing Date to occur on or as soon as practicable after
the Vesting Date consistent with the provisions of this Agreement.
2. Deliveries by the Water Authority. On the terms and subject to the
---------------------------------
conditions of this Agreement, at the Closing on the Closing Date, the Water
Authority shall deliver to JWS the following:
(a) the Acquisition Price, adjusted as provided in Sections 1.3(b) and
(c) and Section 1.3(d), with statutory interest thereon at a rate of 6% per
annum from and including the Vesting Date to but not including the Closing Date,
less the Escrowed Sum, by wire transfer of immediately available funds to an
account or accounts of JWS designated by JWS by notice given to the Water
Authority at least two Business Days prior to the Closing Date; and
(b) the executed Escrow Agreement in substantially the form attached
hereto as Exhibit C; and
(c) such other instruments or documents, in form and substance
reasonably acceptable to JWS, as may be necessary to effect the Closing.
3. Deliveries by JWS. On the terms and subject to the conditions of this
-----------------
Agreement, at the Closing on the Closing Date, provided that title to the
Acquired Assets has vested with the Water Authority pursuant to
<PAGE>
23
the provisions relating to condemnation in Section 4.7, JWS shall deliver to the
Water Authority the following:
(a) assignments, if any required, in form and substance reasonably
acceptable to the Water Authority, assigning to the Water Authority all
Contracts (as defined in Section 9.1) included in the Acquired Assets; and
(b) such other instruments or documents, including but not limited to
proof of payment of applicable New York Real Property Transfer Gains Tax, in
form and substance reasonably acceptable to the Water Authority, as may be
necessary to effect the Closing.
4. Additional Transactions At or Following the Closing. At any time and
---------------------------------------------------
from time to time, at or after the Closing, the Water Authority and JWS and the
Parent shall cooperate with each other and execute and deliver, or cause to be
executed and delivered, all such instruments, including instruments of
assignment, transfer and conveyance and instruments of assumption, and take all
such other actions as such party may reasonably be requested to take by the
other party or parties hereto, consistent with the terms of this Agreement, in
order to effectuate the provisions and purposes of this Agreement.
5. Allocation of the Acquisition Price. As soon as practicable following
-----------------------------------
final determination of all adjustments to the Acquisition Price as provided for
herein, the parties hereto shall enter into an
<PAGE>
24
agreement setting forth the manner in which the Acquisition Price, as adjusted,
is allocated among the Acquired Assets, it being expressly understood that this
Section 2.5 shall not create any additional financial obligations on the part of
any party hereto. No party hereto shall take any position for federal or state
income tax purposes which is inconsistent with such allocation, unless required
to do so under applicable law. The parties hereto acknowledge that the Water
Authority will not agree to any allocation of the Acquisition Price, as
adjusted, which under applicable federal tax laws and regulations, would
restrict the average maturity of the tax exempt bonds to be issued by the Water
Authority to finance the Asset Acquisition to less than thirty years.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
1. Representations and Warranties of JWS and the Parent. JWS and the
----------------------------------------------------
Parent, jointly and severally, represent and warrant to the Water Authority as
follows:
(a) Due Organization. Each of JWS and the Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New York (in the case of JWS) and Delaware (in the case of the Parent) and
each has full corporate power and authority to own
<PAGE>
25
all of its properties and assets and to carry on its business as it is now being
conducted.
(b) Authorization and Validity of Agreement. Each of JWS and the Parent
---------------------------------------
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereunder. The
execution, delivery and performance by JWS and the Parent of this Agreement and
the consummation by JWS and the Parent of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action and no
other corporate action on the part of JWS or the Parent is necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation by JWS and the Parent of the transactions contemplated hereby
(other than the approval and adoption of the Asset Acquisition and this
Agreement by the holders of the outstanding shares of common stock (the "Common
Shares"), no par value, of JWS). This Agreement has been duly executed and
delivered by JWS and the Parent and, assuming the due authorization, execution
and delivery hereof by the Water Authority, is a valid and legally binding
obligation of each, enforceable against it in accordance with its terms, except
to the extent that its enforceability may be limited by a bankruptcy filing
after the date hereof or by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting creditors' rights generally and by
general equity principles
<PAGE>
26
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
<PAGE>
27
(c) No Conflict; Consents. Except as set forth on Schedule 3.1(c) hereto,
---------------------
the execution, delivery and performance by JWS and the Parent of this Agreement
and the consummation by JWS and the Parent of the transactions contemplated
hereby: (i) will not violate, or result in the violation of, any provision of
any law, rule, regulation, order, judgment or decree applicable to JWS or the
Parent; (ii) will not require any consent, authorization or approval of, or
filing with or notice to, any governmental or regulatory authority under any
provision of any law applicable to JWS or the Parent, except for the approval of
the PSC, and except for any consent, approval, filing or notice requirements
which become applicable solely as a result of the specific regulatory status of
the Water Authority or which the Water Authority is otherwise required to
obtain; (iii) will not violate any provision of the respective certificates of
incorporation or by-laws or other organizational documents of JWS or the Parent;
and (iv) will not require any consent, approval or notice under, and will not
conflict with, or result in the breach or termination of, or constitute a
default under, or result in the acceleration of the performance by JWS or the
Parent or the creation of any Lien under, any indenture, mortgage, deed of
trust, lease, license, franchise, contract, agreement, warrant or other
instrument to which JWS or any of its Affiliates or the Parent is a party or by
which either of them, or any of their assets, are bound or encumbered, except
with respect to clauses (i), (ii) and
<PAGE>
28
(iv) above for any consent, authorization, approval, filing or notice that would
not, if not given or made, or any violation, conflict, breach, termination,
default or acceleration which does not, and is not likely to, either impair the
ability of JWS and the Parent to consummate the transactions contemplated hereby
or have a Material Adverse Effect (as defined below).
For purposes of this Agreement, "Material Adverse Effect" means any
-----------------------
effect that is, either individually or together with other effects, materially
adverse to the assets, properties, business, operations or financial condition
of the Business, taken as a whole.
(d) Title to Acquired Assets";" Liens and Encumbrances. Except as set forth
--------------------------------------------------
on Schedule 3.1(d), as of the date of this Agreement, JWS and the Parent
represent that JWS has good, valid and, except for immaterial exceptions in the
case of real property which exceptions have no material effect on the operation
or function of the Nassau System or the Business and no material effect on the
value of the Nassau System or the Business or JWS's interest in the value of the
real property acquired ("Permitted Exceptions"), marketable title to all the
--------------------
Acquired Assets (other than rights of way and easements) and all such Acquired
Assets are free and clear of all Liens except (i) Liens that are eliminated on
or prior to the Closing Date, (ii) statutory Liens arising or incurred in the
ordinary course of business with respect to which the underlying obligations are
not delinquent or the validity of which is being
<PAGE>
29
contested in good faith by appropriate proceedings, (iii) Liens disclosed or
reflected in the audited financial statements of JWS as of and for the year
ended December 31, 1994 (the "Financial Statements"), and (iv) Liens which
--------------------
constitute valid leases or subleases from JWS to third parties as listed on
Schedule 3.1(d). JWS will clear all Liens prior to or contemporaneously with
payment of the Acquisition Price and shall provide documentation of the
discharge of said Liens at the Closing; provided, however, that JWS shall not be
--------
required to clear any Permitted Exceptions.
(e) Agreements and Contracts. Schedule 3.1(e)(i) hereto sets forth a
------------------------
list, as of the date hereof, of each written Contract included in the Acquired
Assets. JWS and the Parent represent that, except as set forth in Schedule
3.1(e)(ii) hereto, each Contract listed on Schedule 3.1(e)(i) is a valid and
binding agreement of JWS and is in full force and effect. Except as otherwise
provided in Schedule 3.1(e)(ii) hereto, there has been no breach or default
under any Contract listed on Schedule 3.1(e)(i) hereto except for breaches or
defaults that have been cured or waived and breaches or defaults which could not
reasonably be expected to have a Material Adverse Effect.
(f) Legal Proceedings. JWS and the Parent represent that there is no
-----------------
action, proceeding or, to the best knowledge of JWS and the Parent, any
governmental investigation currently pending against JWS which seeks to restrain
or enjoin the consummation of the transactions
<PAGE>
30
contemplated by this Agreement. Except as described on Schedule 3.1(f) hereto,
there is no action, proceeding or, to the best knowledge of JWS and the Parent,
any governmental investigation currently pending against JWS or the Parent which
could reasonably be expected to have a Material Adverse Effect. JWS is not in
violation of any term of any judgment, decree, injunction or order entered by
any court of competent jurisdiction and outstanding against it, which violation
would have a Material Adverse Effect.
(g) Government Licenses, Permits and Related Approvals. Schedule 3.1(g)(i)
--------------------------------------------------
hereto is a list, together with a brief description, of all licenses and permits
material to the Business, issued or registered in the name of JWS. Except as set
forth on Schedule 3.1(g)(ii) hereto, all licenses listed on Schedule 3.1(g)(i)
are in full force and effect. Except as disclosed on Schedule 3.1(g)(ii) hereto,
the Nassau System and the Business are being conducted in compliance with all
applicable laws, rules and regulations, except where the failure to so comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. JWS and the Parent represent that JWS has all licenses,
permits, certificates and other authorizations and approvals necessary for the
operation of the Nassau System and conduct of the Business as presently operated
and conducted under applicable laws, ordinances and regulations of any
governmental authority, other
<PAGE>
31
than those the absence of which could not reasonably be expected to have a
Material Adverse Effect.
(h) Conduct of the Nassau System in Compliance with Regulatory
----------------------------------------------------------
Requirements. JWS and the Parent represent that JWS is in substantial compliance
- ------------
with each law, regulation, ordinance and code promulgated by any federal, state
or local governmental authority applicable to the operation, conduct and
ownership of the Nassau System (including, without limitation, any laws,
regulations, ordinances or codes relating to the environment), except where the
failure to comply substantially with any such law, regulation, ordinance or code
could not reasonably be expected to have a Material Adverse Effect.
(i) Environmental Matters. JWS and the Parent represent that, except as set
---------------------
forth in Schedule 3.1(i)(1), there are no Environmental Liabilities (as defined
below) relating to the Business or the Acquired Assets which would, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
As used in this Agreement, "Environmental Laws" means any and all applicable
------------------
federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, injunctions, orders or decrees regulating or imposing
liability or standards of conduct concerning pollution, Hazardous Materials or
protection of the environment, in effect as of the date hereof. "Environmental
-------------
Liabilities" means any and all liabilities, costs and expense
- -----------
<PAGE>
32
which (i) arise under or are incurred pursuant to Environmental Laws and (ii)
are based upon actions occurring or conditions existing on or prior to the
Closing Date; provided that Environmental Liabilities shall not include
--------
conditions of water quality or the existence of Hazardous Materials in the water
at any well site of JWS listed on Schedule 3.1(i)(2) hereof or any conditions of
water quality or the existence of Hazardous Materials in the water that are not
which (i) arise the result of any acts or omissions of JWS. "Hazardous
---------
Materials" means any hazardous or toxic substances, materials or wastes, defined
- ---------
as such in or under any Environmental Laws, including, without limitation,
asbestos, petroleum or petroleum products (including gasoline, crude oil or any
fraction thereof), polychlorinated biphenyls, and urea-formaldehyde insulation.
(j) Financial Statements. The Financial Statements have been prepared in
--------------------
accordance with the books and records of JWS and present fairly in all material
respects the results of operations and the financial condition of JWS as of the
date thereof. The unaudited financial statements of JWS, as of and for the nine
months ended September 30, 1995, heretofore delivered to the Water Authority,
were prepared in the ordinary course of business of JWS in accordance with
generally accepted accounting principles. The percentage allocations of the net
utility plant of JWS attributable to the Nassau System to be set forth on the
December 31, 1995 Statement, the Preliminary Statement and the Statement
<PAGE>
33
will be arrived at using a methodology consistent with JWS's past practice of
arriving at such allocations for cost of service studies with the PSC since
June, 1986.
(k) Absence of Certain Liabilities and Changes. Except (1) to the extent
------------------------------------------
reflected or reserved for in the September 30, 1995 financial statements of JWS
and (2) for liabilities or obligations incurred in the ordinary course of
business since September 30, 1995, there are no material obligations or
liabilities of JWS, except liabilities disclosed herein or in the schedules
hereto, and except obligations and liabilities that would not have a Material
Adverse Effect. Since September 30, 1995, JWS has operated its business in the
ordinary course and there has not been, except as set forth in Schedule 3.1(k),
(i) any transaction, occurrence or commitment (for capital expenditures or
otherwise) that was not in the ordinary course of business; (ii) any material
adverse change in the business, affairs or financial condition of JWS; (iii) any
lease, sale, abandonment or transfer of, or the creation of any Lien on any
properties (other than Permitted Exceptions) or assets material to the Business;
(iv) a grant of, or an agreement to grant, any general increase (other than
pursuant to the Collective Bargaining Agreement (the "Collective Bargaining
---------------------
Agreement") between JWS and the Union, which is effective March 30, 1994 through
- ---------
December 31, 1998) ("general increase," for purposes hereof, means an increase
----------------
in any rates of salaries or compensation generally applicable to a class or
group
<PAGE>
34
of employees of JWS, but not including increases granted to individual
employees for merit, length of services, change in position or responsibility or
other reasons applicable to specific employees and not generally to a class or
group) in any rate or rates of salaries or compensation to directors, officers
or employees or agents or, since September 30, 1995, any specific increase in
the salary or compensation to any officer, agent or employee whose total salary
and compensation after such increase would be at an annual rate in excess of
$50,000; (v) any damage, destruction or loss to any asset or property which
would have a Material Adverse Effect, whether or not covered by insurance; (vi)
establishment of any new Plan or material modification or amendment or provision
for material increases in any existing Plans, except pursuant to the Effects
Bargaining Agreement, or in accordance with the terms of such Plans in effect
prior to the date hereof (which modifications or increases, if any, are
disclosed in Schedule 3.1(k)), or written interpretation or announcement by JWS
under any Plan which would materially increase the expense of maintaining such
Plan over the level of expense thereof for the fiscal year ended December 31,
1995; (vii) any claim, action, suit or proceeding commenced or, to the best
knowledge of JWS, threatened against JWS, which, if adversely determined, would
have a Material Adverse Effect; (viii) any grant by JWS of recognition to any
labor organization, other than effects bargaining with representatives of the
Union; and (ix) any occurrence, event or condition (including, without
<PAGE>
35
limitation, any strike or labor trouble) which would have a Material Adverse
Effect. For purposes of this section, "Plan" means any plan, program, policy,
fund, arrangement or agreement providing for benefits for employees of JWS
including, without limitation, any "employee benefit plan" as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act
("ERISA"), all retirement, pension benefit, profit sharing, medical, dental,
-----
disability, vacation, hospitalization, incentive, bonus, executive compensation,
deferred compensation and any other similar material fringe or employee benefit
plan, fund, program or arrangement, whether or not covered by ERISA, which is
maintained by JWS for the benefit of, or relates to, any or all present or
former employees or directors of JWS.
2. Representations and Warranties of the Water Authority. The Water
-----------------------------------------------------
Authority represents and warrants to JWS as follows:
(a) Due Organization and Power of the Water Authority. The Water Authority
-------------------------------------------------
is a public authority, duly established and validly existing under the
constitution and laws of the State of New York and is authorized by Public
Authorities Law, Section 1198-a, et seq., of the State of New York (the "Act")
(i) to enter into this Agreement and perform its obligations hereunder and (ii)
to acquire the Acquired Assets.
(b) Authorization and Validity of Agreement. The Water Authority has all
---------------------------------------
requisite
<PAGE>
36
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereunder, including the acquisition by
condemnation, and the maintenance and operation, of all or part of the Nassau
System and the Business. The execution, delivery and performance by the Water
Authority of this Agreement and the consummation by it of the transactions
contemplated hereby have been duly and validly authorized by adoption of a
resolution at a public meeting of the Water Authority, and no other action on
the part of the Water Authority, other than (i) the authorization and sale of
one or more series of bonds in the aggregate amount of not less than the sum of
(A) the Acquisition Price plus (B) the Lease Repurchase Amount plus (C) the
total costs of the Water Authority incurred in issuing such bonds plus (D) the
total estimated expenses of the Water Authority to be incurred in connection
with the transactions contemplated by this Agreement plus (E) amounts necessary
for reasonable and customary working capital and reserve funds, and (ii) the
adoption of a resolution approving the acquisition of the assets by condemnation
after public hearing, is necessary to authorize the execution, delivery and
performance by the Water Authority of this Agreement and the consummation by it
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Water Authority and, assuming the due authorization,
execution and delivery hereof by JWS and the Parent, is a valid and legally
binding obligation of the Water Authority, enforceable against
<PAGE>
37
the Water Authority in accordance with its terms, except to the extent that
enforceability may be limited by a bankruptcy filing after the date hereof or by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting creditors' rights generally and by general equity principles,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
(c) No Conflict; Consents. Except for any consent, approval, filing or
---------------------
notice that would not, if not given or made, or any violation, conflict, breach,
termination, default or acceleration which does not, impair the ability of the
Water Authority to consummate the transactions contemplated hereby, the
execution, delivery and performance by the Water Authority of this Agreement and
the consummation by it of the transactions contemplated hereby: (i) will not
violate, or result in the violation of, any provision of any law, rule,
regulation, order, judgment or decree applicable to the Water Authority; (ii)
will not require any consent, authorization or approval of, or filing or notice
to, any governmental or regulatory authority under any provision of any law
applicable to the Water Authority, except for the approval of the New York State
Department of Environmental Conservation (the "DEC"), and except for any
consent, approval, filing or notice requirements which become applicable solely
as a result of the specific regulatory status of JWS or which JWS is otherwise
required to obtain; (iii) will not conflict with or violate any
<PAGE>
38
provision of the Act; and (iv) will not require any consent, approval or notice
under, and will not conflict with, or result in the breach or termination of, or
constitute a default under, or result in the acceleration of the performance by
the Water Authority under, any indenture, mortgage, deed of trust, lease,
license, franchise, contract, agreement or other instrument to which the Water
Authority is a party or by which it or any of its assets is bound or
encumbered.
(d) Disclosure. The Water Authority has not withheld from JWS or the Parent
----------
any information discovered in the course of its due diligence investigation of
JWS and the Parent that would indicate that one or more of the representations
and warranties of JWS and the Parent contained in this Agreement is inaccurate.
(e) Financing. The Water Authority has the authority without further
---------
administrative or legislative action (other than the approval of its board of
directors, after holding a public hearing, and, if the bonds are to be sold at
private sale, the approval of the New York State Comptroller or the Director of
the Division of Budget, as required by the Act) to obtain any required
financing, in an aggregate amount not less than the amount necessary for the
Water Authority to be able to consummate the Asset Acquisition on the Closing
Date, which funds or financing will be available at the Closing to pay the
Acquisition Price, as adjusted. The agreements or authorizations which govern
such financing neither
<PAGE>
39
contain any condition nor are subject to any consent or approval which the Water
Authority does not reasonably expect to obtain prior to the Closing Date.
3. Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of JWS and the Parent and the Water Authority
contained in this Article III shall survive for two years from the Closing Date,
provided that upon the termination of this Agreement pursuant to Section 6.1,
the respective representations and warranties of JWS and the Parent and the
Water Authority shall immediately terminate.
4. Schedules. Disclosure of any fact or item in any Schedule hereto
---------
referenced by a particular paragraph or section in this Agreement shall, should
the existence of the fact or item or its contents be relevant to any other
paragraph or section, be deemed to be disclosed with respect to that other
paragraph or section whether or not a specific cross reference appears.
5. No Implied Representation. Notwithstanding anything contained in this
-------------------------
Article III or any other provision of this Agreement, neither JWS nor the Parent
is making any representation or warranty whatsoever, express or implied, other
than those representations and warranties of JWS and the Parent expressly
provided for in this Agreement or in any Schedule hereto. It is understood that
any cost estimates, projections or other predictions which have
<PAGE>
40
been provided to the Water Authority are not and shall not be deemed to be
representations or warranties of JWS or the Parent. The Water Authority
acknowledges that there are uncertainties inherent in attempting to make such
estimates, projections and other predictions, that the Water Authority is
familiar with such uncertainties, that the Water Authority is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
estimates, projections and other predictions so furnished to it, and that the
Water Authority shall have no claim against anyone with respect thereto.
<PAGE>
41
ARTICLE IV
COVENANTS AND TRANSACTIONS PRIOR TO CLOSING
1. Access to Information Concerning Properties and Records;
--------------------------------------------------------
Confidentiality. (a) During the period commencing on the date hereof and ending
- ---------------
on the Closing Date, JWS shall, upon reasonable request, afford to the Water
Authority, its counsel, accountants and other authorized representatives,
including Merrill Lynch, reasonable access during normal business hours to
employees of JWS and to the properties, books and records with respect to the
Acquired Assets, in order that the Water Authority may have the opportunity to
make such reasonable investigations as it shall desire to make of the Acquired
Assets. JWS will furnish to the Water Authority such additional financial and
operating data and information as the Water Authority may from time to time
reasonably request with respect to the Acquired Assets.
(a) During the period commencing on the date hereof and ending on the
Closing Date, the Water Authority agrees to continue to observe, and be bound
by, the terms of the confidentiality agreement, dated August 28, 1995, among the
parties hereto; provided, however, that the Water Authority shall be permitted
-------- -------
to disclose information governed by such confidentiality agreement but only to
the extent that such information is required by law or regulation to be
disclosed to the public in connection with a public hearing or public meeting.
<PAGE>
42
2. Conduct of the Nassau System Prior to to the Closing Date. JWS agrees
---------------------------------------------------------
that, except as permitted, required or specifically contemplated by this
Agreement or as otherwise consented to or approved in writing by the Water
Authority, during the period commencing on the date hereof and ending at the
Closing Date:
(a) the Nassau System shall be conducted only in the ordinary course
consistent with past practice;
(b) JWS will not (i) dispose of or encumber, or agree to dispose of or
encumber, any interest in the Acquired Assets other than (A) in the ordinary
course of business, consistent with past practice and (B) pursuant to after-
acquired property clauses of existing indentures or mortgages (which shall be
cleared as contemplated by Section 3.1(d); (ii) acquire, or agree to acquire,
any asset material to the Nassau System, taken as a whole, other than in the
ordinary course of business, consistent with past practice; (iii) cancel any
debts or waive any claims or rights, other than in the ordinary course of
business, consistent with past practice; (iv) make any capital expenditure or
commitment, other than (A) in the ordinary course of business, consistent with
past practice, (B) pursuant to existing commitments or (C) which is not material
to the Nassau System, taken as a whole, and in any event, without the prior
written approval of the Water Authority (which approval will not be unreasonably
withheld or delayed), will not make any capital expenditure, except in the case
of emergency repairs, that (x) individually is in excess of $100,000, (y) in the
aggregate with all other capital expenditures subject to this clause (C) exceeds
$400,000 or (z) in the aggregate with all other similar capital expenditures
subject to this clause (C) would cause total capital expenditures for categories
391, 392 and 393 on the JWS 1996 Construction Plan by PSC Account to exceed the
total provided therefor for Nassau County for 1996; and
(c) JWS shall promptly notify the Water Authority in writing of, and
furnish to the Water Authority information reasonably requested by it with
respect to, the occurrence of any event or the existence of any state of facts
that would result in any of JWS's representations and warranties not being true;
(d) JWS shall not alter in any material respect the terms on which
services are provided and shall use all reasonable efforts to (i) maintain and
preserve the Business, (ii) retain its present employees and agents, provided,
--------
that JWS may terminate employees and agents in the ordinary course of
<PAGE>
43
business and (iii) preserve and maintain its relationships with customers,
suppliers and others until the Closing; provided, however, that JWS may, but
-------- -------
shall not be required to, increase compensation, pay special bonuses or
otherwise modify benefits, as set forth on Schedule 3.1(k);
(e) JWS shall use all reasonable effort to maintain in full force and
effect all existing insurance and renewals thereof, and will give all notices
and present all claims under all policies of insurance in a due and timely
fashion;
(f) JWS shall maintain all books, accounts and records in the usual,
regular and ordinary manner, consistent with past practice, and make no material
change in the accounting methods or practices with respect to the Business or
the Acquired Assets, unless mandated by law, regulation or the PSC, in which
case JWS will provide notice of such change to the Water Authority;
(g) JWS shall not alter in any material respect its practices with
respect to collection of Accounts Receivable and shall not sell, discount or
dispose of Accounts Receivable (except that JWS may take appropriate action to
increase its efforts to collect Accounts Receivable);
(h) JWS, prior to undertaking any negotiation or discussion with any
labor union as to recognition, labor contracts or other matters of like import
relating to the Business (other than effects bargaining with representatives of
the Union), will first notify the Water Authority and furnish to the Water
Authority such information relating thereto as the Water Authority may
reasonably request. In no event shall JWS enter into any agreement or
understanding with any union that would have a material adverse economic impact
on the Business, without the written consent of the Water Authority;
(i) JWS will not engage in any transaction with any of its Affiliates
other than as contemplated by this Agreement or in the ordinary course of
business on an arm's-length basis;
(j) JWS shall deliver to the Water Authority copies of its severance
policy and the Effects Bargaining Agreement as soon as practicable after each
document is adopted in final form.
3. Shareholders' Meeting; Approval. (a) JWS and the Parent will take
-------------------------------
all action
<PAGE>
44
necessary in accordance with and subject to applicable law and JWS's
certificate of incorporation and by-laws to convene a meeting of JWS's
shareholders (the "Shareholders' Meeting") as soon as practicable after the date
---------------------
of this Agreement to consider and vote upon the adoption and authorization of
this Agreement and the Asset Acquisition.
(a) At the Shareholders' Meeting, the Parent, as the sole shareholder
of Jamaica Water Securities Corp. ("JW Securities"), shall cause the Common
-------------
Shares held by JW Securities (which constitute 96.12% of the issued and
outstanding Common Shares) to be voted in favor of adoption and authorization of
this Agreement and the Asset Acquisition.
4. Cooperation. Subject to the provisions of Section 4.1(b), during
-----------
the period commencing on the date hereof and ending at the Closing Date, upon
such terms as may be agreed upon between the parties with respect to times and
dates of access to premises, JWS shall cooperate with the Water Authority to
assist the Water Authority so that the Water Authority can provide continuous,
uninterrupted service to its customers subsequent to the Closing Date by:
(a) providing the Water Authority and the Water Authority's
representatives access to JWS's sites, facilities and installations;
(b) providing the Water Authority and the Water Authority's
representatives access to accounting and billing information; and
<PAGE>
45
(c) providing such information, data and technical assistance as is
reasonably required by the Water Authority and the Water Authority's
representatives in order to accomplish the technical changes, staff acquisition
and training as may be necessary to assure uninterrupted service;
provided, however, that JWS shall not be required to disclose any
-------- -------
information relating to employees of JWS other than pursuant to the prior
written approval of such employees.
The provisions of this Section 4.4 shall also extend to the
underwriters and their counsel in connection with the financing of the Asset
Acquisition.
.5 PSC Approval. JWS and the Parent shall take all steps necessary or
------------
advisable to effectuate the approval of the PSC ("PSC Approval"), if any
------------
required, pursuant to any law, regulation or other authority and/or pursuant to
the settlement agreement dated December 22, 1993 (the "PSC Settlement
--------------
Agreement") between JWS, the PSC and certain other parties, for the transactions
- ---------
contemplated hereby. The Water Authority agrees that it shall, without undue
delay (i) furnish JWS with all information requested by JWS that is reasonably
necessary to assist JWS in effecting all necessary registrations and filings and
submissions of information required to complete its application for PSC
Approval, if any, and (ii) cooperate in complying with all orders and requests
of the PSC as are reasonably necessary to obtain PSC Approval, if any.
<PAGE>
46
.6 DEC Approval. The Water Authority agrees that it
------------
shall promptly effect all necessary registrations and filings and submissions of
information required to complete its applications to the DEC for any permits and
approvals that may be necessary with respect to the Asset Acquisition and that
it shall take all steps as may be required to obtain such permits and approvals
as soon as practicable thereafter. JWS agrees that it shall, without undue
delay, furnish the Water Authority with all information requested by the Water
Authority that is reasonably necessary to assist the Water Authority in making
all such registrations, filings and submissions required for any such permits
and approvals.
.7 Condemnation Proceeding. (a) The Water Authority shall promptly cause
-----------------------
the publication of a notice of public hearing (the "Notice of Public Hearing")
------------------------
pursuant to the Eminent Domain Procedure Law of the State of New York ("EDPL"),
----
Section 202, for the purpose of conducting a public hearing (the "Public
------
Hearing") with respect to the Condemnation Proceeding (as defined below). If,
- -------
during the period from the date hereof to the Closing Date, any Person shall
commence any action seeking a judicial review of any determination or finding
made by the Water Authority with respect to condemnation or the Public Hearing,
to any court of competent jurisdiction, then JWS shall have the right to require
that the transactions contemplated hereby be consummated without the use of the
EDPL and no Condemnation Proceeding shall be filed
<PAGE>
47
pursuant to Section 4.7(b), or if filed shall be discontinued, and the following
additional deliveries shall be made pursuant to Section 2.3 hereof:
(i) one or more bargain and sale deeds sufficient to convey title to
those Acquired Assets consisting of real property, free of all Liens (subject to
Permitted Exceptions), in customary form with covenant only against grantor's
acts, duly executed and acknowledged by JWS and in proper form for recording;
(ii) one or more bills of sale sufficient to convey title to those
Acquired Assets consisting of personal property, with the following warranties:
(A) that JWS is the sole and absolute owner of the
property described in said bill of sale and has full right to
transfer same;
(B) that JWS is transferring title thereto free and
clear of any liens, mortgages, debts or other encumbrances of
whatsoever kind or nature;
(C) that there are no judgments existing against JWS in
any court, nor are there any replevins, attachments or executions
related to the Acquired Assets issued against JWS now in force;
and
(D) that JWS has sufficient assets to pay all of its
creditors;
(i) an affidavit to the effect that JWS is not a "foreign person,"
as defined in Section 1445(f)(3) of the Internal Revenue Code;
(ii) information sufficient to permit the Water Authority to complete
Internal Revenue Service Form 1099 with respect to the transfer of the Acquired
Assets;
(iii) evidence of the amount of New York State Real Property Transfer
Tax (the "Transfer Tax") payable with respect to the transfer of the Acquired
------------
Assets, together with funds sufficient to pay such Transfer Tax and the forms
customarily completed by a transferor of real property with respect to such
Transfer Tax;
(iv) such additional instruments or documents that are customary and
necessary to perfect a conveyance of the Acquired Assets, provided, that no such
additional instruments or documents shall impose any liability or cost upon JWS
or the
<PAGE>
48
Parent that is a material addition to the liabilities and costs imposed
on JWS and the Parent herein; and
(v) with respect to all well plant sites listed on Schedule 3.1(g)(i)
hereto, JWS shall give and the Water Authority shall accept such title as any
title insurance company which is a member of the New York Board of Title
Underwriters will be willing to approve and insure in accordance with their
standard form of title policy, which title policy may be subject to Permitted
Exceptions.
(a) Unless JWS shall have exercised its right pursuant to the last
sentence of Section 7.2(b), the Water Authority shall, on or prior to February
28, 1996, commence a proceeding (the "Condemnation Proceeding") by filing a
-----------------------
petition in the Supreme Court of the State of New York, County of Nassau,
pursuant to the EDPL Section 402 with respect to the Acquired Assets. Unless
JWS shall have exercised its right pursuant to the last sentence of Section
7.2(b), the Water Authority, JWS and the Parent shall subsequently file in the
Condemnation Proceeding a stipulation and agreement of settlement in a form to
be agreed upon as to the value of the Acquired Assets in accordance with this
Agreement. Such stipulation shall provide for the acquisition of the Acquired
Assets by condemnation and for the Acquisition Price as the amount of just
compensation to be paid. Nothing contained herein shall require any payment by
the Water Authority for incidental expenses listed in Section 702 of the EDPL,
provided that this provision shall not be deemed to modify the agreement in
- --------
Section 7.4(e) hereof with respect to the payment of real property taxes by JWS,
and nothing contained herein shall require the Water Authority to make any offer
or
<PAGE>
49
deposit under Section 303 of the EDPL. The Water Authority and JWS shall
take all action to ensure that the court in the Condemnation Proceeding enter
final judgment in the amount of the Acquisition Price. Such judgment of the
court in accordance with the stipulation shall be final, binding and conclusive
with respect to all terms, including the amount of the Acquisition Price, and
neither party shall appeal such judgment; provided, however, that if the court
-------- -------
shall not approve the stipulation as submitted by the parties then such
stipulation shall be withdrawn, and the Water Authority shall withdraw its
petition and terminate the Condemnation Proceeding, and the parties shall
proceed to consummate the transactions contemplated hereby without the use of
the EDPL. The parties hereto shall use their respective best efforts to assure
that the Vesting Date shall occur on, or as close as possible to, the vesting
date as defined in the City Agreement.
.2 Non-Solication. Except if the Acquired Assets are acquired by the Water
--------------
Authority pursuant to its powers under the Public Authorities Law and/or the
EDPL, if this Agreement is terminated, the Water Authority will not, for a
period of three years thereafter, without the prior written approval of JWS,
directly or indirectly, in any manner solicit, encourage, entice or induce any
Person who is an employee of JWS on the date hereof or at any time hereafter
that precedes such termination, to terminate his or her employment with JWS,
provided that the Water Authority shall not be
<PAGE>
50
prohibited from hiring any employee of JWS absent any such solicitation by the
Water Authority, and that this Section 4.8 shall not apply in the case of a
subsequent attempt by the Water Authority to acquire the property of JWS. The
Water Authority agrees that any remedy at law for any breach by it of this
Section 4.8 would be inadequate, and JWS would be entitled to injunctive relief
in such a case. If it is ever held that the restriction placed on the Water
Authority by this Section 4.8 is too onerous, the Water Authority agrees that
any court of competent jurisdiction may impose lesser restrictions to the
maximum extent permitted by law, and the Water Authority hereby consents and
agrees that such scope may be judicially modified accordingly in any proceeding
brought to enforce such restriction.
.3 Business Plan. On or prior to February 28, 1996, the Water Authority
-------------
shall (i) advertise, or take other appropriate action, for the submission of
bids or proposals by third parties for a contract providing for the operation of
the Nassau System by a third party, or deliver to JWS a notice indicating that
the Water Authority will not utilize a third party for the operation of the
Nassau System; (ii) furnish to JWS the parameters (the "Bid or Proposal
---------------
Parameters") established by the Water Authority pursuant to which it shall
- ----------
accept bids or proposals from third parties as set forth in clause (i) unless
the Water Authority shall have delivered to JWS a notice indicating that the
Water Authority will not utilize
<PAGE>
51
a third party for the operation of the Nassau System; and (iii) furnish to JWS a
business plan (the "Business Plan") setting forth in reasonable detail the Water
-------------
Authority's plans for operating the Nassau System after the Closing Date. On or
prior to April 30, 1996, the Water Authority shall have executed a contract with
a third party with respect to the operation of the Nassau System or established
a final Business Plan for the operation of the Nassau System itself.
.4 Retained Employees. Within a reasonable time, the Water Authority shall
------------------
provide JWS with a list (the "Retained Employees List") containing the name of
-----------------------
each Offered Employee who has accepted an offer of employment and will be
employed by the Water Authority or the Third-Party Contractor on and after the
Closing Date (a "Retained Employee"). The Water Authority shall include on the
Retained Employee List the terms and conditions under which each such Retained
Employee will be offered employment, including the salary and benefits offered
to each such Retained Employee.
.5 Compliance with WARN. JWS shall give all notices, if any, required by
--------------------
the Worker Adjustment and Retraining Notification Act of 1988 ("WARN").
----
.6 Bond Issuance. The Water Authority shall take all reasonable actions to
-------------
insure that, on or prior to the Closing Date, it shall have issued and sold
bonds, the interest on which is excluded from gross income for federal income
tax purposes, in an aggregate principal amount of
<PAGE>
52
not less than the sum of (a) the Acquisition Price, plus (b) the Lease
Repurchase Amount, plus (c) the total costs of the Water Authority incurred in
issuing such bonds, plus (d) the total estimated expenses of the Water Authority
to be incurred in connection with the transactions contemplated by this
Agreement, plus (e) amounts necessary for reasonable and customary working
capital and reserve funds.
.7 JWS Capital Budget. At the request of the Water Authority, JWS shall
------------------
make its officers, employees and representatives available to discuss its plans
for capital expenditures in 1996.
.8 Meter Leases. (a) Within a reasonable period of time prior to the
------------
Closing Date, JWS and the Parent shall take all actions reasonably necessary to
obtain a statement from the lessor under each of the Meter Leases as to the
amount required for JWS to purchase all equipment under the respective Meter
Leases, pursuant to JWS's option to make such purchase, and upon receipt of such
statement, JWS shall deliver it to the Water Authority.
(a) At the Closing, JWS shall obtain, and deliver to the Water
Authority, a release from each of the lessors under the Meter Leases of the Lien
with respect thereto.
.9 Customer Deposits. JWS shall, no later than 30 days after the Closing
-----------------
Date, provide a full credit to the account of, or mail a refund to, each
customer who has given a deposit to JWS in connection with such
<PAGE>
53
customer's water service in the full amount of the balance of any such deposit.
.10 Sublease Option. By written notice given at least 15 days prior to the
---------------
Closing Date, the Water Authority may request that JWS enter into a sublease
with the Water Authority with respect to approximately 5,000 square feet of
office space at its 410 Lakeville Road headquarters. If so requested, JWS agrees
to enter into such a sublease for a 30-day term at a rent equivalent to the rent
then paid by JWS for such space and on other customary commercial terms.
.11 Further Actions. Subject to the terms and conditions hereof, each of
---------------
the parties hereto agrees to use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including, but not limited to, using its best efforts: (i) to obtain
any licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities as are required in connection with the
consummation of the transactions contemplated hereby; (ii) to effect all
necessary registrations and filings; (iii) to defend any lawsuits or other legal
proceedings, whether judicial or administrative, whether brought derivatively or
on behalf of third parties (including governmental agencies or officials),
challenging this Agreement
<PAGE>
54
or the consummation of the transactions contemplated hereby; and (iv) to furnish
to each other such information and assistance as is reasonably requested in
connection with the foregoing.
.12 City Agreement. Prior to the effectiveness of any amendment to the
--------------
City Agreement, other than an amendment with respect to the consideration to be
paid for the assets to be acquired pursuant to the City Agreement, which (i)
grants rights and remedies to the City which are not granted to the Water
Authority herein, (ii) imposes obligations on JWS or the Parent which are not
imposed hereby or (iii) otherwise amends the City Agreement so that the City is
afforded the benefit of any term, condition or provision not afforded to the
Water Authority hereunder, the Parent shall give the Water Authority written
notice describing such proposed amendment and shall offer to amend this
Agreement to provide the Water Authority with the same benefits as are proposed
to be provided to the City pursuant to such amendment.
ARTICLE II
CONDITIONS PRECEDENT
.1 Conditions Precedent to Obligations of the Parties Parties;. The
respective obligations of the parties hereto are subject to the satisfaction (or
waiver by each of JWS and the Parent and the Water Authority) at or prior to the
Closing of each of the following conditions:
(a) No Injunction. No preliminary or permanent injunction or other order
-------------
issued by
<PAGE>
55
any court or by any governmental or regulatory body nor any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority which restrains, enjoins or otherwise prohibits the transactions
contemplated hereby shall be in effect.
(b) Regulatory Approvals. The PSC Approval, if necessary, all permits and
--------------------
approvals required by the DEC and all other regulatory approvals necessary for
the Asset Acquisition shall have been obtained and be in full force and effect,
and all required waiting periods shall have expired or been terminated.
(c) Condemnation Proceeding. The parties hereto shall have filed in the
-----------------------
Condemnation Proceeding a stipulation and agreement of settlement in a form to
be agreed upon reflecting the terms of this Agreement, the court in such
Condemnation Proceeding shall have entered its decision and the final judgment
and final decree of the court in the amount of the Acquisition Price and an
order of condemnation (the "Order of Condemnation") shall have been entered
---------------------
vesting title in the Water Authority (the date of entry of the Order of
Condemnation referred to as the "Vesting Date"); provided, however, that the
------------ -------- -------
Vesting Date shall not occur until the Water Authority has sold, issued and
delivered its bonds to finance the Asset Acquisition.
.2 Conditions Precedent to Obligation of the Water Authority. The
---------------------------------------------------------
obligations of the Water Authority to consummate the transactions contemplated
by this Agreement are also subject to the satisfaction (or waiver by the Water
Authority) at or prior to the Closing of each of the following additional
conditions:
(a) Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of JWS and the Parent contained herein shall have been true and
correct in all material respects on and as of the date hereof and (except to the
extent such representations and warranties speak of an earlier date) shall
continue to be true and correct as of the Closing Date, except as otherwise
contemplated by this Agreement.
(b) Performance of Agreement. Each of JWS and the Parent shall have
------------------------
performed
<PAGE>
56
and complied in all material respects with all obligations and
agreements, and complied in all material respects with all covenants and
conditions, contained in this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(c) Certificate. The Water Authority shall have received (i) a certificate
-----------
of JWS, dated the Closing Date, executed on behalf of JWS by its President or
any Vice President to the effect that the conditions specified in paragraphs (a)
and (b) above with respect to JWS have been fulfilled and (ii) a certificate of
the Parent, dated the Closing Date, executed on behalf of the Parent by its
President or any Vice President to the effect that the conditions specified in
paragraphs (a) and (b) above with respect to the Parent have been fulfilled.
(d) Bond Authorization and Sale. The Water Authority shall have issued and
---------------------------
sold bonds, the interest on which is excluded from gross income for federal
income tax purposes, in an aggregate principal amount of not less than the sum
of (i) the Acquisition Price plus (ii) the Lease Repurchase Amount plus (iii)
the total costs of the Water Authority incurred in issuing such bonds plus (iv)
the total estimated expenses of the Water Authority to be incurred in connection
with the transactions contemplated by this Agreement plus (v) amounts necessary
for reasonable and customary working capital and reserve funds.
(e) Cooperation Agreement. The Water Authority shall have entered into and
---------------------
executed an agreement with the City providing for the cooperation between the
Water Authority and the City in the operation, after the Closing Date, of the
Nassau System and the utilization of the Acquired Assets and the assets of JWS
acquired by the City pursuant to the City Agreement.
(f) Burdensome Condition. There shall not be any action taken, or any
--------------------
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Asset Acquisition, by any governmental or regulatory body
which, (i) imposes any condition or restriction upon the Water Authority which
would materially adversely affect the economic or business benefits to the Water
Authority, of the transactions contemplated by this Agreement or (ii) would be
reasonably likely to result in a material adverse effect with respect to the
Water Authority.
(g) No Action Pending. No action shall have been filed and remain pending
-----------------
in any
<PAGE>
57
court which, in connection with this Agreement or any of the transactions
contemplated hereby, seeks a judgment which if awarded would materially
adversely affect the economic or business benefits to the Water Authority of the
transactions contemplated by this Agreement.
.3 Conditions Precedent to the Obligation of JWS and the Parent. The
------------------------------------------------------------
obligations of JWS and the Parent to consummate the transactions contemplated by
this Agreement are also subject to the satisfaction (or waiver by JWS and the
Parent) at or prior to the Closing of each of the following additional
conditions:
(a) Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of the Water Authority contained herein shall have been true and
correct in all material respects on and as of the date hereof and (except to the
extent such representations and warranties speak of an earlier date) shall
continue to be true and correct as of the Closing Date, except as otherwise
contemplated by this Agreement.
(b) Performance of Agreement. The Water Authority shall have performed in
------------------------
all material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this Agreement
to be performed or complied with by it prior to or on the Closing Date.
(c) Certificate. JWS and the Parent shall have received a certificate of
-----------
the Water Authority, dated the Closing Date, executed on behalf of the Water
Authority by its Chairman, to the effect that the conditions specified in
paragraphs (a) and (b) above have been fulfilled.
(d) Shareholder Approval. The Asset Acquisition shall have been approved by
the affirmative vote of the holders of the outstanding Common Shares entitled to
vote at annual or special meetings of shareholders of JWS.
(e) Burdensome Condition. There shall not be any action taken, or any
--------------------
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Asset Acquisition, by any governmental or regulatory body
which, (i) in connection
<PAGE>
58
with the grant of a regulatory approval or permit, imposes any condition or
restriction upon the Parent or JWS which would materially adversely affect the
economic or business benefits, to the Parent or JWS, of the transactions
contemplated by this Agreement or (ii) in connection with the grant of a
regulatory approval or permit or otherwise, would be reasonably likely to result
in a material adverse effect with respect to JWS.
(f) No Action Pending. No action shall have been filed and remain pending
-----------------
in any court which, in connection with this Agreement or any of the transactions
contemplated hereby, seeks a judgment which if awarded would materially
adversely affect the economic or business benefits, to the Parent or JWS, of the
transactions contemplated by this Agreement.
(g) Performance of City Agreement. All covenants and conditions to closing
-----------------------------
contained in the City Agreement shall have been satisfied (or waived by JWS and
the Parent), it being expressly understood between the parties hereto that the
Closing shall occur simultaneously with the closing of the transactions
contemplated under the City Agreement.
ARTICLE III
TERMINATION AND ABANDONMENT
.1 General. This Agreement may be terminated and the transactions
-------
contemplated hereby may be abandoned at any time, but not later than the Vesting
Date:
(a) by mutual written consent of the Water Authority, JWS and the
Parent; or
(b) by any party upon written notice given to the other parties
if the Vesting Date has not occurred by May 31, 1996; provided, however,
-------- -------
that if prior to the Vesting Date, any court of competent jurisdiction or
any governmental or regulatory body with jurisdiction over the subject
hereof shall have issued an order, decree or ruling or taken any other
action, or if an action shall have been commenced seeking an order, decree
or ruling, restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, either the Water Authority or JWS, or both, shall have
30 days from the date of filing of such order, decree or ruling or the
taking of such action, or the
<PAGE>
59
commencement of such action, to have such order, decree or ruling reversed
or vacated, or such action dismissed; or
(c) by either JWS, the Parent or the Water Authority upon written
notice given to the other party in the event of a breach or default in the
performance by such other party of any representation, warranty, covenant
or agreement contained in this Agreement, which breach or default (i) is,
either individually or in the aggregate, material in the context of the
transactions contemplated hereby, and (ii) has not been, or cannot be,
cured, (A) in the case of a representation or warranty contained in this
Agreement, within 60 days after written notice of such breach or default
has been given by the terminating party to the breaching party and
describing such breach or default in reasonable detail, or (B) in the case
of a covenant or agreement contained in this Agreement, within 30 days
after written notice of such breach or default has been given by the
terminating party to the breaching party and describing such breach or
default in reasonable detail; or
(d) by either JWS, the Parent or the Water Authority, if any
court of competent jurisdiction or any governmental or regulatory body with
jurisdiction over the subject hereof shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree,
ruling or other action shall have become final and nonappealable; or
(e) by JWS or the Parent, upon the occurrence of any one of the
following:
(i) if, on or prior to February 28, 1996, the Water
Authority shall not have commenced the Condemnation Proceeding by
filing a petition in the Supreme Court of the State of New York,
County of Nassau, unless JWS shall have exercised its right pursuant
to the last sentence of Section 7.2(b);
(ii) if, on or prior to February 28, 1996, the Water
Authority shall not have (a) advertised, or taken other appropriate
action, for the submission of bids or proposals by third parties for a
contract providing for the operation of the Nassau System, or
delivered to JWS a notice indicating that the Water Authority will not
utilize a third party for the operation of the Nassau System; (b)
furnished to JWS the Bid or Proposal Parameters unless the Water
Authority shall have delivered to JWS a notice indicating that the
Water Authority will not utilize a third party for the operation of
the Nassau System and
<PAGE>
60
(c) furnished to JWS the Business Plan, all in accordance with Section
4.9 hereof;
(iii) if, on or prior to April 30, 1996, the Water
Authority shall not have executed a contract with a third party with
respect to the operation of the Nassau System or established a final
Business Plan for the operation of the Nassau System itself; or
(iv) if, at any time prior to the Vesting Date, any party
to the City Agreement terminates the City Agreement in accordance with
its terms.
.2 Procedure Upon Termination. In the event of the termination and
--------------------------
abandonment of this Agreement, written notice thereof specifying in sufficient
detail the basis for such termination (including, in respect of any termination
pursuant to Section 6.1(c), reasonably sufficient detail of the material
breaches of representation, warranty or covenant) shall promptly be given to the
other party hereto and this Agreement shall terminate and the transactions
contemplated hereby shall be abandoned without further action by any of the
parties hereto. Termination of this Agreement shall not preclude any party from
suing another party hereto for breach of this Agreement; provided, however, that
-------- -------
each of the parties hereto agrees that no such lawsuit for breach of this
Agreement shall be brought against any officer, director or employee of any of
the parties hereto.
.3 Survival of Certain Provisions. The respective obligations of the
------------------------------
parties hereto pursuant to this Article VI and Sections 4.1(b), 4.8 and 9.2
hereof shall survive any termination of this Agreement.
<PAGE>
61
ARTICLE IV
POST-CLOSING COVENANTS AND TRANSACTIONS
.1 Access to Books and Records. Following the Closing, the Water Authority
---------------------------
will afford to JWS, the Parent, their respective counsel and accountants, during
normal business hours, reasonable access to the books, records and other data
pertaining to the Nassau System to the extent that such access may be reasonably
required by JWS or the Parent to facilitate (a) the preparation by JWS or the
Parent of such tax returns as JWS or the Parent may be required to file with
respect to the operations of the Nassau System or the Asset Acquisition or in
connection with any audit, amended return, claim for refund or any proceeding
with respect thereto, (b) the investigation, litigation and final disposition of
any claims which may have been or may be made against JWS, (c) the payment of
any amount pursuant to Section 8.1(b) or the payment of any liabilities or
obligations of JWS (including refunds, if any, to the former customers of JWS
and the settlement of all obligations of JWS under the PSC Settlement Agreement)
and (d) the collection of the Accounts Receivable described in Section 7.2. The
Water Authority will not dispose of, alter or destroy any such books, records
and other data without giving 30 days' prior written notice to JWS and the
Parent to permit JWS or the Parent, at its expense, to examine, duplicate, or
repossess such records, files, documents and correspondence or any portion
thereof.
<PAGE>
62
.2 Collection of Accounts Receivable. (a) Subsequent to the Closing Date
---------------------------------
and prior to the last calendar day of each of the ten months following the month
in which the Closing Date occurs, the Water Authority shall use all reasonable
efforts to collect the Accounts Receivable, as collection agent for JWS. The
amounts so collected are referred to herein as the "Collected Receivables."
---------------------
(a) The Water Authority shall, on the fifth Business Day of each month
up to and including the eleventh month following the month in which the Closing
Date occurs, deliver to JWS a sum in cash equal to the sum of the Collected
Receivables collected by the Water Authority on or prior to the last calendar
day of the immediately preceding month. All cash received by the Water
Authority in respect of the Accounts Receivable which has not been remitted to
JWS pursuant to this Section 7.2(c) shall be remitted to JWS promptly after its
receipt by the Water Authority. Any payment made pursuant to this Section
7.2(c) by the Water Authority to JWS shall be made in United States currency.
(b) The amount of Collected Receivables collected by the Water Authority on
or prior to the last calendar day of each month up to and including the tenth
month following the month in which the Closing Date occurs shall be certified by
the Water Authority to JWS as of the last calendar day of each such month on or
prior to the fifth calendar day of the following month. JWS shall have the right
to review the basis for each
<PAGE>
63
certification by the Water Authority pursuant to this Section 7.2(c) during the
thirty-day period immediately following the receipt of such certificate. If, at
the end of such thirty-day period, JWS shall object to any such certification or
to the amount of the Collected Receivables reported by the Water Authority under
this Section 7.2, stating the basis for such objection, the Water Authority and
JWS shall use their best efforts to resolve each such objection. If the parties
have not resolved any such objection prior to the sixty-day period immediately
following the last payment date provided for in Section 7.2(b), the issue shall
be determined by reference to an independent accounting firm of national
reputation mutually acceptable to the parties hereto, whose decision (which
shall be made within six days) shall be binding upon the parties hereto. If the
parties are at any time unable to agree on such accounting firm, then each party
will have the right to request the American Arbitration Association to appoint
such accounting firm. Each party shall bear one-half the costs of said
accountants' fees and disbursements. Any additional amount owing as a result of
such accountants' determination shall be paid within five business days after
such determination.
(c) For purposes of determining the amount of Collected Receivables
for all customers of JWS located in Nassau County, (i) any funds collected from
a particular account debtor, or from its successors or assigns, during the
period from the Closing Date through the last calendar day of the tenth month
<PAGE>
64
following the month in which the Closing Date occurs shall be applied first to
that portion of the outstanding Accounts Receivable of such debtor and shall be
deemed collected for the benefit of JWS, until all Accounts Receivable with
respect to such account debtor have been collected, and (ii) any other discharge
of an Account Receivable of such account debtor by the Water Authority without
JWS's consent shall be deemed to be a collection of such Account Receivable in
the amount discharged. The Water Authority shall not be obligated to apply any
amounts received to any Account Receivable representing amounts owed by a debtor
under a deferred payment arrangement with JWS unless and until, and then only to
the extent that, at the time of collection from such debtor amounts are due and
owing to JWS from such debtor in accordance with the terms of such arrangement.
The Water Authority agrees that it shall use all reasonable efforts in
accordance with its normal collection procedures (without recourse to commencing
or prosecuting any litigation) to collect the full amount of all Accounts
Receivable. No credit shall be applied by or on behalf of the Water Authority
to any Accounts Receivable due to JWS without the prior written consent of JWS.
(d) For purposes of collecting the portion of Accounts Receivable
representing revenues from customers earned by JWS but unbilled due to the
Closing Date occurring prior to the end of the billing cycle applicable to such
customers, the Water Authority shall, for each such customer, calculate the
<PAGE>
65
amount of Accounts Receivable owed to JWS by multiplying (x) the fraction the
numerator of which shall be the number of days accrued in such customer's
billing cycle (up to and including the day immediately prior to the Closing
Date) and the denominator of which shall be the total number of days in such
customer's billing cycle, times (y) the total amount due under such customer's
bill at the end of the relevant billing cycle. The Water Authority shall
distribute bills to each such customer on behalf of JWS in the ordinary course
and shall collect the amounts due on all such bills on behalf of JWS in
accordance with the provisions of this Section 7.2.
.3 Dissolution or Merger of JWS. (a) It is agreed and understood between
----------------------------
the parties hereto that after the Closing Date, the Parent and JWS will have the
option to dissolve JWS, or to merge JWS with or into another corporation, and to
discontinue JWS's corporate existence.
(a) Notwithstanding the provisions of Section 7.3(a), it is agreed and
understood that all obligations of JWS hereunder are, whether or not expressly
so stated, joint and several obligations of JWS and the Parent. It is also
agreed and understood that JWS and the Parent will make all payments to former
customers of JWS that are required pursuant to the PSC Settlement Agreement.
.4 Certain Tax Matters. (a) After the Closing Date, the Water Authority
-------------------
shall provide
<PAGE>
66
notice to JWS or the Parent in writing within 30 days after its receipt of any
correspondence, notice, or other communication from a taxing authority or any
representative thereof of any pending or threatened tax audits, or any pending
or threatened judicial or administrative proceeding that involves taxes, for
taxable periods for which JWS may have a liability under this Agreement,
including tax accounting changes that may create a future liability, and furnish
JWS or the Parent with copies of all correspondence received from any taxing
authority in connection with any audit or information request with respect to
any such taxable period for which JWS or the Parent may be liable to pay any
taxes under this Agreement.
(a) Notwithstanding any provision of this Agreement to the contrary,
with respect to any claim for refund, audit, examination, notice of deficiency
or assessment or any judicial or administrative proceeding that involves taxes
of JWS (other than a tax claim relating solely to taxes for a tax period
subsequent to the Closing Date) (a "Tax Claim"), JWS shall control all
---------
proceedings taken in connection with such Tax Claim. JWS and the Water Authority
shall reasonably cooperate in contesting any Tax Claim of any jurisdiction other
than any taxing authority having jurisdiction in any service area covered by the
Business, which cooperation shall include, without limitation, the retention and
the provision upon reasonable request of records and information which are
reasonably relevant to such Tax Claim, and making employees available on a
mutually
<PAGE>
67
convenient basis to provide additional information or explanation of
any material provided hereunder or to testify at proceedings relating to such
Tax Claim. In no event shall the Water Authority settle or otherwise compromise
any Tax Claim without JWS's or the Parent's prior written consent.
(b) JWS shall be entitled to any refunds or credits of taxes
attributable to JWS arising in any tax periods prior to the Closing Date. The
Water Authority shall promptly notify and forward to JWS the amounts of any
refunds, credits or benefits due to JWS hereunder, less any reasonable expenses
related thereto incurred by the Water Authority, within 10 Business Days after
receipt thereof.
(c) All transfer, documentary, sales, use, registration and other such
taxes (including, but not limited to, all applicable real estate transfer or
gains taxes) and fees (including any penalties, interest and addition to such
taxes), if any, incurred in connection with the transactions contemplated hereby
shall be the obligation of JWS and shall be paid at or before the Closing.
(d) At or prior to the Closing, JWS shall pay all installments on real
property taxes that are due and payable prior to the Closing Date on the real
property included in the Acquired Assets. JWS shall not be responsible for the
payment of any installments on real property taxes that are due and payable
after the Closing Date.
<PAGE>
68
ARTICLE V
ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES; INDEMNIFICATION
.1 Assumption and Indemnification. (a) The Water Authority hereby
------------------------------
agrees to indemnify and hold, to the extent permitted by law, JWS, the Parent
and their respective directors, officers, employees, agents and other Affiliates
(collectively, the "JWS Indemnified Parties") harmless against and in respect
-----------------------
of all losses, liabilities, damages, costs and expenses (including costs of suit
and reasonable attorneys' fees and expenses) (collectively, "Liabilities"),
-----------
incurred by any of them on or after the Closing Date arising from, in connection
with or relating to the following:
(i) the operation of the Nassau System and use or ownership of
the Acquired Assets on or after the Closing Date;
(ii) any Liability arising out of a claim for severance by any
Offered Employee with respect to whom an adjustment to the Acquisition
Price was made pursuant to Section 1.3(c), to the extent of the amount of
said adjustment with respect to said Offered Employee; and
(iii) any misrepresentation, breach or inaccuracy of any
representation or warranty or failure to comply with any agreement,
condition or covenant on the part of the Water Authority under this
Agreement; provided, however,
-------- -------
<PAGE>
69
that as a condition precedent to any indemnification pursuant to this
clause (iii), the Water Authority shall have received written notice of a
claim from the JWS Indemnified Party pursuant to Section 8.2 within the
applicable statute of limitations period, or, with respect to Liabilities
relating to any misrepresentation, breach or inaccuracy of any
representation or warranty, within the period specified in Section 3.3
hereof.
(b) JWS, the Parent and SellCo Corporation, a Delaware corporation
("SellCo"), hereby agree, jointly and severally, to indemnify and hold, to the
- --------
extent permitted by law, the Water Authority and its directors, officers,
employees, agents and other Affiliates (collectively, the "Water Authority
---------------
Indemnified Parties") harmless against and in respect of all Liabilities
- -------------------
incurred by any of them on or after the Closing Date arising from, in connection
with or relating to the following (it being expressly understood by the Water
Authority that the indemnification provisions in this Section 8.1(b) shall not
cover Liabilities, if any, that may arise as the result of a modification by the
Water Authority in the operation of the Nassau System upon the separation of the
Queens portion of the water distribution system from the Nassau portion):
(i) the operation of the Nassau System and use or
ownership of the Acquired Assets prior to the Closing Date;
(ii) any liability of JWS;
<PAGE>
70
(iii) any misrepresentation, breach or inaccuracy of any
representation or warranty or failure to comply with any agreement,
condition or covenant on the part of JWS or the Parent under this
Agreement; provided, however, that as a condition precedent to any
-------- -------
indemnification pursuant to this clause (iii) JWS, the Parent or
SellCo, as the case may be, shall have received written notice of a
claim from the Water Authority Indemnified Party pursuant to Section
8.2 within the applicable statute of limitations period, or, with
respect to Liabilities relating to any misrepresentation, breach or
inaccuracy of any representation or warranty, within the period
specified in Section 3.3 hereof; and
(iv) any Environmental Liabilities relating to the
Business or the Acquired Assets, except for those described on
Schedules 3.1(i)(1) and (2);
provided, however, that JWS, the Parent and SellCo shall only be obligated to
- -------- -------
indemnify, defend and hold the Water Authority Indemnified Parties harmless for
Liabilities arising pursuant to this Section 8.1(b) in the event and to the
extent that all such Liabilities for which indemnification may be sought
hereunder shall exceed 0.65 of 1% of the Acquisition Price (prior to any
adjustments) plus the Lease Repurchase Amount.
(a) All Liabilities referred to in the foregoing paragraphs (a) and
(b) are collectively referred to as
<PAGE>
71
"Indemnified Liabilities," and "Indemnified Party" shall mean either a JWS
----------------------- -----------------
Indemnified Party or a Water Authority Indemnified Party.
<PAGE>
72
.2 Procedure. If any claim or demand by any Person is made against an
---------
Indemnified Party, and if such Indemnified Party intends to seek indemnity with
respect thereto under this Article VI, such Indemnified Party shall notify the
indemnifying party in writing of such claim or demand, provided that the failure
to notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have hereunder unless it is actually prejudiced
thereby. The indemnifying party shall have 30 days after receipt of such notice
to undertake, conduct and control, through counsel of its own choosing and at
its own expense, the settlement or defense thereof, and the Indemnified Party
shall cooperate with the indemnifying party in connection therewith; provided
--------
that the Indemnified Party may participate at its own expense in such settlement
or defense through counsel chosen by such Indemnified Party. So long as the
indemnifying party is reasonably contesting any such claim in good faith, the
Indemnified Party shall not pay or settle any such claim. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay or settle any such
claim; provided that in such event it shall waive any right to indemnity
--------
therefor by the indemnifying party. If the indemnifying party does not notify
the Indemnified Party within 30 days after the receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof, the Indemnified Party shall have the right to contest, settle
or compromise the claim
<PAGE>
73
in its sole discretion and shall not thereby waive any right to indemnity
therefor pursuant to this Agreement. The indemnifying party shall not, except
with the consent of the Indemnified Party, enter into any settlement that does
not include as an unconditional term thereof the giving by the Person or Persons
asserting such claim to all Indemnified Parties an unconditional release from
all liability with respect to such claim or consent to entry of any judgment.
Notwithstanding the foregoing, following the Closing, each Indemnified Party
will afford to an indemnifying party and its counsel, accountants and other
authorized representatives reasonable access during normal business hours to
relevant properties, books and records (and permit the indemnifying party and
its counsel, accountants and other authorized representatives to make copies of
such books and records at their own expense), to the extent that such access may
be reasonably required to facilitate the investigation, litigation and final
disposition of any claim which may have been or may be made against any
Indemnified Party relating to the Nassau System or the Acquired Assets or any of
the transactions contemplated by this Agreement. The Water Authority Indemnified
Parties shall hold any such confidential information in confidence on the same
terms and subject to the same conditions as set forth in Section 4.1(b) hereof,
and the JWS Indemnified Parties shall hold any such confidential information in
confidence on the same terms and subject to the same conditions applicable to
the Water Authority in Section 4.1(b) hereof.
<PAGE>
74
.3 Payment. On each occasion that an Indemnified Party shall be entitled to
indemnification or reimbursement under this Article VI, the indemnifying party
shall, at each such time, promptly pay the amount of such indemnification or
reimbursement. If the Indemnified Party shall be entitled to indemnification
under this Article VI and the indemnifying party shall not elect to control any
legal proceeding in connection therewith, the indemnifying party shall pay upon
request from time to time to the Indemnified Party an amount equal to the
Indemnified Party's costs and expenses arising as a result of such proceeding
which have not been previously reimbursed.
ARTICLE II
MISCELLANEOUS
.1 Certain Definitions. (a) As used in this Agreement, the term
-------------------
"Affiliate" when used with respect to another Person shall mean any Person
controlling, controlled by or under common control with such Person.
(a) As used in this Agreement, the term "Business Day" means any day
------------
that is not a Saturday, Sunday or other day on which banks are required or
authorized by law to be closed in New York, New York.
(b) As used in this Agreement, the term "Contracts" means all
---------
agreements, contracts, leases, purchase
<PAGE>
75
orders, arrangements, commitments and licenses that are related to the Nassau
System or to which the Acquired Assets are subject.
(c) As used in this Agreement, the term "Person" means and includes
------
any natural person, corporation, limited liability company, partnership, limited
partnership, firm, joint venture, association, joint-stock company, trust,
business trust, unincorporated organization, governmental or regulatory body, or
other entity of whatever nature.
.2 Fees and Expenses. (a) Whether or not the transactions contemplated
-----------------
hereby are consummated, each of the parties hereto shall pay its own fees and
expenses incident to the negotiation, preparation and execution of this
Agreement, including attorneys', accountants' and other advisors' fees and the
fees and expenses of any broker, finder or agent retained by such party in
connection with the transactions contemplated by this Agreement.
(a) The parties respectively represent and warrant to each other that
they have not employed or utilized the services of any broker, finder or
investment banker in connection with this Agreement or the transactions
contemplated by it, other than, in the case of JWS and the Parent, Bear, Stearns
& Co. Inc. ("Bear, Stearns"), and in the case of the Water Authority, Merrill
-------------
Lynch & Co. Attached as Schedule 9.2(b) is the acknowledgement of Bear, Stearns
relating to the Water Authority's non-responsibility for any fees of Bear,
Stearns in connection with this Agreement or the transactions contemplated
<PAGE>
76
hereunder, and the acknowledgement of Merrill Lynch & Co. relating to JWS's and
the Parent's non-responsibility for any fees of Merrill Lynch & Co. in
connection with this Agreement or the transactions contemplated hereunder.
.3 Notices. All notices, requests, demands, waivers and other
-------
communications required or permitted to be given under this Agreement shall be
in writing delivered by hand, telex, facsimile or registered letter with return
receipt requested and shall be deemed to have been duly given or made when
delivered by hand, or, in the case of telex notice, when sent, answerback
received, or, in the case of facsimile note or registered letter, when received
by the addressee, addressed as follows:
(a) if to JWS, to it at:
Jamaica Water Supply Company
410 Lakeville Road
Lake Success, New York 11042
Attention: Edward J. Haye
Vice President, General Counsel
and Corporate Secretary
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue, 28th Floor
New York, New York 10017-3909
Attention: Vincent Pagano, Jr., Esq.
(a) if to the Parent or to SellCo, to it at:
EMCOR Group, Inc.
101 Merritt Seven, 7th Floor
Norwalk, CT 06851
Attention: Sheldon I. Cammaker
Executive Vice President and
General Counsel
<PAGE>
77
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue, 28th Floor
New York, New York 10017-3909
Attention: Vincent Pagano, Jr., Esq.
(a) if to the Water Authority, to it at:
Water Authority of Western Nassau County
99 Tulip Avenue, Suite 305
Floral Park, New York 11001
Attention: Frank A. Tauches, Jr., Esq.
Chairman
with a copy to:
Dominick M. Minerva, Esq.
107 South Central Avenue
Valley Stream, New York 11580
or to such other persons or addresses as any party shall specify as to itself by
notice in writing to the other parties.
.1 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
<PAGE>
78
.2 Entire Agreement. This Agreement (including the Schedules hereto)
----------------
constitutes the entire agreement between the parties hereto and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
.3 Binding Effect; Benefit. This Agreement shall be binding upon and inure
-----------------------
solely to the benefit of each party hereto and their respective successors and
assigns. Nothing in this Agreement, express or implied, is intended to or shall
confer upon any Person, other than the parties hereto and their respective
successors and assigns, any rights, benefits, remedies, obligations or
liabilities of any nature whatsoever under or by reason of this Agreement.
.4 Assignability. This Agreement shall not be assigned by any of the
-------------
parties hereto without the prior written consent of the other parties.
.5 Amendment and Modification; Waiver. This Agreement may not be amended,
----------------------------------
modified and supplemented except by a written instrument authorized and executed
on behalf of the parties at any time prior to the Closing Date with respect to
any of the terms contained herein. No waiver by any party of any of the
provisions hereof shall be effective unless explicitly set forth in writing and
executed by the party so waiving. Except as provided in the preceding sentence,
no action taken pursuant to
<PAGE>
79
this Agreement, including without limitation, any investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants, or
agreements contained herein, and in any documents delivered or to be delivered
pursuant to this Agreement and in connection with the Closing hereunder. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any other or subsequent breach. The
parties hereby authorize their respective attorneys to agree in writing to any
changes in dates and time periods provided for in this Agreement
.6 Public Announcements. Unless otherwise required by law or any regulation
--------------------
or rule binding upon JWS or the Parent or the Water Authority, prior to the
Closing, no news release or other public announcement pertaining to the
transactions contemplated by this Agreement will be made by or on behalf of any
party hereto without the prior written approval of the other parties (such
consent not to be unreasonably withheld or delayed). Where any announcement,
communication or circular concerning the transactions referred to in this
Agreement is required by law or any regulation or rule it shall be made by the
relevant party after consultation, where reasonably practicable, with the other
parties and taking into account the reasonable requirements (as to timing,
contents and manner of making or dispatch of the announcement, communication or
circular) of the other parties.
<PAGE>
80
.7 Section Headings. This section headings contained in this Agreement are
----------------
inserted for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
.8 Jurisdiction. Each of the parties hereto irrevocably and
------------
unconditionally consents to the exclusive jurisdiction of the courts of the
State of New York and the United States District Courts located in the State of
New York for any actions, claims or other proceedings arising out of or relating
to this Agreement, consents to service of process of such courts and agrees not
to commence any such action, claim or other proceeding except in such courts.
.9 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
<PAGE>
81
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
JAMAICA WATER SUPPLY COMPANY
/s/ Frank T. MacInnis
By: ____________________________
Name: Frank T. MacInnis
Title: President
EMCOR GROUP, INC.
/s/ Frank T. MacInnis
By: ____________________________
Name: Frank T. MacInnis
Title: Chairman of the Board, President
and Chief Executive Officer.
WATER AUTHORITY OF WESTERN NASSAU COUNTY
/s/ Frank A. Tauches, Jr.
By: ___________________________
Name: Frank A. Tauches, Jr.
Title: Chairman
APPROVED AS TO FORM FOR AND ON BEHALF OF THE WATER
AUTHORITY OF WESTERN NASSAU COUNTY:
/s/ Dominick M. Minerva, Esq.
By: _____________________________
Name: Dominick M. Minerva, Esq.
FOR PURPOSES OF SECTION 8.1 HEREOF:
SELLCO CORPORATION
/s/ Frank T. MacInnis
By: ______________________________
Name: Frank T. MacInnis
Title: President
<PAGE>
EXHIBIT 3(a)(2)
---------------
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
EMCOR GROUP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter referred to as the "Corporation")
is EMCOR Group, Inc.
2. The restated certificate of incorporation of the Corporation is hereby
amended by deleting Article FOURTH thereof and by substituting in lieu of
said Article the following new Article:
"FOURTH. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is Fourteen Million Seven
Hundred Thousand (14,700,000) shares, consisting of Thirteen Million Seven
Hundred Thousand shares of Common Stock of a par value of $.01 per share
and One Million (1,000,000) shares of Preferred Stock of a par value of
$.10 per share in such series and with such voting powers, designations,
preferences and relative, participating, optional or other special rights,
and qualifications, limitations or restrictions thereof, as may be fixed
from time to time by resolution or resolutions of the Board of Directors
for each series."
3. The amendment of the restated certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.
Executed on November 28, 1995
By: /s/ Frank T. MacInnis
-----------------------
Frank T. MacInnis
Chairman, President and
Chief Executive Officer
<PAGE>
EXHIBIT 4.4
-----------
FIRST SUPPLEMENTAL INDENTURE, dated as of June 28, 1995, among EMCOR Group,
Inc., a Delaware corporation ("EMCOR"), MES Holdings Corporation, a Delaware
corporation ("MES"), and Shawmut Bank Connecticut, National Association (the
"Trustee"), as Trustee under the Indenture hereinafter referred to.
WHEREAS, EMCOR, MES and the Trustee have previously entered into an
Indenture dated as of December 15, 1994 (the "Indenture") relating to the 11%
Series C Notes, Due 2001, of EMCOR (the "Notes");
WHEREAS, Section 9.02 of the Indenture provides that EMCOR and the Trustee
may, with the written consent of the holders of at least a majority in aggregate
principal amount of the outstanding Notes, amend the Indenture as provided
herein;
WHEREAS, the holders of not less than a majority in aggregate principal
amount of the outstanding Notes have consented to this First Supplemental
Indenture; and
WHEREAS, all acts and things prescribed by law and by the respective
Certificate of Incorporation and the By-laws (each as now in effect) of EMCOR
necessary to make this First Supplemental Indenture a valid instrument legally
binding on EMCOR for the purposes herein expressed, in accordance with its
terms, have been duly done and performed.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged,
<PAGE>
EMCOR, MES and the Trustee hereby agree for the benefit of each other and the
equal and ratable benefit of the holders of the Notes as follows:
1. Amendment of Article 4, Section 4.11. Paragraphs (a) and (b) of Section
------------------------------------
4.11 of the Indenture are hereby amended to delete the Measurement Period
of January 1, 1995 through June 30, 1995.
2. Construction. For all purposes of this First Supplemental Indenture,
------------
except as otherwise herein expressly provided or unless the context
otherwise requires: (i) the terms and expressions used herein shall have
the same meanings as corresponding terms and expressions used in the
Indenture; and (ii) the words "herein", "hereof" and "hereby" and other
words of similar import used in this First Supplemental Indenture refer to
this First Supplemental Indenture as a whole and not to any particular
Section hereof.
3. Trustee Acceptance. The Trustee accepts the amendment of the Indenture
------------------
effected by this First Supplemental Indenture and agrees to execute the
trust created by the Indenture, as hereby amended, but only upon the terms
and conditions set forth in the Indenture, as hereby amended, including the
terms and provisions defining and limiting the liabilities and
responsibilities of the Trustee, which terms and provisions shall in like
manner define and limit its liabilities and responsibilities in the
performance of the trust created by the Indenture, as hereby amended, and,
without limiting the generality of the foregoing, the Trustee has no
<PAGE>
responsibility for the correctness of the recitals of fact herein contained
which shall be taken as the statements of EMCOR and makes no
representations as to the validity or sufficiency of this First
Supplemental Indenture and shall incur no liability or responsibility in
respect of the validity hereof.
4. Indenture Ratified. Except as expressly amended hereby, the Indenture is
------------------
in all respects ratified and confirmed and all the terms, conditions and
provisions thereof shall remain in full force and effect.
5. Holders Bound. This First Supplemental Indenture shall form a part of the
-------------
Indenture for all purposes, and every Holder of the Notes heretofore or
hereafter authenticated and delivered shall be bound hereby.
6. Successors and Assigns. This First Supplemental Indenture shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
7. Counterparts. This First Supplemental Indenture may be executed in any
------------
number of counterparts, each of which when so executed shall be deemed to
be an original, and all of such counterparts shall together constitute one
and the same instrument.
8. Governing Law. This First Supplemental Indenture shall be deemed to be a
-------------
contract made under the laws of the State of New York and for all purposes
shall be governed by and construed in accordance with such laws.
<PAGE>
IN WITNESS WHEREOF, EMCOR, MES and the Trustee have caused this First
Supplemental Indenture to be signed and executed as of the day and year first
above written.
EMCOR GROUP, INC.
/s/ Frank T. MacInnis
By: _______________________
Name: Frank T. MacInnis
Title: Chairman of the Board and President
MES HOLDING CORPORATION
/s/ Frank T. MacInnis
By: _______________________
Name: Frank T. MacInnis
Title: President
SHAWMUT BANK CONNECTICUT
NATIONAL ASSOCIATION
/s/ Robert L. Reynolds
By: _______________________
Name: Robert L. Reynolds
Title: Vice President
<PAGE>
Exhibit 11
EMCOR Group, Inc.
Schedule of Computation of Earnings Per Common Share and
Common Equivalent Share (a)
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994
---------- ----------
<S> <C> <C>
PRIMARY
- ----------------------------------------
Net (loss) income $ (10,853) $ 302,431
========== ==========
Weighted average number of common
shares outstanding 9,424,201 9,424,083
Add - common equivalent shares
(determined using the "treasury stock"
method) representing shares issuable
upon exercise of stock options 156,217 --
---------- ----------
Weighted average number of shares used
in calculation of primary income per
common share and common equivalent share 9,580,418 9,424,083
========== ==========
Primary net (loss) income per common
share and common equivalent share $ (1.13) $ 32.09
========== ==========
FULLY DILUTED
- ----------------------------------------
Net (loss) income for primary income
per common share and comon equivalent
share $ (10,853) $ 302,431
========== ==========
Weighted average number of shares used
in calculating primary income per
common share and common equivalent
share 9,580,418 9,424,083
Shares issuable upon exercise of stock
options included in primary
calculation above (156,217) --
Shares issuable upon exercise of stock
options based on year-end market price 182,657 --
---------- ----------
Weighted average number of shares used
in calculation of fully diluted (loss)
income per common share and
common equivalent share 9,606,858 9,424,083
========== ==========
Fully diluted net (loss) income per
common share and common equivalent
share $ (1.13) $ 32.09
========== ==========
</TABLE>
(a) Historical per share data for periods prior to December 31, 1994 have not
been presented as it is not meaningful since the Company has been recapitalized
and adopted Fresh-Start Accounting as of December 31, 1994 (see Note A to the
consolidated financial statements.)
<PAGE>
EXHIBIT 21
LIST OF SIBNIFICANT SUBSIDIARIES
Dyn Specialty Contracting, Inc.
MES Holdings Corporation
SellCo Corporation
EMCOR Mechanical/Electrical Services, Inc.
EMCOR International, Inc.
EMCOR Mechanical/Electrical Services (East), Inc.
EMCOR Mechanical/Electrical Services (MidWest), Inc.
EMCOR Mechanical/Electrical Services (West), Inc.
EMCOR Mechanical/Electrical Services (South), Inc.
EMCOR (U.K.) Limited
Drake & Scull Holdings Ltd.
Drake & Scull Engineering Ltd.
Drake & Scull Technical Services Inc.
Drake & Scull Airport Services Ltd.
Jamaica Water Supply Company
Sea Cliff Water Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 53,007
<SECURITIES> 0
<RECEIVABLES> 450,866
<ALLOWANCES> 14,892
<INVENTORY> 8,031
<CURRENT-ASSETS> 632,897
<PP&E> 35,716
<DEPRECIATION> 8,579
<TOTAL-ASSETS> 720,945
<CURRENT-LIABILITIES> 527,877
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 70,516
<TOTAL-LIABILITY-AND-EQUITY> 710,945
<SALES> 1,588,744
<TOTAL-REVENUES> 1,588,744
<CGS> 1,445,597
<TOTAL-COSTS> 1,582,891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 831
<INTEREST-EXPENSE> 14,820
<INCOME-PRETAX> (9,853)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (10,853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,853)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
